Director bankruptcy

[Wilder]

My Business partner ( 50/50) and fellow director is declaring bankruptcy .. what will happen to his shares and directors loans ..can he sign them over to me??

 

[Steve Thatcher]

My Business partner ( 50/50) and fellow director is declaring bankruptcy .. what will happen to his shares and directors loans ..can he sign them over to me??

Hi

his shares and the loans the company owe him will vest as assets in the official assignee. His job will be to realise their value. No one else will be interested in buying the shares, so they will be offered to you.
The OA can ask the business to pay back the loans.

You will need to agree a value for the shares and discuss how best to pay back the loans. It should all be able to be fixed by negotiation.

Steve Thatcher
www.stevethatcher.ie

 

[Palerider]

This eventuality is typically covered in a shareholders agreement if you have one.

 

[Jim Stafford]

99% of companies do not have written shareholders agreements, and rely on the "default" shareholders agreement under Table A of the 1963 Companies Act. Under Table A, his shares will automatically vest in the Official Assignee, who, as Steve has pointed out, will try and sell them. I have seen some "cleverly" worded shareholder agreements which state that the shares must be transferred for their nominal value to the bankrupt's co-shareholders in the event of a bankruptcy

In practice, it is very difficult for the Official Assignee to sell shares in private companies, as the Board of Directors can simply refuse to register any transfer of shares, on the basis that the company is "private".

A 50% shareholding can create issues, as there can be deadlock etc. It stands to reason that the outcome will depend on the size, profitability etc of the company.

Once he is bankrupt, you will have to locate another director to maintain the statutory minimum of 2 directors.

If he is owed directors loans from the company, then the Official Assignee will insist on payment.

Given the legalities and uncertainties in dealing with the Official Assignee, it might be wise to buy his shares now. If you buy them now, you must pay full market value for them. (If you do not buy them now, you might have the Official Assignee as your co-shareholder for the next 25 years!)

Jim Stafford

 

[Steve Thatcher]

99% of companies do not have written shareholders agreements, and rely on the "default" shareholders agreement under Table A of the 1963 Companies Act. Under Table A, his shares will automatically vest in the Official Assignee, who, as Steve has pointed out, will try and sell them. I have seen some "cleverly" worded shareholder agreements which state that the shares must be transferred for their nominal value to the bankrupt's co-shareholders in the event of a bankruptcy

In practice, it is very difficult for the Official Assignee to sell shares in private companies, as the Board of Directors can simply refuse to register any transfer of shares, on the basis that the company is "private".

A 50% shareholding can create issues, as there can be deadlock etc. It stands to reason that the outcome will depend on the size, profitability etc of the company.



Once he is bankrupt, you will have to locate another director to maintain the statutory minimum of 2 directors.

If he is owed directors loans from the company, then the Official Assignee will insist on payment.

Given the legalities and uncertainties in dealing with the Official Assignee, it might be wise to buy his shares now. If you buy them now, you must pay full market value for them. (If you do not buy them now, you might have the Official Assignee as your co-shareholder for the next 25 years!)

Jim Stafford

Good advice Jim, part of the O/P's problem will be valuing the business. I suggest he speaks to his a/c about a fair valuation. It may of course be the case that there is no value in the business at all.

Steve Thatcher