My director abandoned the company but now wants to come back

Hi Aunty B,? 

I don’t know what to do. The 40%-share director of my company (I own the remaining 60%) has walked away and abandoned the company, leaving me with all her stuff ups to fix.

It’s been three months now and all of a sudden she has popped up again, but I want her gone! How can I do this legally through ASIC, because as far as I’m concerned she forfeited all her initial outlay due to leaving us in the red.

I don’t know what to do.

DJ,
Perth

Dear DJ,

Don’t feel alone. The biggest headache of many businesses is business partners and shareholders. Get good ones and it is like a happy marriage. Get bad ones? Well, you are going through the divorce so you know what it is like. It is very hard to recover from this position so I’m afraid you are off to see a lawyer.

First off dig out your shareholder’s agreement. Don’t tell me you haven’t got one! It is really one of our most important documents in business because it sets out the rules, such as how one party can buy the other party out.

Going into business with others and without a shareholder’s agreement, which any lawyer can whip up for you, is just about the dumbest thing you can do. ??Second, you can’t just treat her investment as extinguished because you don’t like the way she has behaved, as annoying and as disruptive as it is.

Lawyer Peter Vitalie who specialises in issues like this points out she still retains shares which have some value (or perhaps no value). Unless the Constitution of the company provides for the shares to have unequal voting rights or value, then they will each continue to be worth the same as shares held by the majority shareholder. Whether her potential breaches of director’s duties have caused the company loss and damage is a separate issue. It may be that the one is set off against the other in the event of litigation, but that’s not an automatic right.

Thirdly, the minority director who left and has now returned might be personally in breach of her director’s duties if she has failed to attend to them in a careful and diligent manner for three months. That may result in the company – not the other director – having a claim against her. It may also mean that she is open to action for breach of the Corporations Act by ASIC. Whether the company is in breach of its obligations is another matter.

Fourth, the director can be removed by a resolution of shareholders – but it sounds like some negotiation is going to be needed to exit the non-performing director from the business because of her shareholding. This doesn’t sound like it will be easy, but at least initiating the discussion is better than issuing legal proceedings straight away.

Be smart,?
Your Aunty B

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