Case Study: James and Shane’s Joint Directorship – Navigating Partnership Breakdown

The Situation:

James was a joint director and 50% shareholder of a company with his business partner, Shane. Their relationship had deteriorated, and Shane had returned to England, becoming unresponsive to all communication.

The Challenges:

• Breakdown in communication between directors
• Company owed over $356,328 in outstanding GST and PAYG to the ATO
• Additional debts to suppliers and directors
• James lacked the necessary 75% shareholding to voluntarily appoint a Liquidator
• Absent and unresponsive co-director (Shane)

LemonAide’s Approach:

• Assessed the company’s financial situation and directorship structure
• Explored options for resolving the deadlock in decision-making
• Advised on the legal process for winding up the company through the Court
• Guided James through the court-appointed liquidation process

The Outcome:

• Successfully initiated the process to wind up the company through the Court
• Addressed the outstanding ATO and supplier debts through liquidation
• Resolved the deadlock caused by the unresponsive co-director
• Provided James with a path forward despite the challenging partnership situation

Key Takeaways:

Joint directorships can lead to complications when relationships break down

Lack of proper shareholder agreements can limit options in dispute situations

Court-appointed liquidation can be a solution when voluntary appointment isn’t possible

Professional guidance is crucial in navigating complex partnership and directorship issues.

Additional Insights on Joint Directorships:

• Personal guarantees in joint directorships can disproportionately affect directors with more personal assets
• Joint directorships can expose both parties to insolvent trading claims in case of business failure
• Proper shareholder agreements are crucial to manage potential disputes and business exit scenarios
• Regular review of business structures and agreements is important to ensure they remain fit for purpose

This case study highlights the potential pitfalls of joint directorships and emphasises the importance of proper planning and agreements in business partnerships. It also demonstrates LemonAide’s ability to navigate complex situations involving uncooperative partners and court processes.

Struggling with a partnership breakdown or directorship issues?