azr2s7 PERMITTED: No calculator permitted in this examination, No Dictionary’ UNIVERSITYOF BIRMINGHAM Birmingham Law School Non-Law students Business Law 08 22823 ‘Summer examinations 2010 ‘Time allowed: 2 hours ‘Answer THREE questions Write your answers in the booklet provided All questions carry equal marks. If questions are divided into different parts, each part should be answered and caries equal marks unless otherwise Indicated TURN OVER Page 1PERMITTED: None No calculator ‘No Dictionary 1. Crassus Limited has recently lost @ major customer to a competitor and another customer had recenty gone into liquidation owing Crassus a large sum of money, The tumover of the company has decreased and the overdraft has increased significantly. The Bank has a fixed charge over the company’s feclory premises ‘and a floating charge over the other assets of the company. It is concerned about its security in view of decreasing property values. Cash flow is not at all good and some trade creditors are threatening legal action ‘as they have not been paid. The position has been steadiy detericrating over the last few months and there is now barely enough money to pay staff wages. ') What are the various insolvency options open to the company and which {do you think would be best and why? AND 'b) What options may also be available to cecitors of the comgany, including the Bank as a secured creditor and the other unsecured trade creditors? 2, Explain the statutory duties of a director of @ limited compary under The Companies Act 2006 and what they involve, In addition, what "are. the ‘consequences and what action can be taken (and by whom) if'a drector acts in breach of any of these duties? TURN OVER 27287 Page 2PERMITTED: None No calculator No Dictionary 3. You have taken over as the General Manager of @ manufacturing business. It ‘Reeds re-structuring and costs have to be cut. The forward order book is down by 35% on last year and you are faced with having to make a number of ‘redundancies amongst the shop floor workers. There are fen jobs out of one hhundred which are redundant, ‘The majority shareholder is concerned about the cost of this process and about the correctness of the procedures to be adopted as he has also heard that, fit is ‘not done propery, there could be unfair dismissal claims by the employees in ‘addition 2) Explain to the majority shareholder how you would go about selecting the ‘employees to be made redundant and what procedures you would adopt in the selection process. Also state what payments would have to be made to the redundant employees and the basis on which they are calculated AND ») Ifyou adopted an incorrect procedure so that unfair dismissal claims could ‘successfully be made, how would any compensation to which the employees. ‘might be entitled be calculated? TURN OVER 27287 PagesPERMITTED: None No calculator No Dictionary 4, Printwell Limited (‘he company’ is a new specialist printing business. It was incorporated on § October 2008 and adopted in full the new Model Articles of ‘Association, The shares in the company are divided into ordinary shares of €1 ‘8ach and this isthe only class of shares the company has issued. ‘The directors and shareholders of the company are: ‘+ Alan Smith (18,000 shares) ‘+ Balbir Singh - also the company secretary — (10,000 shares) + Charies Doherty (Chairman) 10,000 shares ‘+ Derek Doherty (65,000 shares) + Anne Doherty (Charles's mother) is not a director but she owns 20,000 shares {tis now proposed to alot and issue 20,000 new ordinary shares of £1 each to Bll Barton, at a total price of £30,000. Bll wishes to invest in the company, having ‘recently sold his interest in a previous printing business, He is aso @ friend of Derek Doherty 'tis also proposed that Bill will be appointed a dlrector of the company. He has ‘considerable experience in both the printing and in the hospitality business and the directors of the company would very much like to have him on board, both as ‘a director and as a shareholder, in order to obtain the benefit of such experience. However, Anne Doherty does not lke Bil, She feels that he is far t30 flamboyant ‘and has therefore said that, f any resolutions are necessary, she will vote against the proposels. 2) Explain the law relating to the allotment and issue of shares on these fects, bearing in mind the constitution of the company, AND ») Advise what actions and procedures (Including any necessary company ‘meetings andlor resolutions of the board of directors or tre members) ‘would have to be deat with before and in order for these new shares to be issued to Bil TURN OVERPERMITTED: None No calculator ‘No Dictionary ‘5. The facts are the same as in Question 4 above, Imagine it is now November 2010 and that the issue of the new shares in the ‘Company as above was completed a while back, despite the reservations of some. of the shareholders. ‘The most recent Balance Sheet shows thatthe paid up share capital is £140,000, the Profit and Loss Reserve amounts to £80,000 and that the net asset value is £250,000, Derek Doherty has decided that he wishes to retire and sell his shares in the ‘company. The remaining shareholders are happy for him to go. However, the ‘ther shareholders do not have the money or the abilty to raise the necessary ‘money to buy Derek’s shares. Its agreed thatthe market value of Derek's shares is now £100,000, thas therefore been agreed that the company will buy back Derek's shares itseif Using its own money or assets. All the shareholders agree and are in favour, ) Is the company able and legally permitted to do so and, if so, cn what basis? Set out the legal position under the Companies Act 2008, AND ) On these facts, advise’ what would need to be done legaly before the transaction could be completed and what procedures, resclutons and ‘meetings might have to take place? 6. Its well known and most likely right and proper thatthe majority shareholders in a limited company have the greatest say in how the company is tun, However, although the views and decisions of the majority will normally prevail what Protection does the law offer to minority shareholders? Does the prince. ot ‘majority rule mean that minority shareholders interests can just be ignored by the ‘majority shareholders as they can always be outvoted? TURN OVER 27287 Page 5PERMITTED: None No calculator No Dictionary 7. ANSWER BOTH (a) AND (b) 2) What are the factors that need to be taken into account and considered when ‘deciding whether to run a proposed new business as a partnership, as a Limited Liability Partnership or asa limited company? ) What are the advantages and disadvantages of each from the viewpoint of the ‘owner ofthe proposed new business? END OF PAPER 27287 Page 6