Spouse removed as director of family business after separation...

A couple were married for sixteen years and were directors and equal shareholders of a company which ran multiple businesses.

Upon separation, the husband unilaterally removed half of the funds from a business account without his wife’s consent and before the relationship property was divided. When his wife asked about the withdrawal, he told her that since the marriage was over, the removed funds were his “share”.

The wife later withdrew the remaining funds to prevent the husband from withdrawing any more money from the account.

The wife tried to communicate with the husband on multiple occasions regarding the management of their company but received no response. She felt she had no choice but to apply to the Court to remove the husband as a director.

Under New Zealand company law, shareholders may apply to the Court to remove a director if they consider the affairs of a company have been conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to them.

The Court considered the following factors:

• The withdrawal of half the funds of a business account was a ‘major transaction’ that should have also been authorised by the wife. The withdrawal weakened the company’s position regarding its financial obligations and devalued the wife’s shares;
• The failure of the husband to communicate with the wife unfairly prejudiced her position because she could not wind up the company, decide upon any major transactions, or apply for new lending;
• Without the husband’s engagement, draft financial reports cannot be finalised and filed leading to a $7000 infringement penalty upon each director, and the investments’ tax of the company could not be paid.

While the Court stated it was wrong for the wife to remove the remaining funds from the account, it was just and equitable to remove the husband as a director due to his lack of communication and putting the company and the wife in a difficult position.

The Court also made an order to transfer the husband’s shares in the company to a professional trustee.

This case demonstrates the importance of spouses in business together to have a plan in place if they separate. Both parties must receive legal advice from a legal professional to be aware of their continuing obligations towards the business, and avoid either partner being caught out by the other’s negligence or misconduct.

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