Financing a business, financial records and accounting requirements

Question 1

When do directors have authority to issue shares?

Answer 1

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

Question 2

If the directors want to issue a new class of shares what is required?

Answer 2

Advanced authority from the shareholders by OR

Question 3

When may pre-emption rights apply?

Answer 3

When the proposed issue of shares is wholly for cash

Question 4

What is pre-emption rights?

Answer 4

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

Question 5

How long do shareholders have right of first refusal under pre-emption rights?

Answer 5

At least 14 days

Question 6

Can pre-emption rights be varied or disapplied?

Answer 6

Yes by SR

Question 7

What is the buyback of shares?

Answer 7

When the company buys back its own shares and the shares are cancelled.

Question 8

What is meant by capital maintenance?

Answer 8

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

Question 9

What is a buyback from profits?

Answer 9

A buyback of shares that is only permitted where distributable profits are available

Question 10

What is required to pass a buyback from profits contract?

Answer 10

An OR but the holders of the shares being bought cannot vote and their votes do not count

Question 11

What is buyback from capital?

Answer 11

A buyback of shares that is only permitted to the extent that distributable profits are unavailable.

Question 12

When can a company buyback from capital?

Answer 12

Only when profits are unavailable, they must use profits first.

Question 13

What is required to pass a buyback from capital contract?

Answer 13

An OR to approve the contract and a SR to approve the buyback from capital

Question 14

Does a company have the power to borrow and grant security?

Answer 14

Yes unless its articles say otherwise

Question 15

Which security have priority, fixed or floating?

Answer 15

fixed

Question 16

What is required to stop a fixed charge having priority over a floating charge if it is granted later?

Answer 16

The floating charge needs to contain a negative pledge clause which prohibits the creation of a later fixed charge without permission

Question 17

Within how many days does the creation of a new charge need to be registered with companies house?

Answer 17

21

Question 18

What is submitted to companies house for the registration of a new charge?

Answer 18

• Form MR01
• certified copy of charge
• relevant fee

Question 19

What happens if a charge is not registered?

Answer 19

It is void against any liquidator, administrator or any creditor of the company

Question 20

Where do fixed charges over land also have to be registered?

Answer 20

H M Land registry

Question 21

What can a debenture holder do if a company defaults on repayment of the loan?

Answer 21

• 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

Question 22

When does crystallisation occur?

Answer 22

When the company becomes insolvent or any other event occurs which the charge specifies will cause crystallisation such as non-payment