Fraud and ongoing business ownership

[Toapointlordcopper]

Quick qn:- if someone owned 50% of a start up (no cash investment), and was subsequently prosecuted by SFO for a 6-figure fraud on that business, could they put in a financial demand to be paid for the value of the 'goodwill' of that business?

The response we are preparing could be paraphrased as fuck off to the far end of fuck and then fuck off some more. But wasn't sure if he had a claim in law. Any ideas?

We have no idea if there exists any legal specialisation that can advise on the separation of a business when one for the founding parties goes to prison for faud on that business. We are happy to split out the cash value of the assets, btw, but not some mythical goodwill that could never be realised. Business cannot be sold because only 'asset' is the talent of the (honest) remaining revenue generating partners, who want to go and join a separate joint venture doing similar stuff, taking some of staff and one of the clients with them.

Before I start I must say this isn't really my field and that you should really contact a qualified solicitor who specializes in cases such as these.

I believe the dissolving of a partnership would mean all assets would be split by the percentage stake each individual holds, less any liabilities of the partnership. If you plan on taking away any less tangible assets of the business, such as intellectual property or a mutual client base, then I would expect you to require a discussion with the other party to decide an appropriate settlement for these.

If the other party owns 50% of the start up you would probably require his consent in order to start the process of breaking down the business and splitting assets, this depends on how your company is officially configured (LLC, LTD, Partnership, ect).

Good luck.

NW

The less tangible bit is the problem. The biggest client won't touch him with a bargepole anymore for obvious reasons, but wants to stay a client of the honest owners. Guy who did the fraud says there's a value to that in the future and he wants half of it, hence 'goodwill' claim.

Also I am not sure if I need a commercial lawyer or a criminal lawyer or an employment lawyer!

I understand your confusion, it certainly isn't going to be that clear cut. I would advise you consult a commercial lawyer as they will deal in the legal aspects of the business and will understand the process of separation.

Is it a limited company or partnership or LLP?
Is there an agreement between the partners or shareholders in writing?

Those two answers will affect the position.

You need a business / commercial lawyer, someone who advises on company law disputes (or partnership disputes if it's a partnership).

Let us assume it is a limited company and he owns half the shares. Let us assume there is no written agreement between the shareholders although it is much better to have one as it would really have helped here. So then you fall back on company law (assuming company not a partnership). In that case as you each own half first neither of you can dismiss the other as a director as you need more than 50% of the shares (if we are talking about a limited company not a partnership).

Second issue is his shares. If he is offering to sell them to you then that is absent the agreement mentioned above up to both sides to agree. If he will not agree your price offer him to buy you out instead. Sometimes we get both sides to offer at the same time and whoever offers most wins out.

However separately from this he has apparently defrauded the company so any claim the compnay has against him for that fraud might have a value let us say £15k. If the shares are worth £20k (although many small businesse are worth virtually nothing by the way) then you might be able to negotiate that you will not sue him for £15k if he sells his shares for £5k. If a company someone should check its Articles too as they might say something about share transfers.

Sometimes people spend £20k on accountants valuing a business so in practice it can be much better to negotiate a price both sides can live with. If he thinks the company is worth a lot with a lot of goodwill let him offer to buy your side's shares to call his bluff.

If there is no shareholders' agreement which normally in advance deals with these things, there is no right to a forced sale of shares and you get a stalemate. if neither side will budge then you can eventually get the company wound up but avoid that if you can. Ideally he'd also have a directors' service agreement which might say if he is convicted of fraud he loses his job and has to sell his shares back.

Business is qctually two businesses one LLP, one LTD, which doesn't help. And partnership agreement is silent about what happens in terms of dissolution under dispute (as is ltd). Apparently not uncommon as fraud not foreseeable.

Would all be resolvable if it was a small org, but unfortunately we are talking of hundreds of thousands. And he can't legally carry on in company because we are regulated and - as someone with criminal conviction - he can't act as director or employee under the regulations we work to.

Thanks all for comments. We are well aware this falls between the cracks of criminal and commercial, which really doesn't help. Even if we were still on good terms he'd have to walk away. We are also looking at option of having SFO declaring his interest in business to be based on proceeds of crime (its a long story) which would then turn his interest over to the government (we think), which we hope will allow us to just close it down.

Aargh. My brain hurts.