Rights Issue and Financial Clarity

[mp2016]

Dear All

This is a bit off topic but was hoping somebody could help.

I bought shares in a private limited company, there are only 5 other shareholders.

The company is having to raise more money due to a lawsuit, it needs to raise 450k in order to pay the lawsuit and survive.

The payment has to be made by the end of jan 2016, or the settlement agreed with the third party will go to court.

The company will not fail immediately if the settlement does not take place and has enough cash flow to go to trial (1 year+ cash flow). (using third party IP / material without paying for it)

However it has been bought up by one of the directors that the main shareholder and CEO may have claimed upto 250k in unwarranted expenses. (travel, entertaining etc.)

It has also been bought up that the company may have paid certain directors upto 130k in unwarranted payments.

1. What is the formal / legal way to get the directors to investigate these claims? as its the CEO would an external party have to be used?

2. Are they allowed to do a rights issue with the uncertainty of financial clarity to shareholders? any laws / directors responsibilities?

3. If they say they have to do the rights issue for the company to survive, does this override financial clarity for shareholders? or does the law say its better to let the company fail than survive if the financial position is not clear?

As a shareholder how do i now if i want to take up my rights is there is potentially 380k worth of money that needs to be returned to the company, so then the rights issue would only be 70k which is very different to 450k


Thanks in advance for any advice

[bd6759]

You need to speak with a solicitor.