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Hi All,

 

Apologies if this is in the wrong forum - I couldn't find anything that exactly matches my problem.

 

Myself and 2 others setup a company (we're each directors with 2 shares each and we have a shareholder who isn't a director who also owns 2 shares, so we own 25% each).

 

The main problem we have is one of the directors is withholding several thousand pounds cash (from an event we ran) from the company and we're not sure exactly what we can or should do about it.

 

We have several witnesses that the director has the money and we have an email that confirms the amount.

 

Also - we've literally just discovered that they have either stolen money from the till in the shop or have stolen stock...

 

Any ideas what the best resolve for this problem is? Myself and the other director are thinking of involving the police - but we're not sure if they'll even do anything about it...

 

If there are any questions please let me know and I'll do my best to answer them.

 

Kindest Regards,

Craig

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All depends on the contractual relationship, for all we know he/she is entitled to keep money, stock and or takings, In law Directors can be very different than employees, all that said it sounds might dodgy but i'd advise a solicitor on this one unless it's blatant theft or dishonesty, even then i think you would have to call some form of board meeting and have an independent person there.

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Thanks Atlas01, we've literally only just formed the company so we can't afford to go and get a solicitor involved at the moment... I think it's going to get complicated pretty quickly!

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Are there written agreements in place?

 

I do believe with a majority you can vote a director out of the company, but that isn't my area of law so I'm not 100% on that.

 

If you can get rid, I'd pursue him for damages in the county court to recover the money.

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It's unfortunate to read that your business has run into problems so early after incorporation. Anyone with the bravery to set up in this economic climate deserves to be lauded for their efforts, not deceived by their business partners.

 

Was the misappropriated money invoiced by the company? If not, how/why did the director collect it? What proof do you have?

 

Assuming that you have already confronted the director with your evidence and they refused to pay up or resign, you'll want to follow Becky2585's advice and remove them from office and sue them in the county courts.

 

With respect to removing the director from office, your situation will depend greatly on two things:

1) whether you have service contracts for the directors.

2) whether you changed your company's articles of association from the model articles.

 

Service contracts will determine the terms on which the director can be removed. If they were done by a legal professional they will have a clause for gross misconduct or breach of fiduciary duty. You should be able to terminate office on this basis without much fuss. The contract will determine notice period and severance (most likely none for gross misconduct). It will be more complicated if you only have verbal agreements. Either way you'll need to speak with a solicitor as it can get complicated.

 

Under the model articles an ordinary resolution (majority vote) by the shareholders can remove a director from office but there are specific requirements set out in the Companies Act 2006 to do so. It will need a general (shareholders') meeting and require special notice of 28 days. Again it's best to get a solicitor to help you with this, or someone with experience as company secretary.

 

Before any legal action, I would call a board meeting and confront the director in question. Disclose the evidence against them, reaffirm your ability to terminate as shareholders and ask them to either pay up or resign (maybe selling their shares as severance). This will all be minuted as a board meeting and will hopefully make them see sense before you need to go to a lawyer.

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I read this one with interest - I had a friend who had a similar problem in 2003 (so before the Companies Act 2006) except that he was one of three directors and the other two were redirecting funds and company assets into a company which they had set up for that purpose.

 

Reading the post from Fox Morris, my guess would be that the answer to both of his questions would be in the negative. Setting up a business is time consuming and expensive and the vast majority of people who do it go for the simplest solutions. In the present case, that would have been an off the shelf company with articles taken as read and, at best, a series of e mails and documents outlining the expectations of each of the directors in terms of expected input.

 

This looks like clear breach from the stated facts and, that being the case, there are any number of options available but a prompt board meeting (Friday ideally) would be good in my opinion to establish the intentions of the rogue director who is naturally going to deny the allegations of theft from the shop at which point, in your situation, I'd agree at the meeting to inform the police of the stock and shop losses. The issue of the withheld company monies is naturally going to be an item of discussion as well as being a fact which would be disclosed to the police to assist them in their investigation.

 

Lastly, while there is provision within the Companies Act 2006 for criminal breach of fiduciary duty, I believe (wouldn't swear to it though) that there are few prosecutions since the burden of proof is more troublesome than civil breach and the usual intention is to get the money back rather than send people to prison.

 

I did a google search and think this might help.

 

http://www.inhouselawyer.co.uk/index.php/litigation-a-dispute-resolution/9672-breach-of-fiduciary-duties-director-digs-hole-for-himself

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