Company LawHND in LawNivantha Satharasinghe

LB/11/05/18

COMPANY LAW

TABLE OF CONTENT

I. Analyse the major changes made in the Companies Act 2006 in Comparison to the Companies Act 1985. (2.3)

II. Explain how the discretion of a company is limited to alter the Article of the Association. (3.2)

III. List the documents that are required to incorporate Broken House Plc under Companies Act 2006. (3.4)

IV. Summarize the important of Financial Service Authority and the London Stock Exchange to regulate raising equity capital by the public companies(4.4)

V. Outline if Jackson’s proposal to issue new shares would abrogate or vary the class rights of Thomas and Barbara (4.6)

VI. Demonstrate how would you advise Thomas and Barbara to protect their minority interest from the proposal made by Watson, in light of minority protection actions available in the Companies Act 2006 (4.7)

VII. Explain the legal consequences and restrictions will be placed on Allen and Hall following the winding up of Merck Plc (6.2)

Bibliography

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2.3 Analyse the major changes made in the Companies Act 2006 in Comparison to the Companies Act 1985. (P2.2, M2.3)

The first act related to the modern company law was passed in UK, 1844, the Joint Stock Companies Act. Till then there were many amendments brought forward by the UK parliament and today operate the Companies Act 2006.

When 1985 Act amends in 2006 there were significant objectives behind that; enhance shareholders engagement and long term investment; ensure better regulation; provide flexibility; and making setup and run of company easy.

Companies Act 2006 is a primary legislation and number secondary legislations have currently being passed, through regulations or orders made by legislature. One of the most important secondary legislations was introducing new set of directors’ duties instead of existed common law rules, in 2007. Prior to this all existed directors’ duties were judge made principles and had not incorporated into statutes. The new provision did not change these principles but established properly. This has facilitated a competent management practice in the company sector. Before this amendment, there was no specific duty upon the directors, as requirement to provide a true and fair view of the company’s accounts prior to approve it. Directors now have a definite duty not to approve account unless they are satisfied that they give a true and fair view of the liabilities, assets, profit and loss and financial position of the company and all these requirement has to be fulfilled before they sign off the accounts. A breach of this duty is an offence under new law.

Under new Act each and every company have obligation to publish their annual accounts and reports on their website. The account details must be uploaded to website as soon as possible. The other conditions here are access to the website must be unrestricted, continuous and free of charge and the information must remain on the website until replaced with the following year's figures. But this rule was not established under the previous act. This provision aims to increase the transparency and the public awareness.

Companies Act 1985 requires a company incorporated under it to state its objects. But Companies Act 2006 does not require objective clause, and therefore they have more capacity to move with. Any way if an article of the company constitution specifically restricts them they are bound to follow that. From 1 October 2009 all the provisions of the memorandum as well as the objects clause consider as a part of articles. But if the company want to change it they can easily done it with special resolution.

Under the 1985 Act single person couldn’t incorporate a company. But 2006 act provided that any type of company, whether public or private, can be initiated by a single shareholder. The condition existed in previous act to have minimum two directors, still continuous under the new regime.

Company Secretaries was a very important and essential role under the Companies Act 1985. The present act does not press private company to have a secretary. But under new act also public companies must appoint Company Secretaries. In the absence of Secretary the director can exercise powers or the duties of the Secretary’s position. In other cases company itself can represent on behalf of a Secretary.

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Authorised share capital is a provision of the company articles setting the maximum amount of shares that can be fixed for issuing. This concept, authorized share capital, which was included in 1985 Act, is not used in the present Act. Therefore companies no longer should think of as having authorised but unissued shares. This amendment allows companies to expand in very wide range by providing required flexibility.

The Act 2006 introduced a new feature call as ‘statement of capital’. Statement of capital is a document need to be filed at Companies House whenever a change in capital occurs in the company. This new provision provides a simpler and more consistent way of determining the share capital position of a company from the Companies House, if someone searches.

Companies Act 1985 (s651 CA 1985) had give two years to dissolved companies, to apply to court for a declaration, that the dissolution was void. If it is a removing by registrar of companies from the register, the members or creditors had 20 years to apply to court for restoration. (s653 (3) CA 1985) But under CA 2006 any restoration application should be made within six years from the date of dissolution.

New Act and old Act show many differences regarding meetings of the company. Under CA 1985 holding an AGM was mandatory. CA 2006 Act says it is not require to a private company to hold AGM, unless company articles specifically require it. For written resolutions, unanimous consent required for CA 1985 and now it is Simple majority required for ordinary resolutions and 75% majority for special resolutions. The intention of introducing this new provision is, use the new written resolution procedure instead of a general meeting. 1985 Act ordered 21 clear days' notice before AGMs and meetings called to consider special resolutions and 14 clear days' notice before all other meetings. Present Act only asks for 14 clear days' notice, before all the meetings, unless the company's articles require a longer period. From 1 October 2007 most elective resolutions, which exist under Companies Act 1985 were dispensed. A very good example for this is private companies does not need to hold annual general meeting (AGM).

CA 1985 Required Annual appointment of auditors, unless an elective resolution to dispense with the requirement has been unanimously agreed to by shareholders. CA 2006 not required this.

Records of shareholder resolutions and meetings must be kept indefinitely under the CA 1985. CA 2006 states, records must be kept only for at least 10 years.

All shareholders have the right to appoint a proxy and he has the right to attend, speak and vote at meetings of the company. This provision cannot be overridden by a company’s articles. Under the old regime most companies' articles did not allow a proxy to vote. As discussed above the new act has revised many provisions of 1985 Act in the sense of expanding business sector. Companies are lie at heart of many businesses structures. Therefore development of company law helps the development of business world. It is clear that, the main objectives; enhance shareholders engagement and long term investment; ensure better regulation; provide flexibility; and making setup and run of company easy, which bought forward when enacting the new act has successfully achieved through the above amendments.

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3.2 Explain how the discretion of a company is limited to alter the Article of the Association. (P3.1)

The articles of associations are the set of articles, company choose to include into their constitution when they incorporate a company. These can define as a set of rules governing the running of a company.1The default set of Articles of Association are called as Model Articles under the Company Act 2006. These articles have a universal adoption as every principal Companies Acts in the world provides them as the default set of rules.

But any company has freedom ‘to adopt all or any of the provisions of model articles’, (s19 CA 2006) or draft their own set of articles without applying these. That mean they only provide a guide line to the newly incorporated companies. But what happened practically is most companies just made slight amendments to them and adopt the same set of articles as their Articles of Association. Mainly these articles form the organizational structure by providing operation of Board of Directors and the general meeting as well as the powers of each organ.

A company may adopt all the provisions of model articles or any of it to their constitution according to the discretionary powers they are given by the CA 2006. (S 19 (3) CA 2006) That means a company need they can take the same set of articles and include them into their constitution on the formation of a limited company. If the company has not registered articles or if they registered model articles without any amendment, it forms part of the company’s articles in the same manner and to the same extent as if articles in the form of those articles had been duly registered. (s20 (1) CA 2006) This emphasizes, the model articles are valid as articles of association without any change to them.

If company thinks it is deserve to amendment of model articles by addition, alteration or repeal of article. Any company have right to amend their articles with the consent of majority, by special resolution. (S 21 (1) CA 2006) When altering the articles of associations, there are some limitations to the charity companies. (SS 21 (2) & 21 (3) CA 2006)

Most company constitutions contain entrenched articles, which are more protected by the company constitution. These specified provisions of the articles may be amended or repealed only if conditions are met, or procedures are complied with. Sometimes they are more restrictive than those applicable in the case of a special resolution. (S 22 (1) CA 2006) But as a condition entrenched articles can be made only at the formation of the company constitution, or if made them later it should be done through unanimous consent by all the members of the company. (S 22 (2) CA 2006) It is to be remembered that entrenched article are not ones that cannot change. They can amend by order of a court or agreement of all members as said earlier. (S 22 (3) CA 2006) Therefore it is clear that no article exist in the constitution which cannot be altered. In any circumstances where entrenched provisions are amended, the duty of the company is give notice of that fact to the registrar. Such amendments to the entrenched articles can be included at the formation of a company or alternation due to court order or members consent after the company incorporated. (S 23 (1) CA 2006) Anyway the duty of the company is aware the registrar about that amendment.

When a company amends its articles it is required to send to the registrar, a document evidencing the amendment. The company must deliver with that document a statement of compliance, (S 24 (2) CA 2006) which stating amendment has been made in accordance with the company’s articles. (S 24 (3) CA 2006)

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General rule is existing members of the company are not bound by an alteration of company articles after the date on which he became a member unless he has agreed in written before or after becoming a member. (S 25 (1) CA 2006)

Any amendment must be reported to the registrar, here by sending a copy of amended articles. This copy must send not later than 15 days after the amendment takes effect. (S 26 (1) CA 2006) Failure to do so is an offence. (S 26 (3) CA 2006)

According to above discussion, it is concluded that, a company have wide discretionary powers to amend its articles of association. There are no articles in the company constitution that company members cannot amend with their consent. Some important article are protected by the constitution by entrenched provisions, therefore more resist to be amend. The most important condition regard these amendments, are informing them to the company registrar as soon as possible.

Reference

1. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th Edition, Ch 8 P147

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III.4List the documents that are required to incorporate Broken House Plc under Companies Act 2006. (P3.3)

There are different types of limited liability companies can be identified in the Companies Act 2006, private companies and public companies, limited and unlimited companies, Companies limited by guarantee and having share capital and Community interest companies. Broken House has incorporated as a public limited company.

Memorandum is one of the most important parts of the company documents. The memorandum must be in the prescribed form of the company constitution. It is authenticated by the all members of the company. A company can form for lawful reason by one or more persons, subscribing their names to a memorandum of association and complying with the requirements of this Act as to registration. (S 7 CA 2006) Memorandum of association is a memorandum which contains the objective of formation and one or more people agree to become members of the company. The company should have a share capital and memorandum contain the initial capital of the company. Each share holder must take at least one share each. (S 8 CA 2006) Therefore Broken House must be delivered the memorandum of association to the registrar when they incorporate the company. Memorandum should forward with the application for registration of the company. (S 9(1) CA 2006)

Statement of compliance is the other most important document which is needed to be forwarded with the application and memorandum. (S13 (1) CA 2006) ‘The registrar may accept the statement of compliance as sufficient evidence of compliance.’ (S13 (2) CA 2006) Therefore the next document the Broken House should submit is the Statement of compliance.

Application is the primary document submits for a registration. It contains many details about the company such as proposed name, location of office and the type of the company. (limited or unlimited; if it is limited, limited by shares or by guarantee; private or public) (S 9 (2) CA 2006) According to the scenario the proposed name of the company is ‘Broken House’. It is a public company and the liabilities of company are limited by shares. The promoter or the agent of subscriber who deliver the application must provide his name and the address. (S 9 (3) CA 2006) Details a statement of the intended address of the company’s registered office and a copy of any proposed articles of association are considered as other necessary documents regarding registration. (S 9 (5) CA 2006) articles of association must be provided in the case of any variation to the model articles. If the company accepts the same set of model articles without any amendment it is no need to provide this document. (S 20 CA 2006)

The other main documents needed to be provided with the application are a statement of capital and initial shareholdings, a statement of the company’s proposed officers and a statement of guarantee if it is a company limited by guarantee. (S 9 (4) CA 2006)

‘Statement of capital and initial shareholdings’ is a document states total number of shares taken by the members, nominal value of those shares, and amount to be paid and unpaid by initial shareholders. (S 10 (2) CA 2006) The other important facts include in the document are classes of shares and their class rights. Broken House must provide Statement of capital and initial shareholdings.

Statement of proposed officers is a document contains the details of first proposed directors and details of first proposed secretary. There Broken House need to provide

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the names and address of the directors of the company. (S 12(2) CA 2006) Again the directors have to consent to act in the capacity of directors. (S 12 (3) CA 2006)

As discussed above can identify a list of documents must be provided by the Broken House Plc. They must provide the memorandum and articles of associations as the parts of company constitution. The application with relevant details is an essential document for the purpose of incorporation. A statement of capital and initial shareholdings, a statement of the company’s proposed officers and Statement of compliance are the other documents must be submitted with the application. It is not need to provide a statement of guarantee as it is not a limited liability company by guarantee.

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4.4 Summarize the important of Financial Service Authority and the London Stock Exchange to regulate raising equity capital by the public companies. (P4.2)

Capital of a company can be raised by many ways. The main to capital raising methods are equity capital and debt capital. If it is a private they can raise capital through company founder’s savings or loans from banks and other institutes. Especially public companies raise equity capital from general public. When they need an extremely large amount they can choose to raise capital through listing on the stock exchange.

Financial Service Authority (FSA) is the main UK financial regulator. Financial Service Authority and London Stock Exchange (LSE) have very important co-operate relationship. As the Financial Service and Market Act 2000 passed, many functions carried out by the London Stock Exchange took over by the Financial Service Authority. Now most of the responsibilities such as listing authority of companies, admitting securities to listing and making the Listing Rules and policing compliance are carried out by the Financial Service Authority. According to the Financial Service and Market Act there stated four objectives for FSA. (S2 (2) Financial Service and Market Act 2000) They are market confidence, public awareness, protection of consumers and reduction of financial crimes. Financial Service Authority further includes the powers of making rules, issuing codes, issuing statements, giving directions, issuing general guidance and enforcement. (SS 73 & 77 Financial Service and Market Act 2000) Under Financial Service and Market Act 2000 the government has more powers appointment and dismissal of the members of Financial Service Authority board. (S2 (3) Financial Service and Market Act 2000)

London Stock Exchange can be identified as the Recognised Investment Exchange for trading securities of UK and foreign companies, government stocks and option to trade company securities. Ch 5 p69 FSA declare that a Recognised Investment Exchange must have sufficient financial resources, that it is a fit and proper body. Because then it can operate an orderly market and can secure appropriate secure for investors. S2 285 Financial Service and Market Act 2000 London Stock Exchange is itself a listed company. Because of that it is subjected to Listing Rules. A listed company can only maintain its listed states if it is only comply with the Listing Rules, where has specified continuing obligations. Therefore LSE monitor the ongoing status of listed companies regulating themselves according to the rules. This procedure ensures the statutory obligation of London Stock Exchange to operate an orderly market.

As discussed above it is clear that London share market is conducting by the aggregative functioning of Financial Service Authority and the London Stock Exchange. Raising capital through issuing shares is most suitable option available for a public company, as it limits the liabilities of share holders and so less risk bound with it. Therefore share market is a very important virtual body, where investors who willing to invest in companies are aggregated. Therefore well functioning of share market is certifies and secures the investments of the general public. When it seems to be secured investors are encouraged and more investors attract toward the share market. This will facilitate raising equity capital by the public companies.

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4.6 Outline if Jackson’s proposal to issue new shares would abrogate or vary the class rights of Thomas and Barbara. (P4.3)

Share holders do not have proprietary interest in the asset of the company. 1 But truly speaking they have a bundle of rights which comes with their shares such as financial rights and participative rights. They may entitle for a dividend as well as any return of capital on a winding up. Also they can vote at the general meeting. Companies Act 2006 state that, ‘The shares or other interest of a member in a company are personal property and are not in the nature of real estate (or heritage).’ (S541 CA 2006) Concept of share has three different functions; (Sealy & Worthington-2008)

1. Denote share holders financial stake in company2. Measure of share holders interest in company, exercise all rights bound with

share as a member3. Kind of property, can buy, sell and change

Share holders rights and liabilities in the company vary with the class of share he belongs. There are different classes of shares. i.e. Ordinary shares, preferential shares, convertible shares, redeemable shares and employees shares. A share contains a bundle of contractual rights such as financial rights and participation rights.

According to the given scenario Jackson was the majority share holder, who own 70% of shares in Comcast Plc. Thomas and Barbara are minority share holders in the company who owns only remaining 30%. Further issuing shares reduced this percentage below 15%, which loose the right of appointing a director. This is an issue where abrogate the class rights of Thomas and Barbara. The first issue of the question is determine the whether the right to appoint a director is a class right or not.

Statutory law provides the consequences and remedies of variation of class rights. But it supports only a little help to determine the class rights and whether or not a company act is amount to variation of class rights class rights. But the common law provides better definitions.

In the case of Cumbrian Newspapers Group Ltd V Cumberland & Westmoreland Herald Newspapers & Printing Co Ltd (1987), claimant who owns 10% of shares of defendant company, sued on the ground variation of their class rights, by altering the articles of associations. According to their argument the threatened class rights were;

1. pre emptive rights over ordinary shares2. rights in relation to unissued shares3. right to appoint a director

These rights were given to the share holders minimally hold 10% of shares, alteration of articles brought it below 10%. Scott J classified rights and benefits related to the shares into three distinctive categories;

1. rights and benefits annexed to particular share e.g. dividend right, right surplus assets in wind up

2. rights and benefits conferred on individual not qua members but for ulterior reasons are connected with administration of the company’s affairs e.g. be a company solicitor

3. rights and benefits, although not attached to any particular shares, are conferred on the beneficiary in his capacity on share holders in the company e.g. pre emptive rights over the transfer of shares, right to nominate a director

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There court identified right to nominate a director to the company board, which belongs to the third category, so long they held the appropriate percentage of ordinary shares in the company as a class right. Therefore Thomas and Barbara’s right to appoint directors, as they own 30% of the Comcast Plc shares together is a class right.

According to the Companies Act rights attached to a class of a company’s shares may only be varied in accordance with provision in the company’s articles for the variation of those rights or if the holders of shares of that class consent to the variation. (S630 (2) CA 2006) Any company who wish to vary class rights must comply with the s 630 CA 2006. That provision only allows variation in two occasions; first in accordance with a provision in the company articles, or second when there is the consent of the members of that class of shares. The act further says the appropriate way of obtaining the consent of class members. The consent on the part of the holders of a class of a company’s shares is consent in writing from the holders of at least three-quarters in nominal value of the issued shares of that class, or a special resolution passed at a separate general meeting of the holders of that class sanctioning the variation. (S630 (4) CA 2006)

It is very clear that the Comcast Plc hasn’t follow the above procedure when they decide to issue further shares which vary the class rights of Thomas and Barbara unfairly. It is not clear according to the scenario whether or not there was a company’s article regarding the variation of class rights. If there was no such provision is made in the articles Jackson must seek for the consent of Thomas and Barbara. But according to scenario it is clear that he hasn’t gone for such resolution. Therefore Thomas and Barbara can sue the company regarding unfair variation of class rights.

The CA 2006 states, the holders of not less in the aggregate than 15% of the issued shares of the class in question may apply to the court to have the variation cancelled. (s633 (2) CA 2006) The act further says, if such an application is made, the variation has no effect unless and until it is confirmed by the court. (s633 (3) CA 2006) The court, after hearing the applicant, if satisfied having regard to all the circumstances of the case that the variation would unfairly prejudice the shareholders of the class represented by the applicant, disallow the variation, and shall if not so satisfied confirm it. (s633 (5) CA 2006) Most importantly the decision of the court on any such application is final, therefore disallow apply such variation again.

As discussed above can conclude issuing shares to Jackson’s brother is amount to vary the class rights of Thomas and Barbara. It is unfair because reducing the total shares below 15% abrogate the class right of appointing a director. Therefore Jackson cannot carry out further issuing shares without consent of Thomas and Barbara as members of the class. If Jackson do so, Thomas and Barbara have right to object to such variation before court.

Reference

1. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th Edition, Ch9 P163

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4.7 Demonstrate how would you advise Thomas and Barbara to protect their minority interest from the proposal made by Watson, in light of minority protection actions available in the Companies Act 2006. (P4.4)

Thomas and Barbara are minority shareholders of Comcast plc. They own 30% of issued shares of the company. According to the company’s constitution a shareholder who holds 15% of total issued shares can appoint a director. In accordance both Thomas and Barbara have right to appoint directors. But decision Jackson has taken issue further shares abrogates this right, due to reducing the share percentage below 15% and vary their class rights which given by the Companies Act 2006.

Variation of class rights is changing class rights of one group of shareholders due to company’s doings or decisions. The procedure is described in the S 630 of CA 2006. It aims to protect the class rights of shareholders and make it impossible to vary or abrogate class rights by simply altering the company’s constitution with share holders’ resolution.

If vary the rights attached to a class of shares in a company, it has to follow a specific procedure. Rights attached to a class of a company’s shares may only be varied in two occasions. if there is a provision in the company’s articles for the variation of class rights or if the holders of shares of that class consent to the variation. (S 630 (2) CA 2006) The consent must be obtain in either ways, ‘in writing from the holders of at least three-quarters in nominal value of the issued shares of that class’ or ‘a special resolution passed at a separate general meeting of the holders of that class sanctioning the variation.’ (S 630 (4) CA 2006)

The act state ‘any amendment of a provision contained in a company’s articles for the variation of the rights attached to a class of shares, or the insertion of any such provision into the articles, is itself to be treated as a variation of those rights.’ (S 630 (5) CA 2006)

Minority shareholders are available two key actions under the CA 2006, Derivative claims and protection against unfair prejudice. Derivative claims give right to the minority shareholders sue against the company directors while unfair prejudice give right to sue against the majority share holders.

Under the section 994 CA 2006 member of a company can sue on two circumstances. Those are ‘company’s affairs are being conducted in a manner that is unfairly prejudicial to the interests of members its members’ or ‘proposed act or omission of the company would be so prejudicial.’ (S 994 (14) CA 2006) This provision gives right to each and every member to sue against unfair prejudicial. Section 994 can be considered as the main minority protection provision in the CA 2006.

There are many other provisions which protect minority interest, in aggrieved manner as well as individually available remedies granted rights in a case where a minority share holder assert to a certain decisions taken by company. Again they have right to perform certain statutory duties if it require to do so. The Act prevents alternation of company’s constitution aiming minority rights. Those provisions are entrenched by the Companies Act and should follow a hard procedure to amend them. (S 22(1) CA 2006) Company can alter some articles without unanimous consent of the parties (S33 CA 2006), but existing members are not obliged to be bound by them unless they are agreed to do so. In the case shareholders rights may be indirectly entrenched in so

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far as the court will enforce such an agreement as between the members who were parties to it although it will not be binding on their transferees or non assenting share holders. 1

Section 633 of CA 2006 enunciate the right to object by the minority shareholders on abrogation or varying their class rights under the protection they were given through section 633. ‘The holders of not less in the aggregate than 15% of the issued shares of the class in question may apply to the court to have the variation cancelled.’ (S 633(2) CA 2006) This provision empower the minority share holders who own not less than 15% of shares, or minority share holders to apply under the stated provision. Therefore Thomas and Barbara comes within the scope of the section 633 and have right to apply to the court. They equally held the 30% of the Comcast Plc.

Thomas and Barbara must make this application within 21 days after the date on which the consent was given or the resolution was passed by the members. (S 633(4) CA 2006)

As discussed above Thomas and Barbara as will be under the ambit of minority shareholders protection provisions as they are abrogated their class rights as a result of Jackson’s proposal. Therefore Thomas and Barbara can be advised to apply coats to cancel operation of Jackson’s proposal to issue further shares without the consent of them. If Thomas and Barbara is made application, the variation has no effect unless and until it is confirmed by the court. (S 633(2) CA 2006) If court satisfied having regard to all the circumstances of the case that the variation would unfairly prejudice the shareholders of the class represented by Thomas and Barbara, disallow the variation. (S 633(5) CA 2006)

Reference

2. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th Edition, Ch 11 P 243

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6.2 Explain the legal consequences and restrictions will be placed on Allen and Hall following the winding up of Merck Plc. (P6.2)

Winding up procedure of a company is carrying out according to the Insolvency Act 1986 which was aimed to rescue companies which have financial difficulties before down into insolvency. Winding up occur when company cannot pay its creditors. It is ‘cease to exist when it is dissolved’. 1

Merck Plc is a mobile manufacturing company and Allen and Hall are the directors of it. The company lost its business deals and faced a serious financial crisis. The directors decided to resolve by an extraordinary resolution as it cannot by reason of its debts continue with the business. Therefore they obviously end the company with a wind up. There are three types of winding up available for any company; voluntary wind up, compulsory wind up and on ground of public interest.

According to the given scenario Merck Plc have all three options available for them. Initiating an extraordinary resolution shows intention of going for a voluntary winding up. A company can wind up voluntarily in three situations. (S84 (1) Insolvency Act)

The objective of voluntary winding up is, members terminate existence of the company on the ground of cannot carry out the company’s business profitably in the future. May be it is because of too much of debts. The main important condition of the voluntary winding up is, recover the company debt for creditors in full. The Allen and Hall, as director must provide a declaration of insolvency swearing that company assets cover the debts of company. They must make a full inquiry into the company’s affairs. The opinion of directors must be that the company can pay their creditors in full together with the interest of official rate and opinion must have a reasonable ground. The company must make these payments within 12 months within the date specified in the resolution. (S (89)1 CA 2006) The directors’ declaration must contain statement of company assets and liabilities. It is clear that all these provisions emphasize the protection of creditors’ rights. If Allen and Hall provide false information regard this it is amount to an offence and result may be an imprisonment and a fine. A copy of resolution which the members pass for voluntary windup must be sent to the company registrar within 15 days. (S 84 (3) CA 2006) Again a notice must be published in the gazette within 14 days for public awareness.

The other important restriction is ones companies appointed a liquidator for wind up company affairs and distribute company assets, all the powers of the directors cease. According to this powers of Allen and Hall will cease after appointing a liquidator for winding up. Because the liquidator is the person who appoint with the consent of the members and he should have sufficient powers to work best interest of the company. (S 107 CA 2006) As soon as the liquidator finish with his job must call general meeting and show how company assets divide. This is for the transparency of the transactions.

Creditors winding up initiate in an instance where company properties are not suffice to recover all company debts. (S 84 (1) CA 2006) There the company start this procedure with a resolution and must call a meeting of creditors then, within 14 days. The meeting must be informed at least 7 days before meeting and for that they must advertise in the gazette and 2 news papers. At the meeting directors, Allen and Hall forward a statement of affairs to the creditors. Here Allen’s and Hall’s, powers as directors ceased and those powers go to the liquidation committee.

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Compulsory winding up is the second option available to the Merc Plc. it is not started by the company members but with a petition of a creditor. It is a court proceeding bring forward by unpaid creditors against the company. There the court can order to the company to be wound up. This may be started with a resolution of members or the court may order due to controversial conduct of the company with the statutory provisions. Company can wound up if a creditor, who exceeds his debt over £750, asks for recovery, company neglect to pay for 3 weeks as it mentioned in the prescription form. Merck Plc has taken a £ 1000 loan from Hernandez, but not settled. Hence he served a notice on the company to settle that loan, but company did not settled within 3 weeks from the date of notice was served. Therefore Hernandez have right to apply for a wind up for recover his money. Here the liquidator is appointed by the courts.

An important consequence of commencement of winding up is disposition of company property, transfer of shares, or alternation in the status of company members become void. (S 127 CA 2006) A third party dealing with a company, when winding up petition bought up, may be at risk and therefore has to apply court for validation order.

There are many limitations regard the post petition banking transactions. In the case of Re Gray’s Inn Constructions Co Ltd 1980, Buckley LJ stated; 2

1. payment out of the company’s account to a third parties constituted disposition of company’s property

2. they constituted disposition of property which the bank was liable to make good

Anyway this provision has subjected to many criticisms by authors.

Winding up in the public interest, on the ground of official inquiries, ‘that it is expedient in the public interest that a company should be wound up, if the court thinks it is just and equitable for it to be so.’ (Millennium Advanced Technology-2008) Here also court follows same procedure as compulsory winding up and appoint a liquidator to maximize the returns for creditors. Telecommunication Regulation Commission has discovered that usage of mobile manufactured by Merck Plc gives rise to a fatal brain cancer. Therefore it may suffice to think court it is just and equitable going for winding up, on the ground public interest.

If there is any surplus of assets those must be divided among share holders of the company. Company constitution provides the sum paid on preference shares must be repaid before any amount is returned to the ordinary share holders or different classes.3 This is done by reference to the nominal amount of share capital hold by them and not in proportion to the amount paid up on their shares.

According to the above discussion it is clear all three types of wind up procedures can be found related to the above scenario. All three winds up procedures have quite similar consequences. In voluntary wind up by members has more intervention of the company than other two. There Allen and Hall impose more duties and responsibilities as directors and bit risk also annexed with the procedure. It certifies the full satisfaction of the creditors. Same time members also may be given some if there was any surplus after dividing the company assets. In all three procedures Allen’s and Hall’s powers as directors cease after appointing the liquidator. Compulsory wind up most probably does not satisfy the creditors in full. Wind up procedure always focuses providing maximum benefits of the creditors.

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Reference

1. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th Edition, Ch 17 P 421

2. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th Edition, Ch 17 p430

3. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th Edition, Ch 17 P 455

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COMPANY LAW

BIBLIOGRAPHY

Books

1. Company Law, Alan Dignam & John Lowry, ISBN:0199232873, Oxford Publication, 6th

Edition

Statutes

1. Companies Act 2006 (CA 2006)2. Companies Act 1985 (CA 1985)3. Companies Act 20074. Insolvency Act 19865. Financial Service and Market Act 2000

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