Business Law Revision

Question 1

Property will be considered partnership property if it was brought into the partnership with the intention that it would be partnership property. If the partner made it clear at the beginning of the partnership that they wished their property to remain their property. The fact that the partner allowed the partnership to use property and that the partnership paid for repairs and maintenance of the property does not affect the general rule: intent controls

Question 2

A creditor cannot rely on apparent authority if they are aware that the partner does not have authority

Question 3

A partner’s right to a share of the profits is assignable. However, the assignee does not become a partner unless all the partners agree to make the assignee a partner

Question 4

As a general rule, decisions in a partnership require only a simple majority vote unless the partnership agreement provides otherwise. However, there are a few decisions that require unanimity (unless the partnership agreement provides otherwise). These are:
1. The introduction of a new partner
2. Change in the nature of the partnership business
3. An alteration to the partnership agreement
4. The expulsion of a partner.

Question 5

Each partner owes a fiduciary duty to the partnership. This means that each partner is bound to exercise their partnership powers for the benefit of the partnership and not for themselves alone. If a partner personally profits from any transaction connected with the partnership, then provided they have fully disclosed the transaction to the partnership and received consent, the partner may retain such profit

Question 6

The model articles of association provide that the payment of a dividend must be recommended by the board of directors before it can be declared by the shareholders by an ordinary resolution.

Question 7

A company is incorporated, and becomes a separate legal personality, on the date on the certificate of incorporation.

Question 8

The statutory notice period to call a general meeting can be shortened if a majority of shareholders who hold at least 90% of the shares agree to the short notice.

Question 9

If a company has preference shares, the preference must be paid before any dividend may be distributed to the ordinary shareholders.

For example if a the company has 2,000 £100 shares with a 5% preference. Each of the 2,000 preference shares is entitled to receive 5% of £100 before the company may make a distribution to the ordinary shareholders. So, the first £10,000 (£5 x 2,000 shares) must be distributed to the preference share owners

Question 10

A de jure director is a director properly appointed by law, having complied with all the necessary formalities required by the Companies Act 2006.

Question 11

A de facto director is someone who has not been formally appointed and registered with the Registrar of Companies, but carries out all the duties of and behaves as a director

Question 12

A private limited company is required by law to have a minimum of one director and one shareholder, but there is no legal requirement for a company secretary

Question 13

In a company which has the Model Articles, a director can be appointed by either the board or by an ordinary resolution of the members. Service contracts are awarded by the board; however, if the term of a service contract is longer than two years, it must first be approved by ordinary resolution of the members.

Question 14

On first registration, a memorandum of association is required to be filed. It contains a statement of the initial subscribers’ intent to form a company and that they agree to become members. Also required is the proposed name of the company, the location of the registered office, details of the company’s business activity and SIC (Standard Industrial Classification) code, whether the company will be limited by shares or guarantee, whether the company is private or public, a statement of share capital and initial shareholdings, a statement of the proposed directors (and company secretary, if applicable), details of persons with significant control (PSCs), a statement of compliance with the terms of the Companies Act 2006, and payment of the relevant fee.

Question 15

The board has authority to allot new shares if the company was incorporated after 2009, the shares are the same class as the shares that have been issued, and there are no restrictions in the articles

Question 16

Pre-emption right: when a company allots shares after the initial allotment, existing shareholders have a right to purchase a portion of the shares to maintain their proportional ownership if the shares are to be issued for CASH (and not property)

Question 17

A creditor must be able to prove the company is insolvent to be able to issue a winding up petition. A creditor can prove insolvency by either: serving a statutory demand which is not paid within 21 days in respect of a debt of £750 or more, or by obtaining a judgment and attempting to execute the judgment but the debt is not fully satisfied e.g. judgement obtained but bailiff nonetheless was unable to obtain full payment from the debtor

Question 18

A charge which has not been validly registered at Companies House is void against other creditors. The charge would still be valid but another charge make take priority e.g. although fixed charges take priority over floating charges, that is true only if the fixed charge has been registered with Companies House.

Question 19

The relevant time for a preference is within six months of the onset of insolvency or two years if the preference was made to a connected person

Question 20

A preference arises when a debtor does something to put one creditor ahead of others in insolvent liquidation or administration with intent to do so.

Question 21

When a company allots ordinary shares after the initial allotment, existing ordinary shareholders have a right to purchase a portion of the shares to maintain their proportional ownership if the shares are to be issued for cash.

Question 22

Fixed charges rank ahead of floating charges and in order of creation so long as they were validly registered at Companies House within 21 days of creation.

Question 23

A private company should file its accounts no later than 9 months after the relevant accounting reference period.

Question 24

A transaction at an undervalue arises when a company makes a gift or otherwise enters into a transaction selling company property for significantly less than the property’s market value at a time the company is insolvent OR within 2 years of insolvency

Question 25

A designated member is simply the member appointed to perform certain administrative duties (such as to comply with filing requirements of Companies House).

Question 26

A sole trader, however, is able to sell their interest whenever they please without formalities, and if the sole trader wants to cease trading they just stop; there are no formal dissolution requirements.

Question 27

The death of a partner will automatically bring the partnership to an end unless the partnership agreement contains provisions to the contrary.

Question 28

An LLP agreement is a private contract between the members of the LLP and is not a requirement for formation.

Question 29

In a partnership without a stated duration, any partner may withdraw at any time by giving the other partners notice of their desire to withdraw. Effectively, the notice brings the partnership to an end. In reality what is likely to happen is that the partnership will continue in a newly constituted form, but legally a partnership has no separate existence from its owners so the withdrawal would result in the dissolution of the partnership.

Question 30

A general partner has unlimited personal liability for partnership debts and is responsible for managing the partnership. A limited partner is not liable beyond their capital contribution and is not permitted to be involved in the management of the partnership. A limited partnership is required to have at least one general partner and at least one limited partner.

Question 31

Non-compliance with the filing requirements of the Companies Act 2006 may result in a fine for the officers of the company

Question 32

A public limited company is required under the Companies Act 2006 to have a minimum of two directors, one shareholder, and an appropriately qualified company secretary

Question 33

A general partner in a general partnership and general partners in a limited partnership has unlimited liability for the debts of the partnership and has the ability to manage the partnership

Question 34

director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This applies in particular to the exploitation of any property, information, or opportunity. What this duty means in practice is that there should not be a conflict between a director’s fiduciary duties and his own personal interests. This duty extends to a director not making an unauthorised profit as a result of a conflict of interest

Question 35

The articles of association form a contract between the company and the members, but in respect of membership rights only and not employment rights

Question 36

Altering the name of a company requires a special resolution, that is, 75% of the votes passed must be in favour

Question 37

On dissolution of a partnership, after all debts/liabilities have been paid, the partners’ capital is then repaid. Then any profits are shared according to what has been agreed (or equally if there is no agreement).

Question 38

An amendment to a company’s articles is made by the shareholders through a special resolution. A special resolution must be approved by at least 75% of the votes of the members at the meeting.

Question 39

Whether the company is a public or private company limited by shares, shareholders holding shares representing at least 5% of the paid-up capital may demand that the board to call a meeting and to include specific resolutions. If the directors do not call the meeting within 21 days, the shareholders who requested it may call the meeting.

Question 40

Under Company’s Act (2006), the directors have discretion to declare a dividend, but any declaration of dividend must be approved by the shareholders through an ordinary resolution

Question 41

Shareholders have no power to increase the amount of dividend that was declared (whether by ordinary resolution or special resolution), but they can decrease the amount declared through an ordinary resolution.

Question 42

The directors have an absolute power to refuse to register a transfer of shares under the Model Articles

Question 43

Preemption applies only when the company seeks to issue new ordinary shares for cash

Question 44

The members have no power to approve the transfer of sharers under the Model Article

Question 45

Shareholders can only be liable on an insolvency for any amount that remains outstanding on their shares

Question 46

There is a statutory obligation to pay any sums outstanding on insolvency regardless of a resolution to the contrary

Question 47

A contract over two years must be approved by board resolution and then voted on by the shareholders as an ordinary resolution

Question 48

A creditor must be able to prove the company is insolvent to be able to issue a winding up petition. A creditor can prove insolvency by either: serving a statutory demand which is not paid within 21 days in respect of a debt of £750 or more, or showing that they obtained a judgment, attempted to execute the judgment, and that the debt is not fully satisfied.

Question 49

U.K. business entities must give certain trading disclosures on their business letterhead. A company must disclose: its registered name, the part of the United Kingdom in which the company is registered, the company’s registered number, and the address of the company’s registered office. If a company chooses to display the name of any director on its letterhead, it must include the name of every director on the letterhead

Question 50

Approval of an IVA requires the agreement of the debtor’s unsecured creditors holding at least 75% in value of unsecured debt. If such approval is obtained, the practitioner’s proposals become binding on every ordinary unsecured creditor who has notice of the meeting

Question 51

Following the grant of a charge, the company must file the fee, a copy of the charge, and the requisite form at Companies House within 21 days

Question 52

The Return of Allotment of Shares form together with any necessary shareholders’ resolutions must be filed with the Registrar of Companies following the issue of new shares. If the shares here were issued to a new investor, the members also had to pass a special resolution to disapply the statutory pre-emption rights. Thus, that resolution had to be filed too.

Question 53

A company changes its name by special resolution of the members and is effective when a new certificate is issued. So the full procedure is that the board resolve to put the name change to a vote of the members and the members must approve by special resolution. The special resolution is then filed using the aptly named ‘Change Your Company Name by Resolution’ form, and then Companies House will issue a new certificate of incorporation.

Question 54

A director can be disqualified under the Company Directors Disqualification Act 1986 for a period of between 2 and 15 years

Question 55

For an individual, there is no requirement to prove the debtor was insolvent at the time the transaction was made if it was made within two years before the bankruptcy and insolvency is presumed if the transaction is to a close relative. Thus, the trustee would not have to prove insolvency regarding any transfer to the sole trader’s spouse or with regard to the sales within two years of the petition. But the transfers that took place more than two years ago and were not to a close relative insolvency would have to be proved.

Question 56

A director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This applies in particular to the exploitation of any property, information, or opportunity. The duty would not be infringed if the director has had authorisation from the other directors.

Question 57

There is no requirement to file articles of association when setting up a company. It is open to the promoter of a company to choose to adopt the model articles of association applicable to the company

Question 58

A preference arises when a debtor does something that puts a creditor in a better position on liquidation or administration than they would have been had the event not occurred. Giving an unsecured creditor a security within six months of the onset of insolvency (or two years if the security is given to a connected person) when no new consideration was given for the security is a preference. A court may void a preference

Question 59

A floating charge granted within 12 months of insolvency is invalid if it was not given in exchange for fresh consideration and the company was insolvent at the time of the transaction or became insolvent as a result.

Question 60

Under the Companies Act 2006, removing a director from office requires only an ordinary resolution of the shareholders (a simple majority of more than 50%). However, special notice is required-28 days (normally, a general meeting may be called on 14 days’ notice).

Question 61

To hold the meeting on short notice, the majority shareholder and six other shareholders must agree. A general meeting may be held on short notice if agreed by the majority in number of the shareholders holding 90% of the shares.

Question 62

Board resolutions are not filed at Companies House

Question 63

Following the change of registered office, the only thing that must be filed at Companies House is a Change of Registered Office Address form.

Question 64

What decisions require a special resolution?

Answer 64

1. Changing the name of the company
2. Any alteration to the articles of association of the company
3. A reduction in the company’s share capital
4. The winding up of the company

Question 65

A board resolution is all that is required to enter a loan and grant a charge. No shareholder approval is needed.

Question 66

A private company should file its accounts no later than nine months after the relevant accounting reference period

Question 67

The holder of a fixed charge must give consent for the asset charged to be sold. An asset charged by way of floating charge can be freely sold until the floating charge crystallises.

Question 68

All companies must be registered at Companies House

Question 69

Only companies and LLPs can grant floating charges over assets as security for a loan

Question 70

There is no limit on how many people may belong to a single partnership

Question 71

A third party may assume a partner has authority to do the following on behalf of the firm if the third party does not know the partner lacks authority regarding the matter:
- To buy and sell goods on behalf of the firm
- To hire employees on behalf of the firm
- To receive debt payment on behalf of the firm
- To instruct solicitors on behalf of the firm

Question 72

If a partner leaves a firm and it continues to trade, the partner who left remains liable for any debts incurred before they leave unless the third party to whom the debt is owed agrees a novation

Question 73

Partnership property is not available to satisfy the individual debt of a partner

Question 74

Is a partner entitled to be indemnified for payments the partner makes personally on behalf the partnership?

Answer 74

Yes, the Partnership Act 1890 requires such indemnity

Question 75

A partner’s authority to bind the firm continues after dissolution and the partners may bind the firm so that they can wind up its affairs.

Question 76

Members of a partnership who are natural persons are subject to income tax for their share of the firm’s profit each year regardless of whether the partners have distributed profits

Question 77

An LLP is an entity apart from its members and so they are not personally liable for its obligations

Question 78

If membership of an LLP drops to one, does the sole remaining member become personally liable for the debts of the LLP?

Answer 78

Yes, but only for business they carry on without a second member after six months have passed

Question 79

Who may be held liable for the wrongful acts of a member of an LLP committed in the course of the business?

Answer 79

Only the LLP and the member who committed the wrongful act

Question 80

What is a memorandum of association?

Answer 80

The authenticated/signed agreement of persons wishing to become members of a company upon its formation.

Question 81

Promoters owe a fiduciary duty of good faith to the company even though they are acting before it exists.

Question 82

De jure director

Answer 82

A person who acts as a director, claims to be a director, and has been appointed as a director

Question 83

De facto director

Answer 83

A person who acts as a director, claims to be a director, but has never been appointed as a director

Question 84

Executive directors are responsible for the day-to-day running of the company

Question 85

What is the general standard of care which a director must exercise?

Answer 85

The higher of the care, skill, and diligence that would be exercised by a reasonably diligent person with: (1) the general knowledge, skill, and experience that reasonably may be expected of a person carrying out the duties of a director (objective); or (2) general knowledge, skill, and experience the director in question actually has (subjective)

Question 86

May directors approve matters without holding a meeting?

Answer 86

Yes, if all the directors approve a written resolution, either on paper or through an email trail or the like.

Question 87

What vote usually is required in order for members to remove a director?

Answer 87

A majority vote (that is, by ordinary resolution).

Question 88

What vote usually is required in order for members to remove a director?

Answer 88

A majority vote (that is, by ordinary resolution).

Question 89

If a dividend is declared and paid but funds were not lawfully available, from whom may the unlawfully paid dividend be recovered?

Answer 89

From any shareholder who knew or should have had grounds for believing the dividend was unlawful at the time of distribution or from the directors who recommended the payment.

Question 90

Which of the following are required to avoid dismissal of a shareholder derivative claim by a court?

Answer 90

• The shareholder must show a prima facie case for the relief sought
• The court must be satisfied the claim will promote the best interests of the company

Question 91

When can a minority shareholder petition the court for a remedy?

Answer 91

• Minority shareholders can petition the court if they feel there is unfair prejudice
• Minority shareholders can petition the court to wind-up the company

Question 92

A company must ensure that when a director leaves the company, their service agreement remains available for inspection by the shareholders for how long?

Answer 92

1 year

Question 93

Does a shareholder have a right to inspect the company’s register of members?

Answer 93

Yes, if they have a proper purpose related to their rights as a shareholder, the company has 10 working days to comply with the request.

Question 94

Private companies are not obligated to hold shareholders meetings at any particular interval.

Question 95

If a shareholder requires the directors to call a meeting, within what timeframe should the meeting be held, after the notice convening the meeting is sent out?

Answer 95

28 days

Question 96

Who can demand a poll vote?

Answer 96

• Shareholders with more than 10% of the voting rights
• Shareholders with more than 10% of the paid-up capital
• Any five or more shareholders

Question 97

Typically, how long will a written resolution give members to signify their agreement before it lapses?

Answer 97

28 days

Question 98

What is included in a company’s share capital account?

Answer 98

Money received by the company on account of shares to the extent of the shares’ nominal (or par) value.

Question 99

What is the procedure for the allotment of new shares by a company which adopted the Model Articles (unamended) and which has a single class of shares?

Answer 99

The board may allot new shares without seeking the permission of the shareholders

Question 100

What is the minimum amount of time a company may give a shareholder to exercise their preemption right?

Answer 100

14 days

Question 101

Under the Model Articles, if a shareholder wishes to sell their shares in a private company to a third party, are the directors required to recognise the transfer by registering it?

Answer 101

No, they have absolute power to refuse to register a transfer.

Question 102

The Model Articles give directors the power to decide how much money to borrow on behalf of the company.

Question 103

Under the Companies Act 2006, which of the following registers are private companies required to keep?

Answer 103

• Register of members
• Register of directors
• Register of secretaries

Question 104

Deadline for filing an ordinary resolution following approval is how many days?

Answer 104

15 days

Question 105

Deadline for filing the confirmation statement at the end of the review period

Answer 105

14 days

Question 106

What are the options open to a sole practitioner who is unable to pay their debts?

Answer 106

Bankruptcy

Individual voluntary arrangement

Question 107

How may a creditor show that a debtor is insolvent?

Answer 107

1. The creditor makes a statutory demand on the debtor for payment and no action is taken by the debtor within three weeks
2. The creditor serves a statutory demand on the debtor for proof of ability to pay a future debt, and the debtor does not show reasonable prospect of being able to pay
3. The creditor seeks to execute on a judgment and the attempt fails

Question 108

The directors of a company may appoint an administrator

Question 109

How far back can a liquidator, creditor, or court look for transactions at an undervalue?

Answer 109

Within 2 years of a company’s insolvency or 5 years of an individual’s bankruptcy

Question 110

Under the model articles, the board has the power to borrow money. Therefore, a board resolution is all that will be needed to enter the loan and grant the charge. No shareholder approval is needed.

Question 111

Decisions requiring special resolutions

Answer 111

1. Buy back company shares
2. Changes to company’s articles of association
3. Changes to company’s name
4. When the directors resolve that company is insolvent and should be placed into liquidation (creditor’s voluntary liquidation), the members pass a special resolution to start the liquidation
5. Disapplying preemption rights

Question 112

Decisions requiring an ordinary resolution

Answer 112

1. Appointment or removal of a director or auditor
2. Adoption of annual accounts and reports to directors and auditors
3. Declaration of dividends
4. Approval of director’s decision to allot shares
5. Approval of substantial property transactions involving directors with a personal interest
6. Ratification of director’s breach of duty
7. Entering a service contract with a director for more than TWO YEARS
8. Making a loan to a director
9. Giving a director payment for loss of office

Question 113

A derivative action is brought on behalf of the company, and any damages awarded belong to the company

Question 114

a director can be appointed by either the board or by an ordinary resolution of the members. Service contracts are awarded by the board; however, if the term of a service contract is longer than two years, it must first be approved by ordinary resolution of the members.

Question 115

Approval of an IVA requires the agreement of the debtor’s unsecured creditors holding at least 75% in value of unsecured debt. If such approval is obtained, the practitioner’s proposals become binding on every ordinary unsecured creditor who has notice of the meeting.

Question 116

If the partnership agreement provides that the partnership is to last for a fixed duration, a partner cannot leave before the end of the fixed term. However, the partnership agreement can be changed if all of the partners agree to the change.

Question 117

A partnership creditor can recover the debt from the partnership or from any of the partners, as each partner is liable for the debts of the partnership. To the extent that there are partnership assets and property available, these can be utilised to pay a debt before recourse to the partners personally. The partners are jointly liable for the debt and there is no requirement of exhausting any particular partner’s assets first.

Question 118

On dissolution of a partnership, after all debts/liabilities have been paid, the partners’ capital is then repaid. Then any profits are shared according to what has been agreed (or equally if there is no agreement).

Question 119

If the parties’ intent is unclear, sharing of profits serves as prima facie evidence of partnership, whilst a failure to share losses is not indicative either way.

Question 120

A limited partnership or a company cannot be formed without filing at Companies House

Question 121

For an individual, there is no requirement to prove the debtor was insolvent at the time the transaction was made if it was made within two years before the bankruptcy and insolvency is presumed if the transaction is to a close relative.

For example, if the transfer of property took place more than two years ago and was not to a close relative, insolvency would have to be proved.

Question 122

partners do not have the power to expel another partner unless that power has been expressly agreed to by the partners

Question 123

Under the Partnership Act 1890 (‘PA’), a partner in a general partnership has the right to participate in the management of the partnership. A new partner may be admitted with the consent of all the partners.

Question 124

A partner’s right to a share of the profits is assignable

Question 125

The introduction of a new partner requires unanimous consent

Question 126

A partner can withdraw from a partnership at any time. Unlike a limited company or a limited liability partnership, a general partnership has no perpetual succession. This means that if there is any change in the partners, this effectively brings the partnership to an end. In reality what is likely to happen is that the partnership will continue in a newly constituted form, but legally a partnership has no separate existence from its owners so the withdrawal would result in the dissolution of the partnership.

Question 127

There is no requirement to give notice of the proposed withdrawal to all partnership creditors; there is only a requirement for a retiring partner to give such notice if the partner wishes to avoid liability for future partnership debts if the partnership were to continue

Question 128

If a majority in the number of shareholders who hold at least 90% of the shares agree, the notice period of a board meeting may be shortened.

Question 129

If a company has preference shares, the preference must be paid before any dividend may be distributed to the ordinary shareholders.

For example, if a company has 2,000 £100 shares with a 5% preference and wants to distribute a dividend of £100,000, each of the 2,000 preference shares is entitled to receive 5% of £100 before the company may make a distribution to the ordinary shareholders. So, the first £10,000 (£5 x 2,000 shares) must be distributed to the preference share owners, which leaves £90,000 that may be distributed to the ordinary shareholders.

Question 130

Wrongful trading is a claim that at some time before a company became 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.

Question 131

An IVA is binding on every ordinary unsecured creditor who had notice of the meeting even if they did not attend the meeting or voted against the proposal.

Question 132

One or more unsecured creditors who is/are owed at least £5,000 combined can present a petition for an order of bankruptcy to the bankruptcy court.

Question 133

Non-executive director does not have a service contract

Question 134

When a company allots ordinary shares after the initial allotment, existing ordinary shareholders have a right to purchase a portion of the shares to maintain their proportional ownership if the shares are to be issued for cash. Any shareholders who do not hold ordinary shares do not have any pre-emption rights in the shares to be allotted.

Question 135

A creditor must be able to prove the company is insolvent to be able to issue a winding up petition. A creditor can prove insolvency by either: serving a statutory demand which is not paid within 21 days or by obtaining a judgment and attempting to execute the judgment but the debt is not fully satisfied e.g. the creditor obtained a judgment, but the bailiff nonetheless was unable to obtain full payment from the debtor.

Question 136

Decisions in a partnership that require unanimity: the introduction of a new partner, a change in the nature of the partnership business, an alteration to the partnership agreement, or the expulsion of a partner.

Question 137

A general partner has unlimited personal liability for partnership debts and is responsible for managing the partnership. A limited partner is not liable beyond their capital contribution and is not permitted to be involved in the management of the partnership. A limited partnership is required to have at least one general partner and at least one limited partner. The other options are therefore incorrect.

Question 138

Answer Discussion - Correct
(E) The death of a partner will automatically bring the partnership to an end unless the partnership agreement contains provisions to the contrary.

Question 139

Unless the partnership agreement provides for expulsion, partners do not have a right to expel other partners.

Question 140

A designated member is simply the member appointed to perform certain administrative duties (such as to comply with filing requirements of Companies House).

Question 141

If there is a fixed charge over an asset the creditor is entitled to the proceeds of the sale up to the amount of the debt still owed. If the proceeds of the sale are less than the amount still owed, the creditor will receive the entire proceeds from the sale. The creditor is an ordinary, unsecured creditor with respect to any debt still remaining. Each unsecured creditor will receive a share of the other liquidation funds in the proportion that the debt owed to them bears to the whole unsecured debt.

Question 142

The articles are a public document and will be available for inspection on the Companies House website.

Question 143

A director can be disqualified under the Company Directors Disqualification Act 1986 for a period of between 2 and 15 years

Question 144

For an individual, there is no requirement to prove the debtor was insolvent at the time the transaction was made if it was made within two years before the bankruptcy and insolvency is presumed if the transaction is to a close relative. But if the transfer of the plant and machinery took place more than two years ago and was not to a close relative, so there, insolvency would have to be proved.

Question 145

Shares in a private company cannot be advertised for sale and the directors have an absolute discretion to refuse to register the shares.

Question 146

A transaction at an undervalue arises where a debtor transfers property as a gift or for significantly less consideration than the property’s market value within two years of the onset of a company’s (or five years of an individual’s) insolvency. The transaction must also occur when the company was insolvent or it must have become insolvent as a result of the transaction. However, insolvency is presumed if the transaction is with a connected person (e.g. a director) and it occurred within two years before the onset of the company’s insolvency, the transaction can be set aside if the court finds that the transaction was for significantly less than market value.

Question 147

If there is more than one charge on a property, the proceeds of sale will be used to pay the first charge and then the second charge.

Question 148

Although a director has a duty to avoid direct or indirect interest that could conflict with the interests of the company, this is not a ground under the CDDA for disqualifying a director. Instead, if a conflict arises and the director does not act in the company’s best interests, the director may be required to compensate the company for any loss caused or any profit made

Question 149

A public limited company is permitted to sell its shares on the stock exchange, but it is not a requirement.

Question 150

A floating charge granted within 12 months of insolvency is invalid if it was not given in exchange for fresh consideration and the company was insolvent at the time of the transaction or became insolvent as a result.

For example, a bank is approached by one of its borrowers, to extend the company’s overdraft, currently standing at £100,000. The bank is concerned that the company might not repay the overdraft. It requests a floating charge to secure the overdraft. The company goes into liquidation three months after the floating charge is granted, when the overdraft had reached £180,000. The bank will be a secured creditor for £80,000 and an unsecured creditor for £100,000 if the liquidator determines that the company was insolvent at the time of the charge.

Question 151

A company cannot ratify a pre-incorporation contract. As the company does not exist prior to incorporation, it is not bound on contracts entered into by the promoter in its name, and as it is not a legal person at the time the contract is made, it is not possible for it to subsequently ratify the contract.

Question 152

A general meeting may be held on short notice if agreed by the majority in number of the shareholders holding 90% of the shares.

For example, if there are12 shareholders in a company, a majority in number would be seven. And those seven must hold at least 90% of the shares, we would need the majority shareholder to be one of the seven.

Question 153

The directors have the power to allot shares if the company has only one class of shares. If the company is issuing a different class, the directors need the members to pass an ordinary resolution to give them the power to allot preference shares. The articles need to be changed by special resolution to include the rights enjoyed by the preference shares.

Question 154

The location of the registered office must be provided on incorporation but not the company’s trading address (if this is different); a company can use another address as its registered office, for example, its solicitor’s office.

Question 155

Following the issue of preference shares, the company file a Return of Allotment of Shares form within one month of the issue of shares.

Question 156

Following the appointment of a director, the company must file an Appointment of Director form within 14 days.

Question 157

A retiring partner is liable for debts incurred by the partnership after they retire until the correct notice is given: existing suppliers are entitled to actual notice of retirement, whereas a notice in the London Gazette is sufficient notice for anyone who has never dealt with the partnership whilst the retiring partner was a partner.

Question 158

A general meeting can be called on 14 CLEAR days notice. This means you cannot count the date the notice is sent out or the date of the meeting itself. In addition, if the notice is not hand delivered, then you must allow 2 days for delivery of the notice. Therefore, if a notice is posted on the 1st of the month, the meeting can be held no earlier than the 18th.