Voluntary Liquidation - one 50% shareholder wants to one 50% shareholder doesn't!!!

BenEadir

Hi all,

Would appreciate a general steer here. What's the story if there are two equal 50% shareholders (both directors) in a small business and one wants to wind the company up via a voluntary liquidation (he wants to retire and cash in his chips) but the other 50% shareholder won't agree to a voluntary liquidation and also won't agree to purchase the other shareholders shares. He's considerably younger so it's more important to him that he keeps his salary as a director of the business than anything else.

How can such a deadlock be broken in the absence of a binding shareholders agreement?

Ben

Ken.

The guy who wants out can sell his stake to anyone. Normally its offered to the other partner for first refusal as a curtsey.

BenEadir

lucyfur09 wrote: »

The guy who wants out can sell his stake to anyone. Normally its offered to the other partner for first refusal as a curtsey.

I understand that in theory he can do that but have you ever tried selling 50% of a small business on the open market???? Especially when the remaining 50% shareholder doesn't have to hire the new shareholder as an employee and there isn't a pre determined dividend policy in place???

In reality there is no market for such a shareholding so selling his 50% to a stranger against the will of the other 50% shareholder (any new shareholder certainly won't be welcomed with open arms!!) simply isn't a runner.

Any other ideas???

Ben

Milk & Honey

Petition the High Court for a wind up.

searay

BenEadir wrote: »

Hi all,

Would appreciate a general steer here. What's the story if there are two equal 50% shareholders (both directors) in a small business and one wants to wind the company up via a voluntary liquidation (he wants to retire and cash in his chips) but the other 50% shareholder won't agree to a voluntary liquidation and also won't agree to purchase the other shareholders shares. He's considerably younger so it's more important to him that he keeps his salary as a director of the business than anything else.

How can such a deadlock be broken in the absence of a binding shareholders agreement?

Ben

The shareholders should look at compromise solutions rather than legal options such as a winding up. If the company has reserves it may be possible for the company to buy back the exiting shareholder without affecting the value of the other shareholder and have him end up with 100% of the company. This could facilitate a better exit if done on a phased basis.

They should talk to an accountant who specializes in succession planning. It doesn't have to be a big firm. PM me if you want some suggestions.

BenEadir

searay wrote: »

The shareholders should look at compromise solutions rather than legal options such as a winding up. If the company has reserves it may be possible for the company to buy back the exiting shareholder without affecting the value of the other shareholder and have him end up with 100% of the company. This could facilitate a better exit if done on a phased basis.

They should talk to an accountant who specializes in succession planning. It doesn't have to be a big firm. PM me if you want some suggestions.

Hi Searay, that sounds like potentially a good solution. The company has shareholders funds of just over €1m made up mostly of buildings (a warehouse it occupies), stock, debtors, less trade creditors and a small enough commercial mortgage on the warehouse.

Can you point me in the direction of guidelines for a company buying back a 50% shareholder? I assume there are tried and trusted rules governing such a transaction??

Ben

lucyfur09

lucyfur09 wrote: »

The guy who wants out can sell his stake to anyone. Normally its offered to the other partner for first refusal as a curtsey.

Normally they are offered to the other shareholders as a requirement under the Memo & Arts actually. There is no issue of courtesy involved.

The easiest thing for the shareholder who wants out would be to sell his shares to a third party assuming he has satisfied any obligations of offer to specific named parties in the Articles.

Regardless there is absolutely no way on earth anything approaching sound, practical advice could be given here for 2 reasons:

1. It's against the forum charter.
2. Company matters are almost always dictated by a combination of the Articles of Association and any number of the 15 pieces of legislation and innumerable Statutory Instruments which regulate company law. Without specifics which cannot and should not be given here there is simply no way anyone can give you a good steer on a course of action. You should speak to whoever assists in your company secretarial matters or a solicitor if you believe the need arises for a formal solution up to and including any potential share purchase/transfer.

BenEadir

Deleted User wrote: »

Normally they are offered to the other shareholders as a requirement under the Memo & Arts actually. There is no issue of courtesy involved.

Yes, this is indeed the case and the existing shareholder has declined to make any offer to purchase the offered shares.

Deleted User wrote: »

The easiest thing for the shareholder who wants out would be to sell his shares to a third party assuming he has satisfied any obligations of offer to specific named parties in the Articles.

In theory that might be the case but there isn't a third party market for 50% of a small company for the reasons I already outlined above.

Deleted User wrote: »

Regardless there is absolutely no way on earth anything approaching sound, practical advice could be given here for 2 reasons:

1. It's against the forum charter.
2. Company matters are almost always dictated by a combination of the Articles of Association and any number of the 15 pieces of legislation and innumerable Statutory Instruments which regulate company law. Without specifics which cannot and should not be given here there is simply no way anyone can give you a good steer on a course of action. You should speak to whoever assists in your company secretarial matters or a solicitor if you believe the need arises for a formal solution up to and including any potential share purchase/transfer.

I agree with you there Kayroo. I'm not looking for advice in relation to an actual real world problem. I've been having a discussion with a family member who's a 50% shareholder with someone else in a Ltd company without a shareholders agreement. I'm advocating he and his 'partner' should invest in a shareholders agreement whilst things are going well and their relationship is good so that when the time comes and one whats to leave for whatever reason there is a thought through process pre-agreed and the situation I painted above is avoided.

I'd still like to know what options a 'locked in' 50% shareholder who wants out has open to him when the other 50% shareholder refuses to either buy the shares offered to him, facilitate the company buying back the exiting shareholders 50% or agree to a members voluntary liquidation. Can one 50% shareholder really prevent another from extracting his share of the equity in the business like that assuming there isn't a third party buyer for the exiting shareholders 50%???

Ben