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Looking into Litigation: a company dispute case study

View profile for Carley Davis
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Commercial Litigation Solicitor Victoria Whelan provides experienced insight into the types of company dispute cases undertaken by Dutton Gregory. 

This case study of a shareholder and partner robbed of company assets demonstrates the issues and resolutions we deal with on behalf of our clients.

Please note that all names and other identifiable details have been changed for anonymity reasons.

The Case

Our client, Mrs M, worked part-time as a teaching assistant and often helped her friend, Ms S, run her local chocolate shop which she ran as a sole trader. It was initially agreed that Mrs M would just work a few hours as a freelance chocolatier to help out at busy times. However, the hours continually increased over a period of 2 years. Ms S provided our client with a set of keys for the shop and asked her to start regularly opening and closing. 

Trade continued to improve however the profits were not increasing. Therefore Mrs M was asked to start working in a more permanent capacity and help increase profitability. It was agreed that they would become joint business partners. 

When this arrangement commenced there were a number of debts owed to various accounts and quite a few aged debtors. Although Ms S had kept poor records. 

It was agreed that instead of investing financially, Mrs M would work for 3 months without pay, push the sales forward over the busiest period (Valentine’s Day through to Mother’s Day) and sort out the accounts. In return, Mrs M would become a partner with a 50% stake. The partnership was to commence with the New Year and, with this in mind, Mrs M and her husband, along with Ms S and her partner, redecorated the shop out of their own pocket. 

Emails were sent to all the clients to update them on the situation and a new Facebook page was set up. Mrs M reduced her hours as a teaching assistant and focused on the business. 

The partnership started to thrive and Mrs M dramatically increased her hours. However, because they were so busy, they failed to draft a Partnership Agreement and, despite Mrs M’s requests, a company bank account was never set up so all payments continued to be paid into Ms S’ personal account. 

Big contracts started to come in and Mrs M started to manage the commercial contracts whilst Ms S continued to look after the individual services. 

Mrs M and Ms S decided that, due to the scale and value of the contracts, they would set up a limited company to protect themselves. They instructed an accountant and their offices became the company registered address. Again, they failed to create a Shareholders Agreement or a new bank account. 

Business continued for a further two years until the partners decided to go their separate ways. Relationships became strained and Ms S’ daughter started to work at the shop more and more. Various discussions were had about the ending of the company and how assets should be distributed. To their credit, the partners put together a list of the assets, debtors and creditors. 

Unfortunately, after a couple of months of negotiations our client suffered with some ill-health for a period of months. After regaining her strength she finally approached Dutton Gregory, asking for help with the distribution and sale of the shares and assets. 

However, when we investigated this matter further it became clear that the limited company was subject to a compulsory strike off and was dissolved 6 months ago. 

When a company is dissolved, the assets become ‘bona vacantia’. This means that all assets are vacant and by law they pass to the Crown. 

The biggest concern was the fact that 2 months before the company was dissolved, Ms S and her daughter incorporated a different chocolate shop with a similar name. It was possible that the assets had been swept from under our client’s feet and passed to this new venture. 

This case posed a number of problems: no joint bank account, no Shareholders Agreement, no Partnership Agreement, no Company Books, no accurate accounts and the other side claiming that our client was an employee of the ‘partnership’ and not a partner at all!

The Solution 

Our client decided to restore the original company. The company was required to pay statutory penalties due to the late filing of the accounts when the company was solvent. The penalty notice was sent to the company’s registered office when it was restored and our client settled the fees by return. 

In the meantime, with the information to hand, our client prepared and filed the most up-to-date company accounts.

We then contacted the Treasury Solicitor Bona Vacantia Division, to recover any assets that had passed to the Crown. As expected, the list was not accurate and assets had been disposed of before the company was officially dissolved.   

Our client then voluntarily liquidated the company. The liquidator took stock of the assets and debts of the company and investigated the missing assets after representations were made. Once the assets were realised, our client was entitled to recover their share which was obviously a lot more than Ms S was originally claiming it to be. 

Finally, we have been instructed by the liquidator to act on behalf of the company in the claim against Ms S. We hope to realise damages on behalf of our client for Ms S’s breach of her fiduciary duties.  

If you’re experiencing a company dispute of your own, or any other commercial or corporate issues, you may wish to seek advice from a solicitor. Our Commercial Litigation team are on hand to offer their advice and expert knowledge across both Hampshire and Dorset. For more information, please call your nearest office or email us at contact@duttongregory.co.uk