Business Flashcards
1
Q
Can company’s director bind the company in contract and tort?
A
Yes if act with actual or apparent authority.
Actual authority
- can be expressly granted in article or by resolution
Apparent authority
- exists where words or conduct leads reasonable person in 3 party’s position to believe agent authorised to act, even if had no authority. Shouldn’t arise often as directors have no power to bind company unless act as a board or has express authority.
- may arise through past dealings
2
Q
What powers do directors have?
A
- Power derived from articles which also say when SH approval needed.
- Directors must act collectively as a board but can delegate powers to a person if think fit.
- Day to day decisions/managment
- Can bind company if act with apparent or actual authority.
3
Q
What duties do directors have?
A
- basic fiduciary duty to act in good faith and best interests of company as a whole
- duty to act within powers (articles)
- duty to promote success of company
- duty to exercise reasonable care skill and diligence
- duty to exercise independent judgment (doesn’t prevent seeking independent advice)
- avoid conflicts of interest, direct or indirect or may conflict.
- duty not to accept benefits from 3rd parties. Exception where benefit cannot reasonably be regarded as likely to give rise to a conflict.
- duty to declare interest in proposed or existing transaction or arrangement
4
Q
What is the standard of care required of a director?
A
Exercise the care, skill and diligence that would be expected of a director.
Based on:
- the general knowledge, skill and experience that may reasonably expected of a director (objective) and
- the general knowledge, skill and experience the director in question actually has (subjective)
Director judged by whatever standard is higher. If has more knowledge/experience, judged under subjective standard.
5
Q
Where might a conflict of interest arise?
A
- Situation which would benefit spouse or close relative of director or a business in which director has significant interest
- may involve, property, information, opportunity.
No breach if conflict of interest relates to
- transaction with company itself and board knows director has an interest or
- situation cannot reasonably be regarded as likely to give rise to a conflict or
- matter has been authorised by directors
6
Q
What is secret profit?
A
Unauthorised profit from company or conflict of interest, secret profit can be authorised by directors
7
Q
When must a director declare interests in proposed or existing transaction or arrangement?
A
Where directly or indirectly interested in proposed transaction or becomes interested in existing transaction, must give directors notice of interest before entering into or continuing
Form of notice - no particular form needed, written notice, general or oral notice at meeting all fine. Must include nature and extent of interest.
Director who is interested, cannot form the quorum on that decision
Exceptions - no need to declare if
- could not reasonably be regarded as likely to give rise to conflict
- directors already aware
- concerns directors service contract that are or are to be considered by board
8
Q
How is a board meeting called by a director?
A
Director may call by giving reasonable notice of meeting to other directors or by authorising company secretary to give notice. Reasonable notice depends on facts, could be few minutes. Meeting can take place electronically as long as can communicate with others.
Contents of notice - no need to be in writing, must include proposed date, time and location, how communicate if not all in person, must be given to each director.
9
Q
How are directors decisions made?
A
At board meeting by majority vote, chairman has casting vote in event of deadlock.
If director has an interest in the resolution, prohibited from voting and counting forwards quorum.
10
Q
What is quorum for board meeting?
A
Under model articles 2
If director has personal interest, may be prevented from counting in quorum.
11
Q
Can directors pass resolution without a board meeting?
A
Yes, via written resolution. Resolution considered approved only if ALL directors approve it rather than majority.
12
Q
How are directors removed?
A
Retirement.
Board decision.
Shareholders have the power by ordinary resolution. Cannot remove by written resolution.
13
Q
Can shareholders rights to remove a director be removed or limited?
A
Cannot be removed.
May be limited by a Bushell v Faith clause which gives weighted votes to a director who is also a shareholder in the event of a resolution to remove a director
14
Q
What is a Bushell v Faith clause?
A
Clause in articles of consent that gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove them
15
Q
What notice is required to remove a director?
A
If a SH wishes to propose resolution to remove director must give company formal notice at least 28 days before general shareholders meeting.
Company must give notice to the director and the director has right to make written representation (which company must send to shareholder) and to speak to meeting (even if not shareholder)
16
Q
When can a director be disqualified?
A
Under Company Directors Disqualification Act 1986 can be disqualified for general misconduct or unfitness
Includes:
- conviction of indictable offence in connection with promotion, formation, management etc of company
- persistent breaches of companies legislation requiring returns, accounts and docs to be filed with CH
- fraud
- summary conviction of offence in contravention of any provision of companies leg
Unfitness - can be disqualified for between 2-15 years jf direcotr in insolvent company.
Wrongful trading under insolvency act
17
Q
What’s the role of company secretary?
A
Public company need to have one, private companies don’t. Appointed/removed by directors.
Qualifications - public directors have duty to take reasonable steps to ensure has requisite knowledge and experience to discharge functions. Need one or more of:
- been secretary of public company for at least 3 out of 5 years before
- member of specified list of accountancy/secretarial bodies
- barrister or solicitor
- person who, by virtue of holding or having held any other position appears to directors to be capable of discharging functions and duties
Powers/duties - filing, maintaining books, minute taking etc. can bind company
18
Q
What is classed as a person with significant control?
A
Person who:
- directly or indirectly holds more than 25% of the shares in a company
- directly or indirectly holds more than 25% of the voting rights of a company
- directly or indirectly holds the right to appoint or remove a majority of the board or
- have the right to exercise or actually exercises significant influence or control over the company.
19
Q
How is a dividend declared?
A
Directors decide if profits available for purpose. (Accumulated realised profits less accumulated realised losses)
Board pass BR to approve and recommend dividend, BR to call general SH meeting
SH at general meeting pass OR to declare dividend
Further BR may be required implement it
20
Q
What is a derivative claim and who may bring one?
A
Brought by shareholders if believe directly has or is about to breach a duty owed to the company and appears board will not prevent or remedy.
Brought by SH in company name
- Can only be brought by a shareholder or person who has had shares transferred to them by operation of law.
- claim bought against director or another person or both
- SH can asset claim that arose before SH was a SH
21
Q
How will court approach a derivative claim?
A
1st stage - permission
- claimant must show prima facie case with evidence and that promotes success of company
- court must dismiss if not
2nd stage
- court must dismiss if:
1) satisfied person acting to promote company’s best interests would not seek to continue the claim or
2) the action was authorised by the company or authorisation would be likely
Court must consider:
Whether SH is acting in good faith, importance of action to success of company, and whether SH could bring remedy in own right rather than on behalf of the company.
Damages awarded to company not SH
22
Q
How can SH ratify directors breach?
A
By passing an ordinary resolution
23
Q
What protections are there for minority shareholders?
A
Any SH can petition court for remedy due to unfair prejudice. May include exclusion from management, directors exercising power for improper purpose, awarding themselves excessive remuneration, non payment of dividends.
Remedy usually order that minority SH shares are purchased
Any SH - Winding up the company - SH can apply to have it wound up insolvent and can show just and equitable to do so. Remedy of last resort
24
Q
Who can call a shareholder meeting?
A
- directors usually under statute
- shareholders who hold at least 5% of paid up voting capital can require directors to call a meeting. On receipt of request, directors must call meeting within 21 days and actually have the meeting within 28 days. If don’t, shareholder who requested it (or any SH holding at least 50% of voting rights) can call the meeting themselves.
- resigning auditor can require directors to call if wishes to give reasons for resignation
- court can call if impractical eg deadlock
25
How much notice it required for a SH meeting and who gets it?
All shareholder and directors, PRs of deceased SH, trustee in bankruptcy of any bankrupt SHs and auditor if one appointed
Notice can be in writing or electronic, via email or website.
If SH wishes to call meeting to consider removal of director, must give company at least 28 clear days notice prior to meeting
26
What must notice of a SH meeting contain? And when given?
Must include company name, time, date, place, general nature of business, statement of right to appoint proxy, full text of any special resolutions
Must be given at least 14 clear days before meeting unless articles provide for longer notice. If not hand delivered, need another 48 hours for deemed services
27
Can a shareholders meeting be held on short notice?
Yes if agreed by majority in number of shareholders who hold 90% of shares.
Cannot be used where documents must be left at registered office 15 days before meeting.
28
What is quorum for a SH meeting?
2 unless single member company.
29
What is a special resolution required for?
Alteration of articles
Reduction in share capital
Winding up
Change of name
30
When must special resolutions be filed at CH?
15 days
31
How are matters voted on at shareholder meeting?
Show of hands of those present, unless poll vote demanded.
32
Who can call poll vote and what is effect?
Can be called by
- 5 or more SH
- SH with at least 10% of voting rights or 10% of paid up capital
- chair
Changed vote from one vote per SH to 1 vote per share.
33
How are SH written resolutions passed?
quicker and more cost effective
- can be used for OR and SR but can’t be used to dismiss director or auditor
- board decide whether to circulate written resolution but SH with 5% of total voting rights can require directors to do so
- written resolution must be circulated to all members who can vote
- must contain statement informing SH how to signify agreement and when will lapse (usually 28 days)
- any document which must be left at office for 15 days before meeting or be available at general SH meeting must be sent with it
- % based on all SH entitled to gore, based on one vote per share.
34
What decisions require SH approval?
Decisions which affect shareholders
Significant decisions where director has conflicting personal interest
35
Procedure for where approval of board and SH needed
- board pass resolution approving matter and calling general shareholders meeting or circulate written resolution
- SH then vote and pass resolution
- directors pass further board resolutions if needed and comply with filing requirements.
36
What requires approval by SH by OR?
- appointment of auditor
- appointment or reappointment of directors
- removal of director or auditor
- adoption of annual accounts and reports of directors and auditors
- declaration of dividends
- approval of decision to allow shares
- approval of substantial property transactions
- ratification of directors breach of duty
- entering into service contract with director for more than 2 years
- loan to director
- loss of office payment to director
37
What’s a substantial property transaction?
- company selling or buying property where other party is director or person connected to director
- where director buys or sells property to company, if transaction of more than £100,000 -automatically a SPT
- if more than £5,000 but less than £100,000 whether SPT depends on value of company. It exceeds 10% of net assets, is SPT
- if director buys or sells property to company for less than £5000 considered de minis and doesn’t need approval
38
What are SH preemption rights and when do these apply?
When company proposes to issue additional ordinary shares for cash, must first be offering to existing shareholders so they can maintain their proportional share and voting strength.
- company must offer to current SH at terms of which offered in open market
- must be given 14 days to accept
Doesn’t apply when shares are issued for non cash consideration
May be dis applied by SR and articles may amend
39
What is the procedure for transfer of shares?
- SH gives completed STF and share certificate to transfee
- if necessary transfee pays stamp duty
- transferee sends share certificate and stamped STF to company
- board check to see if have power to refuse registration
- board resolve to register new member or refuse
- if resolve to register, must also resolve to issue new share certificate
- update register of members, no need to file
40
Can directors refuse to allow transfer?
Yes under model articles
41
When must a charge be registered at companies house?
21 days after creation.
Certified copy and fee send.
Failure renders good against liquidator or administrator and other creditors
42
What registers must be kept by private company?
- register of members
- register of directors
- register of secretaries
- register of charges against company’s assets
- register of PSC
43
What must be available for inspection by SH at registered office?
- registers
- minutes for 10 years
- directors service contracts must be kept for a year after service ended.
44
What needs to be filed at companies house?
- annual confirmation statement
- charges against assets
- accounts
- directors and strategic reports (medium and large companies)
45
What documents are companies obligated to update?
- appointment or termination of director or officer (14 days)
- OR giving directors power to allot new shares (15 days)
- special resolutions (15 days)
- inssuance of new shares (within a month)
- change of address not effective until filed
46
When is approval of members not needed for a substantial property transaction?
Where company is a wholly owned subsidiary, no member resolutions are required. Only board resolution of subsidiary company.
If not and value exceeds £5,000 and 10% of NAV of company, OR of members needed
47
What are the options for insolvency of a sole proprietor?
Negotiation with creditors
Individual voluntary arrangement
Bankruptcy
48
What are the options for insolvency of a sole trader?
Negotiation with creditors
Individual voluntary arrangement
Bankruptcy
49
What does negotiation with creditors involve?
- Can approach a creditor and ask the debt to be reduced or extra time
- Creditor might agree but not binding as no consideration could demand full amount on the original payment terms
- Doesn’t prevent other creditors starting proceedings
50
What is an individual voluntary arrangement?
- Negotiated agreement between debtor and all of their creditors, each agree to accept less in payment that is owed
- formal procedure avoids enforceability problem but only suitable if have enough money or there is the prospect to receiving some money to enable the debtor to make reasonable offer of payment to their creditors
- if debtor wants IVA, must take professional advice and find an insolvency practitioner who will draw up proposals and supervise the implementation
- The practitioner will prepare a statement of affairs and will apply to the bankruptcy for an order. When this order is in force. No bankruptcy petition may be presented unless permission is granted by the court, proceedings can be commenced against - gives breathing space
- The insolvency practitioner prepares report and consider whether it’s worth a calling meeting with creditors
- if a meeting is called and at least 75% in value of the unsecured creditors agree the proposals, they become binding on every ordinary unsecured creditor who has notice of the meeting even if they didn’t attend
- Preferential creditors and secured creditors are not bound unless they agree
Practitioner oversee and supervises the proposals, if they failed to comply or provide misleading information the supervisor or any creditor who is party to the IV may petition for the debtors bankruptcy
51
What is bankruptcy and how is it started?
Judiciary process where the assets are passed to trustee in bankruptcy who liquidates the assets and use the money to pay off as many debts as possible in a strict order
Once app for bankruptcy made, creditors must stop chasing discharged after a year
Application can be made by the debtor by an online application or by one or more unsecured creditors who are owed at least £5000 can present the petition or the supervisor of IVA can apply if terms of IVA breached they have hidden assets or given a preference .
Once order is made official receiver is appointed. They will act as a trustee and bankruptcy unless creditors seek to appoint their own nominee.
52
How can a creditor show that an individual is insolvent?
Three methods
- if the debtor owes a sum of £5000 or more the creditor may make a statutory demand for the payment and if this is not paid within three weeks or the debtor does not apply to set aside the statutory demand the debt will be deemed in solvent
- If the debtor owes a liability of more than £5000 the credit may serve a statutory demand for proof of ability to pay, if the data does not show reasonable prospect of being able to pay when it falls due or does not apply to the court to set aside the order the debt will be deemed in solvent
- if the debtor owes a judgement debt of more than £5000, credit can seek to execute the judgement. If the attempt fails the debtor will be deemed and solvent.
53
What assets are vested in the trustee on bankruptcy?
- Bankrupt estate vest automatically, no legal formalities needed to transfer to the trustee
- Items needed for day-to-day living such as furniture and tools are exempt.
- bankrupt is also entitled to retain any salary subject the trustee applying for an income payments order
- trustee can apply for income payments order if the salary exceeds the amount needed for reasonable needs of the bankrupt in their family this can last maximum three years.
- if there are any other interest in the home for example held as joint tenants or equitable interests or rights of occupation or children under the age of 18, trustee cannot sell unless they have a court order and the court consider all these interest before making an order for sale
- however after one year the interest of the creditors are paramount so they will take precedent over any other people an interest
54
What are the restrictions on the bankrupt?
Cannot apply for credit of more than
Cannot act as a company direct
Cannot be a part
Cannot trade under another name without disclosure of the bankruptcy
55
What order must funds be distributed to creditors?
Cost of the bankruptcy
Preferential debts which includes holiday pay due to employees and wages of employees during the last four months and HMRC respect to VAT PAYE and national insurance
Ordinary unsecured creditors
Postponed creditors, spouses partner
If not enough money satisfy all creditors then they rank about equally they will receive the same percentage of the original debt
56
What is a culpable bankrupt?
If bankrupt has caused their bankruptcy by their own dishonesty negligence or recklessness can be subject to court bankruptcy order for up to 15 years. This can extend the restrictions so they continue after the bankruptcy is discharged.
57
What is the effective bankruptcy on a partner?
Partnership at will
- If it’s a general partnership at will then the partnership will be dissolved on the bankruptcy of the partner. The trustee and bankruptcy will receive any money due to the insolvent partner and that will be used to pay the creditors.
Partnership not at will
- if the partnership agreement provides that the partnership will not terminate on bankruptcy then the partnership will continue.
- Usually the remaining partners will purchase the insolvent partners interest in the trust from the trustee and bankruptcy in accordance with the provisions in the partnership agreement.
Limited liability partnership
- An undischarged bankrupt cannot be a member or take part in the management without the agreement of the court.
- The trustee in bankruptcy will seek to realise any members interest for the benefit of the creditors usually by selling the interest of the remaining partners.
If all partners are declared bankrupt
- then the partnership is wound up using the same process as for bankruptcy if it is comprised of individuals ,if it is comprised of companies it will be liquidated in the same process as a limited company
- The official receiver or insolvency practitioner will make sure all contracts are completed, transferred or ended, cease the business, settle any legal disputes, sell any assets, collect any monies owed and distribute any funds to the creditors
Limited liability partnership is insolvent. - It would be administered as a limited company by the official receiver.
58
What are the options for corporate insolvency?
- Receivership
- Restructuring plan
- Moratorium
- Administration and company voluntary arrangements
- Liquidation
59
What is fixed asset receivership?
Not technically an insolvency procedure but can often lead to insolvency
Where borrow money and security is taken over fixed assets the agreement will set out what compromises a breach will usually also give the lender a right to receive an administrative receive if the company commits a breach
In the event of a breach, the receiver takes possession of the assets and sell it to pay the secured lender. Once the asset is sold. The receiver has no further role in the company.
60
What is a restructuring plan?
If a company or a limited liability partnership has encountered or expects financial difficulties, they may propose a compromise or arrangement with creditors
Usually plan involves creditors agreeing to accept less than that owed but more than likely to receive in bankruptcy
Plan must be approved by at least 75% in value of the unsecured debt
The court may approve even if one or more classes disagree with it and the dissenting creditors will be bound
Formal insolvency procedure
61
What is a moratorium and what is the procedure?
Company may say moratorium which prevents creditors taking action to enforce their financial rights or commencing formal and solvent proceedings during the period
Landlords must not fall for any lease and floating charge holders must not crystallise
During the moratorium, the company has a holiday in relation to debts subject to certain exemptions including wages and other amounts owed to staff
Purpose is to rescue the company as a going concern and return it to profitable trading through a company voluntary arrangement restructure plan refinancing or injection of new funding not for formal insolvency procedure
The directors will appoint practitioner to monitor companies affairs and assure likely the moratorium result in a rescue as are going concern
Certain papers must be filed with the court
The directors remain in charge of the business
It’s not available for companies which have been in the last 12 months subject to an insolvency procedure
62
What is administration?
It is a procedure which enables the administrator, who is an independent insolvency practitioner to run, re-organise and/or sell the company as a going concern, might enable the company to avoid going into liquidation
Aim of administrator are to rescue the companies are going concern, achieve better result for the creditors than would be achieved if it was wound or realise to be distributed to one or more creditors
Administrator interests of creditors as a whole not just one
63
What is the procedure for administration?
Two methods to go into administration
1) through formal court hearing
2) by the company, it’s directors or the holder of a qualifying floating charge fighting certain documents with the court
If the court appointment is used, the court can make the order only if it is satisfied the company is unable to pay it and the order is likely to achieve a better result for the creditors.
Directors and company can appoint administrator if no winding up petition has been issued and they must notify any qualifying floating chargeholder who will agree or appointed alternative administrator
Qualifying floating charge - charge over the whole or substantially the whole of the companies assets. It will contain a provision enabling the lender to appoint an administrator or administrative receiver if a breach has occurred which allows the lender to enforce security under the terms of the credit agreement .
The administrator must be a licensed insolvency practitioner, who will have the power take control of the companies property and sell it, bring or defend legal proceedings, carry out the companies business, removal or replaced directors and so on.
The administrator also has the power to investigate previous transactions to seek to increase the value of the assets to the creditors and take any action against the directors for wrongful and fraudulent trading
Majority of creditors must approve the administrators proposals
Moratorium is also imposed to restrict other insolvency procedures
64
What is a company voluntary arrangement?
Similar to an individuals voluntary arrangement
Compromise between company and creditors under which creditors usually agrees to take less
There is a short term cash flow problem, but generally financially sound
Process started by the directors of the company who will make a written proposal to the creditors and nominate an insolvency practitioner to supervise
75% or more in value of the unsecured creditors must agree for it to be implemented
If fails, company may still end in liquidation or administration
Can also obtain a moratorium
65
What is voluntary liquidation and how can it be started?
Can be started by the members of the company or the directors or creditors
Members voluntary liquidation
- The members and directors control the process from start to finish
- Only available if the company is solvent, but the individuals wish to wind the company up for example if they want to retire
Process
- The company directors must make a statutory declaration of solvency if made without reasonable grounds they are liable to a fine or imprisonment
- The members will pass a special resolution to start a liquidation and an ordinary resolution to appoint a liquidator
- The liquidator is advertised in London Gazette and companies houses notified
- The liquidator investigates reports to creditors of all debts
- The liquidator collect the assets and distributes funds to the creditors and final accounts and the final return is filed at companies house.
- The company has then dissolved after three months.
Creditors voluntary liquidation
- directors start then taken by creditors.
- It is voluntary but will usually be commenced because the directors advised the company is insolvent and if they continue to trade they will be personally liable for debts of the company through fraudulent or wrongful trading.
- The directors resolve the company is in insolvent and should be placed into liquidation and the members pass a special resolution to pass the liquidation
Process
- The directors resolve the companies insolvent and should be placed into liquidation, members pass a special resolution to start the liquidation
- The resolution is advertised in the London Gazette within seven days following the members resolution.
- The directors must make out statement in the prescribed form as of the affairs of the company and send that to the companies creditors.
- The directors will also seek nomination from the companies creditors for person to be liquidator.
- The liquidator is advertised in London and Companies house
- Liquidator investigates & reports to creditors and asked for details of all debts
- Liquidator collect in the assets distributes funds, account sent to creditors, members and final return filed out companies house
- dissolved after three months
66
What is compulsory liquidation of a company?
A creditor who can show that the company is unable to pay its debts can petition for it to be wound up.
Court will consider all relevent factors. Company may be able to convince can recover or debt disputes. Court may dismiss. Otherwise, liquidator appointed.
Role of liquidator - collects all assets and distributes in statutory order and then company dissolved.
67
What is the order of priority for disbursing to creditors?
1) expenses of winding up
2) preferential debts (holiday pay, wages in last 4 months (up to max amount) and HMRC in respect of VAT, PAYE and NI
3) debts secured by floating charges in order of priority
4) unsecured debts
5) shareholders
If not enough, all in one level rank and abate equally.
68
What is a preference?
Where debtor does something that puts creditor in better position on liquidation or administration than would have been
Preference must have been intentional but presumed if in favour of connected person (director, spouse, other close family member or associate)
Must be within 6 months of onset on insolvency.
If preference made to connected person, 2 years.
69
For a preference, when is the onset of insolvency?
For a company compulsory liquidation, onset is date of presentation of petition
For CVL, date company enters liquidation
For administration, date company filed notice of intention to appoint administrator or date enters administration, whatever is earlier
Individual - presentation of bankruptcy petition
70
What is the consequence of a preference?
Voidable at discretion of court.
Can order any property returned, proceeds returned, security discharged
71
What is a transaction at an undervalue?
Where property would have been past of bankrupt estate but given as gift or sole for significantly less than market value within 2 years of company’s insolvency or 5 years of individuals bankruptcy
Consequences
- voidable by court
- can order return of property etc
72
For a transaction at an undervalue, what may a transaction be set aside?
Company
- if must be insolvent at time of transaction or become so as a result, if transaction to a connected person, presumption of insolvency.
Individual
- no requirement to prove insolvent at time made if it was made in 2 years before petition, but insolvency presumed if transaction made at any time in favour of close relative or business associate
73
What is a defence to a transaction at an undervalue?
If transaction entered into in good faith, for purposes carrying on business and when made, reasonable grounds for believing would benefit company
74
What is fraudulent trading?
Where director carries in business with intent to defraud creditors.
Action can be bought by liquidator or administrator
If established, directors might have to make personal contribution to assets as court orders.
Criminal offence but hard to prove as need intent to defraud
75
How far back can the liquidator or administrator go back to look for transactions at an undervalue?
2 years back from onset of insolvency for company
Company must be insolvent at time made or as a result. If the transfer is to a connected person, insolvency presumed.
76
What is a defence to a transaction at an undervalue?
Transaction made in good faith for the purposes of carrying on business and there were reasonable grounds for believing it would benefit the company
Can be shown by evidence eg legal advice, accountancy advice, bank statements etc to show acting in interests of company
77
What does the chair do at a board meeting?
Appointed by board at start of meeting
Runs meeting and ensures admin done after
Sign minutes
Have casting vote in event of deadlock
78
What rights do minority shareholders have?
Look at company filings
Inspect minutes
Vote
Dividends
If have more than 5% can:
- demand general meeting
- demand circulate written statement
- circulate written statement with WR or before GM
10% + shares
- demand a poll vote
Over 25%
- block SR
Over 50%
- block OR
Over 75%
Pass SR
All SH can
- any SH can make a claim for unfair prejudice
- any SH can petition for winding up
- any SH can submit a derivative claim
- any SH can file for injunctions
79
What is a breach of s175?
Breach of duty not to profit from conflict of interest. Includes direct or indirect.
If breached, must account for any profits.
A breach can be ratified by board of directors resolution - only duty they can ratify
Could also be action under directors contract.
80
Under PA 1980, when can a partnership be dissolved?
Partnership at will applies
Can be dissolved by any partner by notice to others. Can be amended by partnership agreement
81
What action can a trustee in bankruptcy take in relation to a preference?
Similar to administrator or liquidator on a company’s insolvency.
Can set aside preference. Presumption of intent to prefer where the creditor is an associate.
Trustee can challenge preferences within 6 months of insolvency or 2 years if associate. Must have been insolvent at the time or became insolvent as a result
82
Does the chair of a general meeting have a casting vote?
No
83
What provisions of the model articles cannot be amended?
Removing auditors and directors by ordinary resolution. Cannot amend this, any amendment is invalid.
84
What does a company need to do when wants to buy back shares from profit?
Ordinary resolution from SH approving contract required. SH whose shares being bought shouldn’t vote.
No statement of solvency or auditor’s report needed.
Board resolution needed to enter into contract
85
What does company need to do when want to buy back shares out of capital?
Due to doctrine of capital maintenance
Need to prepare a statement of solvency and auditors report
Special resolution required. SH whose shares are being sold doesn’t vote.
86
Do fixed charges/floating charges take priority over eachother on date created or date registered?
Date created
Fixed priority over floating
87
How can a company execute a contract?i
Must enter according to CA06 otherwise invalid.
Contract
- one director sign or use company seal
Deed
Must be:
- executed by director and witness or
- 2 directors or
- director and secretary
- company seal and director or secretary also sign
88
Whose consent is needed for a short notice general meeting?
Consent of the majority of shareholders who hold at least 90% of the total voting rights.
89
What needs to be sent to CH to incorporate a company?
Form IN01
Contains:
- type of company eg ltd or plc
- name, must end in limited or ltd, can’t use prohibited name or give false impression, some names need gov permission, can’t in fridge trademark, trading name can be different.
- registered office, must be appropriate and confirm this
- registered email address
- principle business activity
- articles of association if not using models
- statement of capital and initial shareholdings. Includes total unpaid on shares, identity each shareholder and how many shares
- statement of proposed officers, director and secretary names
- statement of people with significant control
90
What does the certificate of incorporation include?
Name and registered number
Date of incorporation
Type of company
Country in UK of registered office
91
If a company appoints any new directors, what must they do?
Verify ID
Inform CH of change
Otherwise offence
92
What are the requirements for a public limited company?
Must have plc after name
Share capital minimum £50,000
At least 25% must be paid up
93
Are plcs more regulated?
Yes, AGM each year, can’t use written resolution procedure, min 2 directors and company secretary
94
How do you set up a LLP?
Form LL IN01
- name of LLP
- office address
- any PSC
- names and addresses of members
- name of designated members
- statement that incorporation requirements complied with
95
How does a company know who is a PSC?
Need to update register
Will know if:
- issues new shares and diluted a prev PSC’s shares or created new one
- within one month, new PSC or prev PSC must notify the company and provide necessary details
- company also has duty to take reasonable steps to find out who are PSCs includes giving notice to anyone who knows or has reasonable grounds to believe is a PSC
Register must be updated within 14 days of register being amended
96
How do directors act?
Via majority decision at board meetings or unanimously without meeting (under model articles)
97
How are directors appointed?
On incorporation or by board resolution or OR, CH must be informed within 14 days of appointment and have ID verified
ID must be verified by subscribers for director to act or continue to act. Details must be provided to CH, failure is offence.
98
How can a director be removed?
Resignation
Removal by board or OR of SH
By members
- member must send s312 special notice to board requesting a general meeting, must be sent 28 clear days before proposed GM.
- board must only consider request, can either comply with request and call a GM (by majority vote at BM) and give standard notice of GM (14 clear days) including notice of what the GM is for or not comply with the request and not call a GM.
- if board don’t comply, SH with at least 5% stake can give s303 notice with s312 notice, means GM must eventually be called. Board must then:
- co operate, must call a GM within 21 days receipt of s303 notice. GM must be held within 28 days of directors calling GM
- not co operate, if don’t call, member that sent s303 notice or any member with more than 50% voting rights can call a GM with 14 clear days notice
99
How much notice is needed for a GM?
14 clear days (16 days as don’t include date of service or date of meeting)
If sent via post or email, need an extra 2 days - 16 clear days, 18 days today
100
When may SH demand the directors call a general meeting?
Where members holding at least 5% of the companies paid up capital shares with voting rights request them to.
Directors have 21 days from date of requisition to call a GM, must be held within 28 days from date GM is called.
If the meeting isn’t called, the SH can call it themselves and recover the costs from the company.
101
What SH resolutions must be filed at CH?
SR always need to be filed
Where SR alter articles, must also file amended articles
Generally OR don’t need to be filed a exception for OR which authorises issue of shares
102
Do all companies have to file accounts with CH?
Small companies exempted. Small company is turnover of less than 10.2m, balance sheet of no more than 5.1m, no more than 50 employees
Directors also need to proper financial report for each financial year. Small companies exempt
Accounts must be filed within 9 months of end of accounting period
103
What’s confirmation statement?
CS01, must be filed each year within 14 days of companies anniversary.
Confirms all info CH have has been filed and provide details of changes
104
What’s a de facto and shadow director?
De facto - not properly appointed but performs role
Shadow - not appointed but exercises major influence
CA provisions apply to both
105
What is the requirement for directors?
Private need 1
Public need 2
Company can be director but need at least 1 natural person as director
Must be over 16, not disqualified from being director, capable & not bankrupt
106
What’s a non executive director and executive director?
Rights, duties, restrictions and obligations of director but doesn’t work for company in paid position. No service contract but entitled to fee
Executive director is person who holds the office and is in a paid position, usually have service contract.
107
How is a non executive director appointed?
OR of SH or
BR of directors
108
How is executive director appointed?
Appointment to office may be done by BR or OR
Appointment to paid position by BR
109
What must directors have regard to when acting in the companies best interests?
Long term consequences
Employees interests
Need to foster good business relations
Impact on community and environment
Maintaining high standard of business conduct
Need to act fairly between members
Subjective. Only need to have regard to these to not breach.
110
What breach can the board ratify?
They can only ratify breach of duty to avoid conflicts of interest but vote of interested director won’t count
111
What can a shareholders do if a director breaches a duty?
Can make a derivative claim
Can ratify the breach by OR. Vote of director who is also a SH doesn’t count
112
When might a director be personally liable to third parties
Where given personal guarantee, guilty of wrongful trading, fraudulent trading or misfeasance
113
What’s wrongful trading?
Director of insolvent company may be liable to contribute to assets of a company where the company continued to trade and knew or ought to have known that there was no reasonable prospect of company avoiding insolvency proceedings
Objective and subjective test but defence if director took every step to minimised potential loss to creditors. Eg professional advice
114
What’s fraudulent trading?
Director may be liable to contribute to assets where company carried on business with intent to defraud creditors or for fraudulent purpose - harder to prove
115
What is misfeasance?
Breach of directors duties discovered on winding up. May lead to personal liability
116
If a directors service contract is going to be considered at a BM, do they need to declare their interest?
No due to exception in s177(6) (c) unable to vote or count in quorum
If term over 2 years, SH need to approve by OR at GM. Only applies to guaranteed term.
Memorandum of proposed terms must be available for inspection at least 15 days before meeting and at meeting itself
117
What counts as a connected person for a SPT?
Connected to director not SH
Family
- spouse, CP, romatic partner, children, step children, parents, partners children.
- NOT siblings, grandparents uncles aunts nephews and nieces
Body corporate
- director and connected persons who own at least 20% of companies voting shares
If breached, voidable
118
Do loans to a director need SH approval?
Yes if over £10k, by OR
119
Is SH approval needed for payments for loss of office to a director?
Yes OR needed if over £200
Doesn’t include anything under contract
120
What can a SH with 5% do?
Circulate written resolution
Request SH meeting
Circulate written statement
121
What can a SH with 10% do?
Circulate written resolution
Request SH meeting
Circulate written statement
Request a poll vote
122
What can a SH with 25%+ do?
Circulate written resolution
Request SH meeting
Circulate written statement
Request a poll vote
Block special resolution
123
What can SH with 50% do?
Circulate written resolution
Request SH meeting
Circulate written statement
Request a poll vote
Block special resolution
50% - block OR
50% + pass OR
124
What can SH with 75% do?
Circulate written resolution
Request SH meeting
Circulate written statement
Request a poll vote
Block special resolution
50% - block OR
50% + pass OR
Pass SR
125
What is a claim for undue prejudice?
Claim where SH feels prejudiced by other shareholders
Mostly arises where failure to pay dividends or directors being excessively paid
Judged objectively
126
Can a decision requiring SH approval be passed without a meeting or written resolution?
Yes if unanimous consent
Not permitted for amending AOA, buy back out of capital or reduction of share capital or removing director
127
Do shareholders need to declare an interest?
Generally no need to declare and can vote
Exceptions:
- buy back of shares, SH who’s shares are being bought shouldn’t vote
- shareholder who is also a director cannot ratify their own breach of duty
128
When can a poll vote be demanded?
At any time, even after vote passed by show of hands. If different to show of hands will override:
