Investment - no written agreement

A member asked over 8 years ago

Investment - no written agreement

Will it be possible to pursue action against two directors of a company for the remaining amount of money investment that was not properly followed through? $XX,000 was put in from an individual who was told that would buy him an equal share of the business. However, there were four other people who 'bought in' also. They were two couples - each couple put in $X,000 each for their shares. The individual was taken advantage of as he was required to put in double the amount of money. He then waited 6 months for documentation and proof of buy-in to be provided - and none was provided. Partial repayment has occurred since 2012 - recently stopped

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Law Advisor Research Team

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Hi there. From the information you provided, it appears that an individual gave two directors an amount of money on the understanding that it would buy them shares in a company. No evidence of the individual’s shares in the company (such as a share certificate) was ever provided. Some of the individual’s money has been repaid by the two directors, but not all of it.

It is not clear whether the individual ever actually acquired shares in the company. Although a shareholder should obtain a copy of a share certificate upon purchasing shares in a company, the company may have failed to do this. If the company is registered in Australia, you can contact the Australian Securities & Investments Commission (www.asic.gov.au) to find out who are the current shareholders in the company.

If the individual was never allocated shares in the company, but still gave the two directors money for the shares, then the individual may have a legal claim. This is because the parties had an agreement (either orally or in writing) that the individual would be allocated shares in the company in exchange for the payment of money. The individual held up his or her end of the bargain by paying the money, but the directors failed to allocate the shares. This is a breach of contract and the individual is likely to have a legal claim to recover the balance of the original sum of money that has not been repaid.

The legal claim may be brought against the two directors personally or against the company, or both. This will depend on several factors such as the conduct of the directors when the individual agreed to invest the money, and the conduct of the company after the money was paid in.

Suggested way forward

Based on the information provided, it sounds like the individual has a potential legal claim against either the directors or the company for the balance of the money paid in but not reimbursed. Speaking to a lawyer will help you understand the legal options for recovering this money and the best course of action. By pressing the “Take Action” button, LawAdvisor can help you search for experienced lawyers and obtain fee proposals for their services. Costs for legal advice and representation will vary between providers based on experience and the scope of services.

Answered over 8 years ago Legal disclaimer

Thank

Katherine Hawes

Hi there, Directors owe duties to the company, one of those duties is to act honestly and the other is in the best interests of the company. Generally a director will not be liable or responsible for the actions of the company, as the company is a natural person. However in the case you have described because the directors may have acted dishonestly or misrepresented the company, then they can be held responsible. The individual should get a letter written by a lawyer setting out the facts on which the money is owed and demand repayment, as a starting point.

over 8 years ago

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