Financing a business, financial records and accounting requirements Flashcards
When do directors have authority to issue shares?
In private companies with unamended MAs and only one class of shares directors are free to issue further shares of the same class by BR
If the directors want to issue a new class of shares what is required?
Advanced authority from the shareholders by OR
When may pre-emption rights apply?
When the proposed issue of shares is wholly for cash
What is pre-emption rights?
Generally means on issue of new shares, they must first be offered to the exiting members on the same or more favourable terms, in proportion to their existing shareholdings
How long do shareholders have right of first refusal under pre-emption rights?
At least 14 days
Can pre-emption rights be varied or disapplied?
Yes by SR
What is the buyback of shares?
When the company buys back its own shares and the shares are cancelled.
What is meant by capital maintenance?
It is a fundamental principle which states that capital provided by shareholders must be maintained and must not be returned to them, as creditors rely on it
What is a buyback from profits?
A buyback of shares that is only permitted where distributable profits are available
What is required to pass a buyback from profits contract?
An OR but the holders of the shares being bought cannot vote and their votes do not count
What is buyback from capital?
A buyback of shares that is only permitted to the extent that distributable profits are unavailable.
When can a company buyback from capital?
Only when profits are unavailable, they must use profits first.
What is required to pass a buyback from capital contract?
An OR to approve the contract and a SR to approve the buyback from capital
Does a company have the power to borrow and grant security?
Yes unless its articles say otherwise
Which security have priority, fixed or floating?
fixed
What is required to stop a fixed charge having priority over a floating charge if it is granted later?
The floating charge needs to contain a negative pledge clause which prohibits the creation of a later fixed charge without permission
Within how many days does the creation of a new charge need to be registered with companies house?
21
What is submitted to companies house for the registration of a new charge?
- Form MR01
- certified copy of charge
- relevant fee
What happens if a charge is not registered?
It is void against any liquidator, administrator or any creditor of the company
Where do fixed charges over land also have to be registered?
H M Land registry
What can a debenture holder do if a company defaults on repayment of the loan?
- sue as a creditor
- petition for the winding up of the company
- utilise any powers in the debenture document (appointment of a receiver etc)
- fixed charge holder usually exercises their power to sell the charged assets
When does crystallisation occur?
When the company becomes insolvent or any other event occurs which the charge specifies will cause crystallisation such as non-payment
