Excluded’ junior partner ousts director as company manager

A woman who helped set up a business as a junior partner has succeeding in ousting the senior shareholder-director who ignored their agreement and misused company money.

The two parties had agreed to open a beauty salon in a shopping centre. The shareholder-director would assist with setting up the business and arranging leases, and then become a silent partner, leaving the junior partner to manage the day to day operations.

However, he then took over the managerial role himself and excluded her from any significant decisions.

She became concerned about his financial dealings and obtained a freezing order preventing him from disposing of company assets. He was later found guilty of contempt of court and given a three-month suspended sentence after he breached the order by making four payments to himself totalling £10,000.

The junior partner said the misuse of company money continued so she applied to the courts to be appointed as the manager of the company and for the shareholder-director to be removed from his position.

The court held that there were real grounds for believing that he had continued to make payments from the company for his own benefit.

It was also a matter of serious concern that he had been allowed to run up an HMRC debt of £150,000 in two years, and although it had been dealt with, that did not inspire confidence in him if he were left in charge.

In the circumstances, his conduct pointed to the need to deprive him of the management duties and responsibilities.

The court decided that the junior partner ought to be appointed as manager as she had sufficient qualifications and experience to fulfil the role. She should be in control of both the company and its finances. Her appointment was both a cost-effective and practical solution.

However, she was not to have an entirely free hand. A regime would be required where the ousted director knew what she was doing as he was still a 50% shareholder.

She would also be obliged to carry out reasonable consultations with him in relation to the running of the company. If she did not carry out the management satisfactorily, a third-party manager could be installed later.

Please contact Jon Alvarez if you would like more information about the issues raised in this article.