Can One Director Close A Company?

When you are working in a business with a partner or other directors, it is likely that from time to time there will be disagreements and some degree of conflict. It is an accepted part of commercial life and most businesses will experience it at some time or other. However, in some instances, disputes between company directors or business partners have the potential to escalate and cause long-term damage to business success. When these disagreements lead the company towards the brink of insolvency, it is clear that some form of action will need to be taken.

Dispute resolution in the form of mediation can help; using experienced business advisors to negotiate a way forward can help preserve the company’s value and allow trade to continue. In the end, however, the solution might involve removing a director from the limited company or liquidating regardless. In this article, can one director close a company, we take a look at the options open to you and the mechanism involved.

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For a free initial discussion on how we can help you with the legal aspects of a shareholder dispute, get in touch with us today. We will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help resolve the situation and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.

What is a Deadlocked Dispute

When two directors hold equal shares in a business and disagree on a matter of strategy, or feel there is no future in the partnership the situation is termed ‘deadlock.’ There are no additional board members to cast a vote on the next step, and stalemate ensues.

This can be disastrous, even when a business has been relatively successful in the past. Focus is taken away from running the operation day-to-day, and placed on trying to resolve these issues. If both parties are resolute in their own views and refuse to compromise or concede to the other’s opinion, this can cause operations to grind to a standstill and the quality of output to decline, putting the entire future of the business in jeopardy.

What is a winding-up petition on ‘just and equitable grounds?’

This type of petition is designed to deal with director disputes that cannot be resolved in any other way. It hands responsibility to the courts for deciding on the next step. They assess the situation and decide whether or not voluntary liquidation of the company is the most appropriate route to take.

These types of petitions are quite rare. The court will take into account whether trust and confidence has broken down between the parties, which in the case of deadlock between 50/50 director/shareholders is likely, and whether there are any other options apart from voluntary liquidation.

Sale of shares and the removal of a director from the limited company

One of these options could be for one party to buy out the other. One of the benefits of liquidating a company following a dispute is that directors may be able to set up a new company, taking with them existing clients, and starting again on their own.

When one director wants to liquidate and the other does not

In some cases, one director has had enough and wants to walk away from the business, while the other director is keen to continue running the company. In theory, this can be achieved by the director who wants to leave simply resigning from their position and leaving the remaining director in charge. However, in reality, it is rarely this simple.

The departing director is often wary about handing over full control to the remaining director and would instead prefer the company to be fully closed down knowing that all outstanding liabilities have been taken care of.

Your duty as company director

If not swiftly addressed, director disputes can escalate and put pressure on a business and its financial position. In some cases this can lead to the company falling into insolvency.

When a company is insolvent, directors have certain duties and obligations. One of these is to place the interests of creditors above those of directors and shareholders. Therefore, regardless of the ongoing disputes between directors, these differences need to be put aside while the company’s issues are dealt with.

How we can help

We have a proven track record of helping clients with a director dispute. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Litigation Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to our Litigation solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Litigation, News Tagged as