Directors in dispute!

peaman
peaman Registered Posts: 123 ? ? ?
I have a client that has a friend in need of some advice. He is a director (A) and 50% shareholder of a company, the only other director (B) is also a 50% shareholder. Apparently B is causing problems as his work is reliable, he upsets staff, doesn't pull his weight etc. B has suffered some health problems and appears keen to sell his shares to A, but he has requested £500k to be bought out. I have only had a brief chat with A and seen the abbreviated accounts, but the valuation does seem excessive. Another problem is that the current accountant is an old friend of B. So A does not trust him, or agree with the valuation.
A is getting tired of B's behaviour and wants to just walk away, but there is around £80k of equipment and £250k cash in the company.
I would rather stay out of this, but my client is sure that A will want me to be his accountant once he has either taken over the company, or started a new one.
I want to suggest to A the easiest, cheapest and quickest solution to resolve this (i.e. not winding up or an expensive legal dispute).
I was thinking to first advise A to get a third party professional valuer to prove an accurate valuation of the company and if the valuation is a bit steep advise the directors to go through a mediation process (specialist accountant of commercial lawyer) as I assume this will not be prohibitively expensive.
Has anyone else had a similar experience and have any suggestions?

Comments

  • burg
    burg Moderator, FMAAT, AAT Licensed Accountant Posts: 1,441
    Sorry for the late reply. I keep retrying with the forums but my posts often just fail. This is another try and we shall see.

    I have had similar experiences and they often end up sorting themselves out once they sit down and talk it over. I would suggest that maybe A come up with his own valuation and put it forward along with the suggestion that an independent valuation is sought. Often though it is difficult to value small businesses and the best method is the 2 directors/shareholders agreeing something mutual.

    I know it does not help now but since I had similar experiences I always suggest that new clients who come to me who are in business with at least one other strongly consider putting something down it writing with what will happen if one or the other wants out. This should at least get them talking about their future plans as you often find they have different ideas. One may wish to start a family soon (if so what will happen if they want to work less hours), one may have a plan to grow and sell and the other maybe grow steadily and keep for a retirement income. One may be looking to retire say in 5 years where as the other had always thought the plan was 10. Going to a solicitor may be great but in my opinion suggesting they discuss the scenarios and what they will do and putting it down on paper and both signing it will mean each is much more likely to stick to it if the inevitable (in my findings) does happen and they fall out.

    I'm dealing with a similar situation with a new client. There is no falling out but one wishes to retire. They have plenty of assets but not much cash. One asset is a building and with the current market for commercial premises agreeing a value is difficult. I'm confident they will sort it out soon but a value form me or anyone else is not going to help greatly.
    Regards,

    Burg
  • peaman
    peaman Registered Posts: 123 ? ? ?
    burg - I am sorry for not acknowledging your post sooner, I was also having problems with the forum which deterred me from visiting for a while, plus I have been very busy lately.

    Thanks for your advice. I met A recently, they still haven't sorted anything out, but B's health has deteriorated rapidly and it doesn't look like he has much longer (he has cancer). A didn't want to do anything whilst B was so unwell, so it looks like he is going to wait until B passes and then try and negotiate with whoever inherits his shares.

    It's a bit of a mess, there are all kinds of problems (which I won't go into) but they do have a life insurance policy in place (for £200k) which will be paid to the surviving director, which was intended to be for the surviving partner to do as they see fit (i.e. buy out the shares of the deceased shareholder) but nothing is agreed in writing.

    A has confirmed that he wants me to be his accountant, so I will have to sort this out at some point!
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