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Thread: Problem with members of CC

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    Problem with members of CC

    Hey guys,

    There is a serious problem with the company now. I'm asking for any suggestions since I'm not so sure about the legal issues.

    The company (Closed Corporations) was established January 2008 by 4 partners (including myself) and we all have signed how much we will earn on per monthly basis. I took the most salary (R20K). One partner lend R 170K to the company (transferred R120K in total, directly to company's banking account) and R50K paid to companies for resources (computers, software, etc) purchased.

    Early in 2008, there was a problem with one big project and I was forced to take the pay cut, but not the rest of the members, but agreed that money will be paid back later. Then 7 months later, we suddenly got very busy and my salary is back to R20K per month. We had a very healthy bank balance. It was decided to lower the debt by R50K which we did, R120K still outstanding. The company owes me 24K. Now, we are back into difficult financial situation. Our bank balance is almost equal to the total liabilities. One member wants to get his money back, let me go or to fire me with majority vote. The company owes me 24K in debt. The problem is that they are not being fair enough. The company will be forced, as agreed, to pay my money back - while the money is still available - R24K in total but they still want to continue doing business under the same Name without me.

    1. Is it possible for other members to fire me with majority vote because of financial strain - they know I did nothing wrong?
    2. If all liabilties are paid, I still own 25% in assets but they refused to give it up or to compensate because they want to continue with the business. They just can't ask me to go while they keep my portion of assets? Am I right? Should they compensate or to buy my portion in asset should they want to continue with business.
    3. Is it better to close down the company and distribute the assets while it is still possible and they can restart the business without me? But they refused to do so.

    Hope one of you will be able to respond to my questions or to suggest. I'm not asking for advice and I want some fair options.

    Thanks in advance!

  2. #2
    Site Caretaker Dave A's Avatar
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    It sounds like you're involved in some heavy negotiation there, Anakin.

    They need to buy your interest in the CC. They can't just "claim" it by majority vote. If there is no clause in any agreements between you that sets out a formula for determining the buy-out value of a member's interest, the price needs to be negotiated between you as an individual seller and the other members as the purchaser.

    Given the apparent value involved, there might not be enough in it to just toss the whole thing to a lawyer to represent you going forward. But it might be worth consulting a lawyer to look over your agreements of association if they are complicated and give you some advice.

    I'm sure many of the members here will tell you that if you're leaving, it's in your interests to make sure it's a clean break.

    BTW. There might be a retrenchment angle on your salary too if they really play hard ball.
    The trouble with opportunity is it normally comes dressed up as work.

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    Thanks Dave! I completely agree!

    The company assets and resources will be the only surplus should the company close down now and all liabilities are paid.

    Seeing that the other members want to continue with the business under the same name without me, my offer was:

    1. Company pays all balance outstanding to me (part of the company's liabilities)

    2. 25% share in assets and resources, but I generously asked for a machine worth less than 10% in total assets and resources combined and they can keep the rest or equivalent in cash.

    They said the assets and resources belong to one member and the 25% doesn't belong to me because the debt is not fully settled yet. They have right to keep everything because they want to continue, but they didn't realise that the assets and resources will be surplus should the company close its door now.

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    just me duncan drennan's Avatar
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    Anakin, have you signed any sureties for the CC?
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    anakin (17-Mar-09)

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    We did sign the formation and how much each member will be earning, but without exit strategy or sureties with regret. I guess the standard business law will apply, am I right?

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    Site Caretaker Dave A's Avatar
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    No sureties is good news in your situation.
    Quote Originally Posted by anakin View Post
    They said the assets and resources belong to one member and the 25% doesn't belong to me because the debt is not fully settled yet.
    That is possible if the assets are security for the loan. They are what is known as encumbered assets and the financier would be a preferential creditor on income from the sale of those assets in the event of liquidation.

    What you might need to bear in mind is that the fair market value of your interest is not necessarily directly related to the net asset value of the business. Normally it is related to profitability or expectation of future earnings.
    The trouble with opportunity is it normally comes dressed up as work.

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    ... but the value of the current assets is slightly more than the current debt. The members have opted to continue with the business as they believe that they will generate profits in the future under the same NAME but without me on board. About 30% of current debt are paid. They considered closing the company doors but changed their minds.

    Another problem is that if I accept with just R 24000 in debt (to be paid to me), then they can close the doors immediately and settle all debts and distribute the asset between the remainder, which is not fair!
    Last edited by anakin; 05-Mar-09 at 03:43 PM. Reason: fixed the typos

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    One partner, who lend the most money to the company, effectively doesn't own the 30% debt-free assets, am I right?

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    just me duncan drennan's Avatar
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    Quote Originally Posted by anakin View Post
    We did sign the formation and how much each member will be earning, but without exit strategy or sureties with regret.
    I was actually wondering about any personal sureties that you might have signed to obtain credit or financing for the CC. e.g. CC applied for an account and they expected all the members to sign a personal surety. This doesn't directly impact your exiting the CC, I'm just wondering about the implications of the direction the business is going.
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    Sorry I meant this:
    ... but the current liquidity (cash) is slightly more than the current debt. The assets and resources are surplus. The members have opted to continue with the business as they believe that they will generate profits in the future under the same NAME but without me on board. About 30% of current debt are paid. They considered closing the company doors but changed their minds.

    Another problem is that if I accept with just R 24000 in debt (to be paid to me), then they can close the doors immediately and settle all debts and distribute the asset between the remainder, which is not fair!
    Last edited by anakin; 05-Mar-09 at 04:10 PM.

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