COML204 Final Exam Flashcards

Question

Ebrahimi v Westbourne Gallaries Ltd

Answer 1

Background Ebrahimi and Nazar equal partners in partnership Decided to incorporate partnership following success of business N's son brought in as shareholder After falling out between Ebrahimi and N, N and son voted to remove E as director E sought company to be liquidated Held Case of "lifting the corporate veil" Company was still very similar to a partnership Was regarded as a "quasi-partnership" Under the rules of partnerships, exlcuding Ebrahimi from management of the business would be ground for ending the partnership Therefore considered just and equitable to order liquidation of WBGL

Answer 2

The core principles of a partnership can continue after incorporation

Answer 3

No hope of profit Deadlock Persistent failure to comply with director's duties Loss of trust Opressive conduct Company formed for fraudulent purpose In the case of a quasi-partnership, grounds for dissolving a partnership

Answer 4

Rules that tell us what act can and cannot be attributed to the company Addresses the fact that a company is a separate legal entity that has capacity to carry on and undertake business or activities, do any act, and enter into any transacations, but does not exist otherwise Enables company to be held liable in certain cirumstances

Answer 5

Primary General Special

Answer 6

Rules that apply to companies specifically Companies Act 1993 Constitution Common law relating to companies

Answer 7

Rules that apply to all legal entities Law of agency i.e., vicarous liability

Answer 8

Rules that apply when a general rule does not e.g., if criminal intention must be shown Statutes

Answer 9

Directly, if someone acts as the company, i.e., s 180, ordinary contracts, power usually given through board resolution Indirectly, if someone acts for the company, i.e., agency

Answer 10

A relationship that arises when one person, the agent, acts on behalf of another person, the prinipal, and has the power to make contracts which affect the prinipal's legal position with regard to a third party The principal and agent have an agency relationship. The agent is bound by the agency contract and the principal is bound by the actions of the agent. The agent forms a contract between the company and the third party on behalf of the company. The company owes obligations to the third party.

Answer 11

Express agreement (result of a contract, orally or in writing) Estoppel (principal may not deny an agency exists when principal led third party to believe a person was their agent) Implied (arises as result of status of person in business capacity, e.g., director of company)

Answer 12

Express (written or oral) Implied (authority to do everything required or incedental to carrying out express authority) Usual or customary (in respect of types of business, profession, or trade e.g., real estate) Apparent (occurs when a person has no or limited authority e.g., when a third party is misled by actions of principal)

Answer 13

A wrongful act or infringement of a right The person who commits the wrongful act is legally liable to the party that suffers loss or injury as a result of the act

Answer 14

when one person is made to acccount for the loss or injury caused by the tort of another

Answer 15

1. employer-employee relationship 2. employee must have committed tort they are personally liable for 3. tort must have been commited in course of employment

Answer 16

Dealings between company and other persons (indoor management rule) A person dealing with the company can assume that the Act and the constitution of the company has been complied with unless the person has, or ought to have, by virtue of his or her position with or relationship with the company, knowledge of otherwise

Answer 17

Background S, director of NDPL, took out mortgage using land of NDPL as security for benefit of his own company Non-compliance with internal rules NDPL claimed mortgage was invalid Held NDPL has no shareholdings in S's companies; no benefit to be gained by NDPL by securing mortgage of S's company Bank put on inquiry; would have found out about non-compliance with internal rules had they properly inquired Ought to have known; mortgage not enforcable

Answer 18

Background FSPL (company) owned by Mr and Mrs Story House couple occupied was owned by company Husband took out mortgage under FSPL with ABAL Husband forged signature of wife Internal rules not followed? Mr S used money for property expenses and expenses of his business Couple divorced FSPL argued not bound by agreement Held Problems only arose after divorce Wife admitted to knowing husband would forge signature Inquiry at time would not have revealed anything regarding internal rules not being followed Therefore mortgage enforcable

Answer 19

Vicarous liability and "directing will and mind" principal (acts of certain persons to be considered acts of the company) under common law Provisions in statute deeming company to be liable for torts of employees/directors

Answer 20

Crimes usually require an actus reus (crimial act) and mens rea (criminal intention) A company cannot have "criminal intention" No vicarous liability However Strict liability only requires criminal act and in absence of valid defence leads to criminal liability Absolute liability only requires criminal act and provides no defence

Answer 21

Directing will and mind under common law However Can be difficult to find or there may not be a single individual that can be considered the directing will and mind Application can be unconvincing; for example, finding someone lower down in hierarchy liable difficult to justify they are "directing will and mind" while being so low down in the company Can start treating company as natural person May defeat purpose of legislation by finding lower managers liable rather than directors Statute

Answer 22

Held Rejects "directing will and mind" idea Supports interpretation of legislation Do primary rules give an answer? If no, does vicarious liability apply? If no, interpret relevant statute

Answer 23

s 4 Meaning of solvency test

Answer 24

Most common type of share Comes with Right to vote Right to receive dividends Entitlement to receive capital upon winding up of company

Answer 25

Share can be bought back by company at either fixed date or at company's discretion Bought back at purchase price

Answer 26

Share gives holder preferential right to fixed amount/rate of divident meaning they will receive dividend ahead of ordinary shareholders Higher priority claim on winding up of company

Answer 27

Properties of both redeemable and preference shares

Answer 28

Funds paid to business by investors in exchanged for shares Shares give Right to vote Right to dividends Right to surplus assets on winding up of company

Answer 29

Fixed term contract for loan of funds compensated with interest No voice in company but priorty over shareholders on winding up of company

Answer 30

Features of both equity and debt Redeemable preference shares Mezzanine debt (unsecured debt ranking lower than other debt with respect to claims on assets or earnings)

Answer 31

s 53 Board a company may only authorise a distribution if it is satisfied on reasonable grounds that company will satisfy solvency test immediately after distribution s 4 Meaning of solvency test Company satisfies solvency test if: 1. company is able to pay debts as they become due in normal course of business (trading solvency); and 2. value of company's assets exceeds value of liabilities, including contingent liabilities (balance sheet solvency) Likelihood of contingent liability occuring may be considered when valuing it When valuing assets and liabilities directors must have regard to most recent financial statements, accounting records, and any other relevant circumstances directors know or ought to know May rely on reasonable valuations

Answer 32

A fixed interest debt security issued to raise funds

Answer 33

Interest May take security against borrower's property May require guarantee by third party to repay debt on default Contract may contain retention of title clause, i.e., person selling good retains full ownership over property until fully paid for in case of hire purchase May require negative pledge, i.e., agreement borrower will not create further security agreements over particular asset without agreement of lender

Answer 34

Personal property that acts as security

Answer 35

Evidence of intention to use collateral to secure debt

Answer 36

The right of a secured lender

Answer 37

The linking of a collateral to a debt

Answer 38

Completion, i.e., proper registration

Answer 39

Statement that supports legal claim to goods in event the debtor is unable to meet financial obligations

Answer 40

Purchase money security interest Priority over other interests Only exists where buyer has not yet paid for good Can only exist if seller registers financing statement on PPSR within 10 days of buyer receiving goods Two types Close connection, i.e., hire purchase agreements and retention of title clauses

Answer 41

Attached SI over unattached SI Perfected SI over attached SI First perfected SI over later perfected SI Perfected PMSI over non-PMSI First perfected PMSI over later perfected PMSI

Answer 42

Compromise Receivership Voluntary administration Statutory management Liquidation

Answer 43

Part 14/Secions 227-234 Compromise means a compromise between a company and its creditors to either cancel all or part of debt of the company or vary rights of creditors or terms of debt or altering company constitution to improve likelihood of company being able to pay debt Resolution adopted if 75% of creditors agree

Answer 44

When: Not hopelessly insolvent Debtors want company to succeed Optimistic about future

Answer 45

Receivership Act 1993 When one or more of the company's secured creditor's appoint a receiver to collect and sell company's assets to repay debt of secured creditors who made appointment Arises from clause in security agreement and rights under Receivership Act

Answer 46

Demand and recover income of secured propery Manage property in receivership Inspect documents relating to receivership

Answer 47

Exercise powers in good faith and for proper purpose and in best inderest of secured creditor they were appointed by Have reasonable regard to interests of grantor (company), other creditors, both secured and unsecured

Answer 48

Personally liable for contracts they enter into and employee wages/salaries, unless they terminate employment contracts, however, have right of indemnity If company cannot be saved, can remove secured assets and terminate employee contracts If company can be saved, they incur cost of wages/salaries but can charge them against the company's assets

Answer 49

Insolves liquidating the loss-making divisions of a company while transferring profit-making divisions to a new company

Answer 50

When there are secured assets When there are assets to hive-down

Answer 51

Corporations (Investigation and Management) Act 1989 Government intervenes in exceptional circumstances, e.g., fraud or potential systematic failure of a number of companies Likely when there is significant public interest

Answer 52

Part 15/Sections 239A-239AEF If company is in financial difficulty, board of directors may appoint administrator to take over management of company while administration and company's creditors work together to find a solution to the company's problems. Creditors need to agree to not enforce their debt agreements Creditors need to be prepared to accept less than owed Companies needs to be able to continue trading while investigation takes place Meeting of creditors called by administration within 20 working days after appointment of administrator called watershed meeting Three options: Appoint deed administrator to administer Deed of Company Arrangement (DOCA); binding agreement between company and creditors regarding how company's affairs should be dealt with moving forward Suspend voluntary administration and continue trading; becomes a free-for-all in terms of creditors trying to recover amounts owed to them Appoint liquidator to liquidate company

Answer 53

Directors need administrator's permission to act Employee contracts not automatically terminated Administrator is not personally liable for employee contracts Transactions involving company's property is frozen Share transfers forzen Liquidation suspended Constitution may not be altered

Answer 54

Administrator may perform any function and exercise any power the company or any of its officers could perform or exercise if the company were not it administration

Answer 55

When there is support/acceptance by major creditors Benefits of continuing trade outweight benefits of liquidating Company is not hopelessly insolvent

Answer 56

Part 16/Sections 240-316

Answer 57

Liquidator takes control of financial affairs of company in order to repay its debts when company becomes insolvent

Answer 58

s 241 Special resolution by shareholders Board of directors if constitution allows Court on application of: Company Director Shareholder Creditor Administrator Registrar

Answer 59

s 280 Licenced insolvency practitioner permitted to act as liquidator under Insolvency Practicioners Regulation Act 2019 (provided not disqualified)

Answer 60

s 248 Liquidator has custody and control of company assets Directors remain in office by cease to have power Legal proceedings paused Shares frozen Constitution must not be altered

Answer 61

s 260 All powers necessary to carry out functions and duties of liquidator Specific powers outlined in Schedule 6

Answer 62

Assets of related companies may be pooled together if court considers it just and equitable to do so after considering role of related company in insolvency of company in liquidation

Answer 63

To take possession, protect, realise, and distribute assets or proceeds of realisation of assets of company to creditors and distribute any surplus assets to shareholders

Answer 64

Funds for distribution include: Pooled assets of related companies Value of assets sold and debts collected Recoveries PMSIs and mortgages excluded from distribution Idea of pari passu: Creditors within each class are treated equally Classes of creditors must be paid in full before moving down a class

Answer 65

Schedule 7 1. Preferential claims a. liquidator/liquidation fees b. employee pay c. layby sales creditors d. cost of creditors meeting to consider compromise e. tax liabilities owed to IRD 2. SIs over inventory 3. Unsecured debts' 4. Subordinated debts 5. Preference shares 6. Ordinary shares

Answer 66

S291-293 S296(3)-301

Answer 67

Hightower Roof Ltd (HRL) had close trading relationship with SBL HRL made haphazard payments to SBL HRL owed payments to IRD, ACC, etc HRL hopelessly insolvent On day ACC put HRL into liquidation, HRL made payment of $12,500 to SBL First payment in 4 months Shephard and Croad argued transaction was insolvent transaction SBP agrued was part of continuing relationship S&C conceded but wanted to start considering relationship from highest level of indebtedness SBP asserted full period of relationship must be considered Held Full period must be considered along with context and purpose of payment $12,500 was recoverable as nature of relationship had changes and continuing business relationship had already come to and end; payment was irregular

Answer 68

For example, supplier sells goods to company and company pays in full. On basis of payment, supplier supplies more goods on credit. Supplier gives value. Supplier sells goods to company and company pays in full. On basis of payment, supplier orders more stock in expectation that company will buy more goods. Supplier alters its position. Supplier sells goods to company and company pays in full. No futher transactions. According to Allied Contrete v Meltzer, supplier does give value because it provides goods.

Answer 69

SBP acted in good faith; did not conspire with HRL SBP did not know about preference; however, ought to have known SBP did not provide further value nor alter their position

COML204 Final Exam Flashcards

(95 cards)