BLP - weak areas Flashcards
(203 cards)
1
Q
New CGT rates
A
- 18% - basic
- 24% - higher / additional
2
Q
New investor relief lifetime allowance
A
£1m (down from £10m)
3
Q
When do pre-emption rights not apply?
A
- allotment of bonus shares
- consideration is partly or wholly non-cash
- employee share scheme
4
Q
If authority is to be given by OR under s 551 for allotment, what 2 things must be stated?
A
- max number of shares to be allotted
- date authority will expire (max 5 years after OR)
5
Q
AP01
A
Appointment of director
6
Q
AP03
A
Appointment of CS
7
Q
TM01
A
Termination of directors
8
Q
TM02
A
Termination of CS
9
Q
What is important to remember re shelf company incorporation
A
Under MA, company must always have min 1 director and so order of appointment is important
10
Q
AD01
A
Change company address
11
Q
Docs to be sent to CH on incorporation
A
- IN01
- Memorandum
- Articles (if not using MA)
- Fee
12
Q
Special rule re WR of SR
A
Must state it is a special resolution
13
Q
Proxy vs alternate
A
Proxy in GMs
Alternate in BMs
14
Q
Who carries out PMM
A
CS
15
Q
What happens in BM1
A
- convene / call GM
- approve form of notice for GM / short notice consent
- authorise circulation of above to shareholders
BM then adjourned
16
Q
BM2
A
Directors informed how shareholders voted & they authorise one of their number to take the relevant action and deal with PMM
17
Q
3 categories of PMM
A
- Internal (minutes for 10 years / updating registers, books)
- CH filings (SRs and exceptionally ORs / amended Articles & forms)
- Record keeping (e.g. service contracts)
18
Q
PMM re allotment
A
- OR, SR & Articles to CH within 15 days
- SH01 (return of allotment) & statement of capital to CH within 1 month
- Relevant PSC forms if changed (PSC01 etc.) to CH within 1 month
- Update register of members within 2 months
- Update PSC register if needed
- Share certificates sent to new shareholders within 2 months
19
Q
PMM re buyback out of profits / capital
A
- File return, notice of cancellation & statement of capital within 28 days (SH03 & SH06)
- Keep copy of contract & minutes for 10 years
- Cancel shares
- Update register of members (and PSC register if applicable)
20
Q
Buyback out of capital - post GM/WR
A
- Place notices in Gazette and national newspaper, and file DS and AR at CH within 7 days
- File SR at CH within 15 days
- For 5 weeks after SR*, creditors and shareholders have right to object
- DSS and AR must be available for inspection at registered office
21
Q
SH01
A
Return on allotment
22
Q
SH03
A
Buyback notice
23
Q
SH06
A
Share cancellation
24
Q
Which business structures can grant fixed and floating charges
A
Company and LLP
25
Which businesses can grant fixed charges
All
26
Effect of legal personality
* The company owns its own property
* The company enters into its own contracts
* The company sues and is sued on its own liabilities
* The company can separate out different elements of the business
27
Regulation of equity finance vs debt finance
Equity finance subject to far heavier regulation
28
When is investment repaid re equity and debt finance
* Equity - usually on sale / termination
* Debt - under terms of agreement
29
Return on investment re equity finance
* Dividends *if profits*
* Capital value may decrease or increase
* Share issue may reduce both dividends and value of shares (dilution)
30
Return on investment re loan finance
* Interest paid under contract terms
* Capital value remains constant
* Security may be taken to protect lender
31
Preference shares
* Preference as to payment of dividends / return of capital on winding up
* If preference to dividend, this is paid before other SHs
* Amount is usually expressed as percentage of nominal value of share
* Normally non-voting
* Presumed cumulative
32
Participating preference shares
* Rights to surplus profits available for distribution after receiving their own fixed preferred dividend
* Rights to surplus assets on winding up
33
How to vary class rights
1. In accordance with **articles**, or
2. If articles don’t provide, **consent in writing of at least 75% of holders of issued shares of that class**, or
3. **SPECIAL resolution** passed at a separate GM of holders of that class
NOTE: SH holding **15%** of relevant shares can apply to court **within 21 days** of resolution to have variation cancelled (as long as they voted against variation)
* Variation then does not take effect UNLESS and UNTIL court confirms
34
4 key points re fixed charges
1. borrower retains possession AND legal ownership
2. normally over 'fixed assets' e.g. machinery
3. lender can control what borrower does with asset
4. borrower can still use asset in ordinary course of business
35
4 key points re floating charges
1. borrower retains possession AND legal ownership
2. normally over 'fluctuating assets' e.g. stock
3. lender cannot control what borrower does with asset until crystallisation
4. until crystallisation, borrower free to dispose
36
charge vs mortgage
mortgage - lender retains legal title until debt satisfied!
37
Mortgage - key features
* lender retains ownership until debt repaid
* lender has **immediate right to possession**
38
AA01
Change accounting ref date
39
Filing requirements for companies
* directors file accounts each F/Y with CH (offence if not)
* directors prepare financial report each F/Y
* confirmation statement (CS01) wfiled within 14 days of anniversary of co's incorporation (offence if not)
*NB: small companies exempt re accounts / financial report*
40
Partnership duties to each other
Good faith duties:
* honest + full disclosure
* account for unauthorised profit (without consent)
* account for profits from competing business
41
When can a partner bind the partnership re apparent authority?
1. The transaction relates to the **business carried out by firm**
2. The partner would **usually be expected to have authority** to enter into such a transaction
3. The 3rd party **DID NOT KNOW the partner had no authority** to act, AND
4. The 3rd party **knows or believes them to be a partner**.
*EVEN IF expressly / impliedly limited authority*
42
Consequence of partner acting with only apparent authority
Personally liable to fellow partners for breach of warranty of authority (but partnership still bound and contract unaffected)
43
Which contracts do the rules re partner contracts NOT apply to
Contracts between partners - must be between partner & 3rd party
44
Partnership liability
Joint + several
45
When will a partnership automatically dissolved under PA
1. Retirement of partner
2. Expiry of fixed term
3. Death or bankruptcy of partner
4. Partners giving notice (partnership at will)
5. Partnership become unlawful (cannot be disapplied - automatic)
6. By the court at last resort
46
What must directors do before CVL and MVL
* CVL - agree by majority that co is insolvent and needs to be placed into liquidation
* MVL - make statutory declaration of solvency
47
Advantages of IVA
* Avoids bankruptcy: Less stigma and fewer legal restrictions.
* Customisable: Payments tailored to the debtor’s income and circumstances.
* Creditor protection: Moratorium possible (via interim court order), which halts legal actions.
* Binding agreement: Once approved by 75% (by value) of voting creditors, all unsecured creditors are bound—even those who voted against.
48
Disadvantages of IVAs
* Not guaranteed: Creditors can reject the proposal.
* Longer than bankruptcy: Often lasts 3–5 years compared to bankruptcy’s typical 1-year discharge.
* Limited scope: Doesn’t bind secured or preferential creditors without their consent.
* Costs: Can be expensive due to professional fees.
* Risk of failure: If the debtor defaults, bankruptcy can still be initiated.
49
Advantages of bankruptcy
* Quick discharge: Usually ends in 1 year, releasing the debtor from most debts.
* No repayment plan: Debts are written off (subject to available assets).
* Relieves pressure: Stops creditor enforcement once the order is made.
* Court protection: Provides legal finality and fairness in asset distribution.
50
Disadvantages of bankruptcy
* Severe consequences: Loss of most assets, including property (except essentials).
* Legal restrictions: Can’t act as a company director or get credit over £500 without disclosure.
* Public stigma: Bankruptcy is public and carries reputational impact.
* Restrictions may continue: BROs (Bankruptcy Restriction Orders) can extend limitations for 2–15 years for misconduct.
* Voidable transactions risk: Trustee may challenge past financial dealings (e.g., gifts or preferential payments).
51
Administration advantages
* Moratorium Protection: Provides a breathing space for the company, preventing creditors from taking legal action during the administration.
* Preservation of Business: Aims to rescue the company as a going concern, which could be beneficial for employees, customers, and suppliers.
* Potential for Rescue: Aimed at achieving better returns for creditors than liquidation by continuing operations or restructuring.
* Control by Professionals: Administered by a licensed insolvency practitioner, who brings expertise in restructuring and debt management.
52
Disadvantages of administration
* Cost: Administration can be expensive, with fees paid to the administrator, reducing funds available for creditors.
* Loss of Control: Directors lose control of the business during administration, and the administrator takes over.
* Uncertainty: The outcome can be uncertain, as administration may not always result in business rescue and could end in liquidation.
* Limited Time: The administration process is time-limited (usually up to 12 months), after which further action is required, and the company may still face liquidation.
53
Advantages of receivership
* Quick Action: Receivers can be appointed quickly by secured creditors to protect their interests.
* Targeted for Secured Creditors: Specifically benefits secured creditors, as they have the ability to take control of and sell assets.
* No Court Involvement (in some cases): For fixed charge receivership, the process may not involve the court, making it quicker and simpler.
* Enforcement of Secured Debt: Provides a method for secured creditors to enforce their rights if a company defaults on secured debt.
54
Disadvantages of receivership
* Limited Scope: Does not address the company’s overall debt issues, focusing only on secured creditors and their assets.
* No Rescue Option: Receivership generally does not aim to rescue the business as a going concern, often leading to asset liquidation.
* Loss of Control: The company's management loses control of assets, which are managed by the receiver.
* Conflict with Unsecured Creditors: Can cause tension with unsecured creditors, who are not involved in the process and may not receive any repayment.
55
Advantages of CVAs
* Flexibility: CVAs allow for bespoke repayment terms, giving the company time to recover and pay off creditors at a manageable pace.
* Creditor Protection: Once a CVA is proposed and agreed, creditors cannot take legal action against the company.
* Avoids Liquidation: Provides a chance for the company to survive and restructure, avoiding the costly and damaging process of liquidation.
* Control Retained: Unlike administration, the company’s directors retain control of the business during the CVA, under the supervision of the insolvency practitioner.
56
Disadvantages of CVAs
* Approval Required: A CVA requires the approval of 75% of creditors (by value), which can be difficult to achieve, especially if there are dissenting creditors.
* Stigma: Although less damaging than liquidation, a CVA still carries the stigma of being in financial distress, which can affect relationships with suppliers, customers, and employees.
* Supervision Costs: There are costs involved in hiring an insolvency practitioner to supervise the CVA process, which may reduce the funds available to creditors.
* Limited Outcome: If the company cannot stick to the terms of the CVA, it may still end up in liquidation.
57
Advantages of liquidation
* Clear Resolution: Liquidation provides a clear, final solution to an insolvent company, bringing an end to its operations and debts.
* Creditor Distribution: In the case of a creditors’ voluntary liquidation (CVL), creditors are paid in a clear, transparent manner according to their priority.
* Debt Relief: Once liquidation is complete, directors are generally free from liability for the company’s debts, except in cases of fraud or wrongful trading.
* No further liability for unpaid debts: In a voluntary liquidation, creditors generally can’t pursue debts once the liquidation process is complete.
58
Disadvantages of liquidation
* Business Closure: Liquidation ends the company’s operations, often resulting in loss of jobs, loss of customers, and closure of business.
* Loss of Control: Directors lose control over the business once liquidation starts, and a liquidator is appointed.
* No Further Value: If assets are insufficient, creditors may receive little or no repayment, especially if there are many unsecured creditors.
* Stigma and Reputation Damage: Being liquidated is often seen as a failure and can damage the reputation of the company and its directors.
59
Advantages of informal arrangement w creditors
* Flexibility: Informal arrangements allow the company to negotiate with creditors on terms that are specifically suited to their situation, providing a tailored solution.
* Lower Cost: No formal legal fees or court involvement, making this a cost-effective way to manage debt issues.
* No Stigma of Formal Insolvency: Informal arrangements avoid the public stigma associated with formal insolvency procedures, allowing the company to avoid some of the negative perceptions.
* Quick Process: Because there are no court hearings or formal steps involved, the arrangement can be made relatively quickly.
60
61
Disadvantages of informal arrangement w creditor
* No Formal Protection: Creditors are not legally bound to the arrangement and could pursue legal action at any time, leaving the company vulnerable.
* Uncertain Outcome: The success of informal arrangements depends on the willingness of creditors to cooperate, and there is no guarantee they will agree to the terms.
* Potential for Conflict: Without the legal framework of a formal insolvency procedure, disagreements between creditors and the company may arise, leading to stalled negotiations.
* Limited to Certain Situations: Informal arrangements are generally more suited to companies with temporary cash flow issues, rather than long-term insolvency, and may not be effective for more complex situations.
62
Procedure re special notice if board is agreeable
1) SPECIAL NOTICE served by company on board (28 clear days’ notice of removal resolution)
2) If board agrees to place removal resolution on GM agenda – 14 clear days’ notice to shareholders
* If not practical - advertisement or newspaper (same notice period)
* NB: serve on all SH because not all will know about special notice
3) GM takes place to allow shareholders to vote on removal resolution
* ORDINARY resolution
* Directors who are ALSO shareholders can vote in their capacity as shareholders on resolution to remove them
63
Procedure re special notice where board are not agreeable
1) SPECIAL NOTICE served by company on board (28 clear days’ notice of removal resolution)
2) If board uncooperative, may need to requisition a GM (s 303 request)
* Shareholders can serve notice requiring Board to call GM (if they together have at least 5%+ paid up voting share capital)
i. Board must call the GM within 21 days of request, and
ii. To be held within 28 days of calling GM
3) If directors fail to call GM, shareholders can call themselves on normal notice (s 305)
* If all the shareholders who submitted the request or those holding more than 50% of the voting rights in that group
* GM must then be called no less than 14 clear days’ notice and within 3 months of s 303 request
* NOTE: shareholders can recover reasonable expenses for calling GM themselves
i. Can retain such sums from defaulting directors’ remuneration
64
Derivative claim process
1. Prima facie case (may dismiss on **absolute bars** OR **factors**)
2. If prima facie case - will consider evidence as to views of members who have **no personal interest** in matter
3. Case proceeds to trial or adjourns
65
Absolute bars to derivative claim
1. Court is satisfied that a person trying to **promote the success of the company** would NOT seek to continue claim, or
2. Cause of action arises from an act / omission that has not yet occurred, but is **already authorised** by the company, or
3. Act / omission already occurred and **authorised before** it occurred OR **ratified since** it occurred
66
Which factors MUST be taken into account re derivative claim
1. Whether member is acting in **good faith** in seeking to continue claim
2. Whether the act / omission is **likely to be ratified** by company
67
Test re unfair prejudice
Reasonable bystander (no need to show bad faith)
68
Examples of prejudicial conduct
* Granting of excessive remuneration to directors
* Directors’ dealing with associated persons
* Non-payment of dividends
* Exclusion of management (where shareholder had legitimate expectation)
* Diverting opportunities to competing business in which majority shareholder holds interest
69
Can MA14 be excluded re duty to avoid conflict of interest
No
70
71
Exceptions to duty to avoid conflict of interest
* Does NOT apply to conflict arising in relation to transaction/arrangement with the company
* No breach if situation cannot reasonably be regarded as likely to give rise to conflict
* Duty is NOT infringed if matter authorised by directors
72
Exceptions to duty to declare interest in proposed / existing transaction
* Concerns terms of director’s service contract
* Director is unaware of interest / transaction (& ought not to be aware)
* Interest cannot be reasonably regarded as likely to give rise to conflict
* If or to extent other directors aware of it already (or ought to be)
73
Main difference between duty to declare interest in existing / proposed transaction
Existing - failure to is an offence punishable by fine!
74
Consequence of breach of prohibition of FA
It is an **offence**
* Company can be fined
* Officers of company can face fine / imprisonment
FA transaction would be VOID, and wider transaction may be void too
75
Defences to SPT
* If shareholders **affirm** transaction within reasonable period
* Director / connected person shows they had **no knowledge** of circumstances constituting breach
76
SPT exceptions
* Transactions between holding company & wholly owned subsidiary
* Company = wholly owned subsidiary of any other
* Transaction between company + person in capacity as shareholder
* Transaction between 2 wholly owned subsidiaries of same holding company
77
Conseuences of SPT
Transaction is **VOIDABLE**
Directors / connected persons involved **liable to indemnify** company for any loss
78
Defences re loans to directors
* Director took **all reasonable steps** to ensure company complied
* **No knowledge** of circumstances constituting contravention
* Arrangement can be **affirmed** by company (or holding company if they failed to obtain OR) by passing ORDINARY resolution
79
Consequence of loan to director without approval
VOIDABLE unless:
* Restitution no longer possible
* Company has been indemnified for loss / damage suffered
* Rights acquired in good faith by parties would be affected by avoidance
*RIG*
Directors involved / connected persons LIABLE
80
What order can be given re preferences
| Corporate
Court has discretion to make an order to restore the position as if the company had not given the preference
81
Defence to corporate preference
* If buyer was acting in **good faith** and for value
Rebuttable presumption buyer was NOT acting in good faith where:
* They had NOTICE of circumstances, or
* Connected with company
82
What is a preference
## Footnote
Corporate
The company does anything or allows to be done anything which has the effect of **putting that person in a better position in the event of the company going into insolvent liquidation than they would otherwise have been in**
83
Defence to corporate TUVs
* Company entered into transaction in **good faith** and for the **purposes of carrying on its business**, AND
* At the time, there were **reasonable grounds** for believing that the transaction would **benefit** the company
Above is for D to raise
NB: same buyer defence above!
84
Creditor's petition grounds for bankruptcy
a) At the time of petition, debtor **appears unable to pay or has no real prospect of paying**
b) Debt owed is for an unsecured liquidated sum **exceeding £5k**
85
Debtor's petition grounds for bankruptcy
a) **Unable to pay debts** (must be accompanied by statement of affairs, criminal offence if not)
86
Grounds re court procedure - admin
Company is or is likely to become unable to pay its debts
87
Grounds re out of court procedure - admin
Creditor **must not have commenced winding up proceedings**
*Thus, if winding up proceedings have started, court procedure only option (but otherwise normally done out of court)*
88
Compulsory liquidation grounds
a) Company is **unable to pay** its debts, AND
b) It is **just and equitable** for the company to be wound up
89
IVA procedure
1. Debtor **appoints** nominee
2. Debtor drafts **proposal for compromise** AND **statement of affairs**
3. Nominee submits report to court stating whether they think proposal has a **reasonable prospect of approval** & whether creditors should be asked to vote
4. Debtor can apply to court for **interim order** (if so, *moratorium* obtained)
5. Must be **approved** to become binding
| APsRIA
90
CVA procedure
1. Directors draft CVA proposal + **appoint** nominee
2. Directors submit **proposal** + **statement** of company affairs to nominee
3. Nominee **considers** CVA proposal and *within 28 days* must **report** to court whether creditors / SH should be asked to vote
4. Nominee allows *at least 14 days* to **vote** on CVA proposal (SH meeting *within 5 days* of creditors’ decision)
5. **Vote**
6. Nominee reports to court that CVA is **approved**
| ASCAVR
91
Court procedure - admin
a) Apply to court
b) Interim moratorium comes into effect lasting until admin order made / app dismissed
c) Hearing and order
92
Out of court procedure by directors/company - admin
1) **Serve NOI** on QFC holders / anyone entitled to appoint admin receiver
*Wait at least 5 business days*
2) **File NOI** + stat dec at court
*Wait at least 10 business days*
3) **File NOA** + stat dec at court
= appointed
93
Out of court procedure by 1st ranking QFCH - admin
1. Directors **serve NOI** on QFC holders / anyone entitled to appoint admin receiver
2. *Within 5 business days*, **appoint own administrator** (if not, directors file NOA in usual way)
3. QFC holder must first **enforce security**
4. **File NOA** + stat dec at court
*NOTE: where more than 1 QFC holder, must first give 2 business days’ notice to priority QFC holders – can only proceed if they consent*
94
CVL procedure
1. Members pass **SPECIAL resolution** to place company into CVL
2. *Within 14 days* of SR, directors ask creditors to **approve nominated liquidator** or put forward own choice (creditor’s takes precedence)
3. Members pass **ORDINARY resolution** to appoint nominated liquidator
4. Directors draw up **statement of company’s affairs** & send to creditors
| SAOS
95
MVL procedure
1. Directors swear **declaration of solvency** that company will be able to repay creditors in full + interest within 12 months (must contain statement of company assets + made with reasonable grounds)
2. Members pass **SPECIAL resolution** to place company into MVL
3. Members pass **ORDINARY resolution** to appoint nominated liquidator
| DSO
96
Compulsory liquidation procedure
Creditor presents winding up petition to court
NB: if company says it can pay sum due within reasonable period - court may adjourn
97
IVA voting procedure
Creditors holding at least 75% (in value) of total debt owed
Of which at least 50% (in value) are not associated with debtor
98
CVA voting procedure
1) Creditors holding at least 75% (in value) of total debt owed (excluding secured creditors)
* Of which at least 50% (in value) are not associated with debtor
2) Simple majority (more than 50%) of SH vote in favour
99
Admin - voting procedure
Passed by:
a) Majority in value of creditors present + voting
Will NOT be passed if more than 50% in value unconnected (independent) vote against it
100
On what grounds can a creditor challenge a CVA and by when
* Within 28 days
* On grounds on **unfair prejudice** (*material irregularity* to approval procedure)
101
3 aims of admin
a) Rescue company as a going concern (if not, then…)
b) Achieve a better result for company’s creditors as a whole than would be likely if company was wound up (if not, then…)
c) Realise the company’s property in order to make a distribution to 1 or more secured or preferential creditors
102
When must VAT invoice be supplied to customer
Within 30 days of supply
103
When must VAT return be submitted to HMRC
* Every 3 months
* Due date is usually 1 month and 7 days after end of VAT period
104
Which companies are exempt from the normal VAT return rules and what do they do instead
Companies that normally pay more than £2.3m per year in VAT must make monthly payments on account, then pay the *balance* when submitting the quarterly return
105
When is VAT registration required
1. At the end of any month if the value of taxable supplies **in 1 year or less** has exceeded the £90k threshold - *must notify HMRC within 30 days* of the end of that month, and **will be registered from the beginning of the 2nd month after threshold exceeded**, or
2. Any time if reasonable grounds to believe that taxable supples **in 30 day period** will exceed the £90k threshold - *must notify HMRC within 30 days*, and **will be registered from beginning of 30 day period**
*Or can do voluntarily*
106
VAT de-registration threshold
£88k
107
How often is corporation tax paid
Every AP (not necessarily same as F/Y 1 Apr - 31 Mar)
108
Trading profits calc
* income **r**eceipts (i.e. from everyday trading NOT one-off transactions) LESS
* deductibe **e**xpenditure LESS
* capital **a**llowances LESS
* trading **l**osses
| REAL
109
Chargeable gains calc
* sale **p**roceeds LESS
* allowable **e**xpenditure LESS
* indexation **a**llowance LESS
* capital / trading **l**osses
| PEAL
110
Are dividends paid to the company subject to corporation tax?
No, unless certain anti-avoidance provisions apply
111
Are dividends paid out from company tax deductible re corporation tax?
No
112
Deductible expenditure re income
* **wholly & exclusively** incurred for purposes of trade
* **not prohibited by statute** (e.g. client entertainment)
* be of an **income** nature (e.g. rent, interest paid, wages, repairs)
113
Allowable expenditure re chargeable gain
* **Initial** expenditure (base cost + incidental costs)
* **Subsequent** expenditure (defending, preserving or establishing title + enhancing value)
* **Disposal** costs (incidental costs)
114
Substantial shareholding exemption
* Exempt whole chargeable gain from CT when disposing of shares
* Disposing co must have held at least 10% of ordinary shares for at least 12 months in past 6 years
115
How to calculate base cost re roll over relief
* Work out chargeable gain before relief = gain to roll over
* Deduct gain from price of qualifying asset = base cost
116
Stradding
* Required where a company's AP does not coincide with FY
* TTP of AP must be apportioned between FYs and relevant proportions taxed at applicable rates
117
When does company pay CT and submit return - self-assessment
If TTP is £1.5m or less:
* Co estimates & pays within 9 months and 1 day of end of AP
* Co files tax return within 12 months of end of AP with its accounts (to show how it has calculated)
If TTP is more than £1.5m:
* Must pay bill in 4 instalments over course of relevant AP
118
Can trading losses be set off against current yr profits? When must claim be made?
* Yes - both income profits AND chargeable gains in same year
* Claim must be made within 2 years after end of AP loss arose
119
Can trading losses be set off against previous yr profits? Additional requirement? When must claim be made?
* If they cannot be used in whole/part against current, can carry back **remaining** TLs against taxable profits (both income AND chargeable) from previous AP
* Must have been carrying on **same trade in BOTH years**
* Claim must be made within 2 years after end of AP loss arose
120
Special rule re carrying back trading losses when company ceases trading
Any trading loss in **final 12 months** of trading can be carried back and set against any profits made in **3 years prior** to start of final 12 months
121
Can trading losses be set off against future yr profits? Any restrictions?
* If still TLs unused, **automatically** carried forward and set against ALL profits (income AND chargeable) in future
* Co must **continue to trade in loss-making trade in AP** which losses are used
* Use of losses can be from profits of any trade!
122
Deductions allowance and loss restriction
RE carried forward trading / capital losses:
* Subject to relieving a **max of £5m in each AP** (as long as not used re chargeable gains already) - *deductions allowance*
* If in excess of deductions allowance above for that AP, losses can only be carried forward to relieve a **max of 50%** unrelieved profits - *loss restriction*
123
Group relief
One company with TL can surrender that loss to another profitable company in the group to reduce / eliminate that company's profits
124
Anti-avoidance rules re trading losses
Prevent TLs being carried forward or back where co has been **sold to new owner** & nature of trade has **substantially changed** within **5 years** of sale
*i.e. prevents companies buying loss-making companies purely to offset*
125
Rule re capital loss relief
* Can generally **only be set off against capital gains**
* Can be set off against capital gains in current year, but **not carried back**
* If capital losses unused in current year, can **carry forward** and set against any in future APs (**indefinitely** provided it notifies HMRC of losses within 4 years from loss-making AP)
*Subject to same deductions allowance & loss restriction*
126
Main types of assets excluded from CGT
* PPR
* Motor cars for private use
* Certain investments e.g. ISAs
* UK sterline & any foreign currency held for personal use
127
2 CGT disposals made on no gain no loss basis
* Charities - provided gain applied for charitable purposes
* Spouses
128
CGT - consideration received re arms length / connected persons / undervalue / gift
* Arm's length - price paid
* Connected persons - market value
* Undervalue - market value (unless bad bargain)
* Gifts - market value
129
Connected persons re CGT
* relatives & spouses of relatives
* companies if under common control
* business partners
relatives = direct ancestors & lineal descendants, and siblings (not lateral relatives like uncles)
130
Key diff between companies & individuals re chargeable gains
* companies do not pay AE
* companies do not pay CGT (instaed CT)
* companies can use trading AND capital losses to offset chargeable gains
131
Effect of IVA and CVA approval
Binding on every ordinary, unsecured creditor (secured / preferential only with consent)
132
Effect of administration approval
a) Directors’ powers cease and are unable to exercise management powers without consent of administrator
b) Administrators have power to appoint / remove directors
133
Effect of voluntary liquidation order
a) Liquidator takes over company
b) Directors’ powers cease
c) Power to investigate + unwind past transactions where permitted
134
Effect of compulsory liquidation
a) All employees automatically dismissed
b) Directors lose their powers and are automatically dismissed
135
Which insolvency procedures have some form of moratorium
* IVA
* Administration (full)
* Compulsory liquidation (limited)
136
IVA moratorium
Get benefit if court grants interim order
Usually lasts for **14 days** (court can extend)
Includes:
a) Stay on further proceedings / enforcement
b) Freezing of existing / proposed bankruptcy
Creditor would then require court order to exercise any right / remedy restricted by moratorium
137
Full moratorium re administration
Protects court from hostile action by creditors (but interim moratorium does not prevent QFC holder appointing an administrator)
During this time, except with consent of court / administrator:
a) No order / resolution to wind up company can be made / passed
b) No administrative receiver can be appointed
c) No steps to enforce security over property / repossess goods
d) No legal proceedings
e) LL may not forfeit lease
138
Compulsory liquidation moratorium
a) No legal proceedings can be commenced against company, and
b) Proceedings which have already commenced will be stayed
139
When is an individual insolvent
1. A debt is **payable immediately** or at some certain time in the future, AND
2. The debtor appears either **unable to pay** it, OR appears to have **no reasonable prospect** of being able to pay
140
Individual insolvency - inability to pay
1. Statutory demand has been served for a liquidated & unsecured sum of **at least £5,000**, payable immediately, and remains unpaid after **3 weeks** / no application to set it aside
2. Statutory demand has been served for a liquidated & unsecured future liability of at least £5,000 & remains unpaid after 3 weeks, **without reasonable prospect** of payment being shown / application to set it aside
3. Attempt has been made to enforce a **judgment debt** of at least £5,000, but it remains unsatisfied
141
Corporate insolvency - inability to pay debts
1) Cash flow test
a. Unable to pay debts as they fall due
2) Balance sheet test
a. Liabilities greater than its assets
3) Statutory demand served for liquidated sum of £750 or more & has been unsatisfied after 21 days
4) Attempt made to enforce judgment debt against company, but it remains unsatisfied
142
Defence to breach of director duty
Shareholders ratify by OR (NOT for unlawful acts / breach of fiduciary duty re insolvency)
143
Examples of some key director duties
1. Duty to act **within powers**
2. Duty to **promote success** of company (must only 'have regard to' the factors)
3. Duty to exercise **independent judgment** (cannot blindly follow others)
4. Duty to exercise **reasonable, care, skill & diligence**
5. Duty to **avoid conflicts** of interest
6. Duty not to accept **benefits** from 3rd parties
7. Duty to declare an interest in **proposed** transaction / arrangement
8. Duty to declare an interest in **existing** transaction / arrangement
144
What must buyback out of capital notice state
1. That the company has approved the payment out of capital for buyback, AND
2. Where the DSS / AR are available for inspection, AND
3. That any creditor of the company may, at any time within the 5 weeks immediately after the SR, apply to the court for an order preventing the payment
145
When must accounts be prepared for DSS re buyback out of capital
No earlier than 3 months' before DSS
146
Must notice terminating a partnership at will be in writing
Not unless PA made by deed
147
When does compensation for loss of office not require OR
1. Does not exceed £200, or
2. Is made in good faith:
* In settlement/compromise of claim re termination
* By way of pensions
* By way of damages
* In discharge of existing legal obligation
148
What qualifies for 100% BPR
* Interest in unincorporated business (e.g. sole trader / partnership)
* Private company shares
149
What qualifies for 50% BPR
Shares in a quoted company (ONLY IF shareholder had control of company i.e. more than 50%)
Land / buildings / P&M owned by transferor in:
* Business in which they were partner OR
* Company in which they had voting control
150
Which loans do private companies not associated with plc require OR for
loans or guarantees/security
151
What does associated mean re loans to directors restriction
if one is a subsidiary of the other or both subsidiaries of same company
151
Which loans do plcs and private companies associated with plc require OR for
* Loans or guarantees/security in connection with loans
* Quasi-loans & credit transactions
*plus can include connected person*
152
Net book value calculation re depreciation
Accumulated depreciation to date LESS asset value = NBV (i.e. current value)
153
Wrongful trading test
Reasonably diligent test re what director ought to have known:
* Having both objective general knowledge, skill & experience of reasonable director (**objective**), AND
* Actual knowledge, skill and experience of particular director (**subjective**)
*Will apply higher of 2 standards*
154
What does indexation allowance not apply to?
disposal value NOR incidental costs of disposal
155
Can MA14 be disapplied re declaring an interest
Yes
156
Self-assessment re corporation tax - deadline
Within 3 months of start of first AP (to HMRC)
157
When does BADR not apply
Investment businesses / companies
158
What does BADR apply to
A qualifying disposal meeting certain conditions
159
Conditions to be met for BADR re disposing of all / part of business
* the business must be a trading business; and
* the business must have been owned for **at least 2 years prior** to the date of disposal
160
Conditions to be met for BADR re disposing of assets used in a business that used to trade
* the business must have been owned for **at least 2 years** before it ceased to trade;
* the assets must have been used in the business when it ceased to trade; and
* the assets must have been disposed of **within 3 years** of the business ceasing to trade
161
Conditions to be met for BADR re disposing of shares in a company
In the **2 years prior** to the disposal:
a) the company is a trading company;
b) the person disposing of the shares must have been an **officer or employee** of the company who:
* holds **at least 5%** of the ordinary voting shares and
* is entitled to **at least 5%** of the profits available for distribution and
* **5%** of the net assets on a winding up
162
Conditions to be met for BADR re disposing of shares in a company that used to trade
1) the shares must (generally) have been owned for **at least 2 years before** the company ceased to trade;
2) the person disposing of the shares must:
* have been an **officer or employee** of the company who held **at least 5%** of the ordinary voting shares, and
* was entitled to **at least 5%** of the profits available for distribution and **5%** of the net assets on a winding up,
* for **at least 2 years before** it ceased to trade; and
3) the shares must be disposed of **within 3 years** of the company ceasing to trade
163
When must BADR claim be made
taxpayer must make a claim on or **before the first anniversary of 31 January** following the tax year in which the relevant disposal is made (not automatic)
164
BADR lifetime allowance
£1m (taxed at reduced rate of 10%)
165
When does investor relief apply
gains made on the disposal of qualifying shares in **unlisted trading companies**
166
Conditions for investor relief to apply
1) Individual **must NOT / NOR have ever been an officer OR employee** of company / any connected company
2) Qualifying shares:
* Issued TO the investor for **cash** on or after 17 March 2016
* Held BY the investor for **at least 3 years** from 6 April 2016
167
Qualifying business assets re roll over relief
* Incl. most business assets used in the trade e.g. land/buildings, fixed P&M, aircraft, ships & goodwill
* Incl. assets owned by shareholders, but used by a company (provided SH has at least 5% of voting shares)
* Incl. Lloyd’s syndicate capacity
* **NOT company shares**
*Need not be of same type!*
168
What happens if individual’s Taxable Income is less than basic rate tax threshold, but AFTER chargeable gains are added, the combined total exceeds the threshold?
* Part of gains within unused part of basic rate tax band is charged at 18%
* Any part exceeding threshold is charged at 24%
169
When is a company not a close company?
1. its shares are quoted on a recognised stock exchange, OR
2. it is controlled by 1 or more non-close companies, AND
* It could only be a close company by treating a non-close company as one of the 5 or fewer participators having control
170
Close companies - what if tax repaid?
Levy refunded and no tax consequences
171
Close companies - what if loan is written off?
Levy refunded to company, but for recipient, taxed in same way as dividend
172
3 main exceptions to close company loans
1) Loan in form of credit given by company re goods / services normally supplied by company
* Duration of creditor does NOT exceed **6 months** or company’s normal limit
2) Where the company is in the business of money lending & loan is made as part of that business
3) All 3 of the following must be satisfied:
* The loan (together with any other outstanding loan balance) does NOT exceed **£15k**
* The borrower works **full time** for the company, AND
* Owns **5% or less** of the company’s shares
173
Available tax reliefs re IT (when calculating net income)
1) **Interest paid TO bank** on qualifying loans, including:
* Loans to buy an interest in a partnership
* Loans to contribute capital or make a loan to a partnership
* Loans to buy shares in (or make loan to) a ‘close’ company, AND
* Loans to buy shares in an employee-controlled company or invest in a cooperative
2) **Pension scheme contributions**
* Amount equivalent to pension scheme contributions made by taxpayer is deducted from Total Income
3) Income from tax-exempt accounts, like Individual Savings Accounts (ISAs) and National Savings Certificates
4) Dividends from company shares under your dividends allowance
some state benefits
5) Premium bond or National Lottery wins
174
Who can apply for compulsory liquidation
1. A creditor
2. The company (acting by the SH - where there are insufficient company assets to fund a voluntary liquidation)
3. Directors (by BR - where there are insufficient company assets to fund a voluntary liquidation)
4. Administrator
5. Administrative receiver
6. Supervisor of a CVA, AND
7. Secretary of State for Business, Energy & Industrial Strategy (public policy grounds)
175
Other partnership duties (can be varied)
* Right to inspect partnership books
* Payment of 5% interest on loans made **by** partners
176
Termination form re CS
TM02
177
Appointment of CS form
AP03 / AP04
178
Change of particulars re CS form
CH03 / CH04
179
Remedies for breach of director duty
1. For breach of duty of care, skill & negligence = common law damages (akin to negligence)
2. For the rest:
* Account of profits
* Damages
* Setting aside transaction (rescission)
* Injunction to prevent further breaches/continuing breach
* Restoration of property transferred due to breach
180
Order that surplus profits are distributed to partners
1. interest on capital
2. salaries
3. remainder according to PSR ratios
181
Exceptions to OR requirement for loans to directors
* Approval NOT required by members of any company which is **wholly-owned subsidiary** of another
* Expenditure on company business (**max £50k**)
* Expenditure on **defending proceedings** brought against director
* Expenditure on **defending regulatory actions** / investigations
* Minor & business transactions -> *loans/quasi-loans* up to **£10k** & *credit transactions* up to **£15k**
* **Intra group** transactions
* Money lending companies (loan in **ordinary course of business**)
182
Connected person re SPT
1) **Family** (spouse / civil partner / romantic partner in enduring relationship / children / stepchildren / parents / children of romantic partners
* NOT brothers, sisters, grandparents, grandchildren, uncles, aunts, nephews & nieces
2) Body corporate (in which director or connected persons own **AT LEAST 20%** of company’s voting shares)
3) **Business partner** of director (or those connected)
4) **Trustees** of trust where director (or those connected) is a beneficiary
183
When is approval not required re long-term service contract
Members of wholly owned subsidiary
184
What does appropriation account show
an extension of the P&L account, which shows the division of profits between the partners
185
Min number of directors for plc vs private company
Plc - 2
Ltd - 1 human (16+)
186
Remedies re unfair prejudice claim
1) Court may make such order as it thinks fit
* Most common = other SH / company buy C’s shares from them
* May also order to restrict company altering its articles without leave of court
* May also order that SH can bring a derivative action
2) Court has wide discretion re valuation matters and aims to set fair price
187
What does SOCIE show
Dividends
* Shows profits drawn forward & added to current year profits subject to any deductions for dividends
* Resulting retained earnings figure will appear on bottom half of balance sheet showing total profits carried forward to next accounting period
188
Requirement to set aside floating charge
1. Created within 12 months preceding insolvency (2 years if connected)
2. Company was insolvent at time of creation / became insolvent as a result (not required if connected)
*If so, **automatically void***
189
Definition of connected person re corporate insolvency
* Director (incl. shadow)
* Director’s associate
* Associate of the company
190
Definition of associate re personal insolvency
* Relatives (incl. siblings / uncles / aunts / nephews / nieces / grandparents / parents)
* Spouse / CP and their relatives
* Spouse / CP of relatives OR of spouse / CP’s relatives
* Business partners & employees / employers (i.e. able to exercise at least 1/3 of voting power)
* A company which is controlled by the director
* A company which is itself associated with the company in question, where both are mutually controlled by some other company or person
191
When can shareholders vote but their votes are not counted if they determine if it's passed
1. Resolution to buyback shares
2. OR to ratify breach where director also a shareholder
192
Procedure for obtaining pre-insolvency moratorium
1. Statement that company is / is likely unable to pay its debts as they fall due
2. Statement from monitor that moratorium will likely rescue company as going concern
(monitor does above)
193
BM1 for buybacks
1. Approve draft contract
2. Call GM and approve notice / propose WR
3. *If capital, approve DSS and AR*
194
BM2 for buybacks
1. Enter into contract
2. Appoint director(s) to execute contract
195
Should interest paid on loans be deducted from trading profits calculation
Yes
196
Should dividend paid by company be deducted from trading profits calculation re CT
NO - post-tax payment
197
Corporate insolvency - statutory order
Pot 1 - **fixed charge** assets
* sale proceeds LESS liquidator's fees + expenses (net amount paid straight to them)
* *any unpaid can be claimed under FL if secured or unsecured*
Pot 2 - floating charge assets
1. sale proceeds LESS liquidator's remuneration, costs + expenses LESS preferential creditors = **net property**
2. creation of **prescribed part fund** (use net property value from above) LESS 50% of first £10k and 20% thereafter up to max £800k
3. amount due to **floating charge creditors** (subject to prioritity) = total debt due LESS amount already paid re fixed charge (if both)
4. balance due to **unsecured creditors** = net property LESS prescribed part fund LESS payment to floating charge creditors PLUS prescribed part fund
5. **interest** (from commencement to winding up) to unsecured creditors
6. **shareholders**
198
How to calculate dividend each unsecured creditor will receive
total available to unsecured creditors divided by total amount owed to unsecured creditors x 100
= [ ] p for every £1 owed
199
Assets for hold over relief purposes
* Those used in the transferor’s trade
* Shares in a trading company not listed on a recognised exchange
* Shares in a trading company where the transferor owns at least 5% of the voting shares (a ‘personal company’)
* Assets owned by a shareholder & used in his ‘personal company’
200
Grounds to challenge winding up petition
No legal grounds - may consider potential commercial & practical steps
201
Effect of dispositons made of Company property following winding up order
Void unless made by liquidator
202
Must companies state they are in liquidation
Yes, all company papers (hard copy and online) and websites must state it is in liquidation
