BORP Flashcards
Explanation of ordinary / special resolution
- Explain required vote for each
- Explain how this works practically: result if show of hands vs poll vote
- Right to demand a poll vote if hold over 10% of the company’s shares
- Consider both how the resolutions can be passed AND if shareholder(s) can block them
Apply principles to client’s situation, explaining which shareholders in practice need to vote in favour to pass AND if there is a shareholder(s) who can block the resolution as well
(e.g., more than 25% and can block a special resolution)
What are pre-emption rights?
- Pre-emption rights are rights of first refusal
- Some new shares must be offered to existing shareholders proportionately before being issued to a new shareholder
- This is to make sure that current shareholders’ right are not unfairly diluted
- Only certain types of shares carry pre-emption rights (if they fall into the definition of ‘equity securities’)
What are equity securities?
These are all shares other than those which provide both a fixed divided and fixed return on capital on a winding up
Why do the Articles need to be amended if there is a new class of shares being issued?
- Company has model articles which do not provide for the new share class
- The articles need to be amended to insert details of the new shares into the articles
- This is done by passing a special resolution
What is a claim for wrongful trading?
This is the major risk for directors of companies encountering financial difficulty and facing prospects of administration or liquidation
It can be brought against a director who knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation and insolvent administration
- Directors are then under a duty to take every step to minimise the potential loss to the company’s creditors
What is a claim for misfeasance?
It is a claim against directors who have misused company assets and breached their duty to the company, causing harm to the company or creditors. It holds directors accountable for their misconduct when company goes into insolvency
What is bankruptcy?
It is a way for an individual to deal with debts that they cannot pay. It is a collective insolvency procedure which involves the collection, sale and distribution of an individual’s assets for the benefit of all their creditors
Bankruptcy begins when a bankruptcy petition is presented
Discharge from bankruptcy:
- General rule is that a bankrupt is automatically discharged from bankruptcy after a max of one year
What is an individual voluntary arrangement?
An agreement with creditors to pay back some or all of an individual’s debts
- pay only part of a debt or have a longer period to pay it back (compromise liabilities with their creditors)
- a licensed insolvency practitioner is appointed as the supervisor of an IVA
- typically lasts 3-5 years
Setting up an IVA
- For the proposal to be binding, it must be approved by creditors holding at least 75% of total debt owed to creditors voting on the proposal
- If approved, it binds all unsecured creditors
Advantages:
- alternative to bankruptcy, avoids the stigma
- can bind all unsecured creditors
- moratorium available
- if at the end of the IVA, the debtor has complied with the terms, creditors will have to write off any balance of their pre-IVA debts against the debtor
Disadvantages:
- may last longer than bankruptcy
- cannot bind secured or preferential creditor without consent
- can be expensive, time-consuming and uncertain
What are the grounds for an individual’s bankruptcy petition?
Creditors’ Petition
- The debt is one the debtor appears unable to pay or has no real prospect of paying
- Debt owed is for an unsecured sum exceeding £5,000
Debtors’ Petition
- The only ground is that the debtor is unable to pay their debts
- Must be accompanied by a statement of affairs
Inability to pay debts is evidenced by:
- Statutory demand that has not been satisfied or set aside by the court within three weeks
- Unsatisfied execution of a judgment or another legal process
Transaction at an undervalue (company)
- Loss of value from a company (e.g., by way of gift; granting security for no consideration; value of significantly less consideration)
- To the company’s detriment
- At a time where the company is insolvent: unable to pay debts
Relevant time:
- 2 years ending with onset of insolvency
Company must be insolvent at the time or became so as a result:
- TUV with connected person = insolvency presumed
- Burden of proof is on the connected person to prove the company was solvent
Transactions defrauding creditors (company)
Requirements:
- TUV
- Intention or purpose was to put assets beyond the reach of creditors or prejudice their interests (additional requirement to prove compared to TUV)
There is no time limit to bring this claim
- Whereas TUV = 2 years within onset of insolvency
There is no need for the company to be insolvent
Preference by a company
- The recipient of the preference is the defendant in the claim (e.g., against the creditor who received a preference)
Company gives a preference if:
1. That person is a creditor of the company;
2. Company does anything which has effect of putting them in a better position in the event of the company going insolvent
Preference is voidable if:
1. Relevant time: 6 months ending with onset of insolvency
- Relevant time extended to two years if to connected person
2. Prove the company was insolvent or became so as a result
3. Proved that company was influenced by a desire to prefer
- If preference is given to connected person: rebuttable presumption that company was influenced by desire to prefer
Avoidance of floating charges
This claim prevents a creditor obtaining a floating charge to secure an existing debt for no new consideration
For a floating charge to be avoided:
1. Relevant time: 12 months ending with onset of insolvency
- Extended to two years if floating charge is granted to connected person
2. Must be proved the company was insolvent or became or as a result
- No insolvency requirement if to a connected person
New floating charges are valid:
- To the extent that new money or fresh consideration is provided
What is capital gains tax?
It is the tax an individual pays on any profit made when they sell (dispose) of something (an asset) which has increased during the period the individual owned it.
Basic calculation of a chargeable gain:
- Sale proceeds - less disposal expenditure = net sale proceeds
- Less initial expenditure - less subsequent expenditure = chargeable gain
What is allowable expenditure for CGT purposes (to calculate the chargeable gain)?
- Disposal expenditure (e.g., agent’s fees)
- Initial expenditure (cost price of the asset and incidental costs of acquisition)
- Subsequent expenditure (which enhances the asset’s value)
How can the taxpayer take advantage of capital losses and exemptions?
- Using capital losses: any capital losses than an individual has made in the same tax year can be deducted from any gains
- Annual exemption: every individual is entitled to £3,000 (not available to companies)
Deduct losses and exemptions to get the TAXABLE CHARGEABLE GAIN (apply tax rate)
What are the Capital Gains Tax Reliefs?
- Business Asset Disposal Relief
- Investors’ Relief
- Rollover Relief
- Hold-over Relief
