CC Member's Loans

[go_it_alone]

I have read through several posts about disputes but have not found anything about member's loans.

I am one of 3 partners in an almost dormant CC. The relationship between the members has deteriorated due to a bad debt derailing our plans. Right now, the business has a judgement against the offending company and some money in the bank to start again but the relationship between the members has broken down and I have been asked to leave the business and relinquish my share.

Currently, each member (30%/30%/40%) has about R100k in their loan accounts and the business has R200k in the bank.

Negotiations for my withdrawal have broken down and I need info before taking my next step. There is no partnership agreement in place so we fall directly under the CC Act. I feel that the other partners want to keep the money in the bank and use it to push forward in a new direction without me. I have suggested a fair buyout price (less than my loan account) but this has been rejected. I think their next step is to have me removed as a member w.r.t the CC Act.

As there is no written agreement in place, as a member who loaned money to the CC, can I call in the loan at any stage? The CC has the money to settle my loan but the other 2 members have decided not to use the money in the account for this purpose (majority vote). Must the CC pay me out if they have the money? Can the other members then also demand their loan accounts be paid and then decide not to pay anyone out?

I have been reading online info for days but legal speak just makes it more confusing.

Help

[Dave A]

As there is no written agreement in place, as a member who loaned money to the CC, can I call in the loan at any stage?

Based on the information you present, imo yes.

Should the other members also call in their loans, the next step would be to apply for liquidation of the cc.

[Justloadit]

One thing for sure, is that they can not vote you out as a member, no mater how many shares they own. If they sign on your behalf, then they are committing fraud.

You have an advantage, that they wish to continue with their venture. I suggest you get a lawyer involved, as it can get very messy otherwise. I am also of the opinion, that this type of matter should be handled by a professional. You can call your loan in, and off course they will also wish to call their loans in - no problem, the money that is in the bank is then divided based on each ones loan amount percentage before the payments were made. The company then closes or gets liquidated.

You then make a counter offer saying that if they give you X amount, you relinquish the loan, and if the judgment against the debtor materializes they keep the funds, and you give the shares of the company to the remaining shareholders equally, and you sign a document in which you will not claim any further from the company in the future, and the company may not claim from you either upon signature.

You must be prepared for a counter offer of a lower amount. This is the reason that you stick a lawyer between yourself and them. It just makes it easier, and it also shows them that you are serious. The lawyer cost will be insignificant once you have closure to this.

Just remember, being a member of a CC means that you are personally responsible for the CCs actions even if you are not in control. That is why it is better to get out ASAP to reduce your exposure to this risk. This is one of the risks of CCs

You must get out even if taking a bigger knock than you want, spend your efforts on moving on and in your new venture, a situation like this can defocus you from your new venture, it's not worth that extra couple of Rands.

[go_it_alone]

Thanks guys.

We have already been playing ping pong with the offers and now at the point where they are offering almost nothing.

I will go down the legal route as this is the only way for me to salvage anything from this situation. Its nice knowing that I have the right to call in my loan (couldn't find anything about that in the act).

I know a lot of people read these posts about getting into business with partners/friends/family - please follow this hint :

Always formalize an agreement on how the CC will be run and be managed. Cover every eventuality even though you might never need it because one day, you might be in the same position that many people are with sour relationships and lawyers having to get involved.

Great forum - I will be a frequent visitor from now.

[flaker]

education

from what i read in these posts is that if one forms a CC with friends/family etc., inserted somewhere in the founding document of the CC is some agreement signed by members that will deal with some situations and also how somethings similar to what appears on this thread is to be resolved. Am i correct? like a partnership agreement?

[Dave A]

Spot on, flaker.

One of the clauses I've seen in such an agreement would be that no dividends would be paid until all member loans had been settled. Another possibility is that there was an agreement in place on the conditions under which the members' loans could be called as due.

[dcs]

Other considerations

I think there may be other considerations as well. There is always the likelihood that sureties have been signed and other 'jointly and severable' agreements in place, which happen in the ordinary course of business. If there is going to be an ownership change, especially in a cc, my feeling is that the cc must be wound down (liquidated) and a new cc formed to take over the business. The risks of not doing that are just too great imho and all the additional admin involved is well worth it!

David

[go_it_alone]

Another Question

I have a further question if anyone can help . . . . .

The CC Act says the following about CC meetings -

(2) Unless an association agreement provides otherwise-

(a) a notice referred to in subsection (1) shall, as regards the date,
time and venue of the meeting, fix a reasonable date and time,
and a venue which is reasonably suitable for all persons
entitled to attend the particular meeting;

(b) three-fourths of the members present in person at the meeting,
shall constitute a quorum; and

(c) only members present in person at the meeting may vote at
that meeting.

With regard to point (b), say there are 10 members of a CC, does this mean that 3/4 of the members must be present or does it mean that members representing 75% of the voting rights must be present?
Would the quorum be 8 members or enough members to secure 75% of the voting rights?

[Justloadit]

I think there may be other considerations as well. There is always the likelihood that sureties have been signed and other 'jointly and severable' agreements in place, which happen in the ordinary course of business. If there is going to be an ownership change, especially in a cc, my feeling is that the cc must be wound down (liquidated) and a new cc formed to take over the business. The risks of not doing that are just too great imho and all the additional admin involved is well worth it!

David

Hi David,

Yep, forgot that one. In fact any business, whether it is a partnership, PTY, Trust or whatever.