Business

Question 1

Apparent Authority

Answer 1

1) Transaction relates to kind of business carried out by firm

2) One for which usually have authority to act

3) Did not know they didn’t have authority

4) Know or believe to be partner/director

Question 2

Leaving Partnership: future debts

Answer 2

1) Inform directly anyone dealt with before

2) London Gazette notice

3) Make sure name is off everything

Question 3

Options when leaving general partnership

Answer 3

1) Dissolution (sell as going concern or sell all assets)

2) Buy out shares

3) Substitute partner to replace

Question 4

Insolvency Test

Answer 4

1) Creditor serves statutory demand for sum of 750 or more and company does not pay or come to arrangement within 21 days

2) Creditor has obtained judgement against company and has tried to enforce judgement but debt not paid or not in full

3) Cash flow Test (current assets less than current liabilities)

4) Balance Sheet Test (net assets figure is a negative)

Question 5

Creditors Voluntary Liquidation

Answer 5

Initiated by company through discussion and agreement between directors and shareholders

Question 6

Members Voluntary Liquidation

Answer 6

Only available if solvent. Directors must swear a statutory declaration that it is solvent

Question 7

Avoidance of Certain Floating Charges

Answer 7

Automatically void where at relevant time before onset of insolvency a charge was granted without company receiving FRESH CONSIDERATION

1) Connected Person: 2 years ending with onset of insolvency

2) Unconnected Person: 12 months ending with onset of insolvency (MUST HAVE BEEN INSOLVENT AT TIME OR AS A RESULT)

Consequences: Liquidator writes to charge holder stating that they believe the charge to be invalid and will seek injunction on the basis that a charge holder seeks to enforce will become unsecured creditor

Question 8

Preferences

Answer 8

Where company puts a person in a better position then they would have been otherwise in the event of insolvency (desire not just intent: desire presumed if connected)

1) Connected: 2 years

2) Unconnected: 6 months

Must have been insolvent at time or as a result (NO PRESUMPTION OF INSOLVENCY)

Question 9

Transaction at an Undervalue

Answer 9

2 years

Must have been insolvent at the time or as a result (presumed if connected)

Defense: transaction entered into in good faith

Question 10

Extortionate Credit Transactions

Answer 10

3 years

Must be grossly exorbitant payments or grossly contravene principles of fair trading

Question 11

Transactions Defrauding Creditors

Answer 11

Transaction at undervalue with intent to put assets beyond creditor reach or prioritize own interests

No time limit

Court discretion and creditors can also claim

Question 12

Liquidation Distribution Order

Answer 12

Liquidator sends standard form to unsecured creditors to fill in details of sum owed (proving the debt) if 1,000 or less automatically admitted

1) Fixed Charge holders will receive amount due when asset is sold and then any shortfall unsecured creditors

2) Expenses of Winding Up

3) Preferential Debts (rank and abate equally)

a) Wages and salaries of employees in 4 months immediately preceding date of winding up order up to max 800 per employee

b) HMRC (taxes collected on their behalf PAYE and VAT)

4) Floating Charges in Order of Priority

Ring fencing (amount set aside for unsecured creditors)

a) 50% of first 10,000
b) 20% of remaining money
c) Up to limit of 800,000 but if charges created before 6 April 2020 600,000)

5) Unsecured Creditors (rank and abate equally)

6) Any excess to shareholders

Question 13

What is administration?

Answer 13

Administrator is appointed to run company and make whatever changes necessary to improve financial performance, sell as going concern then best outcome for creditors

Will impose a statutory moratorium: no legal action, enforce judgement or issue winding up

Can only commence if court satisfied company likely to become unable to pay its debts

Question 14

What are the three ways to commence administration?

Answer 14

1) Apply to court and receive court order

2) Out of Court: by company and directors

a) Serve notice of intention of administration on: court, QFCH and anyone entitled to appoint administrator

b) Must also file a statutory declaration that company is unable to pay debts but not in liquidation

c) Moratorium into effect as soon as intention to appoint is filed

3) Out of Court: Appointment by QFCH

Lender must file notice at court along with statutory declaration

Question 15

Process of Administration (4)

Answer 15

1) Starts when documents filed into court and moratorium comes into effect (directors powers cease but remain in office)

2) Administrator puts forward proposals to creditors and approved if majority vote in value of crediors (but those who vote against cannot be more than in value 50% of unconnected creditors)

3) Order of assets as with liquidation

4) Administration automatically ends 1 year from date it took effect but can be extended or ended early court application

Question 16

CVA (Company Voluntary Arrangement)

Answer 16

Anyone entitled to appoint administrator or receiver has to support CVA for it to succeed

Written agreements bind all parties in relation to past debts not future debts

Proposals put forward for creditor payment must be approved by:

a) 75% or more in value of creditors; and
b) 50% or more in value of unconnected creditors

Secured creditors do not vote only for parts unsecured

Question 17

Restructuring Plans

Answer 17

Must have encountered or be likely to encounter financial difficulty

Court supervised: Directors usually propose and apply but creditors and shareholders also able to do this

Involved two court hearings where creditors can make representations and in between creditors and shareholders divided in classes snd deemed to have approved if 75% by value of that class vote in favor

Court will sanction if no member of dissenting class will be left worse off

Question 18

Freestanding Moratoriums

Answer 18

Directors remain in control full

Not available if previous one in past 12 months

No outstanding winding up petitions

File relevant documents in court and proposed monitor confirms likely to result in rescue of company as going concern

Employee wages and salaries and monitor’s renumeration and good and services supplied during moratorium excluded debts

Lasts 20 business days starting with day after it comes into force

Can be extended 20 further days by filing application in court

Can be extended up to 1 year if creditor’s consent

Question 19

Informal Agreements with creditors

Answer 19

Non-binding

Question 20

Option for secured creditor

Answer 20

Fixed charge holder appoints receiver to sell charged property and repay

Question 21

Proving Personal Insolvency

Answer 21

1) Serve statutory demand on debtor for 5,000 or more and wait 3 weeks

2) Serve statutory demand on debtor in respect of future liability to pay a liquidated sum of 5,000 or more and wait to see if:

a) Shows a reasonable prospect of being able to pay when due: or

b) Applies to court to set aside

3) Obtaining court judgment for sum of 5,000 or more and attempting to enforce judgement without success

Question 22

Bankruptcy

Answer 22

1) Petition at court (personal service)

2) Debtor applies for bankruptcy online (result in 28 days)

Question 23

Income Payments Agreement: how long

Answer 23

Lasts max 3 years

Question 24

Bankrupt’s home intrest

Answer 24

Will need court order to sell if someone else has intrest

After 1 year interests of creditor’s weigh more and likely to sell

3 years after bankruptcy reverts back unless already sold or other arrangement

Question 25

Disclaim Onerous Property

Answer 25

Anyone who suffers loss can make formal claim as unsecured creditor

Question 26

Transactions at Undervalue (personal insolvency)

Answer 26

5 years prior If more than 2 years show insolvency (presumed if associate)

Question 27

Bankruptcy Distribution Order

Answer 27

1) Costs of Bankruptcy 2) Preferential Debts (same two: same rules) 3) Unsecured Creditors 4) Postponed Creditors (spouse/civil partner)

Question 28

Restrictions on all Bankrupts (no BRU or BRO needed)

Answer 28

1) director 2) management promotion formation 3) trade under different name 4) continue in partnership 5) credit more than 500 without disclosing

Question 29

IVA

Answer 29

Will need insolvency practitioner (debtor’s nominee to set up) Debtor prepares statement of affairs for nominee to consider and apply for 14 day moratorium Nominee prepares report if realistic prospect to work 75% or more creditors in value, 50% or more in value not associates

Question 30

DRO

Answer 30

Debtor applies online: 12 months and free of debt at end (so avoid the stupid restrictions) Not available if: a) unsecured liabilities over 30,000 b) gross assets over 2000 c) car worth 2000 or more d) disposable income excess 75 a month e) subject to DRO in past 6 years f) subject to other formal insolvency procedure g) owns their own home

Question 31

Debt Respite Scheme

Answer 31

Standard breathing space: 60 days Mental health breathing space: length of treatment plus 30 days Must not had another in past 12 months

Question 32

Unfair Prejudice

Answer 32

Any shareholder can apply if: a) Company’s affairs have been conducted in a manner that is prejudicial to the interests of all or some of its members (C included): OR b) A proposed or actual act or omission of the company would be prejudicial Prejudicial: Must cause harm AND be unfair (objective test) Remedies: Court orders buyback, place restriction on altering without leave, or allow shareholder to bring derivative claim

Question 33

Derivative Claim (2 stage process)

Answer 33

Arises from act or omission of director Cause of action must involve: Negligence, breach of duty or trust or Default Step 1: Shareholder to apply to court for permission Court will allow if prima facie case for it continue Step 2: Full hearing Must refuse permission at stage if: person who seeks to promote interests of company would not continue claim, act or omission authorized or ratified Also take into account likelihood of ratification if acting in good faith if seeking to continue If permission fails: costs on applicant if passes costs on company

Question 34

3 types of loans

Answer 34

1) Overdraft Facilities 2) Term Loans 3) Revolving Credit Facility

Question 35

Allotment authority and process

Answer 35

If before CA 2006: ordinary reso always to allot and will have upper limit authorized share capital can remove via ordinary reso CA 2006: Board reso if one class of share If public or more than one class: ordinary reso and state how many and date authority will expire (5 years max) Pre-emption rights are a statutory right: special reso (if public or more than one class also written statement): 14 days to accept offer

Question 36

Pre-emption rights when do they apply?

Answer 36

Ordinary shares which carry voting rights Consideration must be wholly cash and not employee share scheme

Question 37

Stamp Duty Tax: Transfers

Answer 37

If sale price over 1,000 being 5 pounds (0.005: 0.5%)

Question 38

Share Buyback Process (Not Capital)

Answer 38

Shares must be fully paid and must pay for shares at time of purchase Must be paid out of distributable profits or proceeds of fresh issue of shares Authorized via ordinary reso A copy/summary of buyback available 15 days before for inspection or sent with written reso File return of purchase of shares and notice of cancellation within 28 days of completion

Question 39

Share Buyback out of capital (5 steps)

Answer 39

Only private companies and must exhaust distributable profits first 1) Statement of solvency no sooner than 1 week before GM and auditor’s report 2) Ordinary resolution to approve buyback and special resolution to approve buyback out of capital 3) Within 7 days of special resolution being passed notice in London Gazette stating details and where to find solvency statement and auditor’s report Must also state that creditors can within 5 weeks following special resolution being passed apply for order to prevent buyback 4) If no creditors object, directors hold board meeting and pass board resolution to enter Payment made no earlier than 5 weeks since special resolution and no later than 7 weeks (so board has two week window) 5) File the return of purchase of own shared and notice of cancellation of share within 28 days of completion, update members and PSC if needed, keep contract 10 years

Question 40

Wrongful Trading and its defence

Answer 40

Director knew or ought to have known that there is a reasonable prospect of company going into liquidation Defense: took every step with view of minimizing potential loss to company creditors as they ought to have taken (reasonably diligent person (higher threshold special knowledge)) Remedy: contribute to company assets

Question 41

Where to find distributable profits?

Answer 41

Company’s accumulated realized profits less its accumulated realized losses Bottom half in profits loss reserve

Question 42

Compulsory Liquidation: Process

Answer 42

1) Third party commences insolvency proceedings by presenting winding up petition in court (if company can show that genuine and substantial dispute to sum owed can stop proceeding: Court will in general have ultimate discretion) 2) Directors lose powers and appointments are terminated 3) Liquidator will complete their work (under a duty to maximize assets available to creditors and will bring claims to effectuate this) and apply to be released and company will be dissolved 3 months later