BLP weak areas (SQE 2) Flashcards

Question

Removal of directors: Timeline if shareholders propose a removal resolution? Timeline if shareholders have to serve s303 request and -board cooperates -board does not cooperate

Answer 1

Give notice to directors at least 28 clear days before GM - if board places removal res on agenda of GM, should give shareholders notice of GM (at least 14 clear days before GM) If removal res not placed on GM, then s303 request option If cooperate: call GM within 21 days, Gm not held later than 28 days after notice If not cooperate: on 22nd day, shareholders (at least 1/2 in voting right of those submitted s303) can call GM within 3 months and not less than 14 clear days

Answer 2

Negligence, default, breach of duty or trust by a director Director (inc. shadow directors) Shareholder (includes events which took place before becoming member) Court approval: Stage 1 - member has to prove they have a prima facie case (satisfied acting in accordance with s172, good faith, cause of action likely to be ratified by company) Stage 2 - Detailed consideration. Court must have particular regard to view of members who have no personal interest, direct or indirect, in the matter Then proceeds to trial

Answer 3

Ordinary (right to vote, right to dividend, right to portion of surplus assets on winding up) Preference (higher priority to dividend or surplus on winding up at fixed rate, usually non-voting) Cumulative preference (right to dividend carried forward if not declared) Participating pref shares (pref shares - get priority but then also entitled to surplus capital or dividend alongside ordinary shareholders) Redeemable - can be redeemed back by company Convertible.- can be converted to another type of share

Answer 4

Accumulated realised profits less accumulated realised losses

Answer 5

Copies of resolutions to be sent to Companies House within 15 days: -OR to grant authority to allot -All SRs -Amended Articles (if relevant) Company forms to be sent to CH: -return of allotment (form SH01) + statement of capital within 1 month -change to PSCs (PSC01-PSC07) Update company registers -update register of members within 2 months -Update PSC register Share certificates: -Must be prepared and sent to new shareholders within 2 months of allotment

Answer 6

Redemption of redeemable shares Purchase of own shares (buyback) Initial steps -Check there is no limit in Articles on s 690 power to buyback shares -Prepare accounts to check there are sufficient distributable profits -Confirm shares are fully paid Board Meeting -BR to approve the draft contract -BR to call a GM and approve form of notice / propose a WR -Contract to be made available to shareholders: - If GM: contract must be available for inspection at the company’s registered office for at least 15 days prior to and at GM - If WR: circulate contract with WR GM / WR -Shareholders pass OR to approve contract. -Holders of shares being bought are not eligible to vote. Board Meeting -BR to enter into the contract -BR to appoint a director(s) to sign the contract Post meeting matters -File return, notice of cancellation & statement of capital within 28 days -Keep copy of contract for 10 years -Cancel shares, update register of members (and PSC register if applicable)

Answer 7

PRIVATE companies only! Initial steps -Check there is no limit in Articles on s 690 power to buyback shares or s 709 power to use capital to fund the buyback -No earlier than three months before the directors prepare the statement of solvency, prepare accounts to ascertain available profits -Confirm shares are fully paid Board Meeting -BR to approve the directors’ statement of solvency (‘DSS’ -must be made no earler than 1 week before GM) and the auditors’ report (‘AR’) -BR to approve the draft contract -BR to call a GM and approve form of notice / propose a WR * Contract to be made available to shareholders: - If GM: contract must be available for inspection at company’s registered office for at least 15 days prior to and at GM - If WR: circulate contract with WR * DSS and AR must be signed no earlier than one week before the GM or the passing of the WR WR Circulate WR with contract, DSS and AR. * SR to approve payment out of capital and OR to approve contract. * Holders of shares being bought back are not eligible to vote. ALTERNATIVELY GM -Shareholders pass OR to approve contract. -Shareholders pass SR to approve payment out of capital. -Holders of shares being bought are not eligible to vote. * Contract, DSS and AR must be available at the meeting. Following GM / WR * Within 7 days: place notices in Gazette and national newspaper and file DSS and AR at Companies House. * Within 15 days: file SR at Companies House. * For five weeks after date of SR: creditors and shareholders have right to object. Copies of DSS and AR must be available for inspection at company’s registered office. Board Meeting * BR to enter into the contract. * BR to appoint a director(s) to sign the contract. * Payment out of capital must take place between 5-7 weeks after SR passed. Post meeting matters * File return, notice of cancellation & statement of capital within 28 days. * Keep copy of contract for 10 years. * Cancel shares, update register of members (and PSC register if applicable). DSS = confirms company solvent and will remain so for 12 months after buyback (crim sanctions if no reasonable grounds) AR = written statement of solvency confirming auditors not aware of anything to indicate directors opinion not reasonable

Answer 8

Any person who is knowingly party to the carrying on of any business of the company with intent to defraud creditors or for any fraudulent purpose Actual dishonesty - 1) Director's subjective state of knowledge 2) that D's conduct was dishonest, applying objective standards of ordinary decent people Remedies: -Will be ordered to make such contribution to the company's asset as the court thinks proper (should only reflect and compensate loss caused to creditors) -Court can make a disqualification order -Criminal sanctions can be imposed for those knowingly party to fraudulent trading (imprisonment up to 10yrs/fines)

Answer 9

Administrator or liquidator Limb 1: Gone into insolvent liquidation 1. At some time before the commencement of the winding up or involve administration, 2. the director knew or ought to have concluded that 3. there was no reasonable prospect that the company would avoid going into insolvent liquidation (JUDGED ON THE BALANCE SHEET TEST ONLY!!) Limb 2: That the continued trading made the company's position worse Only if (2) and (3) are satisfied does limb 2 need to be considered Defence: 'Every step' defence (took every step minimising potential loss to company's creditors e.g. voicing concerns are board meetings, seeking independent financial and legal advice, taking advice on steps such as insolvency procedures or negotiating with creditors to restructure liabilities) In determining whether D took every step to minimise potential loss, court will consider (1) the general knowledge, skill and experience reasonably expected of a person carrying out same functions of director in question (objective) (2) Actual knowledge, skill and experience of that particular director (subjective) Then apply HIGHER of 2 standards

Answer 10

Minimise claim: 1) Hold frequent board meetings to review company's financial position and write up minutes of each meeting so there is a written record 2) take professional advice ASAP 3) make sure have up to date financial info available NO Remedies: -Court can order that director make such contribution to the assets of the company as the court thinks fit (compensatory and not penal, can apportion liability between directors based on culpability) -Discretion for disqualification order Relief to relieve director by shareholders is not available

Answer 11

* ‘Connected persons’ with the company (s.249) – are directors (including shadow directors), associates of directors and associates of the company. * ‘Associates’ of director/company (s.435) – include spouses, business partners, employees, relatives including brother, sister, uncle, aunt, niece, nephew, etc. (widely defined in s.435(8)), certain trustees, a company which is controlled by the director and a company which is itself associated with the company in question, where both are mutually controlled by some other company or person.

Answer 12

1) The company entered into transaction in good faith and for purpose of carrying on its business 2) There were reasonable grounds for believing transaction would benefit company Sanctions: Discretion to award such order as it thinks fit to restore company to position had it not entered into transaction (common for counterparty to pay amount of undervalue) Court should not prejudice subsequent purchaser provide they were acting in good faith and for value -Rebuttable presumption not in good faith where subsequent purchaser: (1)had notice of relevant surrounding circumstances, or (2) Was connected or was an associate of company or party -here burden of proof shifts to subsequent purchaser

Answer 13

TUV: 1) Gift/transaction at undervalue 2) relevant time (2 years ending with onset of insolvency) 3) Insolvent at time or became so as a result (cash flow/balance sheet) - presumed if connected Preference: 1) Relevant time (6 months, 2 years (if connected)) 2)Insolvent at time or became so as a result (cash flow/balance sheet) 3) Desire to prefer (subjective test - presumed if connected))

Answer 14

Absence of desire to prefer - desire to continue trading instead Restore position had it not given preference - same with TUVs Common is for preferred creditor to pay liquidator or administrator money it received from company

Answer 15

A majority in members who, together hold shares with a nominal value of not less than 90% of total nominal value of shares (can be > to up to 95% in Articles) BM1 (adjourned) - resolve to convene GM, approve form of notice for GM and form of consent to short notice. Notice of GM and form of consent to short notice given to shareholders who indicate agreement for GM by signing form GM BM1 (reconvened) PMMs

Answer 16

BM: min of 2 directors (unless Art provide otherwise) GM: two shareholders (or 1 for single member companies) Quorate 1 2

Answer 17

1. Members of the director's family: spouse or civil partner, parents, children or step-children (s 253(2)). (a) Note that brothers, sisters, grandparents, grandchildren, uncles and aunts are NOT connected persons under CA 2006. 2. Bodies corporate i.e. companies in which the director (and others connected with them) holds 20% or more of the shares (s 254). 3. A business partner of the director or those connected with them (s 252(2)(d)). 4. Trustees of a trust the beneficiaries of which include the director or those connected with them (s 252(2)(c)).

Answer 18

New individual PSC New relevant legal entity PSC (same as individual but corporate entities) Change to individual's details Ceasing to be PSC - all entities

Answer 19

Floating charge which (i) together with any other security that holder of floating charge holds relates to whole or substantially the whole of company's property and (ii) doc which creates it provides that QFC holder has power to appoint an administrator

Answer 20

Some money ring fenced (certain % of company's net property - property not subject to fixed charge) which is reserved for unsecured creditors (does not go to floating charge holders)

Answer 21

1. If share cap in Articles - need to remove by OR(!) - only relevant to pre-2006 companies 2. OR to allot unless private company with only one class of share (and proposing to allot same type of share) 3.Disapply pre-emption rights by SR: needs to be done in any case where the new shares are not capped as to right to dividend and capped as to right to capital on a winding up 4. SR to amend Articles (if creating new class of shares) 5. Board resolution to allot: board resolution needs to be passed to approve the issue of the new shares (needs a simple majority by number of directors)

Answer 22

Transaction defrauding creditors - voidable transaction 1. there has been a transaction at an undervalue; and 2. the intention or purpose of the transaction was to put assets beyond the reach of creditors of the company or otherwise prejudice their interests No relevant time - more recent will be more likely though Any order it sees fit

Answer 23

Created within 12 months preceding insolvency (or 2 years to connected person) Company was insolvent (on cash flow or balance sheet basis) at time or became so as a result (not necessary if to connected!!) If new money or fresh consideration is provided in return for floating charge being granted