Business Law and Practice

Trading profits calculation

Chargeable receipts less deductible expenditure and capital allowances (e.g. plant and machinery allowance)

Preferential Shares

Gives the holder the right to preferential claims on payment of a dividend, so the holder of preference shares will be paid before the holder of ordinary shares, who will be only be paid if there are any profits left over after the preferential shareholders have been paid.

On winding up of the company, the preferential shareholders will normally be entitled to be paid their share of surplus capital first.

Ordinary Shares

will normally give the shareholder the right to attend and vote at shareholder meetings, unless the articles state otherwise.

Dividend Payment

If the company has insufficient profits in a particular year, neither the preferential nor the ordinary shareholders will be paid.

Non-cumulative shares

the right to the dividend does not carry over to the next year.

Insolvency

an individual is insolvent under s267 Insolvency Act 1986 when a debt is payable immediately and the debtor does not have sufficient funds to pay, even though they may be able to pay at some point in the future.

Individual Voluntary Agreement

For an IVA to be approved, 75% or more of the unsecured creditors by value must support the proposal. The debt owed to creditor 1 is just less than 75% of the total value of unsecured debt, and accordingly the support of either of the other unsecured creditors would be sufficient to reach the required threshold. Secured creditors are not bound by an IVA, unless they specifically agree to it.

Administrators out of court route

qualifying floating charge holders can appoint administrators using the out-of-court route.

Duty of an administrator

There is a “three tier” purpose for administration. The administrator must start with the objective of aiming to rescue the company as a going concern – only if this is not possible move down the next objective.

achieving a better result for the creditors as a whole.

an administrator must perform his functions in the interests of the company as a whole, they must do so as quickly and efficiently as reasonably practicable.

Objective of a receiver appointed by a charge holder

Sole function is to take possession of the charged asset and sell it for the benefit of the chargeholder (or chargeholders – a group of chargeholders can appoint a receiver) who appointed him.

Duty of liquidator

to collect in the assets, distribute them in accordance with the statutory order and, once this is done, to wind up the company.

Security for a bank

a charge by way of legal mortgage is the highest form of security and should be sought in the first instance by the bank.