Director Resigning to avoid obligations

Lucky2Day

I am a shareholder in a company which has 3 directors.

One of the directors has around 70% of the shares and has run the company as the Chief Executive Officer. The other directors and shareholders have been not been active in the company.

The director with the 70% shareholding has now written a letter or resignation, this is mainly because he has spent nearly €250k of investors money in "R&D" without producing a marketable product and has taken out overdrafts and loans (guaranteed personally by the other directors) and maxed out credit cards in the company name. He has also taken money off of clients and not produced the work that they were expecting.

Does he have the right to resign, since the company would have 2 other directors ? and does the company and/or shareholders have any recourse in law ?

dbran

Hi

The director would still be responsible for all the things that he did while he was a director of the company. He cannot resign from that only from not being a director in the future. Also if he still continues to run the show as before then he could be deemed to be a shadow director of the company which means he will still be classified as being a director even though he has resigned.

What legal course do you have? Liquidate the company. Indeed if it appears that the company is about to go down the tubes then you have an obligation as directors to do this anyway.

Hope this helps

dbran

Lucky2Day

Thanks for that.

I'm not a Director but a small shareholder.

The Director in question wants to resign, hand back his shares and walk away from all the money that he owes to shareholders, banks, outside investors, clients and ex-staff and just start again, whilst leaving the other directors to clear up the mess. It does'nt seem very fair that he can do this.

srsly78

He can't escape the debts he personally guaranteed.

Signing a personal guarantee completely defeats the purpose of a limited liability company.

Lucky2Day

I'm probably not explaining myself very well.

He has not made any personal guarantees - he got another director to do that for the bank as he has not got a penny of his own to his name ie. rented house, no car etc. All the other debts are through the company. I guess that the best way to protect everyone would be to liquidate the company but that costs money which would fall back on the remaining directors who have not benefited out of the company, rather than the director who has been taking money from the company throughout.

It would also mean that investors, staff and clients would be out of pocket and he would walk away from the mess that he has created.

srsly78

His liability is limited then, but the other directors are screwed. Very very bad move to personally guarantee stuff that you are not in control of.

tomED

Yeah, unfortunately I'd agree. There's very little that can be done.

Sounds like something someone I know has done before, hope he's not on the loose again!

The Apprentice

If he was indeed Limited he was not able or should not be able under the Agreement to take out cash or indeed put money onto credit cards.

Also if indeed he knew he was limited and his creditors did also but still had powers of negotiation on behalf of the company .. thats fine but if he entered into agreements without you guys signing it off and the creditors and suppliers "knew" of his ltd liability he is LIABLE for this debt. You might need to prove this .. "dont tell him"
I can go look this up if u need me to, its under partnership Act 1890 agreements.

Also if he was indeed taking money out on company credit cards, its in the partnership agreement 1907 that indeed he has NO recourse as he is not allowed withdraw capitol .. and thus is liable "snigger" for that capitol.

Also a partners liability is capped.. he,ll owe something however small.

Also partners cannot expel a partner on behalf of the company unless it is in good faith "uberimum fidae" and must be in the original agreement to do so.

You should get your hands on that agreement ASAP..
Also i think dissolution by court order is your next step, because your partner is persistantly damaging the business and also is willfully breaching the partnership agreement.

You should set him up for a fall man, go learn your stuff on partnerships its not that large at all and you can sell him down the river with divided debts just like you guys..

The Apprentice

To answer your question yes.. both shareholders and directors have recourse under S18 Civil liability Act 1961

dbran

Hi

Is there a shareholders agreement?

The 1890 Partnership Act does not apply to companies. The workings of a company are governed by the companies Memorandum and Articles of association and the shareholders agreement (if there is one).

If you have signed personal guarantees it is hard to see how you will get out this easily.

You need professional advice about this from a qualified legal advisor or an expert in insolvancy.

dbran

The Apprentice

If he,s a director .. there has to be a partnership agreement !

thanks for the insults buddy !!

The Apprentice

Actual and Apparent Authority and dont forget Powers of the Partners .
Memorandum of Association – sets out the powers and objects of the company.
Articles of Association – regulates how a company exercises its powers.

Memorandum
Compulsory clauses S6 Co Act 1963 in a Memorandum of Association are:

- Company's name clause
- Objects clause
- Limited liability clause
- Share capital clause
Association clause
Registered office clause

If Co is a plc the Memorandum of Association must state “public”.


The Ultra Vires Rule -if a company does something outside the scope of its objects it is know as ultra vires or beyond the power of the company – such contracts are void.

I agree dbran he should go get some qualified legal advice.. clearly we know nowt on this forum

MBateson

The Apprentice wrote: »

If he,s a director .. there has to be a partnership agreement !

!

Is this correct? Ive never seen it happen between directors, what about if the director was just an employee and not a shareholder, why would he need to enter into a partnership agreement?

RangeR

Directors don't have limited liability if they knowingly act in bad faitg.

Contact CRO.

Contact a solicitor NOW!!!

The Apprentice

MBateson wrote: »

Is this correct? Ive never seen it happen between directors, what about if the director was just an employee and not a shareholder, why would he need to enter into a partnership agreement?

Well it would be unheard of because the facts your entering into a possibly liable aggreement with 2 other people and would need to know what liability of debt you would have...

It would be similar to going out getting finance on a car and not getting a contract of terms and conditions and the dealer saying ah sure.. pay when u can tis grand. Its there for exactly this reason otherwise the "director" words would never be used.

If it was used in bad faith and indeed you were not a director but had powers with actual and apparant authority you WOULD be liable for the bad debts even do it states on the memorandum that indeed you have limited liablity for the directorship (u could be a shadow director or silent).

smeharg

There's alot of in accurate information being thrown around here.

The relationship between directors of a company and/or shareholders of a company is NOT a partnership for the purposes of the Partnership Act, 1890. This relationship is specifically excluded from the definition of a partnership in the Act.

A director does not have limited liability - the shareholders do. The directors act on behalf of the company. A contract entered into by a company is ultra vires if it is not within the scope of its objects. This is different from a situation where an officer of the company conculdes a contract on behalf of the company, but does not have authority to do so. I would like to see it argued that a director of a company does not have authority, actual or apparent, to enter into contracts on behalf of the company.

If the other directors have signed personal guarantees then they are personally liable for the debts of the company. If they are also shareholders, then they have lost their limited liability.

If this director has taken money from the company to which he was not entitled, then there is the question of whether a fraud was committed. If you suspect there was, then you need to act fast but carefully and on foot of specialised advice. The director would probably claim entitlement, and if he was sole signatory on the bank account there may be questions to answer about whether the other directors took the necessary steps to safeguard the company's assets.

Lucky2day - you need to get proper professional advice on this.