Reference no: EM13962473

You are approached by three clients, Arnold, Bridget and Charles, who are partners in a business that produces custom-made computers for specific commercial applications. The business has become successful, so they are considering whether they should incorporate, but they don't know much about it.

1 You need to compare the duties the clients will have as directors of a company with the duties they currently have as partners. You should use the facts of reported cases to illustrate your explanations.

2 On hearing your advice, the clients decide to go ahead with incorporation. You need to explain to them the powers of directors and majority shareholders, and how a minority shareholder can challenge the exercise of majority powers under the common law / equity. DO NOT discuss any statutory remedies or directors' duties here.

3 Explain the duty of officers to avoid conflicts of interest, using one case as an illustration.

4You set up the company for the clients and they go away happy. Each of them is appointed director. Arnold and Bridget each have 45% of the shares, but Charles only has 10% because he was only a junior partner and made a smaller capital contribution when the partnership was established. Three years later, they make another appointment to see you. The company has become so successful they are thinking of floating on the stock exchange. They seek a BRIEF SUMMARY of the disclosure requirements for making a very large share offer to the public.

5  You also need to give them a BRIEF SUMMARY of the ongoing disclosure and periodic reporting requirements for public companies.

6 The company is successfully floated and shares are issued to the public. A year later, Arnold and Bridget come and see you on their own. They, along with Charles, remain as directors of the company. They have evidence that, in advance of major company announcements, Charles' wife has been trading heavily in the company's shares. Advise how these facts might impose liability on Charles and/or his wife for trading offences. (DO NOT discuss directors' duties here).

7  Arnold and Bridget also want your advice on whether they can pass a members' resolution to force Charles to sell his shares to them, and whether Charles will be able to challenge that action. It is sufficient to address s.232 on this. DO NOT attempt to apply common law or equitable remedies (which were covered in Part 2 above).

8 A year later, Arnold and Bridget come to see you again, along with a new director, David. They are the only directors of the company as Charles was bought out. One of the company's major corporate customers has gone into liquidation and left unpaid bills of over $1 million owing to the company. They need advice on what effect the liquidation will have on their debt and what steps the liquidator will take to pay it.

9 The company has suppliers' invoices due at the end of the month, and as a result of the customer's default, there will be insufficient cash to pay them. Bridget has an idea that the company will be able to trade out of its difficulties if it orders a large quantity of cheap computers from Hong Kong on credit terms and sells them quickly to generate fast cash. This would allow them to pay off their debts over time so long as the creditors were amenable to that.

You need to advise Arnold, Bridget and David on:-

i. their exposure to personal liability in this situation;

 

ii.legal steps they can take to allow the company to trade out of its difficulties with the agreement of the majority of its creditors.