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Director has a problem

Director has a problem

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Director client has been in office as MD for over 30 years. Doesn't seem that there is a director's service contract in place or any other contract of employment. Board have decided to go through the process of making him redundant. He owns 45% of the ordinary (voting) shares.

The Articles (under CA1948) give 6 instances of how a director may be "disqualified" and his position "vacated". I don't think redundancy comes in the list but don't have a copy of that Act so can't be sure. He could probably be removed at an EGM or AGM if the proper procedures are followed but the company don't seem to be going down that route.

There are issues of whether the redundancy is genuine but these will be dealt with once he is out of office (he cannot continue to work with the remaining directors for obvious reasons).

Can anybody comment on the situation where the Articles may have been breached, whether the position changes if he is deemed to be merely an officer of the company but not an employee or give any other observations?

Thanks in advance.

Tom Egerton

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By Anonymous
10th May 2010 16:51

hmmmm

interesting as the others do not appear to have sufficient mandate to alter the articles ...

As you say an ordinary resolution either at a meeting or written would normally suffice to remove him as from office as director. There are usually rights of representation however resistance would as they say appear futile to such an action.

Redundancy is however another matter as that would involve him as an employee notwithstanding any service contract or lack of it. If this is a contrived redundancy to get rid of him then they are on dangerous ground.

Unless there is a shareholders agreement to the contrary there is also the little matter of his substantial shareholding in which resepct he could make things very awkward.

To sum up this appears a fait accompli but your guy appears to have a strong bargaining position and maybe a warning shot from a solicitor might concentrate minds if a suitably amicable arrangement cannot be reached.

pembo

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By DMGbus
10th May 2010 18:54

Shareholders agreement; Bargaining position

In an ideal world most of us recognise (and advise of) the need for a shareholders agreement to cope with this unfortunate situation, but shareholder/director clients invariably "trust" each other and "save the cost" of having proper arrrangements drawn up and put in place.

If there is NO shareholders agreement, then the 55% of shaeholders can't have dividends without giving dividends to the ousted 45% shareholder director - just because he's been ousted as a director does NOT mean he's going to automatically lose his shares (unless a shareholders agreement has appropriate provisions).   This is all too often not recognised directors / shareholders in this situation.

Could be fun when the remaining shareholders/directors find out they've got to:-

either pay proportionate dividends to the ousted one

or as an alternative do something to help Government finances - pay bonuses with lots of NIC to pay!

 I therefore consider the ousted director, still being a significant shareholder, to be in a good bargaining position.

He will, of course, still be entitled to receive shareholder copies of the accounts for ever into the future so long as he remains a shareholder - unless he's made a fair offer for his shares.  He may well expect to receive more than market value to compensate him for loss of income if the leaders of the coup decline to compensate him for loss of office!

 

 

 

 

 

 

 

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