BLP Structures Flashcards
Financial Assistance Structure? (06 Co.)
- There must be an ACQUISITION OF SHARES
- Prohibited Financial Assistance?
- Identify target.
- Timing
- Type
- Direct/Indirect - Exceptions
- Purpose exceptions at (2) and (4)
- Unconditional exceptions at s.681.
- Conditional exceptions under s.682 - Consequences of Breach - s.680:
- Statutory
- FInancing is void and as may broader transaction
1985 Financial Assistance?
Transactions pre- 1 Oct 2008
Applies to Target (plc or Ltd or all subs)
Whitewash procedure to authorise (SR and D’s stat declaration)
Seller may not have legitimate title
Voidable transaction / Floating Charge structure?
- Relevant transaction
- Who can bring a claim
- Connected person
- Relevant period
- What needs to be shown
- Burden of proof?
- Defences?
- Sanctions?
APPLY to facts!
Insolvency claims against directors - structure?
ie. Wrongful trading
- Who can bring the claim?
- Against whom?
- What does the claimant have to show?
The dual test must be satisfied
i) First limb – did the director know or ought to have known that the company had lost reasonable prospect of avoiding insolvent liquidation, if yes – consider second limb
ii) Did directors take every reasonable step to minimise loss to creditors
- Subjective and objective tests for both limbs: take the higher of the two
- Defences (what action can director take)
- Sanctions
Loans / Quasi Loans / Credit Transaction (Security or Guarantees in relation to each) - Structure
- Nature of Company (Ltd, or plc + associated with plc)
- Nature of Transaction (Type + to who?)
- Is SH approval needed AND of which company?
(Ltds only need approval for loans and security/guarantee for loans) - Exceptions?
- Consequences?
- Compliance with duties s.172, s.177 and MA14 (even if approval has been given)
Allotting shares - 5 step structure?
CATS AND DOGS NEVER BOND
- CAP on shares (Amend Articles if so, 1985 can remove by OR)
- Authority to allot
- Dis- apply pre-emption rights if Equity securities
- New class of shares
- Board resolution to allot.
Effect of a prepayment in the Profit and Loss Account and Balance Sheet?
- PnL: Expense will reduce and the profit will increase by same amount.
- Balance Sheet:
- Increase in the retained earnings in the bottom half of the balance sheet.
- Prepayments in will increase in the current assets section of the top half of the balance sheet will also increase.
3. Corresponding movements in Net assets and Capital mean balance sheet will still balance.
Effect of an accrual Profit and Loss Account and Balance Sheet?
- PnL: Expense (eg. electricity) will increase and the profit will decrease by same amount.
- Balance Sheet:
- Decrease in the retained earnings in the bottom half of the balance sheet.
- Accruals will Increase in the Current Liabilities section of the top half of the balance sheet will increase.
3. Corresponding movements in Net assets and Capital mean balance sheet will still balance.
Effect of an increase of the bad debt provision?
- PnL: Increase in the Bad and Doubtful debts entry meaning proft will decrease/
- Balance Sheet:
- Decrease in the retained earnings in the bottom half of the balance sheet (profit figure carried over is lower)
- Reduction in the value of Receivables (debtors) as they are written off.
3. Corresponding movements in Net assets and Capital mean balance sheet will still balance.
SPTs - Structure (s.190)
- Director/Connected Person:
s.252-256
s.253 – definition of family
If you own 20% of a company, that company is connected to the director. - Non-cash asset.
- Substantial?
- Consequences?
Rollover Relief
1) Optional relief to defer payment until sale of new asset.
2) Qualifying Asset within the specified period (Buildings, aircraft, machinery - 1 year before, 3 years after)
3) Chargeable gain is rolled over
4) Actual acquisition cost is deemed to be reduced by the chargeable gain for tax purposes
What is a close company?
s.439 CTA 2010:
If under the control (over 50% of voting rights):
a) 5 or fewer participators; OR
b) OR any number of participators who are also directors
A Participator – person having shares in the company
When does tax effect of close companies apply?
Applies where there a loans to participators EXCEPT:
- Form of credit not exceeding 6 months
- Loan in the normal course of money lending business
- Does not exceed 15,000
Tax effect on close companies for the company and the individual?
Company:
1) Corporation tax rate at 32.5% on amount of loan to HMRC
2) Due within 9 months and one day after the end of the
accounting period in which the loan was made
3) Tax refunded to company if loan is repaid/satisfied/written off
Individual:
1) No tax effect if paid off in full
2) If written off, deemed to receive a windfall so taxed as as dividend income.
When are dividends payable?
Final Dividend: Once it has been
declared by the shareholders
Interim Dividend: Only becomes a debt payable to the shareholders once they are actually paid.
