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Deadlock

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Lawson-West Solicitors - Expert Author

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11 March 2013

Our client’s father incorporated the retail business he shared with his brother, with both of them owning 50% of the shares and registered as company directors. Furthermore, the brothers owned the freehold of the business premises in 50/50 shares as joint tenants and leased the premises to their company.

When our client’s father died, she inherited his 50% of the shares in the business and 50% of the freehold of the business premises. Furthermore, her uncle fulfilled her father’s wish and she was appointed a director.

Unfortunately, as soon as she became involved with the business she discovered that her uncle had very different expectations and was both taking cash from the business and operating without making proper declarations to HMRC.

She brought the case to Lawson- West and asked us what we could do to help her take control of the business and to ‘oust’ her uncle.

This situation is known as ‘deadlock’ - meaning that neither business partner is able to sack the other partner as both have 50% of the shares and both are registered as company directors. In the most severe cases, a business can be reduced to nil value as its end of year returns and accounts cannot be ratified and the company is therefore struck off at Companies House.

In this situation there are two real solutions:-

Firstly, making an unfair prejudice petition according to section 459 of the Companies Act 1985, or making a petition under section 122 of the Insolvency Act 1986 – on the basis that it is ‘just and equitable’ that the company in question, even though solvent, should be compulsorily wound up.

Lawson-West managed to find evidence of the uncle’s financial impropriety in respect of the company and after we threatened to issue proceedings pursuant to the Companies Act as above, his lawyers persuaded him to accept a reasonable offer for his shares.

This situation emphasises the critical importance of having deadlock provisions in a shareholder agreement if parties decide to enter into a joint venture with shares held on a 50/50 basis. However, if the proper provisions do not exist, please call Tom Jellicoe at Lawson-West who will try to find a solution to your problem.


About the Author

Lawson-West specialise in commercial, business and employment law. Our team of dedicated commercial solicitors can help with buying or selling a business, business law and disputes, landlord and tenant issues and commercial property. Our expert employment team can offer practical advice and guidance on all aspects of employment law including redundancy, compromise agreements and dismissal procedures. Visit www.lawson-west.co.uk for more information.



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Article Published/Sorted/Amended on Scopulus 2013-04-17 13:25:58 in Legal Articles

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