CAN MY BUSINESS PARTNER WALK AWAY?

Q: I’m a small shareholder in a company that’s going south. Basically, the main man (with a 60% share) has been acting as CEO and ran it into the ground: he’s burned through investor money for R&D without  developing a product, taken client money and not delivered the goods, and racked up debts. I and two other shareholders  also have our suspicions that he’s used company money for personal use. Now he’s tendered his resignation as both CEO and a director, and also offered the shares to us for just €1. We’re worried that he’s just looking to walk away (possibly with a substantial chunk of change) from his responsibilities – what can we do?

 

A: Don’t accept anything: call in the liquidators, and get a solicitor, fast. The good news is that he can’t just walk away from debts incurred on his watch – his liability would be set out in the original company formation documents. Also, if he has taken capital out of the business, this should be ruled out under any normal partnership agreement, and you should have recourse under the Civil liability Act 1961 for that money.

 

The bad news is that, if you’re a director and know the business is losing money, you’re under an obligation to try and wind up the business. After all, if you’re knowingly engaged in reckless trading, that can result in a disqualification from acting as a director in the future. This will likely result in liquidator fees. However, for the possibility of recovering some value from the business, and to avoid the grave consequences of a restriction, I’d recommend it.

 

However before you take any drastic action talk to your business advisor or accountant first for assistance with cash flow projections to see if you can prepare a cash flow roadmap out of this problem in the long term.

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors

 

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