Bad Leaver/Good Leaver - Redundancy or Resignation - which should I choose?

Cody

Dear Forum;

OK, I will try and be concise as possible here, its a rather complex conundrum I have.

I have worked for a small start up company for 3 years and own 10% of the company. Value of the company is about £500k (on paper).

We have been experiencing financial difficulties for a year now, and came to a head a month ago where money ran out. Several of my colleagues have agreed to defer wages for 2 months, I have gone down to 1 day/week to reduce costs, but only temporarily since I have a family to support.

Since my role is not critical in the short term reward of the company (i.e .I am RnD rather than sales), I am contemplating leaving, either through a resignation or through a redundancy, since the company can not afford to pay me. My leaving will help the company to survive, allowing it to pay the other staff.

The shareholders agreement has a bad leaver clause. If someone is deemed to be a bad leaver, they can be forced to sell their shares at the orginal price of purchase, which in my case was a few hundred pounds.

The specific concern I have is;

If I resign, could I be deemed to be a bad leaver, despite the reason I am resigning is for the survival of the company. I am friendly with the directors here and would like to think they wouldnt enforce this, but I do know that in business, people can become very unfriendly, very quickly.

In my mind resignation will be quicker and simpler, and I will be in control...but I do not wish to jeapordise the shares I have worked hard for.

and;

Are there better financial benefits for someone being made redundant rather than resigning. The redundancy pay would be 2 weeks only in this case.

thanks

Cody

LittleVoice

Cody wrote: »

Dear Forum;

OK, I will try and be concise as possible here, its a rather complex conundrum I have.

I have worked for a small start up company for 3 years and own 10% of the company. Value of the company is about £500k (on paper).

We have been experiencing financial difficulties for a year now, and came to a head a month ago where money ran out. Several of my colleagues have agreed to defer wages for 2 months, I have gone down to 1 day/week to reduce costs, but only temporarily since I have a family to support.

Since my role is not critical in the short term reward of the company (i.e .I am RnD rather than sales), I am contemplating leaving, either through a resignation or through a redundancy, since the company can not afford to pay me. My leaving will help the company to survive, allowing it to pay the other staff.

The shareholders agreement has a bad leaver clause. If someone is deemed to be a bad leaver, they can be forced to sell their shares at the orginal price of purchase, which in my case was a few hundred pounds.

The specific concern I have is;

If I resign, could I be deemed to be a bad leaver, despite the reason I am resigning is for the survival of the company. I am friendly with the directors here and would like to think they wouldnt enforce this, but I do know that in business, people can become very unfriendly, very quickly.

In my mind resignation will be quicker and simpler, and I will be in control...but I do not wish to jeapordise the shares I have worked hard for.

and;

Are there better financial benefits for someone being made redundant rather than resigning. The redundancy pay would be 2 weeks only in this case.

thanks

Cody

If there is a written agreement, how does it define "bad leaver"?

Could the other shareholders or the company itself actually afford to pay you even the original price for your shareholding? If it's in such a bad way, would they want the shares?

How old are you? Would you have you completed 3 years as an employee?

cazziebo

As LittleVoice says, it's largely dependent on the terms of your Share Purchase Agreement and how much the company is open to negotiation.

From the limited information you have given, it looks like redundancy is the best option. You can get redundancy pay, pay in lieu of notice and possibility of realising your share value if the company recovers.

Is the company willing to make you redundant?

getmore4less

can't you just get some contract workers and stay employed

cazziebo

getmore4less wrote: »

can't you just get some contract workers and stay employed

Do you mean contract work? That would be a third option that might suit everyone. You get to hold on to your shares until value increases, the company doesn't pay salary but keeps you on the payroll, you get to do something different.

Doesn't quite solve the bad leaver issue if you do want to leave, which I think the OP does. He just hasn't decided how.

getmore4less

posting from phone...

either get separate contract work or the company gets it as a sideline to diversify.

getmore4less

the company cant pay wages a redundancy situation could push them into insolvency
they may already be breaking the law if they have creditors.

Cody

Hello;

Thankyou for your responses, so some more info.

Paying me a small amount of redundancy will not make the company insolvent, its the prolonged wage that is a problem for them.

They might be open to redundancy...but it will take a lot of meetings and discussion to get there.

The clause in the contract states, and I quote;

“Bad Leaver” means a Shareholder who:
1.1.3.1 ceases to be an employee or director of, or consultant to, the Company who is
dismissed or has his service contract (or other arrangement under which his
services are provided to the Company) terminated for any reason which justifies (or
which, if he were an employee of the Company would justify) summary dismissal or
summary termination, unless the Board in its absolute discretion determines
otherwise; or
1.1.3.2 who commits a material breach of the terms of this Agreement; or
1.1.3.3 a Shareholder
in respect of whom any of the following events have occurred:
- a petition being presented, or an order made, for the Shareholder's bankruptcy;
or
- the shareholder (being a corporate entity) convening a meeting of his creditors or
taking any other steps with a view to making an arrangement or composition in
satisfaction of his creditors generally; or
- the shareholder (being a corporate entity) being unable to pay its debts as they
fall due within the meaning of section 268 of the Insolvency Act 1986; or
- any encumbrancer taking possession of, or a receiver being appointed over or in
relation to, all or any material part of a Shareholder's assets; or
- the happening in relation to a Shareholder of any event analogous to any of the
above in any jurisdiction in which he is resident, carries on business or has
assets.

and later on it says, I quote

COMPULSORY TRANSFER OF SHARES
9.1 In the event that a Shareholder becomes a Bad Leaver or dies the Company shall
be able by resolution of the Board at any time within 12 months of the Shareholder
becoming a Bad Leaver or dying (“the Transfer Period”), to elect to give notice
(“Compulsory Transfer Notice”) to such Bad Leaver (and/or his Permitted
Transferees, where appropriate) or to the personal representatives of such
deceased Shareholder (and/or the Permitted Transferees of such deceased
Shareholder, where appropriate) to require him and/or them to sell any or all of his
shares (and the shares of such Permitted Transferees) at:
9.1.1 in the case of a Bad Leaver, the lesser of the aggregate subscription price of
such shares or Fair Value;

I am 39 and I am 2 1/2 years into the position.

Redundancy is possible, but a much bigger discussion and negotiation required, which will take time and drag on whilst on a low wage, eating into time I could be spending looking for new work. I am unsure if I can find contract work. I secure, full time position is preferable.Thanks again for all the advice

Cody

sammyjammy

You should bear in mind that any shares you own in the business may affect Benefits you might apply for.

LittleVoice

Cody wrote: »

Hello;

Thankyou for your responses, so some more info.

Paying me a small amount of redundancy will not make the company insolvent, its the prolonged wage that is a problem for them.

They might be open to redundancy...but it will take a lot of meetings and discussion to get there.

The clause in the contract states, and I quote;



and later on it says, I quote



I am 39 and I am 2 1/2 years into the position.

Redundancy is possible, but a much bigger discussion and negotiation required, which will take time and drag on whilst on a low wage, eating into time I could be spending looking for new work. I am unsure if I can find contract work. I secure, full time position is preferable.Thanks again for all the advice

Cody

The way I have read the quoted clause does not suggest that a resignation by the employee shareholder creates a "bad leaver". If a resignation is not included (and you are not bankrupt), why do you think you would be a "bad leaver" if you resigned?

Cody

Hello;

I had taken some advice from a solicitor, who highlighted the bad leaver possibility which I accepted his opinion on. When I posted above the clause however, I did question his opinion since I can not see where it states that resigning would make me a bad leaver..I am nervous about asking the solictor again to clarify though since the phrase 'Time is money' is particulry true in his case. : )

Though, maybe I should be sensible and take the hit to get certainty...

thanks

Cody