In the early 1990s, a young entrepreneur, following a trip to the USA, saw the opportunity to sell expresso coffee in the UK. Along with his brothers, he established a business doing this from a street cart outside a local market and despite some early growing pains it grew in popularity. A year later, they had their first shop in the local railway station and from there, the business flourished to over 450 outlets today with just £20 million of turnover.
Early on, the business was owned equally by the three brothers and their father. Upon the father’s death, the shares were then divided into sevenths with each brother holding 2/7ths and their mother the remainder. Agreements were put in place to share the profits under this arrangement.
The entrepreneurial brother mentioned earlier was the one with the initial idea and held many aspects of the business together as it expanded. In 2006, some 12 years after its formation, he died of cancer. He was aged 45, married and had a young family. His wife and children inherited his shares and his brothers continued to run the business.
What ensued was warfare! The brothers had disagreements but made sure they enjoyed the continued financial success of the company and began informally taking money out of the company for personal use. They also excluded the surviving spouse and family of their brother. Shortly after her husband died, she stopped receiving her share of the profits and any other financial compensation out of the business she was entitled to from her inherited shareholding. Nor was any proposal made to buy the shares from her!
Eventually, the spouse took the matter to court and, in 2019, some 13 years after her husband’s death, a High Court found in her favour and ordered some substantial payments to be made by the brothers to buy her shares out. Nearly 18 months on, the matter is unresolved and the surviving brothers are now facing bankruptcy petitions from their late brother’s widow as they have not yet satisfied any of the court order.
All of the above is a true story. The company is called AMT Coffee Ltd. Angus was the brother who died, Allan & Alistair are the brothers who currently face bankruptcy. Lucy is Angus’s widow and still awaiting her share of the business to be bought out, estimated to be about £7,000,000.
For brevity, we have omitted comments and observations made by the various individuals and the judge in the case however will post links to articles at the end.
What are the key messages here?
- As a business owner, have you considered the impact if one of your stakeholders dies?
- Have you considered what the people receiving deceased shares will have / want to bring to the business?
- Is there a buyback or buyout mechanism? How will it be funded? Do you have willing external buyers?
We have been able to recount this story as the court case put ALL the details in the public domain and subsequently in the media – is this good PR for your business?
In this example, it is perhaps apparent that Lucy did not want to be part of the business but Angus wanted her and their children to receive their fair share – perhaps by dividends, buyout or a combination of the two? It is now 14 years since Angus died and his wishes for his family have not been fulfilled, though the business continues to thrive?
How can Prosperis help?
- We have been actively advising in the SME market since 2002 and have a deep understanding of differing ownership structures.
- We can establish solutions to ensure funds can be made available when the unexpected happens.
- We understand that each stakeholder in the business has different objectives and will work collectively and individually to tailor an appropriate solution
- We have excellent professional connections to assist with appropriate agreements and will also draw upon the experience of your existing relationships where these are in place.
Finally, we know these solutions have an initial and ongoing cost, but we also know that Lucy will have been satisfied with far less than £7,000,000 some 14 years ago!
To discuss this further please contact your Prosperis Adviser on 01423 223640.