business Flashcards
sole traders
-personally liable for all the debts of the business.
- they pay income tax as a self employed person.
- benefits from the profits and bears the losses.
- personal and business assets are treated the same for legal purposes (unlimited liability_
de jure directors
-validly appointed directors - executive or non executive
director’s role in the company
agents of the company
role of shareholders
- owners of the company
- able to control key decisions through SR e.g. give directors authority to change the name of the company.
director authority to manage the company
- CA 2006 reserves certain important decisions for shareholder approval, such as changing the company’s name (unless the articles provide otherwise), amending the articles of association, removing directors and so on.
The board of a company with MA is usually free under a company’s articles to make decisions on behalf of the company on all other matters (MA 3).
The directors can therefore act on behalf of the company to employ individuals (other than directors on long term service contracts) and decide what they will be paid, enter into contracts with customers and suppliers, buy and sell company property, raise funds by borrowing from banks and authorise the company’s assets to be used as security.
The directors are also responsible for putting together company accounts and for supplying information to auditors. These are just a few examples of the decisions that directors are free to make without shareholder approval.
MA 5 allows the Board of Directors to delegate a particular decision to one of the directors or a committee. For example, a HR Director might be delegated decision-making with regards to the HR decisions of a company.
how many directors must a company have?
- a private limited company myst have at least 1 direct
- public - 2
although a company can be appointed as a director, every company must have at least one director who is a natural person, to ensure that there will always be one individual (accountability reasons)w
Who can act as a director?
s157 CA - restrictions on becoming a director
- 16 years old
- not bankrupt
- doctor gives a Witten opinion to the company stating that they have become physically or mentally incapable as acting as a director and may remain so for more than 3 months.
- not disqualified from doing so
alternate directors
- the office of a director is a personal responsibility.
- some companies, in their articles, provider alternate directors
- usually either a fellow director or someone has been approved bbt a resolution of the board of directors
- model articles don’t provide for alternative directors and since it is now possible to hold meetings over phones, increasingly rare.
company secretary - only required for public companies.
a company’s secretary’s main duties are to keep the companies books up to date, produce minutes of board and gas and make sure all necessary filings are made at companies house.
it is not part of their role to take decisions on behalf of a company which is the domain of either the directors or the shareholders.
appointing directors
- ordinary resolution of the shareholders
- by a decision of the directors
service contracts - must be kept at the registered office for inspection by members
executive directors are also employees, they require service contracts - these are written contracts of employment setting out the terms and conditions of employment including duties, remuneration package and notice provisions
who determines the content of a directors service contract?
- MA 19 - board to determine - will only require the approval of a resolution of the board of directors.
shareholder approval for long term service contracts ss188 CA
guaranteed term of more than 2 years (including any notice etc). ordinary resolution of the shareholders.
when is shareholder approval not required for a long term service contract ?
under s88(6)(b) approval is not required by the members of any company which is a wholly owned subsidiary of another company.
when the company is owned by on shareholder it is exempt from obtaining approval
what happens if the long term service contract is for a director of a holding company?
if the director is also a director of any holding company, the shareholders of the holding company will also need to give approval
what is a holding company?
a parent company - usually a corporation or llc whose purpose is to buy and control the ownership interests of other companies.
the companies that are owned or controlled by a corporation holding company are called its subsidiaries.
disclosure of identity of directors and secretary requirements
- company register of directors and secretary - keep at registered office.
- each company must notify the companies house of changes relating to directors or secretary AP01 (appointment of director)
privacy for directors (if client expresses concern over confidentiality)
Section 163(1) CA 2006 specifies that only a service address for a director needs to be included on the company’s register of directors (s 277(5) CA 2006 contains the same provision in relation to the address to be included on the company’s register of secretaries).
This service address can either be the director’s residential address (if they are not concerned with the need for privacy) or could simply be the company’s registered office and will be the only address available to the public generally.
Residential addresses that are already on the public register will not be removed automatically.
Individual directors (but not secretaries) will still have to provide their residential address under s 165 CA 2006, but this information will be kept on a separate, secure register. This register is not open to public inspection.
appointment of a new director - filing requirements
- notify CH within 14 days
- Via form AP01 (individual director) AP02 (company director).
- the company must also enter the director on its register of directors residential addresses.
disclosure required for annual accounts;
- directors salaries, bonus payments, and pension entitlements and
- compensation paid to directors and past directors for loss of office
s412 also requires details to be disclosed of any payments made to or received by a person connected to such a director or a body corporate controlled by a director.
s413 - relates to disclosure of information on advances and credits given by a company to its directors and guarantees entered into by a company on behalf of its directors.
removing a director
s168(1) CA - company may by OR remove a director before the expiration pf their period of office (special notice must be given to the director).
board removing a director/
not unless their articles specifically provide for this.
resignation of director
- resignation by notice
a director may tender a letter of resignatuion
automatic termination of a director
under MA 18 - automatic
- disqualified - CDDDA 1986(company directors disqualification act) - under this act the curt may make a disqualification order against them preventing them to be a director, liquidator etc. the purpose is to protect the public against the activities. grounds: fraudulent, wrongful trading, persistent breaches of company law. period is max 15 years.
- IVA
- bankrupt
- physically or mentally incapable (doctor (3 months or more))
what should be filed at companies house when a director leaves office
UPDATE BOTH COMPANY’S INTERNAL REGISTER AND GIVE NOTICE TO COMPANIES HOUSE TM01.
director’s duties
owed to the company and not individual shareholders - on insolvency the duties shift to the protection of creditors.
general duties s170-177 CA 2006
- duty to act within powers
- promote the success of the company for the benefit of members as a whole (ensure board minutes clearly note that consideration was given to s172 when taking board decisions)
- exercise individual judgement
- exercise reasonable care skill and due diligence - the level of skill reasonably diligent person - may be raised if the particular director has any special knowledge, skill and experience
- duty to avoid conflicts of interest
- duty to not accept benefits form third parites
- duty to declare interest in a proposed transaction
remedies for breach of directors duties
under s178 of the ca - the consequences of a breach of director’s duties are the same as for breach of the corresponding law or equitable principles.
- an account of profits
- compensation for the loss suffered by the company
- recession of any contract entered into as a direct or indirect result of the breach
- injunction to prevent further breaches
s174 - akin to negligence - common law damages
ratification for breach of duty
the shareholders by OR can ratify the following conduct of directors
1. negligence
2. default
3. breach of duty and
4. breach of trust.
what are the three circumstances where there is a transaction between the company and its directors (or people connected to them) which require the approval of the company’s shareholders in order for the transaction to be valid?
- directors long term service contracts
- substantial property transactions
- loans, quasi loans and credit transactions.
member’s inspection rights of all director’s service contracts
a company must keep a copy of all the directors service contracts at the company’s registered office or place specified in regulations made under s1136 ca for a period of at least 1 year from the date of termination or expiry of the contract.
regardless of the length of the service contract and whether it is terminable within 12 months.
have the right to inspect without charge to to request a copy on payment of a fee.
procedural issues for long term service contracts
where the OR is to be passed at a gm: - sets out that a memorandum setting out the proposed contract must be made available for inspection by members of the company both
- at the company’s registered office for not less than 15 days ending with the date of the meeting and
at the meeting itself. - therefore a minimum of at least 15 days will need to be given to the shareholders even if short notice procedure is followed UNLESS written resolution procedure is used.
where the wr procedure is being used the memorandum setting out the proposed contract must be sent to every eligible member before or at the time at which the proposed resolution is sent.
substantial property transactions - when must shareholder approval be given?
BEFORE THE TRANSACTION IS ENTERED INTO, OR AFTER ONLY IF THE TRANSACTION IS MADE CONDITIONAL ON APPROVAL BEING OBTAINED.
what is a substantial property transaction?
acquisition or disposal by a diorector/holding company director or connected person of a substantial NON CASH ASSET to or from the company.
they are permitted, but require shareholder approval by OR
SPT: non cash asset definition
- asset other than cash where the value is EITHER:
- over £100,000 (always substantial.)
- between £5,000-£100,000 and equates to more than 10% of the company’s net asset value.
if the company has only recently been incorporated - and no accounts have been prepared - then the net asset value is taken to be the amount of the company’s CALLED UP SHARE CAPITAL.
called up share capital = the amount shareholders are required to pay for their shares when requested by the company (i.e money they would have available if needed) depending on the terms of the share agreement.
SPT: persons connected with a director
- member’s of the directors family - spouse, civil partner, parents, children, step children
NB: not included: siblings, grandparents, grandchildren, uncles and aunts. - bodies corporate i.e companies in which the director and others connected with them hold 20% or more of the shares/
- a business partner of the director or those connected with them
- trustees of a trust the beneficiaries of which include the director or those connected with them.
what happens if director enters spt without shareholder approval
VOIDABLE UNLESS:
- restitution is no longer possible
- the company has been indemnified for the loss or damage suffered by it and
3 . rights acquired in good faith by the third party would be affected by the avoidance. - s196 of the companies act allows for the arrangement to be affirmed by th shareholders of the company and the holding company where relevant by OR within a reasonable period.
(if the transaction is affirmed the arrangement may no longer be avoided under s195)
would a director need to disclose their interest in a SPT?
s177(1) - disclose the nature and extent of their interest to the board.
under the exceptions:
- arguable that in an interested director need not formally declare an interest if the other director’s are already aware o it. (still will to ensure documented in the board minutes).
- will not be permitted to vote on the board resolutions to approve the contract and cannot count in the quorum for board resolutions regarding the contract either.L
loans and related transactions with directors - 5 stage test
STEP 1: identify the type of company entering into the transaction
step 2: identify the type of transaction
- loan
-quasi loan
- credit transaction
- security or guarantee for above
- TO?
- director of a company
- director of a holding company
- person connected to director of company
- person connected to a director of holding company
step 3: is shareholder approval required:
- situations where shareholder approval would be required:
1. private company not associated + loans or security guarantee for loan + director of company or director of holding company. - plc or private company associated with plc and loans or quasi loans or credit transactions or security guarantee for above - director of a company or person connected with a director
step 4: which company needs to obtain shareholder approval
- the company of the transaction is between the company and one of its directors or person connected to one of its directors
the company and the holding company if the transaction is between the company and a director of its holding company and a director or person connected to the director?
step 5: any available exceptions?
- wholly owned subsidiary
- holding company
LOANS DIRECTORS: STEP 1; IDENTIFY THE TYPE OF COMPANY ENTERING INTO THE TRANSACTION
- public limited company
- private company associated with a lc?
- priv
difference between holding company and a wholly owned subsidiary
holding companies own and control other businesses providing centralised over sight. subsidiary companies are typically run by their own management teams - offer strategic flexibility and tax advantages through diversified investments and capital allocation.
what is a quasi loan
quais loan would be where a company agreed to pay off an outstanding account owed by a director to a third party on the understanding that the director would later reimburse the company
credit transaction
a credit transaction includes any transaction entered into between the copy and the director
what are the articles of a company
the articles of a company regulate the relationship between members and each other and between the members and the company - acting as a contract
enforcing membership rights
- right to dividends once it has been lawfully declared
- right to surplus capital on winding up
- right to vote at meetings and
- right to receive notice of GMS AND AGMS.
shareholders agreements
the shareholders agreement covers how he company is run and can contain provisions that the law doesn’t permit the articles to contain.
likely provisions:
1. quorum for gm
unanimous voting over certain matters
quorum for Gas
dividend policy
allotment of new shares and
new and departing shareholders
rights under shareholders agreements
provides a right of action which enables a member to enforce the provisions of the shareholder agreement directly against one another
can be used to ensure enforceability of rights not regarded as membership rights.
if a term - enforced under contract law.
reserved matters: certain matters can be reserved in a SA as matters requiring the consent of all shareholders or certain individual shareholders and this protects minority shareholders e.g. unanimous consent required to pass a resolution to remove a director.
amendments to shareholder agreements
requires the unanimous approval of all parties to the agreement - this gives minority parties a right to veto any proposed changes.
rights of shareholders with different shareholdings under the companies act 2006:
ALL SHAREHOLDERS:
A) receive a notice of a gm
b) appoint a proxy to attend a GM in their place
c) vote at a general meeting - provided they hold voting shares
d) receive a dividend if declared
e) receive a copy of the company’s accounts
f) inspect minutes and company registers
g) ask the court to prevent a breach of director’s duties
h) commence a derivative claim
i) bring a petition for unfair prejudice and equitable winding up
5% of voting shares or more
a) require directors to call a GM
b) require the circulation of written statements regarding proposed resolutions to be considered at a GM
c) circulate a written resolution
10% or more of shares
a) demand a poll vote
over 25%
a) block a special resolution special resolution is passed by 75% OR MORE of the votes.
over 50%
pass or block an ordinary resolution REQUIRES OVER 50%
75% or more
pass a special resolution
90%
general meeting can be held at short notice would also need a majority in number of shareholders (95% for public companies)
what is the special notice required for a removal resolution?
shareholders proposing a removal resolution must give to the company (directors) at least 28 clear days before the general meeting.
once the board has received director removal notice (28 clear days before the GM), what are the two courses of action they can take?
- the board may place the removal resolution on the GM agenda
- the board may decide not to
Option 1: the board places the removal resolution on the agenda of the GM
if it chooses to do this, it should give the shareholder’s notice of that removal at the same time and in the same manner as it gives notice of the general meeting - 14clear days notice of the removal resolution.
if that is not practical e.g. because notice of the general meeting has already been sent out, notice of the removal resolution may be given either by advertisement in a newspaper or any other mode allowed by the company.
why does the board need to give shareholders notice of the removal resolution when it was the shareholders who sent the removal resolution to the board in the first place
only some of the shareholders (unhappy shareholders) will ave sent it the other shareholders may have no knowledge.
what happens when the removal resolution is not put on the agenda of the gm by the board after receiving a removal notice
not obliged to. the shareholders may have to force the directors to call a general meeting in accordance with s303 ca.
shareholders power to require calling a general meeting
shareholders holding not less than 5% of the paid up voting share capital can serve a request on the board - requiring the board to call a general meeting.
a s303 request must state the general nature of the business which the shareholders wish to be dealt with at the GM and may include the text of the resolution they wish to be proposed at the meeting e.g. the removal of director via ordinary resolution.
director’s obligations after receiving a s303 request (shareholders of 5% forcing directors to call a GM)
they must call a GM:
1) within 21 days of the notice and
2) to be held on a date not more than 28 days after the date of the notice calling the general meeting.
if the director’s fail to call a GM under s304 all of the shareholders who submitted the s303 request ir any of them representing more than half of the voting rights of those who submitted the note can call a gm themselves
if the shareholders exercise this right then the gm must be called on no fewer than 14 days notice and be held within 3 months of th date of which the directors received the original notice.
what can shareholders do to ensure their removal resolution is heard as soon as possible?
submit a s303 request requiring the directors to call a gm at the same time as sending their s312 special notice to the board.
director’s rights to protest removal
when a company receives notice that members intend to propose a removal - the company must immediately send a copy to the director.
the director then has the right to make representations in writing (of reasonable length)
- why they feel they should not be removed
which should be circulated to the members and if not circulated read out at the GM
if any event the director concerned has a right to e heard at the gm whether or not they are a shareholder or not
what about if a director who is subject to a removal resolution is also a shareholder?
BUSHELL V FAITH CLAUSES
- always check the articles
- may give a director, who is also a shareholder weighted voting rights at a gm
- also check shareholder agreements for similar provisions
- articles should be checked in order to determine whether there are any transfer provisions which may govern the transfer of the outgoings director’s shareholding in the company.
- if a director is to be removed the company and the shareholders are unlikely to retain their shareholding, so transfer provisions are usually found in the company’s articles of association and or shareholders agreement.
if in shareholders agreement can sue for breach of contract.
will the director be entitled to any compensation for loss of office?
derivative claims
any member has the statutory right to bring a derivative claim on behalf of the company against directors and third parties who have breached their duty.
in respect of a cause of action arising form an actual or proposed act/omission involving:
a) negligence
b) default
c) breach of duty
d) breach of trust by a director of the company.
can bring a claim for events which occurred before they became a member - cause of action is vested the company rather than the member themselves.
a former member cannot bring a claim.
stages of a derivative claim
- permission hearing - the court decides if there exists a case- is there an arguable case on the face of it? if not dismisses the ground - shareholder will need to consider other options
- court believes it exists - detailed consideration of the criteria, including evidence from other members. the case will proceed to trial
unfair prejudice claim
any shareholder can bring an unfair prejudice claim under s994 ca on the grounds that the running of the company has unfairly prejudiced them .
who can bring an unfair prejudice claim
any shareholder against the company
examples of conduct which may be held to be unfairly prejudicial to the interests of the members.
the granting of excessive remuneration to directors
directors dealings with associated persons
non payment of dividends
a member of a company may apply to court by potion for an order for unfair prejudice on what ground?
a) that the companies affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of the members or of some part of its members.
b) that an actual/proposed act or omission is or would be prejudicial
c) if the shareholder can show that the company’s affairs are being conducted in a manner unfairly prejudicial to their interests or that some act or omission of the company has unfairly prejudiced them, in terms of the reasonable bystander objective test the court will decide what remedies are appropriate in the circumstances.
key principles of unfair prejudice
what are the three requirements for a general partnership?
- two or more persons
- carrying on business in common
- with the intention to profit
what are two ways a party can have actual authority
- expressly authorised by the partners either in the partnership either in the PA or through a vote
- impliedly authorised by the partner’s failure to object to past conduct of this nature.
what type of act must a partner make to bind the firm through apparent/ostensible authority
an act carrying on the business of the firm in the usual way
two requirements so that a partner acting with apparent authority TO NOT BIND THE FIRM?
- partner had no authority to act AND
- the person with whom the partner was dealing with either knew they didn’t have authority or did not think the person with whom they were dealing was a partner
if there is no apparent or actual authority - who is bound?
partner who entered into dealing, in a personal capacity
when will the partners be jointly and severally liable for torts committed by another partner?
when the tort is committed in the course of business or with authority of the partners
is an incoming partner liable to the creditors of a partnership for anything done before coming a partner
not unless they agree to it
what is needed to add a new partner
consent of all partners
in the case of:
existing creditors and world at large = what must a retiring partner do to give notice of their retirement and therefore not be liable for obligations arising after they leave
when will a third party not be able to enforce an obligation on a restring partner which arose after they left, even in the absence of notice?
- existing creditors - provide actual notice
- world at large - London gazette
where the third party did not know the person was a partner
what is the statutory definition of partnership property? unless agreed otherwise, how must partnership property be held and applied?
property acquired or brought into the partnership for partnership purposes and int he course of partnership business, as well as money earned or property purchased with money owned.
exclusively for the purposes of the partnership
general partnerships - what is the determining factor in determining whether property brought into the partnership becomes the partnership’s or remains property of the individual
the INTENTION OF THE INDIVIDUAL
General partnerships
In the absence of a profit-sharing agreement, and irrespective of capital contributions or any other factor, how are partnership profits split?
What about losses in the same situation?
equally
same with losses
are partners entitled to a distribution of the firms profits and capital as right?
not without the agreement between the partners
is a partner entitled to
a) interest on their capital contributions and
b) a loan made to the partnership
a) no - capital
b) loan yes at 5% per year,
while most decisions require a simple majority vote, what three decisions in a partnership require unanimity?
- appointing a new partner
- changing the nature of a partnership business
- alteration to the partnership agreement
duty to account for secret profits
each partner must account to the partnership for any profit or benefit obtained without the consent of the other partners from
a) a transaction concerning the partnership
b) any use by the partner of partnership name or property
how is a partnership dissolved by death, bankruptcy or charge?
a partnership is dissolved if (without a partnership agreement)
- a partner dies - automatic
- any partner becomes bankrupt - automatic
- any partner charges their share of profits to pay off a personal debt - at the option of the other partners.
what are the 5 reasons a partnership may be dissolved by a court order?
- permanent incapacity of a partner
- prejudicial conduct
- wilful or persistent breach of the partnership agreement
- business can only be carried on at a loss
- just and equitable
when a partnership is dissolved what is the order of entitlement to assets?
- debts to creditors
- loans made by partners
- capital contributions my partners
LLPs = for general partnership to be a llc it must be registered - what 4 things are included in the corporation documents for an LLP that are submitted to CH.
how is an LLP taxed and run?
Companies house:
- Name
- registered office address
- Names and addresses of partners
- details of people with significant control
LLPS are taxed and run like a general partnership
what is the minimum number of members for an LLP:
for how long can an LLP operate with one member and what happens after that period?
two members
one member = 6 months after which the single member is jointly and severally liable with the llc for debts accrued after the 6 month period.
under the partnership act what is the order by which losses should be paid?
profits
capital
further contributions from partners
LLP: unless agreement provides otherwise, what is required to add a new member?
consent of all members
LLP designated member
perform administrative and filing duties of the llc including
1. appointing and removing auditors
2. submitting annual statements
3. sign and file accounts
4. amply with statutory filing requirements
within what time period of a change to the members or designated members must the registrar be notified? 14 days
are members of an llc liable for the wrongful acts or omissions of other members in the course of business or with the LLPS authority?
no - LLP itself is liable with the offending member
in order to benefit from limited liability what 5 things is an LLP obligated to make available to the public?
- annual accounts
- annual confirmation statement
details of:
-appointment /removal of members
changes to members details
changes to llc name or address
in addition to general requirements required to form a private company, what additional things are required to register as a plc
- nominal share capital of at least £50,000
- trading certificate
min 2 directors
a company secretary
1 annual general meeting per year.
Within what time period from the end of the accounting period must annual accounts be filed for a private company and a public company, and need they be audited?
private - nine months need not be audited
public - 6 months must be
What is a Memorandum of Association?
a statement signed by people wishing to become shareholders indicating this intent and agreement
filed with the application at companies house
what ten things must be included in the application for a company to companies house?
- name
- address
- details of the company’s business
- whether public or private
- whether limited by shares or guarantee
- statement of capital and initial shareholdings
- proposed officers and their residential addresses
- details of people with significant control
- statement of compliance
- relevant fee
what is required for a company to change its name and the articles?
SR of the shareholders.
what is the extent of a shareholder’s right to enforce provisions in the articles and when is a shareholder not able to enforce
only in so far as it relates to membership rights and a shareholder cannot enforce the articles in any other capacity e.g. a personal right
can the articles contain a provision requiring unanimous consent to amend them
no - companies act.
what does an entrenched provision of the articles require?
in what tow ways can provision for entrenchment be made?
a more onerous approval process than even a special resolution e.g. 100% of shareholders.
in the articles on formation with notice of this given to companies hose, or by special resolution
can you prevent amendment of articles in the articles?
NO this will always be ineffective - can always amend by special resolution of the shareholders 75% or more
within what time period of a director appointment or change to a director’s details, must companies house be notified?
14 days
shadow director
a non director in accordance with whose instructions the actual directors are accustomed to act and they are treated the same as de jure or de facto.
what must be true of an amendment to the articles before a shareholder who did not vote for it can apply to the court to get it set aside
no reasonable person would consider it to be for the benefit of the company
NOT:
that it adversely affects minority shareholders as long as the amendment is made in good faith
how is actual authority granted expressly
in the articles or by resolution
how can companies execute a document?
- affixing their seal
- signature of
- two directors
- director and secretary
- singe director if signed by an attesting witness
what is the effect of dissolution on partner authority?
the authority of each partner too bind the firm will continue in order to wind up the partnership and complete transactions which were started but unfinished at the time of dissolution.
partnership will still be bound for other contracts entered into unless notice of the dissolution was given to the other party.
enlightened shareholder value
In promoting the success of the company, the directors need not focus solely on maximizing profit, and can consider other things like:
Long term consequences of a decision
Interests of company employees
Need to foster business relationships
Companies: directors and officers
What are the objective and subjective limbs of a director’s duty to exercise care, skill, and diligence?
What standard will a director be judged by?
- the general knowledge skill and experience that may. be expected of a director
- the general knowledge, skill and experience the direction in question actually has.
whichever imposes the higher obligation
in what three circumstances will a conflict not arise?
- transaction with the company itself - and the board knows of the director’s interest
- situation cannot reasonably be regarded as likely to give rise to a conflict.
- matter has been authorised by the directors.
what is required for a company to make a loan to a director or to guarantee or give security for a loan to a director by a third party?
shareholder approval via OR
does not require:
- £10,000 directly to a director
- £50,000 if it is to fund a company business
can a director be removed by written resolution?
no = shareholders by simple majority - they have the right to make representations at the GM (director).
bushell v faith clause
gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove them as a director.
how much noice before a general meeting must shareholder give of their intention to propose a resolution to remove a director
28 days
how can a director be disqualified for wrongful trading
if the company was insolvent when they traded and they knew that to be true
what are the two requirements for dividends to be declared
- must be paid from PROFITS AVAILABLE FOR THE PURPOSE
- MUST NOT RENDER THE COMPANY INSOLVENT
PROFITS AVAILABLE FOR THE PURPOSE ARE ESSENTIALLY NET PROFITS.
what is a preference share?
and
what are preference shareholder’s voting rights typically limited to?
- a share paid a dividend based on a fixed % ahead of ordinary shareholders, which rolls over and accumulates if unpaid, but usually lacks voting rights
- decisions that affect their class rights.
even if profits are available, who must recommend a dividend?
the board
after the board resolve to reccoemnd a dividend how is it declared?
the recommend is approved by the shareholders who declare the dividend by ordinary resolution
can the SH decline a dividend, or change the amount?
can decline, can also lower the amount however, they cannot increase the amount.
derivative action
if the shareholder before the court shows a prima facie case, the court must be satisfied of one of two things at the second stage in order for them to dismiss the claim
- continuance of the claim does not promote the best interests of the company
OR
2. the action was authorised by the company or authorisation would be likelyw
what must any shareholder be able to show to apply to have a company wound up?
the company is solvent and
it is just and equitable to wind it up.
a shareholding of at least what % of the paid up voting capital can require the directors to call a meeting, within what time and when must the meeting be held.
and
what happens if the directors fail to call a meeting?
a) 5% of paid up voting capital
b) the GM must be CALLED within 21 days.
c) and held with 28 days.
how much notice must be given for a gm
what about if the notice is communicated by any method other than hand delivery?
14 clear days, unless the articles provide for longer.
48 additional hours.
what proportion of shareholders must agree to hold a meeting on shorter notice?
majority of shareholders in number, holding 90% of the shares.
when can the short notice procedure not be used and are there any ways around this?
- for matters requiring documents to be left at the registered office for 15 days prior to the meeting
special resolutions
within what time period must a special resolution be filed at companies house?
- changing the company name
- amending the articles
- changing the company status e.g. private to public
- winding up the company
- reducing share capital / buying back shares
- misapplying pre emption rights
15 days
what is a poll vote and what two groups can demand one?
a) instead of one vote per shareholder, it becomes one vote per share and can be demanded by
- the chairperson of the meeting
- the directors
- two or more persons having the right to vote on the resolution
- persons representing at least 10% of the total voting rights of all the shareholders entitled to vote on the resolution
written resolutions cannot be used for…
removing a director/auditor
written resolutions can be circulated required by the board AND
SHAREHOLDERS WHO HOLD AT LEAST 5% OF THE VOTING RIGHTS.
what must a written resolution contain?
- statement signifying how the shareholder can signify agreement
- when the resolution will lapse if not approved - typically 28 days from and including the circulation date unless articles provide differently.
ordinary resolutions
- appoint/remove director or auditor
- adopt annual accounts
- declare a dividend
- approve a director’s decision to allot shares
- approve sets wit an interested director
- ratify a director’s breach
- enter into a long term service contract
- make a loan to a director (more than 10,000 or 50,000 if for the purpose of business.)
- give payment to a director for loss of office
what is a company’s share capital?
money received on account of the nominal valuee of shares - theoretically always available to pay creditors.
what is the amount paid for new shares that exceeds nominal or par value? and where does it go
Share premium, into the share premium account, and forms part of the same share capital which is not returned to the shareholders and is theoretically always available to pay creditors
for a company incorporated after 2009, when will there not be any restrictions on a director if they wish to allot more shares?
if the company only has one class of share and there is no restriction in the articles removing this power
where there are multiple classes of share what is required to allot new shares?
shareholder’s ordinary resolution
pre emption rights - what must shares be offered FOR in order for existing shareholders to have pre emption rights
how long do preemption rights be given to decide whether to accept
CASH property will not give rise to the pre emption right.
14 days
preemption rights - do they apply to preference shares
no
how is a pre-emption right disapplid?
shareholder special resolution or by amending the articles via special resolution
under the model articles what is the director’s right regarding a transfer of shares?
they have absolute power to refuse to allow a transfer
within what time limit of the creation of a charge must it be registered at companies house and b) what is the impact of failing to register a charge at companies house?
a) 21 days beginning with the day after the charge was created.
b) the charge is void against a liquidator or administrator of the company and the company’s creditors - it is still valid against the company itself.
priority - fixed and floating charges
based on the date of their creation, as long as they were validly registered at companies house.
as long as it was properly registered, a fixed charge will take priority over a floating in the same asset even if the floating charge ws created and registered first.
a private company is required to keep a register of what four groups and what one thing?
- directors
members
secretary
people with significant control
charges against the companies assets
to be kept at the company’s registered address, to be inspected for members for free and public for a fee.
what is a confirmation statement and is it always required?
an annual update from the company confirming the information held at companies house is up to date and must be filed even if there have been no changes.
it is a criminal offence not to file the confirmation statement within 14 days of the end of the company’s accounting period.
what two things must be included in the accounts>?
what view of the company must the accounts give?
- balance sheets on the last day of the accounting period
- statement of profits and losses
a true and fair view of the company ( to be approved by the board)
what is an IVA - individual voluntary arrangement
an agreement between the individual debtor and all creditors where each agrees to accept less than is owed.
advantage of an IVA to a
a) debtor
b) creditor
- can avoid the restrictions and qualifications they would be subject t if they were made bankrupt
- they may receive more money and more quickly
a debtor MUST take professional advice before agreeing to an IVA.
protection for an insolvency practitioner
no bankruptcy proceedings can be brought when the order is in force
what % of unsecured creditors must agree to the agreement before it is binding on all ordinary unsecured creditors, whether they voted for it or not?
75% in value, and majority in number
preferential and secured creditors are NOT bound.
who are two examples of a preferential creditor?
- employees owed wages in the last 4 months
- hmrc in respect of vat, pays and national insurance
What may the insolvency practitioner (now a supervisor) or a creditor do if a debtor does not adhere to the IVA, or if the debtor provided false or misleading information?
petition for the debtor’s bankruptcy
a) what is bankruptcy
b) what period after a bankruptcy application is a debtor deemed discharged from the debts?
a judicial process in which assets of the bankrupt debtor are automatically passed to a third party, the trustee in bankruptcy, who will:
- liquidate he assets and
- use the proceeds to pay off as many debts as possible, in a strict priority order set out by legislation
one year.
what three ways can a debtor be placed into bankruptcy
a) debtor applies online to declare themselves bankrupt
b) one or more unsecured creditors owed at least £5,000 can apply
c) supervisor or creditor can apply if debtor has breached an individual voluntary arrangement
what are two ways a creditor who applies to put a debtor in bankruptcy prove that they are involved
1) debt immediately payable and debtor does not have the ability to pay
2) debt payable in the future, and debtor has no reaosonable prospect of being able to pay
three specific ways insolvency can be demonstrated
insolvent if debtor owes £5,000 or more and
- creditor makes a statutory demand for payment, and the debt is not paid within 21 days or debtor does not apply to set the demand aside within 21 days
- creditor seeks to execute on the judgement
- debt owed in future and a creditor serves a statutory demand of proof or ability to pay and the debttor does not show reasonable prospect of being able to pay.
what assets can a bankrupt may be able to retain
assets needed for day to day living including furniture
salary to live of and
any tools required for their job
a) although the bankrupt’s home interest passes to the trustee, what are the four interests, which if they exist, mean that the home cannot be sold within the first year without a court order
b) what happens after one year?
- held in joint names
- equitable interest of spouse
- right to occupy
- children under 18 in occupation
after one year: the interests of the creditor override the interests of those in the home.
what are three things that a debtor is restricted from doing until they are discharged?
- applying for credit of over £500 without disclosing the bankruptcy to the lender
- act as a company director/partner
- trade under another name without disclosing bankruptcy
order of priority - bankruptcy
- costs of bankruptcy
- secured creditors - fixed charge
- preferential creditors (employees, 4 months pay, HMRC VAT PAYE ETC)
- secured creditors - floating charge
- unsecured creditors
- connected unsecured creditors
debts abate equals within a class.
what conduct will prevent the bankruptcy from being discharged after one year
what is the label given to the debtor and how Long does the bankruptcy last?
- if the BR was caused by:
a) dishonesty
b) negligente
c) recklessness
debtor is CULPABLE and this lasts 15 years.
what happens if a partner is made bankrupt in:
a) partnership at will
b) partnership for specified term/undertaking?
a) partnership is dissolved and the trustee receives any money due to the insolvent partner
b) partnership will continue if the remaining partners purchase the bankrupt’s interest from the trustee.
what happens if a partner in an LLP is made bankrupt?
partner will usually sell the interest to the remaining partners, they cannot participate in the management of the LLP
what are the six insolvency options available to companies?
- receivership
- restructuring plans
- moratorium
- administration
- CVA
- liquidation
what is fixed asset receivership
is proof of insolvency needed? what are the most common breaches giving rise to fixed asset receivership?
where as secured creditor exercises their right to appoint an administrative receiver because a company has breached a term, through which the receiver takes possession of the charged asset and usually disposes of it to use the proceeds to pay back the creditor.
receiver owes their duty to that particular creditor.
no need to show insolvency - just failure to pay interest or capital of loan.
why does fixed asset receivership usually place a company into insolvency anyway/
because charges are usually granted agains assets which are crucial to the functioning of the business. e.g. buildings, machinery etc.
what % of creditors must agree to a restructuring plan, and does it bind those who do not vote for it?
75% in value of the unsecured debt and binds all if this threshold is reached.
what three things are prohibited when a company seeks a moratorium
- creditors cannot take action to enforce their rights or launch proceedings
- a landlord may not forfeit the lease of company premises
- floating charge holders cannot crystallise the charge.
what is the exception to the payment holiday a company enjoys during a moratorium?
what companies cannot avail a moratorium
wages and other payments to employees, including holiday pay
companies subject to insolvency proceedings currently or within the last 12 months.
what is the difference between an administrator and a receiver
administration: process by which an administrator can run, reorganise or sell the company as a going concern
an administrator acts in the interests of creditors as a whole whereas receiver owes their duty to a specific creditor.
three aims of an administrator
- rescue the company
- achieve a better result for companies if it was wound up
- realise property to distribute to the creditors.
what are the two ways an administrator can be appointed to a company ?
- court appointment
- company, directors, or holder of a qualifying floating charge file documents with the court/
court appointment - administration what two things must the court be satisfied of?
- the company is unable to pay its debts
- the administrator likely to achieve better result for the creditors than liquidation
if the company appoint an administrator - who must they notify and what can they do?
- notify any qualifying charge holders who can either agree or appoint an alternative administrator
what is a qualifying floating charge
charge over the whole or substantially whole of the company’s assets, containing a provision enabling the holder to appoint an administrator if a breach allowing the creditor to terminate their agreement occurs.
generally, what proportion of the value of the creditors must agree to an administrator’s proposals
majority
what re the four powers of an administrator
- take control of, and sell a company’s assets
- bring and defend legal proceedings on behalf of the company
- carrying out the company’s business
- remove and replace directors
what are the effects of moratorium which gets imposed during administration?
- restricts the ability of third parties to enforce their rights
- prevents commencement of insolvency proceedings.
company voluntary arrangement
who is bound by a CVA?
formal arrangement agreed by the company’s creditors and members to achieve an agreement re its debts.
similar to an individual voluntary arrangement but for companies, subject to the same 75% approval threshold and binding on dissenters if passed.
unsecured creditors are bound by a CVA.
what two groups can start a voluntary liquidation and what are the two types?
- member’s voluntary liquidation
- creditor’s voluntary liquidation
In a member’s liquidation, who controls the process from start to finish and what are the two requirements for it to be available?
the members and directors control it and to be available::
1. the company must be solvent and
2. the individuals involved in running the company must wish to wind it up.
what are the steps in members voluntary liquidation?
within what time period after the final step of the MVL is the company dissolved
- directors make a statutory declaration of solvency
- shareholders pass a special resolution to start liquidation and an ordinary resolution to appoint a liquidator.
- appointment of liquidator is advertised in the London gazette and companies house is notified.
- the liquidator investigates company assets, liquidates them and distributes funds to creditors in the statutory order
- final accounts are sent creditors and members and final return is filed at companies house.
three months after the final accounts are sent to the creditors and members and the final return is filed at companies house.
in a creditor’s voluntary liquidation who starts the process and who takes over?
stand by the director’s and then taken over by the creditors.
main reason the directors would commence a CVL?
the directors are advised the company is insolvent and do not wish to be personally liable for the debts of the company through fraudulent trading or wrongful trading if they continue to trade.
what are the steps required within the company to begin a CVL
within what time period after the final step of a cvl is the company dissolved?
- directors resolve that the company is insolvent and should be placed into liquidation
- shareholder pass SR to start liquidation
- resolution is advertised in the London gazette
- directors take certain steps outlined in the next card
- rest of process is the same as mvl - appointment advertised, liquidator investigates, liquidates and pays creditors
also three months.
what must directors do within 7 days of the shareholder’s resolution to liquidate being placed in the London gazette?
prepare a statement of company affairs and send it to the company’s creditors.
what must any creditor be able to show to petition the court to wind up a company?
what will cause the court to dismiss the petition if shown by the company?
creditor must be able to show that the company cannot pay its debts.
court will dismiss the petition to wind up if the company can show it may recover financially or the debt upon which the petition relies is disputed.
what is a preference?
when a debtor intentionally does something that puts a creditor in a better position on liquidation/administration than they would otherwise be in.
when is intent to prefer presumed?
if the preference is to a connected person e.g. a director, their spouse, other close family member or associate.
to constitute a preference which can be called back, within what time of the consent of insolvency must it have occurred in?
- non insiders
- insiders
it is required that the preference caused the insolvency?
- non insiders: 6 months
- insiders: 2 years
NO - it is not required that the preference caused the insolvency.w
what is a transaction at undervalue?
what is the insolvency requirement for a transaction at undervalue for a company?
when property that would otherwise have formed part of the bankruptcy estate is gifted or sold for significantly less than market value, within TWO YEARS of a company’s insolvency or FIVE YEARS for individual bankruptcy.
a company must have been insolvent at the time of the transaction or became insolvent as a result.
individual - 5 years
company - 2 years
transaction at undervalue: when is insolvency presumed?
when the transaction is made to a connected person
what are the three defences available to a company for transaction at undervalue claim?
transaction entered into:
- in good faith
- for the purpose of carrying on the business
- with reasonable grounds to believe it would benefit the company.
what is one thing which will not amount to a transaction at an undervalue?
granting a security interest in a company asset because this does not change the value of the company’s assets.
- when does fraudulent trading arise (criminal offence)
- wrongful trading and when does it arise
- When a director or any other person who knowingly participates carries on business of the company knowing it is insolvent, with the intent to defraud creditors.
- when at some time before a company became insolvent the directors knew or ought to have reasonably known that there was no prospect the company would avoid insolvency, and failed to take adequate steps to minimise losses for the creditors.
in wrongful trading situation, when does a director’s duty shift and to whom?
what can a director show in defence to wrongful trading claim?
duty shifts from shareholders to what is best for the creditors, once the directors ought to know insolvency is unavoidable.
that they took every step with a view to minimising potential loss to creditors.
in what situation is a floating charge void if given to:
1) an unconnected person and
2) a connected person
- unconnected
- if it was created for NO CONSIDERATION within 12 months of ending with insolvency and
- at the time it was created, the company was insolvent or became insolvent as a result.
connected
- if It was created for no consideration within 2 years ending with insolvency
