Planning for a tale of the unexpected

Mar 2 2010 by Iain Pritty, The Journal

WE introduced you last week to the rather tragic scenario of a businessman becoming incapacitated through illness.

While we do not want to be overly morbid or pessimistic (we are, after all, “technically” out of recession), it is worth pausing once in a while to wonder ‘what if….’

What if you are unable to turn up to work tomorrow, or worse still, unable to give instructions in relation to how the company that you own half of is going to operate?

Jim is the owner of a business and as a result of an unexpected event has become incapacitated. He and his business partner Bob each own 50% of the shares in a successful nursing home company.

Initially, Bob is faced with a number of practical problems. For example, Jim looks after the relationships with the local authorities and the Care Quality Commission requirements, while Bob looks after the employees and is responsible for the financial side of the company.

Now that Jim is unable to do his job, Bob has to understand and deal with Jim’s role. In the first couple of weeks, everyone is understanding of the position that Bob finds himself in. Bob is able to postpone meetings with the local authority, even the regulator understands that appointments have to be moved around and the bank is sympathetic when the monthly figures it is supposed to receive do not arrive on time.

However, there are some things that are not as flexible. Both directors are required to sign cheques and authorise bank transfers. Unfortunately, the company’s articles state that no other director can be appointed without the consent of both shareholders. Jim and Bob always thought that as long as one person could not do anything without the consent of the other, everything would be OK.

There is now a real danger that what was a tragic situation is going to get even worse.

The bank is being helpful and allowing the payroll to go through each month and other ordinary course payments are being made, but Bob cannot make any strategic decisions or incur any other expenditure.

The bank is concerned about its security and the long term running of the business. Jim’s salary is still being paid, but there is not enough spare cash in the business to pay someone else to do his job.

As a result, the company is getting into difficulties. Everything that Jim and Bob worked for is in danger of disappearing.

In addition to being concerned for the welfare of the company that they worked so hard to establish and grow, Bob is now worried about the welfare of his own family and the adverse effects on the business.

A little forward planning can go a long way in terms of ensuring that you plan for certain eventualities.

For more information contact Iain Pritty, associate at Dickinson Dees LLP on 0191 279 9408.