NSW Commercial Law - Is Company Liable to Give Ex-Director Holiday Pay?

[corvette69]

In 2014, I entered into a business partnership with a close friend. We purchased a company from liquidation, which I paid the total amount for, with a verbal agreement for the business partner to pay back half of the purchase price over a period of time - interest-free. There was also a verbal agreement that whilst we were working on building up the company we would only take 2 weeks a year for holidays, which was agreed upon.

Over the 22 months of him being a director, I found that he was not correctly directing or guiding the employees on jobs they were doing, (employees found him very hard to approach) this created mistakes & loss of profit on jobs. His attitude was appalling & the employees were affected by this attitude issue. A major lack of communication on his behalf to employees & director was also noted.

A few large jobs he showed poor management of & took no care with the work, which ended up costing the company money, in turn, this made it very difficult to pay bills & the company got behind on paying the tax, which we are still trying to catch up till this day.

In mid-2015, he wanted to take a holiday, but decided that he couldn't afford it. 2 weeks before his family went on holidays he decided he was going to go. In this time, we had an employee leave, which the company had to pay out the money's owing to the ex-employee, which left no money to pay the director for his holidays.

In late 2015 the director decided to resign & finish up just before Christmas. I tried to have a discussion with him about the business & putting it up for sale. He said he didn't care & he just wanted to leave.

He made no attempt to pay me back any of the money's owing to me from the purchase of the company & is now demanding the company pay him his holiday pay.

Is the company liable to pay him his holiday pay, 2 weeks as per verbal agreement?

Is he responsible (liable) for the debt incurred in the company when he was a director?

Is he still liable to pay me back the money's owing from the purchase of the company?

Is he responsible for failing in his director's duties, by misinforming employees, poor workmanship on work, bad attitude?

Any information about this regarding commercial law would be great. Thank you in advance.

 

[Rod]

Messy. Suspect you need a lawyer to go through your documentation and agreements.

The issues you raise do not look straight forward due to:

• mix of written and verbal agreements
• likely email conversations/agreements
• what is provided for by corporations law and employment law.

There's too much missing detail for anyone here to be able to give accurate advice especially if you throw in the possibility that the other party may not agree with your version of the verbal agreements.

What you do may well be part pragmatic business decisions (eg pay something to get rid him) and part legal.

 

[corvette69]

Thank you Rod,

I still would like to know if he has to pay me the moneys owing from the cost of purchasing the company.

 

[Rod]

I really don't have enough information to say yea or nay.

For instance, what were the precise terms of repayment? Saying 'over a period of time' is indeterminate and so vague as to be meaningless and wouldn't be supported as a contract by a court.

Who are the shareholders? What proportion did each of you get of the shares? Are there different classes of shares? Did you forgive the debt because there was no attempt at repayment over 22 months? Were you paid director's fees or wages? Was he paid director's fees or wages or some combination? Were the proportions paid differently to each of you to account for a lack of repayments from the other director? Did you pay dividends in lieu of wages? Did you take money back as repayments of loans made to the company? What does the shareholders agreement say? Is there even a shareholders agreement? What correspondence supports your claim of repayments? Does the other party agree with your assertions in your original post (OP) or does he have a different view, etc., etc., etc.?

If your close friend is going to take a contrary viewpoint to yours, without proof, you are going to have trouble.

I can understand you want a simple answer, and I'd like to give one, but unfortunately based on your OP you have created a mess and it will take some time to unravel it to see where you stand from a legal viewpoint. Even then I suspect the answer will not be clear cut. Contract law can sometimes produce surprising results based on what seems to be trivial facts.

Is he responsible (liable) for the debt incurred in the company when he was a director? Unlikely, assuming you are solvent.

Is he responsible for failing in his director's duties, by misinforming employees, poor workmanship on work, bad attitude? No. Being incompetent is not a cause of action. Would have to be deliberate abuse of his position.

 

[Rod]

PS: Might be better to do a deal, pay him two weeks pay, he signs over his shares to you for $1.00 in total (if he has any), he resigns as director and you wave goodbye to him.

And do it in writing!

PSS: re: Debt incurred. As long as he didn't commit fraud or exceed his actual authority.