Buisness Finance

Question 1

Regarding equity finance, if the full amount is paif at the allotment of shares, then the shares are described as being …

Answer 1

fully paid up

Question 2

How is an amount owed to a company by a customer shown in the company’s accounts?

Answer 2

It is recorded as a current asset in the company’s balance sheet.
Amounts receivable from customers (i.e. trade debtors) are assets expected to be converted into cash within the year.

➡️ Correct classification: Current Asset

Question 3

If shares are partly paid up, what does this mean if a company then goes into liquidation?

Answer 3

This means that the shareholder will be obliged to contribute the outstanding amount paid

Question 4

Regarding allotment of shares, if a company was incorporated before 1 October 2009, then what must you check before alloting?

Answer 4

That the articles have been updated, if they havent been then pass ordinary resolution

Question 5

After Oct 2009 - private companies with 1 class of share

Answer 5

board resolution

Question 6

After Oct 2009 - private companies with more than one class of share AND public companies.

Answer 6

ordinary resolution
File within 1 month Register within 2

Question 7

What should this ordinary resolution for ‘ private companies with more than one class of share AND public companies’ include

Answer 7

• No of shares
• 5 year expiry date

Question 8

How long should the offer of pre emption rights (offering existing sharehlders the same percentage shares) be open for

Answer 8

14 days

Question 9

If you are a private company with class of shares how to dissaply preemption rights:

Answer 9

Special resolution

Question 10

If you are a private company with more than one class of shares/ public company how to dissaply preemption rights:

Answer 10

Special resolution
If specific allotment include a written statement from the directors as to the amount of shares, the justification and reasons
15 days

Question 11

Where do shares go on the death of a shareholder?

Answer 11

To their PR

Question 12

Where do shares go on the bankruptcy of a shareholder?

Answer 12

To the trustee in banrkruptcy

Question 13

If alloting new shares is in consideration of a non cash asset, then what do not need to be dissaplied

Answer 13

pre emption rights

Question 14

For allotting shares, which is giving out extra shares - after Oct 2009 for private companies with one class of share what is needed to pass

Answer 14

board resolution

Question 14

For allotting shares, which is giving out extra shares - after Oct 2009 for private companies with one+ class of share or public companies what is needed to pass

Answer 14

ordinary resolution
file in 1m to CH

Question 15

What are pre emption rights

Answer 15

Rights that offer existing shareholders a number of shares to preserve their percentages

Question 16

What is the process to disallow pre emption rights for private classes of 1 class of share:

Answer 16

special resolution

Question 17

What is the process to disallow pre emption rights for private classes of 1+ class of share and private companies:

Answer 17

special resolution
if under specific allotment then special resolution + written approval from directors
15 days

Question 18

When do pre emption rights NOT apply

Answer 18

NOT = non cash transactions [warehouse]

Question 19

What are the 3 things needed in order to buyback shares:

Answer 19

• ordinary resolution
• make sure shares are fully paid up
• articles allow

Question 20

What is share buyback

Answer 20

buying back the shares from the company for payment
company financially worse off

Question 21

There are two types of buyback: profits and capital. What is needed for each?

Answer 21

Profits: ordinary [OP in a alphabet]
Capital: 1+private share only, solvency statement, special resolution, london gazette, 5-7 weeks

Question 22

What is needed for buyback out of capital?

Answer 22

1+private share only
solvency statement
special resolution
london gazette
5-7 weeks

Question 23

What is needed for transfer of shares

Answer 23

between shareholders
board res accepts/rejects
new cert issues 2m

Question 24

What is debt finance

Answer 24

Borrowing money through loans Check allowed in the articles

Question 25

Overdraft facility

Answer 25

- flexible - uncommitted [pay back whole loan at any point] - repay and reborrow

Question 26

Term loan

Answer 26

fixed amount borrowed pay all at the end regular interest no repay and reborrow

Question 27

revolving credit facility

Answer 27

repay and reborrow reduces interest

Question 28

security - mortgages

Answer 28

highest form of security legal title transferred to the loaner and this will become exercisable when the borrower defaults

Question 29

security - fixed

Answer 29

fixed over a certain asset and this cannot be sold, destroyed etc without the consent of the holder priority over floating

Question 30

security - floating

Answer 30

floating over machinery, stock [constantly changing] when the borrower defaults then the floating charge crystallises changes into fixed

Question 31

registering a floating or fixed charge 1

Answer 31

21 days from creation fixed has priority over earlier floating

Question 32

Front (Q): When do statutory pre-emption rights under s.561 CA 2006 not apply to a share allotment?

Answer 32

Back (A): Pre-emption rights do not apply under s.565 Companies Act 2006 where shares are allotted for non-cash consideration (e.g. property or services). In that case, the company does not need to offer the shares to existing shareholders first.

Question 33

if there is a floating charge over the whole undertaking, and a fixed charge owner has notice of it, and then wants a fixed charge over an element within that - then what do they need?

Answer 33

consent of the floating charge owner if not - charge is valid but not priority

Question 34

Under s.687 CA 2006, a company can only buy back shares:

Answer 34

Out of distributable profits, or Out of the proceeds of a fresh issue of shares, or Out of capital, but only if profits are insufficient and special procedures are followed (including a solvency statement and auditor’s report — s.709–723 CA 2006). So if there's not enough money in the profit and loss account then you need to pay out of capital.

Question 35

Pay dividends out of...

Answer 35

Profits

Question 36

Key Rules on Priority of Charges:

Answer 36

Fixed charges usually take priority over floating charges, regardless of registration date. Unregistered charges (which must be registered under s.859A of the Companies Act 2006) are void against a liquidator, administrator, and creditors — they are not effective for priority purposes. Between two valid fixed charges, priority is determined by the date of creation (not registration), provided both are registered. Between two floating charges, the first created and registered one takes priority — but see “negative pledge” clauses. Where one charge is floating and another is fixed, the fixed charge takes priority — unless the floating charge contains a negative pledge clause and the second lender had notice of it.

Question 37

What determines priority between two fixed charges?

Answer 37

Priority between two fixed charges is determined by the date of creation, provided both are registered at Companies House. Registration does not determine priority but is necessary to avoid the charge being void against creditors.

Question 38

What determines priority between two floating charges?

Answer 38

Priority between two floating charges is determined by the date of registration at Companies House. The earlier-registered floating charge takes priority.

Question 39

What determines priority between a fixed charge and a floating charge?

Answer 39

A fixed charge takes priority over a floating charge, even if created later, unless the floating charge contains a negative pledge clause and the fixed charge holder had actual or constructive notice of it.

Question 41

What is the effect of not registering a registrable charge?

Answer 41

An unregistered registrable charge is void against a liquidator, administrator, and creditors. It does not affect the company’s liability but loses priority and enforceability against third parties.