• Investors resigned

I work for a Company named X. 

Company X has got investments from Company Y and Company Z. Company Y and Company Z has shares in Company X and have appointed Independent directors as well. 

After 4 years of Investments Company X ran out of Working capital and defaulted in a lot of banks and were not compliant enough. Hence Company Y and Company Z directors resigned from the board and after resignation there is no Communication from both Company Y and Company Z. 

Can Company X deem assume that the Investments are written off and can Company X reverse all the shares in the books of accounts as the Company Y and Z are not ready to even communicate.
Asked 1 year ago in Business Law from Chennai, Tamil Nadu

Hi,

It seems that there is an investment from Comanies Y and Z. By investment, I understand that the investment may be in the form of equity shares (though other forms of investments like CCD/ OCDs, CCPS/ OCPS etc. may be possible). The terms of the investment are governed by the Shareholders Agreement ("SHA"). In the event SHA has not been signed, then Companies X and Z are entitled to their rights and duties under the Companies Act, 2013.

In this case, the representatives of the said companies have resigned. This is different from them not being shareholders. They still have their rights and duties as shareholders. Therefore, in this case, they continue as shareholders and their rights continue.

I understand that the instance of them resigning as directors would be because of the accompanying liabilities arising from loan default. Depending the persons' role in the Company they may or may not be liable. They would prima facie not be liable for any default post their resignation. However, as stated above, this does not erode their rights and duties as shareholders.

Regards,

Prashant Kumar
Advocate, Bangalore
15 Answers

4.0 on 5.0

Dear Client,

Written off can be assumed by Com X, but it`s liability cannot be over until it is belated debt and barred by limitation to recover or waived by Y & Z.

Default should be from your side and declared NPA,

Yogendra Singh Rajawat
Advocate, Jaipur
13088 Answers
15 Consultations

4.6 on 5.0

1. the directors of Y and Z resigned from the board as they did not want to become liable for any legal action that would be taken by the lender banks against X

2. they are entitled to do so

3. however that does not mean that Y and Z have also given up their rights to the shares which they are holding in X

4. X cannot reverse the shares of Y and Z

5. Y and Z will be entitled to liquidation proceeds to the extent of their shareholding in X

Yusuf Rampurawala
Advocate, Mumbai
4448 Answers
25 Consultations

5.0 on 5.0

Hello, there are few questions before answering your query: Whether Y and Z are equity shareholders? What is the extent of their shareholdings in Company X? If they are equity investors, whether the capital subscribed by them is fully paid-up? What is the present board composition?

As far as writing off investments by Y and Z is concerned, it appears that it is mainly from an income-tax perspective and should not concern Company X as to how it is dealt with by the investors. No communication by equity shareholders of a company should not affect their status as shareholders of the company if the capital subscribed by them is fully-paid-up.

Nityashjit Kaur
Advocate, Delhi
10 Answers

Not rated

You should go through the contents of the articles of association of the company especially with regard to the further details and functions, responsibilities and liabilities of the directors in such event.

Before taking any action at your discretion, you may go through the AOA or memorandum of Association properly and refer the matter to your auditor or CA for further guidance.

T Kalaiselvan
Advocate, Vellore
56549 Answers
695 Consultations

5.0 on 5.0

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