[Question] CC Members no longer getting along

[Beancounter]

I have perused the CC Act but failed to find a solution to what happens when the members of a CC no longer get along and one wants out. The CC is basically insolvent so from the CC no distributions can be made to any members without contravening the Act.

The member who wants to leave however insists on R50 000 buy-out so that he can get out of the CC but the other members cannot afford to pay him. Can the remaining members offer any reason why he should sign the CK2 without paying him anything?

Is this one of those cases where the members are going to have to approach the Master of the High Court for a decision on the matter or does the Act provide for instances like this?

[Justloadit]

Is the company worth R50K? Probably not, so why do you have to pay him to get out.
Liquidate, and no one gets anything.

[Dave A]

Is the company worth R50K? Probably not, so why do you have to pay him to get out.
Liquidate, and no one gets anything.

+1

Normally a good starting point in negotiations

[Beancounter]

Good idea Justloadit, only problem is, the remaining members are father and son and the dad stands to lose his house if the son doesn't carry on with the CC and try and make a success of it to repay his dad's loan.

[AmithS]

Are the only 2 members the dad & son. Also was any membership agreement signed between the members?

[Beancounter]

They are 3 members, father and 2 sons. One son wants out, the other son wants to carry on and try and save the business to repay the dad's loan.

No membership agreement as far as I'm aware of, so we have to rely on the Act.

[Dave A]

Lovely - all in the family to boot

I take it you're trying to avoid holding a meeting and achieving what you want in a strategic sequence of resolutions. 2 out of three members does make a voting majority.

EDIT: I just took a quick poll in my office - everyone reckons the one who wants to bail should be paying in to get out!

[Beancounter]

Hehe! I like the way the people in your office think!

[murdock]

2 things i have learnt from bussiness in the couple of years i have been operating...dont let family get involved in your bussiness especially not your wife(personal experience)...and even kids if you can help it...and the other dont get involved with partners...the last partnership i have been watching finally broke down after 27 years and now there iis just bad feeling amongst all the members...as soon as the sons got involved so the relationship between the partners started to fall apart...now the sons are busy destroying whats left of the comapnies faster than they can make money.

this is just form my experiences and what i have seen in the couple of years i have been in bussiness...father work hard to make their companies grow...drive the same car for years...save...save ...save ...save...save...save...as soon as the wife or kids get their hands on the comapny or money they spend it faster than the interest can be earned on the savings or the company can turnover...it is just so sad...

one company i worked with...the father didnt even own a motor vehicle...yet he was (being the key word) doing so well...had enough money to build his family houses worth millions and paid cash...while building one of the houses i noticed the son driving the latest top of the range car...within a couple of years the company went backrupt...it just could nt keep up with the lifestyles...he lost everything he spent his life building.

[Dave A]

Been thinking about this one. Taking it to The Master to resolve might produce an unintended result (order to liquidate).

The current scrap seems to be a dilemma in two parts, really.

Is everyone agreed that the one member should leave?

If yes, all that is left is to agree the payout (or pay-in )

If the members could be pursuaded to accept an independant valuation as a reasonable solution to determining a fair value for the interest, you might just pull this one through without a lingering family fued...

[BusFact]

I think Dave's advice in the previous post is the best option. Ultimately its down to negotiation and who has the most convincing argument.

Another point to consider is that if the cc is insolvent and is liquidated, the departing member may also be held personally liable for some of the cc's debts. Its not a common scenario but can be a result due to trading "recklessly".

My biggest concern is that the departing member either believes that there is R50k to pay him or he is just being malicious. Either way he may not budge and if the cc or the remaining mambers can't afford it, then its the liquidation route and all the unhappiness that follows from that.

[Justloadit]

I do not know where this so called entitlement comes when one member wishes to pull out when the road gets bumpy.

If he wants to pull out, he can do so by everyone signing an agreement, that if he pulls out with no cash in or out, that the company will not pursue him in the future for outstanding debt, and in turn, he will not sue the company for monies owed when it does well. Make sure you get a lawyer to draw up the agreement, you definitely do not want a loop hole.

The option of liquidation means that everyone has to service the loan by a third of the value as members of the CC

Ya can't have the cake and cherry and eat it. I have done the above before.

[BusFact]

I do not know where this so called entitlement comes when one member wishes to pull out when the road gets bumpy.

People do strange things when under financial pressure. Perhaps a bit of desperation? Sometimes a little vindictiveness thrown in.

Also a poor understanding of the different roles of shares and loans.

But then again your question was probably rhetorical

[SilverNodashi]

My wife recently got into a problem like this, where they (she and her business partner) took on a 3rd partner, as investor, with the hopes that the extra money could escalate marketing and thus sales as well. Sadly though, the new member was simply too greedy and wanted to own the whole company and rules everyone with an iron fist. None of the clients or equipment they have acquired upto this point belongs to him and his financial input was only worth about 40% of their total assets. Long story short, she pulled out, and the other partner is facing total meltdown.

Any person turns into an A55h0le when it comes to money and ownership thereoff.



My advice (which isn't legally binding) is to liquidate the CC, and do something else to keep the money coming in instead. Start a new CC, with just the 2 members, and tell the clients / suppliers / etc to use the new CC for all new business instead, and let the old CC run aground with no funding.

[mbsmit]

What is the members interest division in the closed corporation? That could open a lot of options, or close a lot.