The management fee nobody had questioned until the bank asked about it

The situation

The email from the bank's relationship manager arrived with a hard date attached: five business days to submit an updated related-party disclosure schedule as a condition of renewing the company's credit facility, or the renewal would move to a formal committee review that could take months. For a company that relied on that facility to smooth out uneven client billing cycles, particularly during the slower months between large project payments, months was not an option. Missing the window risked a temporary cash squeeze that could delay payroll or vendor payments, the kind of disruption that is hard to explain to staff and even harder to explain to a new hire arriving to run operations.

Anneke and Kajan had built the company together over a decade, growing it from a two-person consulting practice into a data and risk analytics firm serving mid-sized clients across the region, with annual revenue now in the range of $5 million to $20 million. Anneke, who had spent years as a university professor before leaving academia to commercialize her own research, held the majority stake alongside Kajan, whose background as an actuary shaped much of the firm's risk modelling work and client trust. Abirami had joined several years later as a minority shareholder after leading the company's largest client relationship almost single-handedly, and had recently pushed the other two to bring in the company's first outside executive hire, someone with no ownership stake at all, to run day-to-day operations so the three owners could step back into strategy and client work rather than administration.

The executive candidate's offer letter, still unsigned, included a standard condition allowing withdrawal if the company's financial and governance records were not in order by the agreed start date. That start date now sat only a few weeks past the bank's five-day deadline, which meant both pressures were converging on the same narrow window, and neither could simply be pushed back without risking the thing it protected.

It was while pulling together the disclosure schedule for the bank that Abirami noticed something she had not looked at closely before, mostly because the finance function had always been Anneke and Kajan's domain: a recurring management fee, paid monthly for several years, from the operating company to a holding company owned personally by Anneke. The cumulative amount was significant against the company's size, and Abirami could not find a board resolution approving it, a written agreement describing what the fee was actually for, or any record that she or Kajan had ever formally consented to the arrangement continuing at its current level.

Where it went wrong

Anneke had not set out to hide anything. Years earlier, on the advice of her accountant, she had begun routing a portion of her compensation through a personal holding company for tax planning purposes, a common enough structure for an owner in her position. The monthly fee reflected work she genuinely did for the business, ongoing strategic and technical input the company relied on. What had never happened was the paperwork behind it: no formal management services agreement setting out the scope of the work, no board resolution documenting that Kajan and Abirami had ever approved the arrangement or its amount, and no independent sense, from anyone, of whether the fee still reflected a fair rate for what Anneke actually provided as the company grew well beyond the size it had been when the arrangement started.

When Abirami raised it, only days before the bank's deadline, Anneke turned first to her mother, a retired bookkeeper who had helped with the company's records informally in its early years and still gave advice from time to time out of habit. Her mother's suggestion was practical-sounding and, on its face, reassuring: draft a board resolution approving the fee arrangement, date it back to when the payments had first started, and have all three owners sign it now so the file would look complete when it went to the bank. It seemed like a tidy, low-drama way to close a paperwork gap quickly, without anyone having to admit that a mistake had gone unnoticed for years.

It was not tidy. A resolution dated years in the past but signed in the present is not a record of a decision made at that time; it is a document that misstates when it was actually created, and any accountant, lender, or future buyer who compared it against other records, meeting minutes, email timestamps, even the paper stock or software metadata, could reasonably conclude the company's governance file could not be trusted at all. Abirami, already uneasy about the fee itself, became considerably more uneasy once she understood what she was actually being asked to sign, and the conversation between the three owners grew tense at exactly the moment they needed to present a united, credible file to the bank and to the incoming executive.

By the time the company came to us, the backdated resolution had been drafted but not yet submitted anywhere. That was fortunate, but it meant we had two problems stacked together: an underlying related-party transaction that had never been properly governed in the first place, and a same-week attempt to paper over that gap in a way that would have created a worse, harder-to-explain problem the moment anyone looked closely at how the document came to exist.

What we did

1. Advised against submitting the backdated resolution immediately, explaining to all three owners why a document that misrepresented its own creation date created far more risk than an honest disclosure of an ungoverned but real business expense, and that trust with the bank and with each other was harder to rebuild than a fee arrangement was to fix. That advice reframed the week from a paperwork scramble into a choice about what kind of company they wanted the bank and the new hire to see.
2. Reviewed what the management fee actually paid for, interviewing Anneke in detail about her ongoing work for the company, including strategic planning, client relationship support, and technical oversight, and comparing that list against what a holding company arrangement like this is typically expected to cover, so we could separate the legitimate business rationale for the fee from the missing paperwork sitting around it.
3. Obtained an independent benchmark for a fair fee, working with the company's accountant to compare the historical payments against what similar consulting or interim executive services would reasonably cost in the market, which showed the fee had drifted above a defensible range in more recent years as the business grew faster than the arrangement had been revisited. That drift, not just the missing paperwork, was what made the correction a real financial issue rather than a formality.
4. Drafted a proper, current-dated board resolution and management services agreement, setting out the scope of Anneke's ongoing work, a fee going forward benchmarked to the market comparison, and a requirement for annual review and approval by the full board, rather than an informal understanding carried between two founders since the company's early days. Dating it honestly, rather than backward, was the entire point of doing it this way.
5. Negotiated a repayment for the portion of past fees that exceeded the benchmark, structured as a credit against Anneke's future distributions rather than a lump sum the company could not easily absorb, so the correction was real and enforceable without destabilizing operations during an already tight period before the bank's deadline. This gave Kajan and Abirami something concrete to point to, not just an apology.
6. Prepared an honest disclosure package for the bank, describing the historical gap in governance plainly, the corrective steps already taken, and the new agreement now in place, rather than presenting a file that quietly implied the arrangement had always been properly documented from the start. An honest but corrected file is far easier for a lender to accept than a clean-looking one that later turns out to have been touched up.
7. Reviewed the executive candidate's offer conditions against the corrected file to confirm the governance issues the withdrawal clause was designed to catch had genuinely been resolved, not just concealed, before the company represented that fact to the incoming hire in writing. Signing off on a representation that was not actually true would have created a fresh legal exposure of its own.
8. Set up a standing annual review process for any related-party payment, tying it to the company's fiscal year-end so a fee like this could never again drift for years without a documented check from the full board, and building it directly into the new executive's oversight duties so the review would not depend on any one owner remembering to raise it.

The outcome

The bank renewed the credit facility, but not without friction along the way. The relationship manager asked pointed follow-up questions about the historical gap once it was disclosed, and the renewal ultimately came with a new covenant requiring the company to provide annual confirmation that all related-party arrangements had current board approval, a condition it had not faced before and now has to comply with for as long as the facility remains in place.

Anneke repaid the excess portion of past fees through reduced distributions over the following year, a real financial cost she absorbed personally rather than passing on to the company or her co-owners. The executive hire went ahead, though the start date slipped by several weeks while the corrected paperwork was finalized, and the new executive's first real project once in the seat was helping implement the annual governance review the bank now required as a standing condition.

The relationship between the three owners was not free of damage. Abirami has said plainly that the backdating suggestion, even though it was never actually submitted anywhere, changed how she reads the company's records now, and the owners have since adopted a firm rule that no related-party arrangement of any kind goes forward without a written agreement and a documented board vote before payments start, not after the fact. It was a costly, uncomfortable way to arrive at a rule most companies their size adopt much earlier, and the cost here was contained rather than eliminated.

The company's accountant now flags any payment to an owner or an owner's related company for a second review before it is processed, a small operational change that costs almost nothing and would have caught the original gap years earlier if it had existed from the start. None of the three owners describe the episode as a disaster. All three describe it as the moment the company's paperwork finally caught up with how large and how scrutinized the business had actually become.

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