Liquidation

Flooky_

Hi,

My wife is currently in a situation where she is a director and shareholder of a limited company along with two others mainly dealing with sales. There have been quite a few difference of opinions and fallings out as of late and they have decided to close the business down by way of voluntary liquidation, where the company is closed down solvent and everyone goes their separate ways. This is now in progress and in the hands of the liquidator. 

My wife asked me to look over some of the legal documents they had drawn up when they started the company which in the shareholders agreement has some non-compete clauses, such as no working for a competitor, no enticing existing staff or clients etc., before we get legal representation I thought I would ask in here to see if anyone has been in the same position before. Can these restrictive covenants be enforced by the other shareholders if the company has gone into liquidation and no longer exists, if my wife wants to go to work for someone else or start up her own small company? Logic would say no, but UK law is very difficult to interpret at times. 

I can provide further information if needed but any help or guidance would be appreciated. 

Marcon

Flooky_ said:

Hi,

My wife is currently in a situation where she is a director and shareholder of a limited company along with two others mainly dealing with sales. There have been quite a few difference of opinions and fallings out as of late and they have decided to close the business down by way of voluntary liquidation, where the company is closed down solvent and everyone goes their separate ways. This is now in progress and in the hands of the liquidator. 

My wife asked me to look over some of the legal documents they had drawn up when they started the company which in the shareholders agreement has some non-compete clauses, such as no working for a competitor, no enticing existing staff or clients etc., before we get legal representation I thought I would ask in here to see if anyone has been in the same position before. Can these restrictive covenants be enforced by the other shareholders if the company has gone into liquidation and no longer exists, if my wife wants to go to work for someone else or start up her own small company? Logic would say no, but UK law is very difficult to interpret at times. 

I can provide further information if needed but any help or guidance would be appreciated. 

I think your wife would be better advised to ask someone with legal knowledge to look over these agreements - without seeing all of them in full, it's impossible to be certain of the position. Just making 'generalist' remarks about 'what normally happens' isn't sufficient.

Not taking proper professional advice is often far more expensive than actually taking it!

jlfrs01

Restrictive covenants of these type are typically there to serve as anti-compete clauses to protect the business interests of a business should one of its employees seek employment with a competitor.

By all means check this with a Legal Professional but as the company will be dissolved and therefore no longer exist, there will be nothing to protect and no company to enforce any restrictions, etc.

noitsnotme

As above, once the company is liquidated and no longer exists there will be no entity left to enforce the clauses.  The other directors will also be free to start a new company in the same field and go after the same customers.

I'm wondering why they are using a potentially expensive liquidator?  Their accountant should be able to wind the company up for them if it is solvent.  Or are the liquidators dealing with selling off stock?

Marcon

noitsnotme said:

As above, once the company is liquidated and no longer exists there will be no entity left to enforce the clauses.  The other directors will also be free to start a new company in the same field and go after the same customers.

I'm wondering why they are using a potentially expensive liquidator?  Their accountant should be able to wind the company up for them if it is solvent.  Or are the liquidators dealing with selling off stock?

Depends what's in the shareholder and/or director agreements. They can have some very strange clauses, especially those who have relied on advice on the internet... Blithely confirming all is well, on the basis of no knowledge of what these contain, isn't advice I'd rely on.

Flooky_

Thank you all so far for the advice.

The idea behind posting was to see if anything was glaring obvious that I had missed from people who have been in similar situations and to gather information to put to a solicitor if needed without paying for information that may be readily available. 

Undervalued

Flooky_ said:

Hi,

My wife is currently in a situation where she is a director and shareholder of a limited company along with two others mainly dealing with sales. There have been quite a few difference of opinions and fallings out as of late and they have decided to close the business down by way of voluntary liquidation, where the company is closed down solvent and everyone goes their separate ways. This is now in progress and in the hands of the liquidator. 

My wife asked me to look over some of the legal documents they had drawn up when they started the company which in the shareholders agreement has some non-compete clauses, such as no working for a competitor, no enticing existing staff or clients etc., before we get legal representation I thought I would ask in here to see if anyone has been in the same position before. Can these restrictive covenants be enforced by the other shareholders if the company has gone into liquidation and no longer exists, if my wife wants to go to work for someone else or start up her own small company? Logic would say no, but UK law is very difficult to interpret at times. 

I can provide further information if needed but any help or guidance would be appreciated. 

Probably not but as others have said you need proper, accountable, legal advice from a solicitor who has seen ALL the documents.

It is very important that she tells the solicitor everything and not be tempted to miss out any bits that are "unwelcome"!

DullGreyGuy

Sight of the documents is going to be required and who is party to them and how the parties are divided up. 

I'd agree that in common practice you're talking about employment contracts and these are between the employer and the employee and as such once the employer is dissolved they fall away. There are many other things that this may be, especially depending on what is deemed the assets of the business and what is happening to them... if any of its being sold as a going concern then those agreements may restrict former directors from competing and would outlive the dissolution of the company. 

Hoenir

When the legal entity the company is dissolved with it go all the shareholder agreements etc. 

You are all free to do as you wish. Though clients / customers do tend to move with their primary points of contact.