Contract entitled restaurant manager to be director and shareholder

The High Court has ruled that a restaurant manager was entitled to be a director and shareholder of a new business he had set up with a married couple. He was also entitled to payments as specified in a contract agreed by both sides.

Sam Lyon Head of Corporate & Commercial reports on this recent case.

The manager had run a restaurant from premises which were held on a 15-year lease. The married couple were involved in running another restaurant business nearby.

The three decided to go into business together running a new restaurant from the manager’s existing premises.

They entered into a written agreement which provided that the couple would run the restaurant for a minimum of three years; the manager would receive a weekly payment of £500 for the first 52 weeks.

From year 2 onwards, the net profit after settlement of all bills and salaries of staff and directors would be split 50% for the manager, and 25% each for the couple.

The manager would have an option to sell the business at market value. If he decided to sell the business, or if the couple decided to resign as directors between year 3 and 5 and give the manager full directorship of the restaurant, they would be entitled to 40% of the valuation as defined.

The day-to-day running of the business would primarily be the responsibility of the couple with the manager having no fixed responsibilities.

The manager sought payment of moneys said to be due under the agreement, and claimed that, based on the agreement, he was entitled to be a director of the new company and to have a 50% shareholding in it.

The couple disputed the manager’s interpretation and said that they had been induced to enter into the agreement by misrepresentations made by him concerning the existing lease of the premises.

The court found in favour of the manager. It held that he was entitled to be a director of the new company. That was the implication of the provision that he would have “no fixed responsibilities” and the fact that he was given an option to sell the business and that if the couple resigned, he would have “full directorship”.

The provision that from year 2 onwards the net profit after settlement of all bills and salaries of staff and directors would be split 50% for the manager meant or implied that he would have a 50% shareholding.

The couple were in breach of the agreement because they had not made the payments due and had not procured that he became a director and shareholder.

The court agreed that the manager had misrepresented the position with the lease, but he had not done so fraudulently and in any case, it didn’t affect the court’s decision.

If you would like more information about the issues raised in this article or any aspect of contract law please contact Sam on 01228 516634 or click here to send him an email.