Business law 1 Part five Flashcards
(19 cards)
What is the legal remedy called that can remove the legal protection of assets for shareholders and managers?
piercing the corporate veil
This remedy is used when shareholders and managers take advantage of a company’s remaining benefits before bankruptcy.
What are the benefits of groups of companies?
Distribute risks of multiple businesses
However, they can pose risks for creditors, such as asset transfers.
Who are non-adjusting creditors?
Unique group of creditors who cannot negotiate terms
Public protection mechanisms are needed to safeguard their interests.
What role do creditors play during insolvency?
Crucial role in the ownership and repayment process
All creditors become owners of a bankrupt corporation, which may lead to conflicting interests.
What happens during bankruptcy procedures?
Crisis manager appointed to sell assets and pay off creditors
The company may continue operating, but new debts are not the responsibility of creditors.
What must corporations provide to creditors for informed decisions?
Information
Disclosure requirements differ based on corporation type and structure.
Who are considered gatekeepers in the context of credit risk assessment?
Auditors and Credit Rating Agencies
They assess the risk of default and assign ratings.
What is legal capital?
Minimum investment required from shareholders
The EU Directive mandates a minimum legal capital of €25,000 to protect creditors.
What is the conflict of interests that directors face?
Between shareholders/directors and creditors
Directors may be held responsible for harm suffered by creditors.
What is the role of de facto/shadow directors?
Can be held responsible for corporate actions
They are often associated with controlling shareholders providing funds.
What are bankruptcy proceedings initiated by?
Creditors who cannot pay debts
They can suggest a reorganization plan or initiate proceedings.
What characterizes related-party transactions?
Engagement with individuals or entities connected to the corporation
They can divert assets for the benefit of related parties.
What is mandatory disclosure in related-party transactions?
Public disclosure of information about such transactions
This serves as a means of control by public authorities and stakeholders.
What is the Business Judgment Rule?
Directors obligated to make decisions benefiting shareholders
Courts cannot evaluate directors’ management decisions if acted in good faith.
What must occur for the board’s decision on executive salaries to be protected?
Reasonable compensation compared to market standards
Shareholder approval through ‘say on pay’ practice is another option.
What power do shareholders have regarding related-party transactions?
Power to approve transactions through voting
Approval can be binding or advisory.
What is one approach to address related-party transactions?
Prohibiting certain transactions
Some countries do not allow borrowing money from the corporation.
What is the duty of loyalty in public corporations?
Relationship between shareholders and directors
Breaching this duty can lead to responsibility and stricter court scrutiny.
What are important considerations in groups of companies regarding related-party transactions?
Safeguards for subsidiaries and equal distribution of costs and gains
Specific rules and conditions vary by country.
