Business Law Flashcards
Formation of a general partnership
= relation which subsists between persons carrying on a business in common with a view of profit
No formalities required
Party receives a share of profits => prima facie evidence of partnership . Agreement to share losses poss proof of intention to form a partnership but NOT prima facie evidence.
Authority to bind the firm in a general partnership
Partnership Act provides that every partner is an agent of the firm and other partners
Agent can bind principal only if the agent acts with authority
Actual authority (in partnership agreement or through partner vote), actual implied authority (has been allowed to regularly so an act without express actual authority), or apparent authority (act of partner carrying on in usual way of business of the kind carried on by the firm)
Liability for debts and wrongdoing in a general partnership
Partners have unlimited personal liability (no veil of incorporation)
Liability is joint => creditor can choose to pursue one or all of the partners for their debt or tort
Liability for incoming partners in general partnership
Incoming= Not liable for anything before they became a partner.
No new partner may be added without the consent of all existing partners
Partners to not have the power to expel another partner unless that power has been expressly agreed to by the partners (eg in the partnership agreement)
Liability for outgoing partners in general partnership
Debts before retirement = Remains liable for all debts/obligations incurred before the partner leaves. Retiring partner and continuing firm can agree that the partner will not be liable to the firm for these obligations (through ‘hold harmless agreement)
Debts incurred after retirement = Retiring partner needs to give notice of their retirement: Actual notice given to existing creditors , and notice by way of an advert in London Gazette required for all new customers
Holding out as a partner in a general partnership
Person holds themselves out as partner may be liable even if not actually a partner
Also applies if a person knowingly allows another to hold the person out as a partner
Can apply to retiring partners if they have not given proper notice or failed to ensure name is removed from things eg stationary
Partnership property
Intention of parties is determining factor.
Unless contrary intention – property brought with money belonging to the firm is partnership property, as in property titled in the firm name
Similarly – property owned by one partner at the start of the partnership will only be treated as partnership property if it is expressly/impliedly agreed between the partners
Financial entitlements in general partnership
Division of capital and profits, and division of losses = shared equally (even if unequal initial contributions). Unless contrary intention in partnership agreement
Partner not entitled to interest on their capital contribution, and Not entitled to renumeration for acting in the partnership business (unless contrary intention in partnership agreement)
Partnership must indemnify partners for any payments made or liabilities incurred whilst acting in the course of the business of the partnership
Partnership management (general partnership)/voting rights
Partnership act – every partner has an equal right to take part in the management of the firm business (one partner, one vote). Partners free to agree otherwise.
Typically made by simple majority vote (unless part agreement provides otherwise)
BUT following require unanimous vote: Admission of new partner, Change in the nature of the partnership business, Alteration to the partnership agreement
Duties of partners in a general partnership
Fiduciary rel, duty to disclose info, duty to account for secret profits (ie any profit obtained without the consent of the other partners from any transaction concerning the partnership)
Termination of general partnership
Without court involvement: by expiration in agreement/purpose comes to end, by notice at will, by bankruptcy/death/charge, by illegality
Can be dissolved by court order: court considers partner does not have mental capacity. Partner can also apply if: Partner becomes permanently incapable of preforming their part of the partnership contract (permanent incapacity), Partner found guilty of conduct that would prejudicially affect the carrying on of the business,
Wilful or persistent breaches of partnership agreement, When business can be carried on only at a loss, and ‘just and equitable basis’
Effect of dissolution in general partnership (incl how property is subsequently distributed)
Partnership authority to bind firm will continue to wind up company and complete transactions
Distribution of property:
First used to pay off partnership’s debts
Assets insufficient to pay creditors => partners are personally liable for any shortfall
Assets sufficient to pay creditors => remaining assets used first to repay any advances (ie loans) any partner has made to the firm
If assets remain after loans repaid => used to return the partners’ contributions
If assets still remain => divided among the partners in the same proportion as profits
Losses paid first out of profits, next out of capital, and last by partners individually in the proportion in which they were entitled to share profits
Formation of LLPs
Registration required with the registrar of companies and LLP cannot trade until it has received a certificate of incorporation.
LLP has separate legal personality.
Required information in incorp documents: Name of the LLP (must end in LLP or Limited Liability Partnership), Details of the LLP’s registered office location and address, Names and addresses of the members of the LLP, Details of people with significant control, if any
Membership in LLP
Must have at least 2 members - If carried on business without having a t least 2 members for more than 6 months, the person who carried on the business will be jointly and severally liable with the LLP for the debts of the LLP incurred after the initial 6 months and while the LLP only has one member
Admission of new member requires unanimous consent
Designated members (at least 2)- Role = perform the administrative and filing duties of the LLP
Registrar must be notified of changes within 14 days
Agency/authority in LLPs
Every member of an LLP is an agent of the LLP - BUT an LLP is not bound by anything done by a member if the member has no authority to act and the person they are dealing with knows they have no authority/does not know or believe that they are a member of the LLP
Outgoing member => Giving reasonable notice to other members, and Giving registrar at CH notice with 14 days
People with significant control (LLPs)
LLP required to keep register of PSCs
PSC = an ind who meets any one of following conditions:
Directly or indirectly holds rights over more than 25% of the surplus assets on a winding up
Directly or indirectly holds more than 25% of the rights to vote on those matters which are to be decided upon by a vote of the members of the LLP
Directly or indirectly holds the right to appoint or remove the majority of those entitled to take part in management
Otherwise has right to exercise or actually exercises sig influence or control over a trust, or the members of a firm that is not a legal person but meets any of the other specified conditions in relation to the LLP
Right to profit in LLPs
No provision otherwise => members entitled to share equally in capital and profits of the LLP
Members not entitled to renumeration (ie to be paid)
Management of LLPs
Absence of agreement otherwise => every member may take part in management of LLP
Majority of members may decide any ‘ordinary’ matters connected with the business of the LLP
No change may be made in the nature of the business of the LLP without the consent of all members
Liability for acts of members in LLP
Generally members of an LLP are not liable for the wrongful acts or omissions of other members committed in the course of the business of the LLP or with the LLP’s authority
LLP - docs to be filed at CH
Subject to more onerous filing requirements than general partnership (as incorporated)
Required to file with the registrar of companies: LLP’s annual accounts, Annual confirmation statements, Details of the appointment and removal of members, Details of any changes to the details of the members, Details of any changes to the registered name of registered office of the LLP
Liability for debts in LLPs
Limited liability => Only liability of a member is their capital contribution (where LLPs and partnerships differ)
Clawback provisions - ie Member of LLP withdrawn property within 2 years before LLP goes into insolvent liquidation, and it is proved that at the time of the withdrawal they knew or had reasonable grounds for believing LLP was unable to pay its debts, or would become unable to pay its debts as a result of the withdrawal, court may order the member to contribute to the assets of the LLP
Termination of LLP
VOLUNTARY => majority of members may apply to the registrar of companies for the LLP to be struck off the register and dissolved
Not possible if: LLP has traded or otherwise carried on business in last 3 months, LLP has changed name in last 3 months, LLP is subject of any insolvency proceeding
If applying to dissolve, Members required to notify other members, creditors, any employees, trustee of any pension fund. On receipt of app, the registrar of companies will published notice of the proposed striking off in the London Gazette (Allows interested parties opportunity to object). Registrar of companies will strike off 3 months after the date of the notice.
INSOLVENCY => as with limited company. Fixed charge receiver or an admin receiver may be appointed by certain secured creditor of the LLP
Taxation in LLPs
Not a taxable person => does not pay corporation tax (instead members taxed individually for income tax and members also liable for their share of the gains made on disposal of assets of the LLP)
Inheritance tax purposes – members treated the same as partners in general part
Stamp duty exception:
General – no stamp duty land tax owed if property is transferred to LLP within one year of LLP’s incorporation if:
Transferred by person who: Is/was a partner in the partnership comprised of the members of the LLP; or Holds the property as a bare trustee for a partner in such a partnership; and
The proportional ownership of the property in the LLP remains the same as the proportional ownership of the property in the partnership
Unlimited companies
(Rare) - Members are personally liable for all the debts of a company (like a general partnership)
Companies limited by guarantee
Requires members to pay a fixed, guaranteed amount (usually £1) in the event of the company being wound up
Usually used by not-for-profit orgs
No shareholders but company must have at least one member
Companies limited by shares
Members (shareholders) do not have personal liability beyond the amount they agreed to pay for their shares
Shareholder has fully paid or their shares and company becomes insolvent => shareholder has no personal liability to pay any more
Either private limited companies or public limited companies (Additional filing requirements for public => will be private unless it fulfils those registration requirements)
Public Limited Companies (PLCs)
Permitted to issue their shares to the public, and if the PLC is listed, to trade their shares on a stock market
Subject to additional registration requirements eg: Need to have minimum nominal share capital of £50k, and Trading certificate
Must end in Public Limited Company or PLC (or Welsh equiv)
Must be registered as a PLC
Minimum of 2 directors
Company secretary required and must be suitably qualified
Accounts must be filed within 6 months of the accounting reference date and must be audited
Private Limited Companies (Ltd)
Not permitted to issues its shares to the public, allowed to be sold only by private arrangement
No min/max amount re trading or stat requirement for minimum shareholding
Minimum of 1 director
Company secretary not required
Accounts must be filed within 9 months of the accounting reference date
Certain companies are exempt from audit
Formation of companies - promoters and docs to file to create company
= people that arrange for investors/registration before it is registered at companies house (as it does not exist until then) ie someone who takes necessary steps to form a company
Memorandum of association
= a statement authenticated/signed by persons wishing to become members of the company
Indicates that the subscribers (signers) wish to form the company and agree to become members of the company
Must be delivered to the registrar of companies along with the application for registration
Owe fiduciary duties
Duty of good faith owed to the company
Liability of promoters on pre-incorporation contracts
Promoter personally liable on pre-incorporation contracts
Liability does not disappear once the company is formed – promoter remains personally liable unless different arrangements are made
Promoter can protect themselves by:
Prepare contract in draft and do not execute it until the company has been incorporates
Enter into a novation agreement after the company is incorporates (ie substituting company for promoter in contract)
After the company is incorporated, enter into a contract with it assigning the benefit of the contract to the company in exchange for the company’s agreement to indemnify the promoter for any liability to other contracting party if the promoter is held personally liable on the contract
Set up the company faster by using a shelf company
Shelf companies
Ie companies that are pre-incorporated but have never traded that the promoter can purchase and take over by changing basic details like the members
shelf company will be in standard form, so may not be suitable if company with bespoke articles of ass is required
Company registration - docs and info needed
Promoters must file memorandum of association with registrar of companies at Companies House along with an application for registration
App for registration must incl: Proposed name of company, Location of registered office, Details of company’s business activity and SIC (standard industrial classification) code, Whether the company will be limited by shares or guarantee, Whether private or public company, Details of subscribers, Statement of capital and initial shareholdings, Statement of the proposed officers, Details of persons with significant control, Statement of compliance with the terms of the CA 2006, Payment of the relevant fee
Requirements for company name
Must comply with certain rules: Must not be the same as, or essentially the same as, the name of another incorporated company, Must end in Limited or Ltd or Public Limited Company or Plc (or Welsh equiv), Cannot be a name that is deemed offensive, Approval is required for a name that suggests any connection to government or local authority, approval required for a name that contains any sensitive words eg auditor, law commission, medical centre
limited by guarantee => exempt from having to use the word limited
Change: By a special resolution of its members or as provided in the articles, Company must forward a copy of the resolution to the registrar of companies, give the registrar notice of the change, and pay a fee
Certificate of incorporation
Registrar will issue once all above submitted and in order
Will incl company’s unique registration number
Becomes a legal entity from the date on the certificate and so can commence trading
Company’s constitution
= company’s articles of association plus any resolutions or agreements adopted by the members to amend its articles
Every company is required to have articles which prescribe the internal workings of the company (but they are NOT required to file it a CH in order to register the company)
Sec of State has model sets of articles which apply automatically if a company has not drafted and submitted amended or bespoke articles to CH
Public doc and bind all members
Legal effect of articles of ass v shareholder agreements
ARTICLES OF ASS:
Articles forma contract between the company and each of the shareholders, and the shareholders with each other
Right of shareholders to enforce provisions of the articles relates to their membership rights only
Shareholder unable to enforce the articles acting in any other capacity eg if they also act as a director of the company
Excluded from Contract (rights of third parties) act 1999
SHAREHOLDER AGREEMENTS:
Shareholders may enter into additional contract to regulate their affairs
Private contractual agreement which binds only those members who sign it
Alteration of the articles of ass
By special resolution only
Alteration in the best interests of the company
Generally for shareholders to decide whether alteration in the best interests of the company
BUT if alteration made that no reasonable person would consider to be for the benefit of the company, a shareholder who did not vote in favour could challenge by making an app to the court
Court agrees => alteration will be set aside
Court will consider whether alteration was bona fide made in the best interests of the company as a whole
Alteration adversely affects minority interests
Not sufficient grounds for objection if the alteration is made in good faith in the interests of the company
BUT alteration cannot be in interests of company as a whole if it discriminates against some other members rather than others, so courts will consider whether the benefit derived from the alteration is one that any individual hypothetical members could enjoy
Lifting of veil of incorporation
Where:
Fraudulent and wrongful trading
PLCs require trading certificate => if trading without, directors can be held personally liable for any losses arising as a result
Group accounts
Companies are members of a group => may be necessary to prepare group consolidated accounts which recognise the common link between them
But even where group accounts required, subsidiary companies are not liable for the debts of the other subsidiaries or parent company, nor is the parent company liable for debts of the subsidiaries
Appointment of directors (company)
Private company must have at least 1 and public must have at least 2 (and at least 1 of those must be a natural person)
Procedure for appointing new directors
Typically found in the company’s articles
Model articles for company limited by shares = director can be appointed by ordinary resolution of the shareholders or a decision by the directors
Notice of change
Company must notify the registrar of companies within 14 days of any new director appts and any change to the details of existing directors
Types of directors (companies)
De jure directors = been formally and properly appointed and registers at CH
De facto directors = not been formally appointed/registered at CH but who carries out all the duties of a director
Shadow directors = regularly influences the acts of a company’s directors (CA06 => treated the same way as de jure/de facto)
Exec = responsible for day-to-day running of the company and are employees
Non-exec = usually consultants and take more of a supervisory role
Alternate director = attends/votes at board meetings when director is unable to attend
Nominee director =appointed to board to represent interests of a particular stakeholder eg a shareholder
De jure directors and have all rights/duties expected of other directors
Powers of directors (company)
Derived from the articles
Model articles = give directors power to exercise all the powers of the company except where the article specifically provide otherwise
Shareholders still retain element of control over directors
Model articles state the shareholders may be special resolution direct the directors to take or refrain specified action
Must act as a board - Ie must exercise powers collectively. Can delegate powers
Directors as decision makers
Shareholders are owners of the company => certain decisions that require shareholder involvement (usually those that alter constitution of the company or whether directors have a financial interest)
Company decision = resolution
=> some decisions by directors require shareholder approval
And some decisions are reserved to the shareholders by legislation (CA06) or in the articles of association
Directors as agents of the company (authority to act and signing)
Actual authority = expressly granted in the articles or by resolution
General rule – articles usually require the board to act collectively, but articles/a board resolution may delegate authority
Apparent authority = authority a third party reasonably believes the director has based on communication from the company
Director usually has no power to bind a company except when directors act as a board, apparent authority does not arise often (but could arise through past dealings)
Execution of contracts and documents
Companies may execute documents by affixing their seal or by the signature of two directors, a director and a secretary, or a single director if signed in the presence of a witness who attests the signature
Directors duties
(in summary)
Breach of duty could result in need to compensate company for any loss caused/account for any profit or benefit gained, but Shareholders could ratify conduct by passing an ordinary resolution (if director also a member, their vote would be disregarded)
duties = Basic fiduciary duty, Liability may extend beyond term (Eg may not exploit property, info or opportunities of which the director became aware while a director), Duty to act in accordance with company’s constitution and exercises powers only for purposes for which they are conferred, Duty to promote the success of the company, for benefit of members as a whole (incl concept of ‘enlightened shareholder value’), Duty to exercise reasonable care, skill and diligence, Duty to exercise independent judgment, Duty to avoid conflicts of interest, Duty not to accept benefits from third parties, Duty to declare interest in proposed or existing transactions or arrangements
Calling a board meeting (company)
Calling a meeting:
Any director may call by giving reasonable notice of the meeting to other directors or by authorising company secretary to give notice. Reasonable notice depends on facts
Contents of notice
Does not need to be in writing
Must indicate proposed time and date, location, and how they will communicate
Notice must be given to each director unless they have waived their entitlement to notice of that meeting
Electronic meetings possible – just a requirement that each director be able to communicate
Written resolution - Can be passed without holding a meeting, but usually only approved if all approve rather than a majority
Vote required for decisions at board meetings
Made by majority vote
Model articles allow for chairman to have casting vote in the event of deadlock
Directors are prohibited from voting on resolutions in which they have an interest
Quorum
Ie number of directors who must participate to make meeting valid
Usually no less than 2 (model articles)
Personal interest => may be prevented from counting in the quorum
Removal of directors
Power given to shareholders under CA06. Carried out by majority vote (ordinary resolution).
Not possible to remove a director by written resolution
Statutory power usually may not be overridden by eg the articles or director’s services contract
BUT may be limited by Bushell v Faith clause which gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove a director
May trigger contract rights
Ie to compensate for loss of office and damages for termination of the service contract
28 days’ notice required
Before a general shareholders meeting
Company must give notice to the director
Director has right to make a written representation and to speak at the meeting
Disqualification of directors
Can be in rel to general misconduct in connection with companies, unfit to be a director
Company secretary
legal requirement for public company to have a qualified company secretary (private companies have no such requirement)
Usually appointed and removed by the directors
Qualification
Directors have duty to take reasonable steps to ensure secretary has requisite knowledge and experience to discharge the functions of secretary and has one or more of the required qualifications:
Held office of public company for at least 3 of 5 years immediately preceding appointment
Is a member of a specified list of accountancy/secretarial bodies
Is a barrister/advocate/sol admitted in the UK
Is a person who, by virtue of holding or having held any other position or being a member of any other body, appears to the directors to be capable of discharging the functions of secretary of the company
Powers and duties
None prescribed by legislation, but usually responsible for:
Maintaining the books and records
Taking minutes at shareholder and board meetings
Making sure the company is in compliance with statutory obligations
Powers usually expressly delegated by the board of directors but can also be implied or apparent
=> company can be bound by acts of secretary even if they were not authorised by the board, if the contracts were of an administrative nature ie of the type that a third party could reasonably assume would be within the powers of the secretary
Company auditor
Under CA06 all companies must prepare accounts
CA06 requires large companies to hire a specialist accountant (i.e. auditor)
Small companies (ie those with an annual turnover of less than approx £10m and no more than 50 employees) do not require auditing
Accounts require auditing => auditor will be appointed by the directors
Types of dividend
Right to a dividend depends on particular class of shares held
Preference shares:
Paid a dividend ahead of ordinary shareholders, and shares can carry a right to a cumulative fixed percentage (ie fixed income) dividend
No profits available for the purpose => dividend would roll over to the next financial year
Usually no voting rights
On winding up – return of surplus capital ahead of ordinary shareholders
Ordinary shares:
Paid after preference shareholders have been paid
Not cumulative
Full voting rights
On winding up – return of surplus capital after preference shareholders
Receipt of dividends
Company must not make distributions to shareholders except out of profits available for that purpose
Procedure=
Directors who decide whether a dividend should be recommended for approval by the shareholders
Recommended => up to shareholders to approve it and declare the dividend by passing an ordinary resolution
Open for shareholders to decline to declare or declare a small amount, but they cannot declare a dividend in excess of that recommended by the directors
Shareholder resolutions
Passed at company meetings
Type of share held by shareholders will determine the voting rights available to them
Ordinary shareholders = full voting rights
Preference shareholders = limited to decisions that affect their class rights (ie those that affect preference shareholders only)
Derivative shareholder claims
Ie shareholder believes director has/is about to breach a duty owed to the company (and it appears the board will not assert the company’s rights to prevent or remedy the action) => shareholder may apply to court to bring a derivative claim
Only available to shareholders
Claim may be brough against director or another person/both
Shadow directors treated as directors
Can assert a claim that arose before they became a shareholder
Court must dismiss the claim if the application/evidence submitted does not show a prima facie claim
If it does => court must dismiss if:
It is satisfied a person acting to promote the best interests of the company would not seek to continue the claim; or
The action was authorised by the company or authorisation would be likely
Any damages awarded belong to the company
Protection of minority shareholders
Majority shareholders typically bring a claim on behalf of the company on whether to ratify the director’s decision by passing an ordinary resolution
Minority shareholders typically cannot bring that action BUT
Unfair prejudice
Shareholder has right not to be unfairly prejudiced
=> if so, they can petition court for a remedy
Most common remedy is an order that the minority shareholder’s shares are purchased
Winding up a company
Any shareholder can apply to have the company wound up if the company is solvent and the shareholder can show it is just and equitable to do so
BUT remedy of last resort as if successful the company will cease to exist, and the shareholder is likely to receive back less money than if they had sold their shares
=> usually better to negotiate with directors/other shareholders to sell their shares
Right to inspect
Shareholders have right to inspect the service contracts of the directors, which the company must keep at the registered office for at least a year after the director leaves
Also have right to inspect register of members which also must typically be kept at the registered office
Process
Register of members must incl their names and addresses, the date on which each was registered, the date at which any person ceased being a members and details of their shareholders. If the company has more than 50 members, it also is required to have an index of the members
The shareholder must request inspection and include their name and address the purpose of the inspection, and the name and address of anyone with whom the information will be shared
The company must comply with the request within 5 working days to apply to court claiming the purpose is improper
When may a shareholder meeting be called
Public company => required by statute to hold an annual general shareholders meeting
- Private company under no such obligation
Both may also hold as and when required
Only if directors need to approve (ie most decisions are for the directors alone)
Who can call a meeting?
- Usually the directors (under statute)
- Shareholders can require D to call
- if hold at least 5% of the paid-up voting capital
- Directors must call meeting within 21 days of the request, and it must be held within 28 days
- Directors fail to call => shareholders who requested it can call the meeting themselves (SH who calls entitled to be reimbursed for reasonable expenses) - Resigning auditor can require the directors to call a meeting if the auditor wishes to give reasons for the resignation
- Court can call meeting if impracticable for the company to call it (eg in cases of deadlock between shareholders)
Notice to a meeting - who given to
All shareholders
Directors
PRs of any deceased shareholders
Trustee in bankruptcy of any bankrupt shareholders
Auditor, if one has been appointed
Notice to a meeting - contents of notice
Company name
Time and date and place
General nature of the business to be carried on at the meeting
Statement of right to appoint a proxy to attend the meeting
Full text of any special resolution
Notice to a meeting - timing
Notice must be given at least 14 clear days before the meeting unless the articles provide for longer notice
If notice not by hand delivery => additional 48 hours for deemed service
AGM => requires 21 clear days notice
If shareholder wishes to call to consider a resolution to remove a director, the shareholder must give the company notice at least 28 clear days prior to the meeting
Insufficient notice? => member who is unhappy with action taken at meeting can declare the action invalid
Shorter notice allowed if majority in number of the shareholders who hold 90% (95% for non-traded public companies) of the shares
BUT cannot be used in circs where docs must be left at the registered office for 15 days prior to the meeting
Quorum at a shareholders meeting
Valid vote cannot take place unless a quorum is present
Quorum = 2 members (unless company’s articles provide otherwise, or unless company is a single member company)
Approval of resolutions - ordinary
=> requires simple majority (more than 50%) of the members at the meeting
Eg (unless articles provide otherwise)
- Appointment of auditors and directors
- Adoption of the annual accounts
- Declaration of dividends
- Approval of directors decision to allot shares
- Approval of substantial property transactions involving directors with a personal interest
- Ratification of a director’s breach of duty
- Entering a service contract with a director for more than 2 years
- Making a loan to a director
- Giving a director a payment for loss of office
Approval of resolutions - special
=> requires 75% or more of the members at the meeting
Generally requires for actions of the company that may detrimentally affect shareholders
CA06 requires SR for:
- any alteration to the articles of association
- a reduction in the company’s share capital
- winding up of the company
- change to company’s name
All SRs must be filed at CH within 15 days
Methods of voting at shareholder meeting
Show of hands (one vote per shareholder who is present or by a proxy)
BUT if 5+ shareholders, or shareholders with more than 10% of the voting rights or 10% of the paid-up capital of the company to demand a poll instead
Poll changes voting to one vote per share
Approval of resolutions by written resolution - general
Available to private companies only
Can be used for either ordinary or special resolutions
BUT a written resolution cannot be used to dismiss a director or auditor
Normally board of directors decide whether to circulate a written resolution, but shareholders who hold at least 5% of the total voting rights can require the directors to do so
One vote per share (not per shareholder)
Approval of resolutions by written resolution - requirements
Written resolution must be circulated to all members eligible to vote
Must contain a statement informing the shareholder how to signify agreement and when the resolution will relapse (typically 28 days from and incl the circulation date unless the articles say something different)
Any docs which must be left at the company’s registered office for 15 days prior to a meeting, or available at the meeting, must be circulated with the resolution
Procedure if resolution adopted
If resolution adopted by board/shareholders/both affects info filed at CH a copy of the changes typically must be filed at CH within 14 days of approval of the change
Equity finance - definition
= raising capital by selling ownership shares to third parties interested in investing in the company
Company limited by shares => members allocated a certain number of shares and become shareholders
Equity finance - initial share capital
Before formed, people sign memorandum of ass in which they agree to purchase a certain number of shares at a certain price once the company is formed (ie the subscribers)
Will have stated minimum value (ie least amount the shareholders mat pay for the shares) = nominal or par value of those shares
When formed directors will allot agrees shares to the subscribers and receive payment for the shares
Money received on account of nominal/par value becomes a company’s share capital (ie a fund of money that cannot be returned to the shareholders and which theoretically is always available to pay the company’s creditors)
Equity finance - additional share allotment
Companies incorporated after 2009 => directors automatically have power to allot additional shares provided the company has only one class of shares and there is no restriction removing this power in the articles
Otherwise => in order to issue additional shares, the directors must seek permission from the existing shareholders through an ordinary resolution
Equity finance - procedure for issuing shares
Directors determine price and number of shares to allot after receiving app from person who wants to buy the shares
Generally shares are issues in return for cash (but directors may accepted property for shares too)
Model articles => full value of the shares must be paid to the company on allotment
- Shares have a nominal or par value => money received on account of that value will be added to the company’s share capital
Issuing shares at a premium
- Nominal/par value often doesn’t reflect true market value
- Any amount received beyond the nominal value = a premium
- Excess amount paid over nominal value must be recorded separately in a share premium account
- Still constitutes share capital
Equity finance - pre-emption rights
Company proposes to issue additional shares in exchange for cash => those shares must first be offered to existing shareholders so that they have the opportunity to maintain their proportional share of ownership and voting strength in the company
= pre-emption right
Statutory procedure
1. Existing shareholders must be given ar least 14 days to accept
2. Any shareholder does not accept => shares allocated to the shareholder may be sold in the market
Does NOT apply to shares issued for non-cash consideration or preference shares
May be disapplied by special resolution
May be altered by the articles of ass
Equity finance - transfer of shares
Involves the sale or gift by a shareholder to another person
No new shares
Model articles for private companies grant the directors an absolute power to refuse to allow a transfer of shares
Procedure =
1. Existing shareholder gives share certificate and completed stock transfer form (STF) to transferee
2. If necessary, transferee pays stamp duty
3. Transferee sends share certificate and stamped STF to company
4. Board check articles and consider if they have power to refuse registration
5. Board resolve to register new member/refuse registration
6. If resolve to register board also resolve to issue new share certificate
7. Register of members is updated (no filing at CH necessary)
Debt finance - definition
= when a company borrows money to raise capital
Ie company borrows money from outside creditor and promises to repay the creditor (debt holder has no ownership interest in the company)
Directors have power to borrow on behalf of company
(Unless restrictions in the articles (none in model articles))
Usually via a loan (ie a contract between the company and a lender)
Debt finance - types of loan
- Secured v unsecured
- ie whether collateral
- rate of interest usually lower on a secured loan - Mortgages = loan over high value assets
- Apart from land, the legal ownership is transferred to the lender and if the company defaults the lender will exercise the right to immediate possession of the asset
- With land the right to possess and sell the asset if the lender defaults are governed by statute - Fixed charges
- Taken over assets which the company will own for a substantial period
- Company breaches loan terms/goes into receivership or liquidation => the charge holder has the right to sell the asset and recover the outstanding sum owed
- To protect the charge holder the company is prohibited from discharging of/leasing/granting a further charge on the charged assets without the lender’s consent - Floating charges
- = charge taken over a group of assets that change regularly
- Charge hovers over named asset but does not attach to any particular item until there is a default
Debt finance - protection of loans
Charge must be registered at CH within 21 days of creation
Certified copy of the charge and a fee must be sent
Some charges must be registered on specialised registers (eg fixed charge over land at the land registry)
Failure to register charge renders it void against creditors of the company
Debt finance - priority over secured debts
Fixed charges over same asset take priority in date order of their creation, so long as they were validly registered at companies house
Floating charges also take priority in date order (if registered at CH)
Fixed charge take priority over floating charge, even if floating charge created first
Debt finance - debt security
= a document which evidences a loan made to a company and which may be traded (like an IOU)
Holder of the debt security is entitled to interest and repayment of the land as provided in the security
Must be repaid by the company at an agreed future date
Registers to be kept by a private company
CA06 requires private companies to keep the following registers:
- Register of members
- Register of directors
- Register of secretaries
- Register of charges against the company’s assets
- Register of people with significant control
Registers must be kept available for public inspection by members (for free) or the general public (for a fee) at the company’s registered office (or CH for register of directors/members)
Other (non-register) records companies must keep
Minutes from all general shareholders meetings must be kept for at least 10 years and made available for shareholders to inspect free of charge
Copies of directors service contracts must be kept for at least 1 year beyond each director’s service and made available for members to inspect
Filings at CH - general list
- Annual confirmation statement (ie annual return)
- Charges against company’s assets must be filed at CH within 21 days of creation
- Accounts
- Directors’ report
- Strategic report
Filings at CH - annual confirmation statement
Ie confirms that the info held by CH is up to date
Company with share capital must deliver a statement of capital with the confirmation statement if there has been a change since the last confirmation statement was delivered
Company must make a ‘no return’ confirmation statement even if there have not been any changes during the review period
Review period covered by a company’s first confirmation statement begins on the date of incorporation and ends 12 months later
Criminal offence to fail to file the confirmation statement within 14 days of the end of the company’s review period
Filings at CH - accounts
Private companies must send copies of their accounts to CH no later than 9 months after the relevant accounting reference period
- Public companies => 6 months
Filed => accounts are public record and searchable on CH
Contents:
- Incl company’s registration number and its nature
- Indicate part of UK company is registered
- Balance sheet as of last day of the financial year and statement of profit and losses must be included
- Each must give a ‘true and fair view’ of the company for the financial year
Directors must approve the accounts
- Audit report may be required (not if small company)
Fail to file on time => financial penalties, poss criminal sanctions, and could lead to disqualification of directors
Filings at CH - directors report
Must file annually if medium or large company (ie companies with more than 50 employees or turnover of £10m+)
Report names the directors and states the amount that the directors recommend should be paid by way of dividend
Filings at CH - strategic report
Must file annually if medium or large company
Informs members of the company and helps assess how the directors have performed their duty to promote the success of the company
What changes must CH be notified of
- Appointment or termination of a director or officer requires updating the locally kept register and filing notice of change within 14 days fo the change (same for change in residential info)
- Ordinary resolution giving directors the power to allot new shares must be filed within 15 days of approval
- Special resolutions that have been approved must be filed within 15 days, incl a special resolution to reduce share capital
- In that case the resolution must be accompanied by a statement fo solvency - Issuance of new shares should be notified within 1 month (in addition to filing resolution to allot new shares)
- Change of address not effective until filed with CH
NOTE: Failure to make appropriate filing is an office
Business letterheads - company
Must incl:
- Registered name
- Part of the UK in which the company is registered
- Company’s registered number
- Address of company’s office
If incl one director’s name on letterhead should incl all
Business letterheads - partnerships
Disclose name of partnership, name of each member, and partnership’s business address
Business letterheads - sole trader
Business name, real name if different from their business name, and their business address
Insolvency of sole traders and partners - options available
- Negotiating with creditors
- Individual Voluntary Arrangement (IVA)
- Bankruptcy
Insolvency of sole traders and partners - negotiating with traders
Debtor can approach creditor and ask for the debt to be reduced or for extra time to pay
Typically any agreement is not binding on the creditor as there is no contract consideration
=> at any point the creditor could demand the full amount on the original payment terms
Agreement with one creditor would not stop another starting proceedings
Insolvency of sole traders and partners - IVA - definition
= negotiated agreement between debtor and all of their creditors
Creditors each agree to accept less than is owed to them (formal procedure)
Suitable only if debtor has enough money to enable the debtor to make a reasonable offer
Insolvency of sole traders and partners - IVA - advantages
Advantages for debtor
- Avoid restrictions and disqualifications they would be subject to if made bankrupt
- Avoid stigma of bankruptcy
- Debtor is sole trader or partner => can continue to trade
Advantages for creditors
- Might receive more money that they would in a bankruptcy (as fewer fees etc)
- Quicker than bankruptcy
- As debtor can continue to trade they keep a customer for the future
Insolvency of sole traders and partners - IVA - procedure
- Debtor must first take professional advice (cannot proceed alone)
- Debtor must find an insolvency practitioner who will draw up proposals and supervise the implementation of the IVA (must therefore be money available to pay their fees)
- Debtor prepares statement of affairs and apply to bankruptcy court for an interim order
- Order in force => no bankruptcy petition may be presented/proceeded unless permission to proceed obtained by court
- Gives breathing space for insolvency practitioner to work out assets and liabilities - Insolvency practitioner prepares report advising whether there are any realistic proposals to offer to the creditors and whether it is worth calling a meeting of creditors
- Meeting called and at least 75% in value of debtor’s unsecure creditors agree to proposals, proposals become binding on every ordinary unsecured creditor who had notice of the meeting (even if they did not attend or vote)
- Preferential creditors and secured creditors are not bound unless they agree to the proposal - Insolvency practitioner (supervisor) oversees and implements the proposals
- Debtor fails to comply with IVA or provided false or misleading info, the supervisor or any creditor who is a party to the IVA may petition for the debtor’s bankruptcy
- Incl if debtor made transactions at an undervalue of gave preferences
Insolvency of sole traders and partners - bankruptcy - definition
= judicial process where assets of bankrupted debtor are passed to a third party (trustee in bankruptcy) who liquidates the assets and uses the money from the liquidation to pay off as many as the debtor’s debts as poss in strict order set out in legislation
Application made => creditors must stop chasing debtor and the debtor will be discharged from most of their debts after 1 year
Insolvency of sole traders and partners - bankruptcy - advantages/disadvantages
For debtor:
+
- Start afresh free of debt
- Stops being chased by their creditors and is allowed to keep a reasonable amount from their income to live on
- Affect debtor’s credit rating
- Home might be sold
- Matter of public record which will prevent them holding certain jobs
Advantage for creditor:
- Debts paid off in statutory order so prevents one creditor benefiting at the expense of another
Insolvency of sole traders and partners - bankruptcy - procedure
- Application for bankruptcy order made in one of three ways:
a) Debtor can apply online to declare themself bankrupt; or
b) One or more unsecured creditors who are owed at least £5k can submit a petition for a bankruptcy order
c) Supervisor of an IVA can petition for bankruptcy if the debtor has breached the terms of the IVA, hidden assets, or given a preference to a creditor - Bankruptcy order made => official receiver is appointed (ie civil servant who acts as trustee in bankruptcy)
NOTE: Creditor applies => must prove that debtor is insolvent by showing either that debt is payable immediately and the debtor does not have funds to pay, ot debt is payable in the future and the debtor has no reasonable prospect of being able to pay
- Can use following methods to make showing:
a) Debtor owes liquidated debt of £5k+, creditor may make a statutory demand for payment. Debt not paid within 3 weeks (or debtor doesn’t apply for it to be set aside within 3 weeks) => deemed insolvent
b) Debtor owes future liability of £5k+, debtor may serve statutory demand for proof of ability to pay. Debtor does not show reasonable prospect of being able to pay or apply to set aside => deemed insolvent
c) Debtor owes judgment debt of £5k+, creditor can seek to execute on the judgment. Attempt fails => deemed insolvent
Insolvency of sole traders and partners - bankruptcy - what happens to estate in bankruptcy
Estate vests automatically in the trustee in bankruptcy (=> does not need to go through any legal formalities to transfer those assets)
Trustee collects in and sell assets to raise money to pay off creditors
Exemptions:
- Assets needed for day to day living (eg furniture and tools required for their job)
- Any salary they make, subject to trustee applying for income payments order (if salary exceeds amount needed for reasonable need of the bankrupt and their family)
- Payments order can last for max 3 years - Bankrupt’s interest in home will pass to trustee BUT there may be other legal of equitable interests in the home
=> trustee can’t sell home without a court order, and court will consider all interests before making an order for sale
- BUT after one year the interests of the creditors are paramount and so will take precedence over any others claiming an interest
Insolvency of sole traders and partners - bankruptcy - what the debtor can’t do while bankrupt
- Apply for credit of more than a prescribed amount
- Act as company dircetor
- Be a partner
- Trade under another name without disclosure of the bankruptcy
Insolvency of sole traders and partners - bankruptcy - order of priority for distribution to creditors
- Costs of the bankruptcy
- Preferential debts (holiday pay of employees and wages of employees due in last 4 months and HMRC in respect of VAT/PAYE/NI)
- Ordinary unsecured creditors
- Postponed creditors (ie spouse or civil partner)
Not enough money to fully satisfy all the creditors at one level => debts rank and abate equally so all creditors in that category receive the same percentage of their orginal debt
Insolvency of sole traders and partners - bankruptcy - when is it discharged
Bankruptcy automatically discharged after 1 year if bankrupt complies with restrictions and has not caused bankruptcy by own dishonesty/negligence/recklessness
BUT if they have => considered ‘culpable’ and can be subject to a court bankruptcy order for up to 15 years
Insolvency of sole traders and partners - what happens if a partner made bankrupt
- Partner at will (in general part.)
- Partnership dissolved on the bankruptcy of the partner
- Trustee in bankruptcy (or liquidator) will receive any money due to the insolvent partner, to be used for the benefit of the partner’s creditors - Partnership not at will (in general part.)
- Partnership provides that the partnership will not terminate => partnership will continue and remaining partners will usually purchase the insolvent partner’s interest form the trustee in bankruptcy in accordance with the retirement provisions in the partnership agreement - Limited liability partnership
- Undischarged bankrupt cannot be a member or take part in the management of a LLP without the agreement of the court
- Trustee in bankruptcy seek to realise the member’s interest for the benefit of his creditors, usually by selling the interest to the remaining creditors in accordance with the retirement provisions
Insolvency of sole traders and partners - what happens if all partners made bankrupt
- General partnership insolvent => partnership wound up using same process as for bankruptcy
- Official receiver or insolvency practitioner will:
a) Make sure all contracts are completed, transferred, or otherwise ended
b) Cease the business
c) Settle any legal disputes
d) Sell any assets
e) Collect money owed to the partners or partnership
f) Distribute any funds to the creditors - LLP insolvent =>
- Administered by the official receiver as a limited company
Corporate insolvency (ie for LLPs and companies) - options available
- Receivership = enables secured creditors to recover what is owed solely to them
- Restructuring plan = allows companies to restructure their debts with the sanction of the court
- Moratorium = halts most actions by creditors to enforce their rights
- Administration and company voluntary arrangements = seeks to rescue the company
- Liquidation = causes the company’s assets to be sold to pay off debts and the company will cease to exist
Corporate insolvency - fixed asset receivership
Breach of loan agreement => receiver takes possession of the asset securing the loan (the charged asset) and usually sells it to pay the secured lender (ie sale is not for benefit of all creditors)
Asset sold => receiver has no further role in the company
Company need not be proved insolvent
- Company could still be solvent but have breached another term of loan eg failing to pay judgment debt (but most common breach is failure to pay interest or capital of the loan)
- But security often taken over important assets
- If those assets are turned over to a receiver and sold, company will usually collapse into liquidation as it will have nowhere to trade from, or no plant/machinery with which to make its goods
Corporate insolvency - restructuring plan
May propose a compromise or arrangement with creditors or members
Usually involved creditors agreeing to accept less than they are owed but more than they would likely receive in bankruptcy
Plan must be approved by those owed at least 75% in value of the unsecured debt
Court may approve plan even if one of more classes disagrees with it and the dissenting creditors will be bound (‘cram down’)
Not a formal insolvency procedure and broad in scope
Corporate insolvency - moratorium - purpose
Moratorium prevents creditors from taking action to enforce their financial rights or from commencing formal insolvency proceedings during moratorium
LLs may not forfeit any lease of company’s premises and a floating charge holder may not crystallise their floating charge
Corporate entity has a payment holiday in relation to debts, subject to certain exemptions incl wages and other amounts to staff
Purpose = rescue company and return it to profitable trading through a CVA, restructuring plan, refinancing, or injection of new funding (ie not a formal insolvency procedure)
Corporate insolvency - moratorium - procedure
- Directors of the company will appoint an insolvency practitioner as ‘monitor’ to oversee the company’s affairs and ensure that it is likely that the moratorium will result in a rescue of the company
- Directors and monitor file certain papers with the court
- Directors remain in charge if running the business
NOTE: Moratorium not available for companies which are or have within the previous 12 months been subject to an insolvency procedure
Corporate insolvency - administration - definition
Enables administrator to run, reorganise and/or sell the company as a going concern (might enable the company to avoid going into liquidation)
Administrator acts in the interests of the creditors as a whole (unlike receiver above who only acts for one secured creditor)
Corporate insolvency - administration - procedure
2 methods:
1. Through a formal court hearing; or
2. By the company, its directors, or the holder of a qualifying floating charge filing certain documents with the court
Court appt used => court can make order only if it is satisfied that:
1. The company is unable to pay its debts and
2. The order is likely to achieve a better result for the company’s creditors than liquidation
Directors and company (members) can appoint an administrator is no winding up petition has been issued
- They must notify any qualifying floating charge holder who will agree or appoint an alternative administrator
Corporate insolvency - administration - what is a qualifying floating charge
= charge over whole or substantially the whole of the company’s assets
Will contain a provision empowering the lender to appoint an administrator or an administrative receiver if a breach has occurred which allows the lender to enforce its security under the terms of the credit agreement
Corporate insolvency - administration - role of an administrator
Must be a licensed insolvency practitioner
Have the power to:
- Take control of the company’s property and sell it
- Bring or defend legal proceedings on behalf of the company
- Carry out company business
- Remove or replace directors etc
- Investigate previous transactions of the company to seek to increase the value of the assets for the creditors and can take action against the directors for wrongful and fraudulent trading
Generally a majority in value of the creditors must approve the administrator’s proposals
Corporate insolvency - CVA - definition
Similar to IVA ie a compromise between the company and its creditors under which each creditor usually agrees to take less than the full debt owed to them
Used when company has a short-term cash flow problem but is generally financially sound
Corporate insolvency - process of obtaining CVA
- Directors of company make written proposal to creditors and nominate an insolvency practitioner to supervise the CVA
- 75% or more in value of the unsecured creditors must agree to the CVA in order for it to be implemented
- If CVA fails, company could still end up in liquidation or administration
At least for small companies, possible to have a moratorium which restricts the ability of 3rd parties to enforce their rights and prevents the commencement of other insolvency procedures (gives breathing space)
Corporate insolvency - advantages/disadvantages of CVA
+:
- CVA is relatively cheap
- If successful the company will survive so in long term creditors can continue trading wth the company
- :
- CVA only binds unsecured creditors so secured and preferential can still put the company into liquidation or administration
Corporate insolvency - voluntary liquidiation (general)
= started by the members or directors of a company
2 kinds = members and creditors
Corporate insolvency - member’s voluntary liquidiation
Members and directors control the process form start to finish
Available only if company is solvent but inds involved wish to wind it up eg owners of small company wish to retire
Process:
1. Directors must make statutory declaration of solvency
- If declaration is made without reasonable grounds, they are liable to a fine or imprisonment
- Members will pass a special resolution to start the liquidation and an ordinary resolution to appoint a liquidator
- Appointment of the liquidator is advertised in the London Gazette and CH is notified
- Liquidator investigates, reports to creditors and asks for details of all dets
- Liquidator collects in assets of company and distributes funds to creditors in the statutory order
- Final accounts are sent to creditors and members and final return is filed at CH
- Company is dissolved after 3 months
Corporate insolvency - creditor’s voluntary liquidiation
Started by directors but then taken over by creditors
Usually commenced because directors are advised that company is insolvent and if they continue trading they could be personally liable for the debts for fraudulent or wrongful trading
Process: (v similar to member’s VL)
- Directors resolve that company is insolvent and should be placed into liquidation
- Members pass a special resolution to start the liquidation
- Resolution is advertised in the London Gazette
- Within 7 days of the day following the members resolution, the directors must make out a statement in the prescribed form as to the affairs of the company and send that statement to the company’s creditors
- Directors also seek a nomination form the company’s creditors for a person to be the liquidator
- Appointment of the liquidator is advertised in the London gazette and CH is notified
- Liquidator investigates, reports to creditors and asks for details of all debts
- Liquidator collects in assets of company and distributes funds to creditors in the statutory order
- Final accounts are sent to creditors and members and final return is filed at CH
- Company is dissolved after 3 months
Corporate insolvency - compulsory liquidation
Creditor who can show a company is unable to pay its debts can petition for the company to be wound up
Court will consider all relevant factors (does not have to accept the petition)
If the company is able to convince the court it may recover financially or that the debt on which the petition is based is disputed, the court may dismiss the petition (otherwise a liquidator will be appointed)
Role of liquidator = collects in the assets of the copmay and distributes funds to the creditors in the statutory order and the company is resolved
Order of priority for distribution to creditors:
1. Expenses of winding up
2. Preferential debts
3. Debts secured by floating charges
4. Unsecured debts
5. Shareholders
Clawback of assets - when might this happen
Ie risk that directors or inds may try to move assets to safety to preserve them from liquidator etc
Liquidator etc have power to investigate the company/inds actions prior to the insolvency to maximise the funds available and to ask the court to set aside transactions that violet law
- Preferences
- Transactions at an undervalue
- Fraudulent trading
- Wrongful trading
Preferences in insolvency
= when a debtor does something that puts a creditor, surety or guarantor in a better position on liquidation/administration that they would have been if the event had not occurred
Preference must have been intentional
- Presumed if preference is in favour of a connected person
Must have occurred within 6 months of the onset of the insolvency (2 years if made to a connected person or associate of the bankrupt)
When is ‘onset of insolvency’?
1. Company compulsory liquidation => date of presentation of the petition
2. CVL => date company enters liquidation
3. Administration => date company files a notice of intention to appoint and administrator or the date when it enters administration (whichever is earliest)
4. Ind => presentation of the bankruptcy petition
Consequence:
- Transaction will be voidable at the discretion of the court
- Court can order that any property be returned, any proceeds of sale be returned, or any security discharged
Transactions at an undervalue (incl defence)
Arises when property that would have otherwise been part of the bankruptcy estate was given as a gift or was sold for significantly less than market value within 2 years of company’s insolvency (or 5 years of ind’s bankruptcy)
Consequences = same as above (ie transaction is voidable)
Insolvency requirement
1. For a company = must have been insolvent at the time of the transaction or become so as a result
- Presumption of insolvency if transaction is to a connected person
- For an individual = no requirement to prove the debtor was insolvent at the time transaction was made if it was made within 2 years before the petition
- Insolvency presumed if transaction was made at any time in favour of a close relative or business ass
Defence
- For company if the transaction was entered into in good faith, for the purpose of carrying on the business, and when it was made there were reasonable grounds for believing it would benefit the company
Granting security interest in a company asset is NOT considered to be a transaction at an undervalue
- As does not change the value of the company’s assets and so does not reduce their value
- BUT grant can still give rise to a preference which may be set aside
Fraudulent trading
= when a director (or anyone else who knowingly participates) carries on business of the company with the intent to defraud creditors
Action can be brought by a liquidator or an administrator
Fraudulent trading established => directors may be liable to make such personal contribution to the company’s assets as the court orders
Also a criminal offence
Rarely proved in practice because of the difficulty in establishing the required intent to defraud
Wrongful trading
= claim that at some time before a company become insolvent, the directors knew or ought to have known that there was no reasonable prospect that the company would avoid insolvency and failed to take adequate steps to minimise the losses to the company’s creditors
Director knows/ought to know => duty shifts from what is best for the shareholders to what is best for the creditors
Wrongful trading action can be brought by a liquidator or administrator
Claim successful => court may order the director to contribute to the company’s assets as the court deems appropriate
Defence
- Director can show they took every step with the view to minimising potential loss to the company’s creditors after becoming aware that the company had no prospect of avoiding liquidation
- Director should not do nothing if faced with the possibility of insolvency
- At the least they should take (and follow) professional advice
Floating charges as a preference
Floating charges may be voidable as a preference
Floating charge automatically void if created:
1. For no consideration within 12 months ending with the onset of insolvency (or 2 years for a connected person)
2. At a time the company was insolvent or became insolvent as a result if the charge was given to a person unconnected to the company
- BUT no requirement to show insolvency if floating charge is to a connected person
Ring fencing re floating charges (insolvency)
Liquidator required to set aside part of the assets subject to a floating lien for the benefit of unsecured creditors (ie assets are ringed by a fence)
Amount is 50% of the first £10k in value of the property subject to floating charges and 20% on amounts above, up to a max ring-fenced fund of £800k
