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s414 CA06 cf. mem res to approve accts (pvte co)

can members resolution meet requirements of s414 CA06 (approve accounts) where all members are direc

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A small private company has a problem with one director who is holding the company to ransom and withholding financial information (knowingly breaching s286 CA06).  As a result, the prior year’s accounts were filed 9m late.   

In consequence, the current year’s accounts were close to the wire.  By the time they were completed, there was insufficient time to call a board meeting to approve the accounts and no chance (due to the conflict) of agreeing a short dated meeting if they were to be filed before the statutory deadline.

Instead, the members approved the accounts by ordinary written resolution, via simple majority.   

A well-intentioned but probably mistaken attempt to ensure the accounts were approved before filing, or oversight from the old boy drafting them relaying on pre CA06 perhaps.

All directors are also members.

The board is currently paralysed again and a motion to ratify the members resolution for the purposes of s414 CA06 failed (some directors changed their votes).

Has anyone seen a similar situation, or have experience of how the vote of the members approving the accounts might be considered WRT the requirement for directors to approve the accounts before filing? 

Does the fact that all directors are members too make a difference given there is no failure to circulate, no loss to creditors, no intent to deceive or disrupt - umm except for the director deliberately withholding information from his fellow directors (but that is another story and I have a few unpublishable ideas on what to do about that issue!)  

Appreciate there are issues of competence and failure to act by other directors to address their chums obstruction  – just wondering if anyone can advise on the effect and validity if any of the members ordinary resolution vis a vis approving the accounts given all members are also directors and vice versa.

thanks in advance

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By lionofludesch
19th Sep 2019 17:06

Hard to say. There's a lot of information there but a lot of key stuff is missing.

What's the nature of the dissentient director's beef ? Can it be resolved ?

What is he using to hold the company to ransom ?

Is this preventing the company's accounts from being prepared to within a material level of accuracy ?

How many directors are there ? What are their shareholdings ?

Have you considered preparing the accounts with a qualified report of some kind?

What are the assets of the company ? Is it feasible to walk away from it and form a new company involving just the sensible ones ?

Whilst, no doubt, you're keen to help, have you considered that they need to pop round to the company's solicitors ?

And, most importantly, intra company disputes are not your problem. They're theirs.

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By Sharyn80
19th Sep 2019 17:31

Thanks, hard to say, but appears to be a case of founders syndrome. The dissentient dir (DD) appears to need to control the company and uses withholding information as a strategy to exercise control. eg an "error" in accounts attributed to incompetence of internal FD rather than lack of information. Accounts prepared in house as external accountants quit basically due to conduct of DD.

IMO the FD prepared materially correct accounts based on information available. Other dirs are not professionals and DD is now threatening to sue them etc which appears to have scared them into a volte face on ratifying the members resolution. (So far anyway)

Not sure why they haven't got advice from a solicitor, or removed him, (model arts) . Perhaps misplaced loyalty, inexperience again. Would have been my first call.

Any thoughts on the mems resolution to approve accts and s414 requirement? The dirs have approved, but in their capacity as mems so wonder if that has legs or its a very literal application of the law?

(Each own 1/5th. )

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Replying to Sharyn80:
By lionofludesch
19th Sep 2019 17:51

"Accounts prepared in house as external accountants quit basically due to conduct of DD."

I'm not surprised.

Bearing in mind the company is toxic, I'd just tell them to carry on arguing until the Gazette Notice arrives. I wouldn't deal with bully boys who throw around legal threats. In any case, I don't have the legal skills. They need a solicitor - if the numbers justify it.

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By Sharyn80
19th Sep 2019 18:19

thanks - appreciated

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