Topic 6 - Company finance and insolvency

Question 1

Class rights changes

Answer 1

To alter the rights attaching to a class of shares:
* articles must allow for variation
* special resoltuion of that class is required (75%)
* objections must be lodged with courts within 21 days of the vote by at least 15% of the class of members that voted agaisnt alteration

Question 2

Allotment of shares

Answer 2

• shares are issues once allotee receives a letter of allotment or share certificate as evidence of title
• directors in Ltds do not need authority from members to allot new shares unless required by articles of association
• directors in plcs require ordinary resolution to allot new shares
• Ltd may exlcude pre-emption rights by special resolution

Question 3

Payment of shares

Answer 3

Ltds
* money
* goods
* services

plcs
* money (at least 1/4 of nominal value plus whole of any premium payable)
* goods

Question 4

Transfer of shares

Answer 4

• shares are generally freely transferable but require a stock transfer form and share certificate
• a company may refuse to register shares but must provide notice of the refusal within two months

Question 5

Reduction of share capital

Answer 5

any limited company (including plcs):
* special resolution
* confirmation by court
* creditors entitled to object

Ltd
* special resolution
* solvency statement
* one member with non-redeemable shares must remain

Question 6

Purchase of own shares

Answer 6

• a company must file notice of redemption and statement of capital with Registrar within one month following redemption of shares

Question 7

Charges

Answer 7

• if a fixed charge is created within six months before a company becomes insolvent then the charge is invalid
• if a a floating charge is created within a year of liquidation then the charge is invalid
• charges must be registered with the Registrar within 21 days of their creation or they become void and punishable by fine

Question 8

Administration aims

Answer 8

• rescue company as a going concern
• achieve a better result for creditors
• realise the company’s assets to make a distribution to one or more preferential or secured creditors

Question 9

Procedure - application to court

Answer 9

• can be made by directors, shareholders (ordinary resolution) or any of its creditors

Question 10

Duties of administrator

Answer 10

• within 7 days - file notice of their appointment, company officers have 11 days to comply with request
• within 8 weeks - submit statement of proposals for achieving aim
• within 10 weeks - hold creditors meeting
• 12 months - appointment is terminated unless extended by court or a prescribed majority of creditors

Question 11

Consequences of administration

Answer 11

• no winding up petitions or resolutions may be passed
• no enforcement of fixed charges
• no property can be recovered by creditors
• no repossession of assets
• no legal proceedings can commence
• administrators have statutory powers to deal with assets subject to floating charges to continue the business or achieve a better outcome for creditors
• However, fixed charge assets are generally protected, and administrators need specific consent to deal with them

Question 12

Company Voluntary Arrangements

Answer 12

• 3-5 years
• ordinary resolution
• 75% of the creditors by value must approve
• once approved it is binding on all unsecured creditors and within 28 days of this any creditor may challenge CVA

Question 13

Voluntary liquidation

Answer 13

members’
* special resolution
* ordinary resolution to choose liquidator

creditors’
* directors nominate a liquidator and send notice to the creditors - if less than 10% of creditors object then liquidator is accepted
* process of agreeing/disenting choice must be complete within 14 days of the resolution to wind up company

Question 14

Complusory liquidation

Answer 14

• any creditor with demands of at least £750 that is not paid within 21 days of the formal request for payment will be able to petition
• Official Receiver is appointed by courts

Question 15

Consequences of complusory liquidation

Answer 15

• any sale of company’s property is void
• any legal proceedings are halted and none can commence unless court consents
• employees automatically dismissed
• floating charges crystalise
• preferences given six months before commencement of liquidation for an unconnected perison are void or two years for a connected person
• floating charges created within 12 months prior to winding up are void

Question 16

Order of payment

Answer 16

• costs and expenses of liquidation
• preferntial creditors (employees wages, accured holiday pay, pension contributions)
• secondary preferential creditors (HMRC)
• secured creditors holding floating charges
• ordinary unsecured creditors
• deferred debts
• members capital
• any surplus is returned to members

Question 17

Financial assistance

Answer 17

• Ltd is allowed to give financial assitance to a 3rd party for acquisiton of shares in company
• plc is prohibited from giving such financial assistance

Exceptions
* principal purpose of assistance is something other than proposed acqusition
* company is a money- lending institute
* financial assitance is given in good faith for an employee’s share scheme
* loans are made to genuine employees (not directors or secretarys)

Breach of these rules leads to civil liability, fine or imprisonment

Question 18

Receivership

Answer 18

A receiver is appointed by fixed charge holder (secured creditor)