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.
We are featuring the latest issue of Women’s Health magazine in a couple of terrific locations since it is doing so well for us. Our sales are up, jumping our national and state rankings. I put the considerably above channel average sales growth down to the magazine itself and the attention we give it. It responds to this.
