Late last year I and two others formed a business to open a newsagency. We negotiated a lease and signed agreements with several newsagency suppliers. In Mid January the structure of the business changed with an amicable split. One director happily continued with the business and two of us happily left. We resigned as directors and our shares were assigned to the remaining director.
The remaining director operated the business and set about opening a second newsagency business, completing new account paperwork for all suppliers.
Eight months later, both newsagencies closed following the appointment of liquidators.
While the landlord and a long list of newsagent suppliers who were engaged back when the first business had three directors dealt with the only director of the company and the liquidator appointed, Gordon and Gotch approached me and the other original director regarding the director’s guarantee we had signed.
While Gotch had a new account application from the sole director of the business, they did not consider this as rescinding the original director’s guarantees.
I sought legal advice and was pointed to a precedent supporting my view that I was not responsible for the debts of another party, debts I had no control over. Gotch rejected my lawyer’s position on this.
In the meantime, yesterday, I opened another newsagency and the other director has opened one newsagency and is about to open another. Gotch approved new accounts for each of us but has refused to start trading until the debt from the business over which we each had no control is paid. This is odd since they have permitted two of my other newsagencies to continue to receive stock from them.
While I can fight Gotch through the courts it would cost more than the debt of the business over which I had no control and take well into next year. If we want magazines in our respective newsagencies we will have to pay Gotch. They know this. So that is what we have done.
This whole saga has had me look carefully at the Gotch contract and the director’s guarantee. The advice I have is that the contract is problematic for Gotch. However, I don’t have the time to challenge it right now and Gotch knows this. I feel like I have been blackmailed.
I have a couple of takeaways – Gotch does not follow usual practice when it comes to director’s guarantees. If you exit a business you need to ensure that any obligation you took on is resolved and or absolved otherwise you could find yourself settling the debts of others.
The Gotch contract needs an overhaul. It has not changed in close to fifteen years. I’ll write more soon about the Gotch Magazine Ranging and Supply Policy, a policy the company regularly breaches.
i would be chasing up your old partner for the cash , simple as that . How did they let it go so far , they do not let us trade after the last day of the month if the account is not paid so if worse came to worse you return the whole lot of yor magazines when yo shut down and whamo your account should be paid .. one would think anyway
They cost me nearly $5k, and the newsagent for their other store I think he lost $9k. I do need to thank you Mark, as you managed to get some papers back for me which saved me losing another $700.
The store I supplied has been trading for a few weeks with 50% off everything to clear the stock. I am not sure about the other store.
I wonder who will be getting the cash? I suspect the landlord will get it all, as last I heard they refused entry to the liquiditors who wanted to collect the stock to try and get a return for the creditors.
If the store re-opens again, I think I will need to charge 2 weeks bond to protect myself, as they have gone bust twice in less than a year.
It is because noone stands up to gotch that they do what they do.
If you feel you were bullied into paying, how to you think small operators are treated.
By paying up you only prove them right.
Not sure on the distances but couldn’t you have just subbied your supply from one of your other stores until this was sorted out
If you are going to pay up so you can still get supply and you believe you can win a court case then why not still fight it.
Carol the legal case would cost around $20,000 to mount. The Gotch behaviour over the last month shows that they will not hurry. So, we’d be without their magazines for up to a year.
It came down to a commercial decision.
That’s rough. Was not an easy decision to make I bet. These companies are just straight up criminals.
Have heard of NDC “suggesting” that the new owners of a newsagency should pay the outstanding debt of the old owners in order to ensure supply.
It was probably on the blog.
The thing is Steven I signed the guarantee. The lesson is to not expect that all suppliers will act reasonably or, in my view, ethically.
Obviously they did not open another account or pay another bond etc. So we all have to make sure we closed accounts when we sell out. Hard lesson learned here.