To all who replied to my recent thread (https://www.accountingweb.co.uk/any-answers/unusual-situation) - thank you for all who commented and confirmed my thinking.
This is turning into a PITA, but they have otherwise been good clients for many years so I am persevering. As a refresher, the company is loss making (funded by loans from 1 Director). The other director is very elderly and his only income consists of a much reduced state pension only. He lives with his wife Mrs B (soon to be divorced) who is complaining that he is not contributing to the household costs etc. A couple of years ago, this Director transfered 47% of his 49% shareholding to Mrs B. (The other Director who has funded the losses owns 51%).
They have been trying to secure investment for many years and have poured blood sweat and tears into the company, trying to commercialise an invention.
Mrs B has now 'had enough' and wants a payout. She acknowledges that she cannot receive a payout at present, as the company is loss making and lacks funds. However, Mrs B is pushing for an agreement whereby she receives 30k (for which she is willing to give up 30% of the company) as soon as the company a) becomes profitable or b) secures investment (dangerous in my opinion)
My response has been as follows:
- aside from the fact an incoming investor is not going to be impressed (to say the least) with 10% of his/her c. 300k investment to be used to pay off a shareholder (by whatever means), I have explained that any such payment cannot just be made willy nilly; a payment to a shareholder would normally be a dividend, and dividends are not an option, due to insufficient profits
- the response is then "she will give up her shares in exchange", to which my response is "ok, so you're looking at a sale of shares..." - the company cannot buy back Mrs B's shares from investment received, as this would be in contravention of Conpanies Act 2006 Part 18 sections 658 to 737 - there would need to be sufficient reserves.
- I also point out that selling 30% of the company for 30k puts a 100k valuation on the company, so why would an investor pay 3 x that?
The response from Mrs B (who I have never spoken to - my contact is with the directors) is that she doesn't care how, there "must be a way".
It appears she would be willing for some kind of "guaranteed future dividend when x amount of profit has been made by the company ".
This doesn't make sense to me either, as dividends cannot be contracted for in advance of the actual profits having been made.
Before I go any further (I'm seriously considering removing myself from further discussions along these lines), am I missing something?
It simply cannot be done, and rightly so, as this Mrs B has contributed nil / nada / nowt to the company and the idea of her receiving a payment from same company is ridiculous.
Obviously another party could buy her shares from her, but the directors are not in a position to do this personally.
To reiterate, I have only ever dealt with the two directors, who came to me a few years ago, with a new ltd co., looking for accounts to be maintained, and have been trouble free until recently. I set them up on Cloud accounting, they have received various innovation grants and have done some product testing etc, have spent a fortune on patent applications, but have been decent clients on the whole.
It is only recently that conversations have ventured into this territory, as director 2's soon to be ex wife is making demands.
Am I missing something or is this as preposterous as it appears to me to be?