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Shareholder Requesting Formal Audit

Shareholder Requesting Formal Audit

A shareholder with 10% of the shares in a company is being frozen out by the 2 Directors. All shareholders used to be paid a dividend, but this shareholder has not received one for 2 years, and hasn't received a copy of the accounts, apart from abbreviated accounts. Shareholder assets have dropped significantly year on year but there is no detail in the abbreviated accounts. The Directors have a lavish lifestyle, so unless they've won the Lottery, where is their income coming from? Suspects something fishy!

Can the shareholder demand a formal audit of the accounts?

Will it show where shareholder assets have gone?


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17th Apr 2012 18:52

Accounts and audit

All shareholders should receive a copy of the statutory accounts (which contain a Balance Sheet, a brief P & L Account and report of the directors, and notes to the P & L Account and Balance Sheet).  These are not merely the abbreviated accounts filed at Companies House.

A company may be exempt from audit but the exemption is lost if shareholder(s) representing at least 10% of the shares file a notice requiring an audit under s476 Companies Act 2006 within the time limits set out in the section.


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17th Apr 2012 21:04

Just because you can does not mean you should

I would remind the director's of your (?) right to a copy of the full accounts before you force the time & expense of a pointless audit on the company.

I imagine it is more than likely that it will emerge that the directors are simply paying themselves any profits as bonuses & salaries instead of leaving distributable profits.

All perfectly legal and absolutely nothing you can do about it. 

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to chatman
19th Apr 2012 11:11

Is it really "perfectly leagal"

I'm not saying Roland is wrong but it strikes me that company law makes a director's primary role a fiduciary one for the shareholders. Where directors are clearing out all the profits by salary, benefits etc and the level of their reward is disproportionate to their efforts they might well be in breach of company law. Of course if they happen to be the majority shareholders as well then in practice their might be little minority holders can do.

Also where a company is financially struggling then there is further company law regarding excessive directors remuneration intended to protect creditors from directors extracting all the cash and doing a runner.

In relation to the original question I'm not sure a full audit would be much help unless the minority shareholder suspects  there's a breach of company law by the directors.


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18th Apr 2012 10:42

I can see where this will go...
Thanks for your comments.

Am I therefore correct in my understanding that where the company delays filing its accounts for 6 months, then publishes them, it is too late to order an audit, but if you request an audit at least one month before the end of the financial year in question, the company has time to engineer its accounts before publishing them. Or, when an audit is ordered, can it be done on the state of the accounts year to date, which of course would naturally take account of previous years' shareholder assets?

I understand the point about salaries/bonuses being legal, albeit unusual payments of such would attract interest. Would it be different if there was a 50% shareholder in the same position, where I would expect any such Directors' emoluments to be subject to shareholder approval.

Can the company be ordered to pay for such an audit?

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By Tosie
18th Apr 2012 17:00

simple solution

Obtain full accounts and either have an independent accountant read through them or ask the companys external accountant  for breakdown of anything that you are not sure of.

Frankly there are few external accountants who would collude with directors in producing false accounts.

Audits are expensive and you will still have many questions.The company pays for the audit

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19th Apr 2012 11:29

Notice for audit

Further to earlier responses, under s476(3) of the Companies Act 2006 the notice for audit (given by members representing not less than 10% in nominal value of the company's issued share capital) may not be given before the financial year to which it relates and must be given not later than one month before the end of that year.

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19th Apr 2012 12:04

Once again...

...who would be a shareholder (let alone a minority one) in a private company with out a shareholders agreement?

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By Hombre
09th Jan 2013 17:58

May be Legal but could be Unfair and Prejudicial to minority sha

I would check out recent case law on section 994 actions known as unfair and prejudicial conduct.

Just because company directors are not breaking the law does not mean a shareholder does not have a claim. Google 'unfair prejudice' or 'Section 994 companies act' and you will see what I mean.

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26th Mar 2013 09:06

how does this work in practice

Hi, just come across a similar situation with a friend of mine, they have a 40% share in a ltd company, which they were originally a director off. The remaining director has put the company into voluntary dissolution. The end of the financial year is 30th April, so he still has time under the 30 day clauese to request the accounts. What happens if there is no response and you do not know who the accountant is. Who do you notify? Thanks

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09th Jul 2013 17:16

Unfair prejudice or Fraud ...or both?

50/50 shareholding. Single director/employee. No major expenses. Significant and constant monthly income. 50% shareholder received less than 10% of dividend for at least 4 years. Financial assets suddenly disappeared. Director/50% shareholder hands over directorship to wife, who sets up new company and diverts existing business to new company. Old company still not dissolved 2 years later.

Action Fraud deemed there was a case to be investigated by the Police.

Police interviewed husband/wife 'suspects', and have just written to say insufficient evidence to arrest and charge, but say we can make a civil (very costly) claim where burden of proof is less. Surely, proof is proof. The money was there, the shareholders were entitled to 50/50, one took more than his fair share, the other was given very little, the money is gone, the director won't release detailed accounts ...but really wants the other 50% of shares transferred to him!

This feels like a cop-out (pardon pun!). How do we persuade the Police to dig a little deeper e.g. detailed accounts and bank statement? What evidence does the Police need to arrest and charge?

This is a great injustice which is ruining someone's life, and as usual the Police aren't interested unless it's £millions!

Someone please advise.

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