Safeguarding the family business when co-preneurs split

29 September 2011
Safeguarding the family business when co-preneurs split

A split in the husband-wife relationship can rip out the heart of a family-run business if it's not resolved swiftly, Andrew Fox explains

THE PROBLEM Frank and Anna Appleton, a couple in their 50s, run a small family hotel in Whitby. The pair are equal shareholders in the hotel, with Frank the organiser of the business and responsible for front of house and Anna taking charge of the wages and back-office admin.

The Appletons' marriage has been deteriorating for some time and they have decided to separate. Sleeping in separate rooms, they are struggling to run the hotel in an amicable and professional manner and the strain of their split is taking its toll on them and on the business - and ultimately affecting the guests.

THE LAW If co-owners of a business don't hold the regular directors' and shareholders' meetings - which is often one of the fundamental considerations to fall by the wayside when a marriage is in difficulty - the company will reach an impasse from which it may be unable to recover.

If matrimonial issues develop and become subject to the processes of the court, then the court will have the power to regulate the business or its directors in order to protect the principal asset. This could result in either Frank or Anna being excluded from the hotel to prevent the friction affecting the business.

EXPERT ADVICE Mr and Mrs Appleton are on the road to unmitigated chaos if they carry on as they are. It's imperative that the business is protected from a decline into liquidation, which is what will happen if the situation is allowed to continue.

They should ensure they choose a law firm with an outstanding reputation in family and corporate law, preferably one where the collaborative approach to divorce is practised.

Collaborative family law aims to resolve matters amicably and more quickly without going to court.

In a collaborative setting, the Appletons would sit down, with their lawyers, and with other professional advisers such as accountants on hand when necessary, work through the issues on a timescale to suit them and their business.

â- Look for a law firm specialising in collaborative law, and that can offer corporate support, too. The transparency and immediacy of the collaborative process removes much of the hostility and trauma that can arise from misunderstandings when separating couples communicate through solicitors' letters.
â- The couple should properly, and in writing, define their individual roles within the business.
â- Ensure that the business holds regular directors' and shareholders' meetings, with lawyers present.
â- Avoid fighting and causing chaos that will destroy your business.

BEWARE! The worst case scenario is that the Appletons' one prime asset, and the product of their years of hard work, becomes virtually worthless. The stress on the business of the couple's conflict has the potential to corrode the smooth running of the hotel as important tasks become neglected and staff become partisan. Before too long the business will have been run down and the Appletons' hotel will be unable to attract guests.

Andrew Fox is a partner and barrister at Jones Myers

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