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SETTING UP IN BUSINESS
Must cover the following matters with new clients:
1
...
Conflict of interest check
3
...

4
...
Open a matter

•

Legislation:
1
...
LLPs Regulations 2001 Default provisions on capital and profit
share between members
...
LLPs (Accounts & Audit) (Application of Companies Act 2006)
Regulations 2008 Set out accounting requirements
...
LLPs (Application of CA 2006) Regulations 2009 apply the CA 2006
to LLPs, e
...
must have a register of charges and file an annual
confirmation statement
...
Similar disclosure to companies:
1
...
Details of members
LLPs can, for a fee, keep registers of members, directors,
secretaries and charges at Comp
...

3
...
LLPs need to keep a PSC Register disclosing all persons of
significant control
...
Disclosing details of certain invoices and payment practices

•

May trade immediately? No, as LLPs must be registered
...
1 person but cannot form
sole trader business for more than 1
...
Flexibility but pressure if sole trader has no
support
...

Expenses when setting up: No formalities so no setting up costs
On-going expenses after the business is set up: None necessary,
although usually accountants will be involved in keeping accounts
Methods of financing: No quick options
...

Profits: All profits go to the owner
...

May trade immediately? Yes
...
The company
may therefore own property, enter into contracts, sue and be sued in its own
name
...

•
•
•

•

Partnership

s
...
– May form a partnership irrespective of contrary intention
...
The partnership is unable to own property or enter
into contracts
...
If partnership goes insolvent, creditors
can enforce debt against the partners personally
...
2 persons
Expenses when setting up: None necessary, although it beneficial to
have a Partnership Agreement drawn up by lawyers (more expensive)
...

Methods of financing: Partners can borrow but cannot create floating
charges
...

Liability: Not limited - Partners have unlimited personal liability
...
No disclosure required
May trade immediately? Yes
...
– Common for Law firms
...
But for tax purposes, it
is treated as a partnership and the members will be taxed as partners, each
being liable to pay tax on his share of the income of the LLP
...

Expenses when setting up: Low costs, but must pay legal fees for
Partnership Agreement
...

Registration fee + Incorporation document
2
...

Printing of LLP stationery

•

On-going expenses after the business is set up:
2008 Regs Accounts must be prepared by accountants annually
...

SBEEA 2015 File a Confirmation Statement min
...

Higher costs due to regulation and disclosure rules
...
There is therefore nothing about
calling of (or procedure at) meetings
...

Methods of financing: LLP can borrow and create floating charges
...
Cannot raise finance by issuing shares
...
7(1) CA 2006 Min
...
, as well as incorporation fees due to Companies House
...
High on-going administrative costs
(More than LLPs) because of the greater regulation and disclosure
rules
...
Companies can adopt their own tailor made
articles instead of the model articles
...

Again, of members give personal guarantees, limited liability is lost
...
e
...


•

Liability to third parties: s
...

Legislation: CA 2006 + all other relevant legislation and common law
...

s86 CA 2006 Registered office
2
...

Information on directors (and secretary if the company has
one) and members
...
House as an alternative to internal registers
...

need to keep a PSC Register disclosing all persons of significant
control
...

Disclosing details of certain invoices and payment practices

•
•

PARTNERSHIPS:
Key characteristics of a partnership:
tax transparent
allows for a high degree of confidentiality
min 2 people
PA 1890 does not distinguish between actual and legal persons,
so a company could be a partner
...
Default provisions are
disadvantageous and must set up a Partnership Agreement
...
5 PA 1890 Each partner is an agent of the firm, and will bind
the firm and other partners by contracting with third parties
...
6 PA 1890 The firm will be bound by the actions of anyone
authorised to act on the firm’s behalf
...
30 PA 1890 All partners share a fiduciary relationship and have
a duty not to compete with the firm by carrying out a similar
business without the permission of the other partners
Advantages:
× it costs nothing to create a partnership
...

× Cheaper administrative costs as no need to file profits
× Tax transparency – taxes flow through to the partners
BLP – All chapters – Revision notes | Page 1 of 28

Existence of partnerships:
s
...

s
...


• 1 person or more? No, min
...


Min number of
shareholders
Min amount of
share capital

ss
...
24(1) Profit-sharing Ratio: partners are to share equally to the
profits even if the partners have not contributed equally
...
Maybe they will want a unanimous decision
for expenditure
•
s25 Cannot expel a partner without a Part
...


Min number of
directors
Company
secretary

s
...

Personal liability for partnership debts:
Each partner is personally bound under the firm’s contracts
...
In some circumstances, non-partners can also become
personally liable
...
9 Contractual Liability: Every partner in a firm is liable jointly with the
other partners for all the debts and obligations of the firm incurred
whilst he is a partner
...
10 and 12 Tortious Liability: joint and several
...
17(1) a new partner will not automatically be liable in relation to any
debts incurred by the partnership before he joined
...
17(2) a partner will still be liable after he retires in respect of debts
incurred by the partnership whilst he was a partner
...
17(3) unless:
1) The creditor agrees
2) You specifically absolve them
3) You novate the contract
Dissolution of partnership:
If no Partnership Agreement, use default provisions in PA 1890:
s
...

expiry of fixed term
2
...
33 death or bankruptcy of partner or
3
...
34 if the partnership business becomes unlawful
-

ss
...
e
...

Dominic might not want this to happen
...

Make an agreement so that the remaining partners can get their money
back and the partnership stays as it is (Buy-out)
...
44(b)(3) Subject to a partnership agreement, where a partnership is
wound up, once all debts and liabilities have been paid, any
money/assets left will be distributed so that each partner is paid back
his/her original capital first
...
This is called the asset surplus ratio (ASR)
...
44(b)(4) If there is no agreed ASR then surplus assets are shared in
accordance with the agreed profit sharing ratio (PSR)
...
24(1) If there is no PSR then they are shared equally
...
755 CA 2006 Only public companies can offer shares to public
...
756 Offer to the public is defined
...
e
...

Public company:
• Limited Liability? Yes
...

• Privacy? No privacy due to filing requirements

Public company

ss
...
7(1) and 8(1) 1

No minimum share capital,
so it could be incorporated
with just 1 share of 1p
...
8(1)(b) Must have at least
1 share
s
...
586 and s
...

£50,000, of which at least
1/4 must be paid up
...
154(2) 2

s
...


s
...


s
...
270(3)(b) There is no
company secretary, the
directors (or any person the
directors authorise) may do
anything that the secretary
is authorised to do
...
19 PA 1890 The partners’ mutual rights and obligations can be varied
at any time by their unanimous consent
...

Partnership Property:
Each partner owns a share in the partnership property
...


Private company

s
...


s
...


Certificate
required
before start of
trading

s
...


s
...


Can commence business as
soon as incorporated
...

s
...

Shares can be issued
without immediate
payment
...
761(1)(2) Cannot
commence business until a
trading certificate is issued
by Registrar showing that
the company allotted
share capital is not less
than the minimum
...
336 Must have min 1
annual general meeting
each year
...
593(1) Payments in cash
only or where
consideration has been
independently valued
...
586(1) 25% of nominal
value must be paid on
allotment plus the whole
of any premium
Public companies are able
to offer their shares to the
public so they are subject
to a higher level of
regulation than private
companies
...
755(1) Prohibited

FSMA imposes
considerable other
restrictions

CONFIRMATION STATEMENT:
Min
...
H
...

ss112A and Part 2A CA 2006 (ss
...
167A-E, 274A, ss
...
H
...


PEOPLE WITH SIGNIFICANT CONTROL:
Part 21A CA 2006 PSC regime: applies to all companies except listed
companies
...

Part 1, Sched 1A CA 2006 A PSC over a company is an individual who
meets at least one of the following:
1
...
The person holds the right, directly or indirectly, to appoint or
remove a majority of the board of directors of the company;
3
...

s
...
Failure to do so is a criminal offence
...

BLP – All chapters – Revision notes | Page 2 of 28

REGULATION OF FINANCIAL SERVICES:
General prohibition:
s
...
23 FSMA 2000 The maximum penalty for breaching this prohibition is
2 years in prison and/or an unlimited fine
...
21 FSMA 2000 Criminal offence to communicate an invitation or
inducement to engage in investment activity in the course of business
...
This
provision aims to ensure that investors, particularly vulnerable and
inexperienced investors, are not exposed to misleading sales pitches
...
21 FSMA 2000 Criteria to avoid criminal offence:
1
...
an investment bank which is authorised and
regulated by the FCA
...

2
...
21 FSMA 2000
...
, covers promotions which are made only to
investment professionals, who are less likely to be deceived by a
clever but misleading promotion
...
89-90 FSA 2012 Further criminal offences:
1
...
recklessly making a misleading statement;
3
...
engaging in a course of conduct which creates a false or
misleading impression
...

Insider dealing:
s
...
It is a criminal offence
to deal in price-affected securities based on inside information
...

incorporation online and/or using hard-copy documents can
only take place during Companies House opening hours
...

traditionally been regarded as the cheaper way to form a
company (Companies House fees + legal fees) however, once
legal fees are factored in, the costs of the two methods are
not materially different
...


NEW NAME FOR THE COMPANY:
Choosing a company name:
s
...
53 name cannot be offensive
s
...
55 name cannot use sensitive words
...

s
...
59 A private company’s name must end with limited or ltd
...
16(2)-(3) The company becomes a legal entity when registered at CH
s
...

Post-registration:
s
...
392 The directors may change the accounting reference date

APPOINTING OFFICERS OF A COMPANY:
s
...
270(3)(b) If no cosec, the directors act as a cosec
s
...

s
...

s
...

s
...

MA 5 Directors may delegate powers
...
H
...
Form IN01 The application form
2
...
9(5)(b) Articles of association:
ss
...
22-24 Company may entrench articles: notify the
registrar and submit a statement of compliance
...
26(2) A company may choose to alter the articles
3
...


s
...
86 Registered office
•
s
...
10 a statement of capital setting out the following:
1
...
10(2)(a) Total number of shares for the subscribers
2
...
10(2)(b) Aggregate nominal value of the shares
3
...
10(2)(c) Total number of shares in each class
4
...
10(2)(d) the amount to be paid up on each share
5
...
10(4) Details of all subscribers
•
•
•

s
...
11 If company limited by guarantee, details of the guarantee
...
13 Statement of compliance

Applications may take the Registrar of Companies up to five days to
process, but you can pay a higher fee for same-day incorporation
...
the name of the company
2
...

3
...

Pre-incorporation rules:
Can a company enter into contracts pre-incorporation?
s16(3) No
...

Pre-incorporation contracts:
s51(1) Director is personally liable - execute a Novation to release her
from liabilities under the contract
Director of a holding company: Under the principle of apparent
authority, the child company is bound
...

When the company is incorporated, Margaret can sign the contract and
it would be on behalf of the company
...
43 A contract signed on behalf of a company, by a person acting under
its authority, express or implied
...
66 Name should not be the same as another company’s name:
s
...
67 SoS may require change of a similar name

BLP – All chapters – Revision notes | Page 3 of 28

SHAREHOLDERS’ AGREEMENT
You must set up a Shareholders’ Agreement when:
* Setting up a new business
* Joint-venture arrangement (= Any arrangement where two or
more people decide to do business together
...

Russell v Northern Bank In a Shareholders’ Agreement, the
shareholders can agree not to change the Articles of the
company and not to remove any director unless they are all in
agreement
...
168
...


Common provisions:
Ensure that any provisions contained both in the Articles and in the
Shareholders’ Agreement are consistent
...

Financing the Company:
Provisions may be included which set out how the company is going to
be financed
...
The Agreement will
describe these contributions and
what will happen to them on
termination or if a party exits
...


Pre-emption rights on transfer:
In order to protect the interest of the rest of the shareholders, a preemption rights clause can be inserted into the SA
...

tag-along provisions: majority shareholder selling to a third
party must procure an offer by the third party to buy the
minority shareholders’ shares – the smaller shareholder can tag
along with the sale
...

Dividend policy:
A Shareholders’ Agreement will always set out a policy on whether to
declare dividends or not and in what proportions those dividends will be
paid
...

Restrictive covenants:
Restrictive covenants exist to protect legitimate business interests which
include trade secrets, confidential information
...

because a party wants to sell its shares and leave the company
and the other shareholders are not willing to buy its shares
when there are two parties both owning 50% of the shares
...

“Russian Roulette” mechanism:
A shareholder (A) can serve notice on another shareholder (B) offering
to buy all of B’s shares or sell all of their shares at a price specified by A
...


“Mexican/Texas shoot-out”:
Either party can serve notice on the other party to buy the other’s shares
or to sell its own shares to the other party
...

These procedures are not the only remedy in all deadlock situations
...

Termination other than by Deadlock:
A shareholders agreement would need to account for termination if
specific events arise:
Termination by default:
1
...
the company or a shareholder becoming insolvent;
3
...
the expiry of a definite term or completion of or failure
of a particular project undertaken by the company; or
5
...


Where termination by default occurs, the Shareholders’ Agreement
will usually specify a mechanism by which:
(1) the other party is put on notice that such a breach has
occurred;
(2) the breach is verified by a third party;
(3) the infringing party has had an opportunity to remedy the
breach; and
(4) the infringing party’s shares are purchased by the other
innocent party
...

Provisions dealing with termination (including termination by deadlock)
must provide for how the company assets are to be allocated
...
The fault clause: In case of a material breach the venture is
going to terminate
...

2
...
Eg
...
In this case you are going to make sure
that each party is getting fair value for their shares
...
Legality test: are the articles are consistent with the CA 2006?
2
...

Analyse each paragraph separately
...

Legality test:
Legally possible? Yes – CA is silent as to the notice period for BM
...

Para – Type 2: Removed casting vote
Prevents the chairperson of a board meeting having a casting vote if
the votes are equal
...


BLP – All chapters – Revision notes | Page 4 of 28

Commerciality test:
If a company has 2 directors so having a casting vote is not
commercially suitable
...
The senior director would
always have the final say and the junior director would have no
role in decision-making
...
Solve this by referring the
issue for the shareholder resolution of the holding company
...
If quorum is 5, then there must be min 3
directors voting in favour for a resolution to pass
...

Conclude: In a company where the shareholders and directors
are different, if there is deadlock then the issue can be referred
to the shareholders
...

Para – Type 3: Controlling expenditure of the board:
Prevents the board collectively from spending more than £100,000
without express shareholder approval
...
This paragraph modifies MA 3
Legality test:
Legally possible? Yes – CA is silent on spending without GM approval
...
The parent company
may want to be sure that it can approve large amounts of
expenditure
...

No if all directors are shareholders and vice versa
...

Alternative way to achieve the same effect? Consider a
shareholders’ agreement
...

Be wary that this paragraph would freeze the spending limit
...
To
raise spending ceilings, articles would have to be amended
...

MA 5(1) Directors may delegate elements of their general powers
MA 5(2) those delegated powers can be sub-delegated (if the board says
they can)
...

Legality test:
Legally possible? Yes – CA is silent on the matter
...
e
...

Alternative way? Restrictions by passing a board resolution to that effect
rather than including a provision in the articles
...

Para – Type 5: Directors may change the company name:
Legality test:
Legally possible? Yes – this falls within the scope of s
...
If the Company ever acts upon this Article, it must also
take steps to comply with s
...

Para – Type 6: Directors may amend the articles:
Legality test:
Legally possible? No – s
...
This means a resolution of the shareholders, not of the
directors
...

Para – Type 7: Requirement of unanimity (100%) from shareholders to
remove a director:
Legality test:
Legally possible? No – this is different from s
...

s
...

Para – Type 8: Quorum:
The quorum for shareholders’ meetings should be fixed to the number
of shareholders that the company has
...
318
...
318(2) Quorum = 2, ‘subject to the articles’ so
may stipulate a different number in the articles
...

If 1 member – use s
...

Para – Type 9: No written resolutions:
All resolutions must be passed at shareholders’ meetings
...
300, which states that any article preventing
the use of written resolutions is void
...
168(1) Director may be removed by ordinary resolution
MA 14 Consider show of hands over a poll vote
...
168(2) The shareholders must Special notice
s
...

ss
...

If Tim and his supporters control 50% or more of the votes between
them then the threat to remove Tim is groundless
...
288(2)(a) Written resolution cannot be used to remove a director
...

Bushell v Faith It is possible for the articles to provide enhanced voting
rights to a director at his removal resolution
...

Pedley v Inland Waterways Upon receipt of special notice, the board is
not obliged to place the removal resolution on the agenda for the next
GM
...

They agree:
If they agree, the board will
place the resolution on the
GM
agenda
and
the
shareholders will vote on the
resolution
...
312(2) Give notice of the
removal resolution the same
way at the same time as the
next general meeting
...
307(1) and 360(1)-(2)
Notice: 14 clear days
...
312(3) and 360(1)-(2) If
notice of the GM is already
sent out: notice must be given
by a newspaper ad or as per
the articles 14 clear days
before the GM
...
303 If they refuse, the unhappy
shareholders would require the
directors to call a GM
...
303 request
- s
...
303
request fails
...
303(1)-(2) Shareholders must hold
min
...
303 request on the board
...
304(1)(a)-(b) Upon the s
...

s
...
305(4)-(3) Notice: 14 clear days and GM must be held within 3 months
s
...

Steps a director can take to protect himself:
s
...

s
...
169(3) Make written representations in response
...
169(4) Send this to the shareholders or read out at the GM personally
...
If he
is also a shareholder, it must be decided who gets his shares
...

BLP – All chapters – Revision notes | Page 5 of 28

PAYMENT FOR LOSS OF OFFICE:

2
...
215(1)(a)-(c) Payment for loss of office defined
...
215(2) Compensation = includes both cash and non-cash benefits
...


s
...
221 the payment is max
...
220 the payment is made in good faith, eg
...
217(2) Approval needed from holding company as well
...
217(4) No approval is required for a wholly-owned subsidiary
...
217(3) A memorandum must be made available to shareholders
s
...

Shareholder approval is also required for:
s
...
219 a transfer of shares in the company resulting from a takeover bid
...
219(4) Neither the offeror nor their associates will be allowed to vote
...
180(2) Shareholder approval is required
...

that he was not in an excluded category (e
...
police)
...

Fair reasons for dismissal:
1
...

2
...

3
...
Statutory illegality - if their work permit expires
...
Some other substantial reason
Was the dismissal fair in all the circumstances?
In order for the dismissal not to be declared unfair, the procedures
followed in carrying out the dismissal must also be fair:
Employers must: investigate, hold a meeting with the employee, decide
on appropriate action; and provide an opportunity to appeal
...
If he would reach 25%, that would be a significant
shareholding whereby he could block a special resolution
...


Compensation:

Employment implications:

immediate loss of wages between the date of termination and the
hearing + loss of other fringe benefits (bonus payments, pension rights)

Determine whether he is an employee:
1
...
Fulltime employees with a contract service contract
...


Non-executive directors:
s
...


3
...
251 Shadow director = a person in accordance with whose
instructions the company’s directors are accustomed to act
...
Who is an Employee?
s
...


Basic award: [AGE FACTOR] x [SERVICE] x [WEEK’S PAY]
+
Compensatory award: (actual loss suffered)

The employee must mitigate his loss by looking for another job
...

Restrictive covenants:
Types of restrictive covenants:
1
...
working for a competitor; or
2
...

2
...


3
...
of customers (prevents the ex-employee soliciting
business of customers);or
2
...


Non-disclosure

Look at the substance and not the form of the contract
...
the personal service test – does he perform work personally?
2
...
mutuality of obligation test – employer has a duty to provide
work, employee must accept when given
...
other factors – economic reality and integration tests
...
Wrongful dismissal – for non-executive directors:
Wrongful dismissal arises where the employer has dismissed the
employee in breach of the terms of the employment contract by eg
...

The amount of notice which is required will be determined by the
employee’s contract but this is subject to a statutory minimum
...
Employees employed for 2
years or more are entitled to one week’s notice for every completed
year of service up to 12 weeks’ notice
...

The remedy for wrongful dismissal is damages
...
If the ex-employee finds a
new job, or makes no attempt, then damages are reduced
...

STEP 3
...
protect a legitimate interest of the business (e
...
customer
connections, stable workforce, trade secrets); and
2
...

Blue pencil test:
The court will strike out the unenforceable part of a restrictive covenant
clause and will only enforce the remainder of the clause if it makes
independent sense
...
Reasonableness factors, what
is necessary to protect the employer’s legitimate interests?
If the employee has a successful claim for wrongful dismissal then any
restrictive covenants are unlikely to be enforceable
...
that he was dismissed: dismissal includes constructive
dismissal where the employee leaves the job because he is
compelled to do so by the conduct of the employer
...
Against director - Derivative claim:
Derivative claims – s
...
261(1) Grounds = negligence, default, breach of duty
s
...
shadow directors and former directors
...
260(3) s
...
170-177)
This derivative claim may end up with a removal resolution being called
– in this case the director can protect himself as stated above
...
If advising a removed director – also sue for unfair prejudice:
s
...

Director will claim two conducts:
I
...

Ebrahimi v Westbourne Galleries Quasi-partnerships:
Shareholders may have a legitimate expectation that they be
involved in the management of the company
...
996(1) Court can award relief – for AI or the other shareholders to buy
Tim’s shares
...
A negotiated settlement is the preferred option
...
Membership rights:
s
...
33 if their membership rights
are infringed
...

Eley v Positive Government Shareholders should set out any of their
rights which are not membership rights in a shareholders’ agreement
...
Breach of shareholders’ agreement:
If a shareholders’ agreement is breached – claim breach of contract
...
If this is
breached and removed by an ordinary resolution, the resolution would
still be valid and the director would be removed but the director would
have a claim for breach
...

Settlement agreement step-by-step:
DIRECTOR’S FATE:
DIRECTOR OF COMPANY
Director is being removed by OR
(Shareholder’s agreement is not
available)
EMPLOYEE (DIRECTOR)
Dismissal
SHAREHOLDER – Transfer of
shares
He makes claims for unfair and
wrongful dismissal (employee),
unfair prejudice claim
(shareholder)

SETTLEMENT AGREEMENT
RESIGNS MA 18(f)
RESIGNS
BUY BACK
GOOD REFERENCE
PAYMENT:
- PILON
- EX GRATIA
He should waive any claims for
the money in return
...
170–177 CA 2006 The director’s general duties
s
...

Foss v Harbottle If the company breaches his duty under any of s
...

If the director threatens to breach his duty in the future, the company
can seek an injunction to prevent him from doing so
...
termination of an executive director’s service contract or
2
...
Fraud Act 2006 the general offence of fraud,
2
...
FSMA 2000 Market abuse, making misleading statements or
carrying on regulated activities without authorisation;
4
...
Bribery Act 2010 Bribery offences
Derivative claims (as mentioned above) – s
...
260(5) Director = incl
...


s
...
In particular the employee must have received
advice as to the effect on his ability to pursue a claim in the
Tribunal
• ensure that the adviser is covered by professional indemnity
insurance
• state that the conditions regulating settlement agreements
are satisfied
...
However, it will still bind the employee in respect of
the waiver of any contractual claims
...
, will want to
ensure that the payment in the settlement agreement settles all claims
for wrongful and unfair dismissal, discrimination and claims outstanding
...
g
...

The agreement cannot prevent an employee from bringing a claim which
was not known at the time
...
If the employment
contract contains a PILON clause and the employer dismisses the
employee and pays him/her in accordance with the PILON clause instead of employing him/her until the end of his/her notice period there will be no breach of contract and no claim for wrongful dismissal
...

•
Where authority is given formally (board resolution) it is actual
express authority
...
43 A contract may be made on behalf of a company, by a
person acting under its authority, express or implied
...

•
s
...
239(4) The director’s and any connected person’s votes cannot count
s
...
253 Connected persons = includes the spouse, children
and parents of a director as well as connected companies
...
177(1) Directors must declare an interest in a proposed transaction
s
...
182(1) And declare any interests in existing transactions
s
...

Re British American Corp Direct or indirect interest is enough
STEP 2: Do any of the s
...
182(6) factors apply?
ss
...

STEP 3: The director must declare his interest:
s
...
177 or
s
...

The director can give declare his interest:
s
...
182(2)(a) Orally at a BM
s
...
185(3) If a long-term interest, the director can give general
notice stating the nature and extent of their interest
...


STEP 5: What if the director fails to obtain approval?
Shareholder approval in advance reduces the risk of breach
s
...
196 allows for affirmation by the shareholders of the company
by ordinary resolution within a reasonable period
...
195(3)-(4) Directors who authorized transaction would be jointly and
severally liable to account for any loss/pay damages
...

STEP 6: Duties triggered?
S175 – conflict of interest
S177 – declare that interest
s
...
21 Removal: the company removes MA 14 altogether by spec
...
(s
...


STEP 1
...
256(b) Being a subsidiary of a plc means being associated with it
...
197(1) Ordinary resolution is required before a company can: make a
loan (or quasi-loan or credit transaction) or give a guarantee

Consider each transaction separately
...
190:
s
...
s
...
190(1)(b) or a company buys from a director /con
...
the asset is a non-cash asset
3
...
190(5) Where there are a series of transactions involving multiple noncash assets, they only need to be approved by members once
...
190(6) Anything to which a director is entitled under his service
contract is excluded from being a substantial property transaction
...
1163 Non-cash asset defined
...
191 Substantial non-cash asset =
An asset worth £0 < x < £5,000 is not a substantial asset
...

For multiple assets, use their aggregate value
...

s
...

s
...

STEP 3: Is the transaction with a director or a connected person?
s
...
253(2) a member of the director’s family: can be a spouse,
partner, child, step child, parent (not nephew or siblings)
ss
...
195(6) he took all reasonable steps to ensure compliance
s
...
192(b) wholly-owned subsidiary of another company
...
197
Private companies
Not associated with plc
...
197(1)(a), 198, 200 and 201
Plc/ private company
associated with plc
...
198 – 200 Relevant provisions for Quasi-loans
s
...

ss
...
190(1) Ordinary resolution can be obtained either:
before the transaction is entered into, or
after the transaction has been agreed
STEP 3: Is shareholder approval required? By which company?
Is the loan to a director or person connected to a director of the holding
company? Is the company requiring shareholder approval of a wholly
owned subsidiary?
STEP 4: Do any of the exceptions apply?
s
...
197(5) and s
...

- s
...
Max
...

- s
...
This figure rises to £15,000 for credit transactions
...
209 A money-lending company
s
...

STEP 5
...
213 The transaction will be voidable
...
214 allows for the arrangement to be affirmed by the shareholders of
the company and the holding company (where relevant) by ord
...

within a reasonable period
...
213(3)-(4) Must account for any gain made directly or indirectly from
the transaction and indemnify the company for any loss or damage
resulting from the transaction
...
Statutory duties?
Directors must always comply with their duties - ss
...


BLP – All chapters – Revision notes | Page 8 of 28

Step 7: Close companies: Taxation effect:

loan agreement: undertakings not to incur further debt and/or
not to create security (negative pledge)
...


–

Regulation and procedure: No specific regulation when setting
up a loan s
...
H
...
Shareholders are participators
...


–

“Control” means, amongst other things, the ability to exercise control
over the company by voting rights, for example, holding more than 50%
of the voting shares
...
Secured assets can’t be disposed of freely
...


(If one of the tests is satisfied, it is enough)

The fact that Edward and Jeremy Lewis between them hold more than
50% of the shares in MP means that MP satisfies both of the above tests
and is therefore a close company
...
The loan would be
caught by the relevant legislative provisions as it is for an amount in
excess of £15,000
...
5% of the amount
of the loan to HMRC
...

As the accounting period ends on 31 December of each year (see the MP
Client Portfolio) and assuming that the loan is made within the current
accounting period the tax must be paid on or before 1 October next year
...

If the loan is written off for the director:
There is no tax effect on the participator to whom the loan is made
unless the loan is written off or waived
...
Edward will therefore have to account to
HMRC for any income tax payable on that deemed dividend
...
Gearing will decrease
so Company will become more attractive to banks
...
Board can
postpone declaring a dividend if insufficient distributable profits
...

s
...
- Limited investor
base for private company shares
...
Opposing shareholders could obstruct
new investment
...


–

Degree of scrutiny of Company affairs: Key decisions requiring
shareholder approval
...
g
...


–

Building up reserves: Profits can be “locked away” as a reserve
...


Debt:
– Effect on the balance sheet and future ability to raise money:
New loan will increase Non-current liabilities on balance sheet
...
Possibly harder to raise debt finance in future
–

Funding costs: Interest payments will be due to bank regardless
of profitability of the Company
...
Loan interest
payments are tax deductible for corporation tax
...
Restrictions in

Risks for Company if experiences financial difficulties: Banks can call
event of default for payment defaults or breach of any representation or
undertaking
...


DEBT VS EQUITY (INVESTOR’S, CREDITOR’S VIEW):
Factors

Equity

Debt

Dividends, if the company is
making a profit
...

Interest
...
If the
company is paying regular
company making profits
...

On winding up

When does
the sale of the shares
...

amount
invested? If the company redeems or
buys back its own shares
...


Control

Other
factors

As agreed between the parties in
the loan agreement
...

On sale: Bonds and Loans can be
sold
...

Creditors can improve their priority
by taking security for the debt
...
The number of the
to do, certain things during
shares held will also influence not
control (e
...
holding over 50% the life of the loan or bond
...

resolutions)
...

company is too highly geared
...


Interest is a deductible expense
for tax purposes
...


×

include provisions in the loan agreement enabling the bank to
demand immediate repayment of the principal amount lent plus
interest outstanding upon the occurrence of various other ‘Events
of Default’ besides non-payment), e
...
if the borrower:
1
...
breaches any obligation in the loan agreement, or
3
...
is subject to an insolvency procedure or suffers a material
adverse change;

BLP – All chapters – Revision notes | Page 9 of 28

×

include an undertaking in the loan agreement under which the
borrower promises not to give security to any other lender (a
‘negative pledge’) or not to incur further financial indebtedness
...
The terms of
such security would be set out in a separate document (see
Security Document):
×
Security gives proprietary rights (legal or equitable)
×
It gives you privacy on insolvency but only in relation to
the assets that were held under the security
...

×
Enforcing a security against the bank loan is basically an
event of default
...
It is not good for lenders
to call default because then it would mean that they
might lose out on the payment that the company would
have paid if they did not go insolvent
...
Mortgage: The security provider retains possession of
the asset but transfers ownership to the creditor
...
Charge: The Lender gets an equitable interest in the sale
proceeds of an asset
...
to appoint
a receiver or administrator to take possession of it and
sell it, if the debt is not paid back
...
a machinery)
Floating charge: a charge taken over a class of
assets (typically assets such as stock that are
frequently changing) which, upon crystallisation,
becomes fixed on the assets and is enforceable
as a fixed charge
...


STEPS OF A LOAN TRANSACTION:
Pre-contract:
1
...


2
...


3
...
The credit committee decides whether the bank is
overexposed in certain industry sector and the interest rates
...

See s
...

Post-completion:
11
...

See the schedule to the loan agreement
...
g
...

12
...
859A(2) The bank’s solicitors register the security at
Companies House
...
The bank’s solicitors also register the security
at any other applicable registry (e
...
Land Registry) during the
priority period
...

13
...
859P The borrower keeps a copy of the security document and
any related documents at its offices available for inspection
...
s
...

15
...

16
...

17
...

Alternatively, if the loan is unsecured, after the borrower has
defaulted on the loan, the lender could apply to the court to
wind up the borrower
...
830(1) Make a distribution
...
836 Before paying a dividend (interim or final) a company must check
its relevant accounts to establish it has sufficient distributable profits
...
interim dividends - can be declared without shareholder
approval and can be cancelled by the directors prior to payment
...
final dividends - paid following the end of a company’s
accounting year and require shareholder approval
...


4
...

The term sheet sets out the main terms and forms the basis on
which the bank has agreed to provide finance
...

MA 30(1) Decision to pay an interim dividend rests with the directors
...


Both parties instruct solicitors
...


The borrower’s solicitors check that the borrower has no
provision in its constitution restricting its power to borrow
money and/or grant security
...
MA 30(2) the amount of a final dividend must be recommended
by the board of directors
2
...

Shareholders may decide to pay less but not more
...
31(1) In the absence of any specific restriction in the articles,
the company will have unlimited objects
...


The borrower’s solicitors check that there are no restrictions on
the directors in the articles and that they have authority to act
...


The loan agreement and separate security document are
negotiated
...
If a loan/bond is secured, a separate security
document will be negotiated and entered into
...


The directors convene a board meeting, review the
documentation and resolve to enter into the loan agreement
and the security document
...


Payment of Dividends:
Shareholders entitled receive the dividend will be those appearing in
the Register of Members at the time of declaration
...
If a
company decides to pay dividend, it must pay to all shareholders holding
the same class of share
...

Consequences of Breach:
s
...
171 to 177 Directors’ duties
Scrip dividends:
Option: issue script dividends: a company could offer a dividend in the
form of additional shares to its shareholders instead of a cash payment
...
Disadvantage to any
shareholders who do not take up the scrip issue – dilution
...

10
...

BLP – All chapters – Revision notes | Page 10 of 28

REDEMPTION:

EQUITY FINANCE (SHARES)

Distributable profits/fresh issue of shares:
1
...
s
...
Update Register of Members
4
...
688 Cancel/reissue share certificates

CLASSES OF SHARES – EXAMPLE QUESTION:

Capital:
1
...

3
...


8
...


Shares must be issued as redeemable
s
...
709(1) Articles must not restrict or prohibit use of capital
s
...
714(6) Auditors’ report annexed

6
...
718(1) DS + AR must be made available at GM or,
s
...
720(1)-(2) be available for inspection at the registered office

7
...

9
...

11
...


s
...
719 Notify creditors (Gazette) and file DS and AR at CH
s
...
689(1)-(2) Send notice to CH within 1 month
Update Register of Members
s
...

Precedent Article A:
(a) The Company shall, before application of any distributable profits
for any other purpose, pay the holders of the Preference Shares a
fixed dividend (the ‘Preference Dividend’) at an annual rate of
£0
...
1(a) above;
(c) If insufficient distributable profits are available to the Company on
the due date to permit payment of the Preference Dividend in full,
the Company shall pay the Preference Dividend on that date to the
extent that it is lawfully able to do so;
(d) To the extent that a Preference Dividend is not paid on the due
date, it shall immediately become a debt due by the Company and
shall be payable in priority to any other dividend;

An investor invests £1,000 in Red Lion Limited by buying 1,000 ordinary
shares of £1 each issued by the company
...


(f) The holder of the Preference Shares shall have no entitlement to
share in any surplus assets of the Company on a winding-up; and

Gearing is calculated by the formula:

(g) For the avoidance of doubt, the Preference Shares shall carry a right
to vote on resolutions of the Company
...

Cons of being highly geared: the company might fail
...

Balance sheet for taking out a loan:

Questions:
1
...
8
...
Art
...
1(b): no further dividend
...
8
...
Dividend is therefore capped at 2p per
share in any given accounting period (i
...
year)
...
In the event of winding up with sufficient surplus assets available,
how much money would be paid to the holder of each share?
Art
...
1(e): Nominal value of each share (i
...
£1)
...
1(f) no further payment is due
...


Balance sheet for issuing shares:

3
...
560 CA 2006?
s
...

Ordinary shares = share carrying the right to participate only up to a
specified amount regarding both dividends and capital
...

Therefore these are not ‘ordinary shares’
...
Describe these shares:
£1, 2% Cumulative Non-participating Preference Shares
× Nominal value: £1
× Ordinary or Preference: Preference: see Art
...
1(a) and 8
...
1(a)
× Voting? No
...
8
...

8(b) (as regards dividends) and Article 8(f) (as regards return on
capital on a winding up)
...
1 Income
(a) Subject to Article 9
...

(b) The holders of the Preference Shares shall have the right to one
fixed cumulative preferential dividend per annum at a rate of 5%
of the Paid Up Amount in respect of each Preference Share in
priority to any payment to the holders of any other shares (the
‘Preference Dividend’)
...


CA 2006:
New companies will not have a cap
...

STEP 1 Conclude

9
...


a) first, in paying to the holder of any Preference Share, in priority to
the holders of any other classes of shares, an amount equal to the
Paid Up Amount of such share;

CAP
CA 1985 Company:
Transitional Provisions + s
...
21(1) Amend articles by
Special Resolution

b) second, in paying the holder of each Ordinary Share an amount
equal to the Paid Up Amount of such share; and

STEP 2: Do the directors need authority to allot shares?

c) third, in distributing the balance, if any, of such assets amongst all
the shareholders pro rata the number of shares held as if they
constituted one and the same class
...
80 CA 1985 Directors will need authority to allot
...
550 CA 2006
...
3 Definitions
‘Available Profits’ means profits available for distribution within the
meaning of Part 23 of the Companies Act 2006
...
How much money will be paid as a dividend in respect of each share?
Art
...
1(b)(i) Preference Dividend: 5p per Preference share
...
9
...
Art
...
1(a): Participation in surplus profits on an
equal footing with the holders of Ordinary Shares
...
Therefore we cannot specify, in advance, the
total amount of dividend payable in a given year
...
In the event of winding up with sufficient surplus assets available,
how much money would be paid to the holder of each share?
Art
...
2(a): Paid Up Amount of each share, defined as nominal value (i
...

£1) plus any premium (i
...
£0), totalling £1 per Preference share
...
9
...
This cannot be quantified yet because the amount
payable on each share depends on the value of the Company’s assets
and liabilities at the time of winding up, and on how many shares it has
in issue at that time
...
s
...
s
...
551(1) Directors may be given authority by the articles or
by shareholder resolution
...
281(3) Shareholder resolution here means Ordinary
Resolution unless articles require higher majority
...

× s
...

STEP 2 Conclude
HAS AUTHORITY
No action needed for this step
...

3
...
560 CA 2006?
s
...

Ordinary shares = share carrying the right to participate only up to a
specified amount regarding both dividends and capital
...

4
...
9
...
2(a)
× Dividend? 5%: amount of preference dividend – see Art 9
...

× Cumulative? Yes, cumulative see Art
...
1(b)(ii)
× Participating? Yes, participating, (both as to dividends and
capital): see Art
...
1(a) and 9
...
Go through 5 Steps to assess what is needed for your
procedure plan
2
...

5-Step assessment for issuing shares:
STEP 1: Is there a cap on the number of shares which can be issued?
CA 1985:
ASC cap in the Memorandum was the norm
...

s
...
These companies continue to have a cap automatically
...
551(1) Grant authority by
Ordinary Resolution
s
...


STEP 3: Need to disapply pre-emption rights?
Are the pre-emption rights excluded under e
...
s
...
567?
Check articles to see whether we have a general disapplication of preemption rights and whether we have passed any Special Resolutions
...
560-561
s
...

s560(1) Equity securities = all shares except those with fixed rights to
dividends + capital that also give the right to participate in a distribution
...


IF, EQUITY SECURITY
Is the proposed allotment an
offer to existing shareholders in
proportion to shareholdings as
per ss
...
s569 s550 authority: Spec
...

If not, grant s551 authority:
s570 s551 authority: Spec
...


BLP – All chapters – Revision notes | Page 12 of 28

STEP 4: Does the company need to create new class of shares?
NO
No action needed for this step
...
Special resolution
1
...
570(1) to disapply the rights of pre-emption in
respect of the Ordinary Shares
...
561(1), as an Ordinary Share is an
“equity security” as defined by s
...
The
Preference Shares have a right to participate only
up to a specified amount (as respects both
dividends and capital) in this case and therefore
are not “equity securities” under the definition in
s
...

2
...
21(1) To remove the cap on shares and to
amend the articles of association to create new
class rights
...
Res
...
21(1)

STEP 5: Conclusion:
BM Agenda:
Directors allot new shares by Board Resolution
...
Res
...
21(1) – No,
CA 2006 company with unamended MA
- STEP 2 Authority to allot?
* s
...
Res
...
551(1)
- STEP 3 Disapply Pre-emption rights? – Spec
...
s
...
Res
...
21(1) - No,
only ordinary shares
Procedure plan:
Study the logic behind procedure plans which are on the last couple of
pages of these notes
...

Pick out the things you need for the procedure plan from the conclusion
of 5-step analysis
...
If you need to remove a cap from the articles by
amending them by special resolution, then you will add this to the
agenda
...
Also, talk about short notice
...


-

Board Meeting II:
Reconvened (assuming consent to short notice obtained)
...
Who calls?
2
...
Disclosure:
s
...

MA 14(4)(b) He may vote and count in the quorum since the
issue of shares is a permitted cause
...


Agenda:
1
...
Propose board resolutions to:
1
...
direct the company secretary (Mark Berry)
to deal with the post meeting matters
listed below
...


Close board meeting
...

2
...


Who calls?
Notice period
...


Agenda:
Propose board resolutions to:
1
...

2
...
call a GM to move the following shareholder
resolutions:
- s
...
570(1) a special resolution to disapply the
rights of pre-emption in respect of the
Ordinary Shares
...
Direct the company secretary to give notice of the
GM in accordance with s
...
Direct the company secretary (name them) to deal
with the post-meeting matters listed below
...

6
...


Voting:
MA 7(1) Board must agree by majority decision on the agenda
items set out above
...

Post meeting matters:
s
...
502(2) auditors
...


Post- meeting matters:
1
...
s
...
29(1)(e) and s
...
s
...
30(1) Special Resolution disapplying
pre-emption rights within 15 days;
3
...
26(1) SR (articles) plus copy of the new articles
4
...
555(2) Form SH01 - return of allotment
s
...
s
...

6
...
790VA(2) Form PSC01: Amanda has significant
control

2
...


3
...
162 The company will also have to update the Register of
Directors
ss
...
554
two months
s
...
769(1) issue new share certificates

Post-meeting matters (additional that didn’t apply here):
-

Notice period
Quorum
Agenda:
Propose and pass the following resolutions:
1
...
551(1) to give the directors power to allot 100,000
Ordinary Shares of £1 each and 50,000 5% Preference
Shares of £1 each
...
281(3) A shareholder resolution is an ordinary
resolution unless stated otherwise
...
550, a
private company with one class of shares does not need
shareholder approval to issue that same class of shares
but this does not apply here as MTUL has both Ordinary
Shares and Preference Shares in issue
...
26(1) file new articles;
× for CA 2006 companies, file resolution (SR to amend articles s
...
30(1)); and /or
× SI 2008/2860, Schedule 2, paragraph 42(3); ss
...
30(1) CA 2006 for CA 1985 companies, file OR to remove cap
...
551:
s
...
29(1)(e) and s
...
House
within 15 days
...
550:
SI 2008/2860, Schedule 2, paragraph 43(3), s
...
30(1)CA 2006 A CA 1985 company must file any OR granting
BLP – All chapters – Revision notes | Page 13 of 28

directors authority to rely on s
...
House
within 15 days
...

If disapplying pre-emption rights:
s
...
30(1) A company must file the SR disapplying preemption rights at Comp
...

If creating class rights:
A company must file the following at Comp
...
30(1) SR amending articles of association within 15 days after
it is passed; and
× s
...

Allotment of shares by board resolution:
A company must:
• s
...
555(3)(b) file a statement of capital
• ss
...
554
two months
• s
...


ISSUING SHARES - BALANCE SHEET:
The share capital of Red Lion Limited is £200, issued to its shareholders
as follows: Amy: 30 (ord) shares of £1, Bill: 170 (pref) shares of £1
Amy and Bill want to issue 100 new ordinary shares to Coleen for £2
per share
...
) will stay behind with seller
* Buyer can pick and choose which assets it wants (‘cherry picking’)
Buyer Disadvantages:
* Disruption to business
* Each asset must be transferred separately – more complex and more
documentation will be needed (more time and administrative costs)
* Consents are likely to be required (e
...
assignments, novations, etc
...
e
...
That money must then
be passed up to the shareholders (here, Ronnie and Shane) by way
of dividend or winding up the shell company that is left after the sale
Buyers prefer asset sales
Sellers prefer share sales

NEGOTIATING THE SPA:
Contractual protection for the buyer:
The buyer prepares the first draft of the Share Purchase Agreement
...
There are a
number of solutions that can be employed to deal with due diligence
issues such as the following list:

CONDUCT CONSIDERATIONS:
s
...

s
...
This latter exclusion covers offers made to existing
shareholders, employees of the company (Employee’s share scheme)
and certain family members of those persons
...
’ - Check all
communication

ACQUISITIONS
PROS AND CONS OF SHARE SALE VS ASSET SALE:
Share Sale:
Buyer Advantages:
* Less disruption to the business
* Simpler and potentially quicker as there is only one asset to
transfer, the shares
* Tax advantages (stamp duty on shares may be lower than on an
asset sale)
Buyer Disadvantages:
* Buyer will acquire the target along with all of the liabilities and any
problems
* Increased level of due diligence required due to acquisition of
entire company

Warranties:
A warranty is a binding statement of fact made by a seller about the
target company in the Acquisition Agreement
...

Indemnities:
An indemnity is a promise from the seller to the buyer to reimburse the
buyer in respect of any liability arising after completion by reference to
pre-completion events i
...
the liability is connected to the seller’s period
of ownership so the seller is expected to cover any such liability
...
If the litigation is resolved in the
target company’s favour (so the target company does not have to pay
out for the litigation), the retention account monies can be paid to the
seller
...

Entire agreement clause:
If effective, such a clause will expressly exclude misrep claims for any
pre-contractual representations not included in the SPA
...

The clause must also be reasonable, should be part of a fair market
practice, both sides should take legal advice
...


BLP – All chapters – Revision notes | Page 14 of 28

Reduction in the purchase price:
If there is a known and quantifiable liability that the target has to pay
after completion, the buyer may request a reduction in the purchase
price to cover the liability
...
The seller will not be liable for a breach of the warranties
if they had disclosed the information to the buyer prior to entering the
agreement such as in a Disclosure Letter
...

An acquisition agreement on a share sale contains a warranty that the
company is not involved in any litigation
...
In order for the seller to ensure
that it is not in breach of warranty it will need to disclose the details of
the litigation in the disclosure letter
...


FINANCIAL ASSISTANCE:
For acquisition: Relevant on a share sale but not on an asset sale and
relevant to public companies and private companies in groups which
contain public companies
...

Example: (Share Sale)
A loan given by I Plc to J
Ltd to enable J Ltd to fund
the purchase of shares in
H Ltd would amount to FA
under s
...

Example: (Share Issue)
Guarantees given by the
target company, L Plc, and
its subsidiary, M Ltd, in
relation to money lent to N
Ltd by the bank to fund the
acquisition would both
constitute
FA
under
s
...


There are two types of disclosure in a disclosure letter:
1
...
specific disclosures
...
General
disclosures relate to searches of public registers that the buyer should
do prior to completion
...

Specific disclosures are the ‘back-end’ of the disclosure letter
...

Time limits:
The vendor will seek to limit the time in which the buyer can bring a
claim for breach of warranty to less than the statutory limitation period
...


De minimis:
In order to bring a claim for breach of warranty, the claim must be more
than a minimum value
...


HEADS OF TERMS:
The Heads of Terms set out the key terms of the transaction
...
– helpful for advisers
...

The HoT are largely non-binding but contain some binding provisions
...

At what stage in the transaction do you think it will have been agreed?
The HoT will have been agreed at the beginning of the transaction, once
the parties have agreed preliminary terms but before definitive
agreements have been drafted and before significant costs have been
incurred
...
It is designed to protect the
buyer against wasted time and costs
...

A ‘lock-in’ compelling the seller to only negotiate with the buyer
would be unenforceable, while a ‘lock-out’ (agreeing not to
negotiate with third parties) is enforceable, if sufficiently certain
...


Example: (Share Sale)

A loan made by the seller, S
Plc to the buyer, U Ltd, to
enable U Ltd to purchase
the shares in T Ltd, would
not constitute financial
assistance
...
Eliot who then buys shares
in Auden
...
Yeats does not fall
within the prohibition because
it is the seller of the target and
not a public limited subsidiary
of Auden
...

It would have been possible to “whitewash” the transaction for private
companies which was used to make FA lawful under CA 1985
...

s
...


The other main (non-boilerplate) clauses relate to things that the parties
have agreed will (or will not) happen during negotiations
...

If the HoT contains things which will have already happened by the time
of exchange, these will not feature in the SPA
...


BLP – All chapters – Revision notes | Page 15 of 28

BUYBACKS
BUYBACKS - BALANCE SHEET:
Consider the position of XYZ Ltd
...
The purchase is to be funded out
of distributable profits
...
836 to establish it has
sufficient distributable profits to make the distribution pursuant to
s
...

The relevant accounts will usually be the company’s last annual accounts
as filed with Companies House
...
interim dividends which can be declared without shareholder
approval and can be cancelled by the directors at any time prior
to payment, and
4
...

Interim and Final Dividends – the procedure:
It is important to check the articles before making any dividend
payment
...


1
...

3
...


5
...

There was no reserve before the purchase, but one was created
following the purchase, the balance sheet shows the reduction
in the share capital after the purchase
...
It has not changed
...

Shareholder Funds is the sum of total capital and undistributable
reserves AND undistributed profits
...
19 Financial Services and Markets Act 2000 (FSMA) no person may
carry on a regulated activity without authorisation
...

2
...
76 Regulated Activities Order 2001 (RAO) Is the investment
‘specified’ under FSMA? Yes
...

Giving advice on whether Edward should purchase shares in
another company is ‘advising on the merits’ of the shares
...
Art
...
if advising is a
necessary part of giving advice
...
Generic advice is fine
(eg
...

4
...
33 RAO Exclusion for Arranging: Introduction to third party:
if the person has gone to a third party and you are just putting a
deal together, that is excluded
...
Art
...
Advising Edward on whether to invest
the money in another company does not form a necessary part
Stage 2:
s
...
the work doesn’t normally advertise themselves as
giving advice on regulated activities
...

If all the conditions are satisfied then this is an exempt regulated
authority
...

The firm could only give this advice if someone in the firm were directly
authorised by the FCA and complied with the FCA Rules in giving the
advice
...


The decision as to whether a company should pay an interim dividend
rests solely with the board of directors under MA 30(1)
...

In respect of final dividends, a two-stage process applies:
3
...
secondly, it must be declared by the shareholders of the
company in a general meeting (often at an AGM) by way of an
ordinary resolution
...

In terms of timing, a final dividend would normally be recommended by
the directors and put to the shareholders at the general meeting at
which the relevant accounts are to be approved
...
This is in
contrast to interim dividends which can be cancelled once declared at
any time prior to payment
...

Payment of Dividends:
Shareholders entitled to receive the dividend will be those appearing in
the company’s Register of Members at the time of the declaration
(unless the relevant resolution specifies another date)
...

Normally the company’s articles determine how any dividend is to be
distributed as between the shareholders
...

In distributing a dividend the rights attaching to preference shares and
any other special shares have to be considered
...
847 if a company makes a distribution contravenes the provisions of
CA 2006 then any shareholder receiving the dividend will be liable to
repay it to the company if, at the time of the distribution, he knew or
had reasonable grounds for believing that there was such a
contravention
...
171 to 177
...
This is known as a scrip dividend and may be
better for a company because it enables it to retain cash for use in its
business
...


BLP – All chapters – Revision notes | Page 16 of 28

BUYBACK PROCEDURES
IF SHARES ISSUED AS
REDEEMABLE:
Redeem shares

creditors) and file directors’ statement and
auditors’ report at Companies House
s
...

Verify
distributable
profits (as
applicable)

Check
articles
...

Accounts no
more than 3
months old
...

Contract +
Ord Res to
approve
contract
...

Contract +
Ord Res to
approve
contract
...

Contract +
Ord Res +
directors’
statement +
auditors’
report
...

SR to approve
payment out
of capital

s
...
689(1)-(2) Notification must be made to
Companies House within one month of
redemption and must be accompanied by a
statement of capital

Update Register of Members

Update Register of Members

s
...
688 Cancel/reissue share certificates

De Minimis

Detail of procedures for share buyback - Purchase

s
...
696(2) Contract must
be available 15 days
before GM including
date of the GM itself or
sent with any written
resolution

If shareholder is also a director:

s
...
696(2) Where an ordinary resolution to approve an own share
purchase is proposed at a general meeting, the contract must be
disclosed at the company’s registered office for a period of 15
days before the general meeting and also at the general
meeting
...

•
s
...
H
...
708(1) and a notice of cancellation together with
•
s
...


Capital

s
...
690(1) Articles must not
restrict or prohibit own share
purchase

Articles must authorise
use of s
...
Confirm
capital payments in a
financial year not
exceeding lower of
£15,000 or 5% of the
value of the share
capital

If no redeemable shares:
Must have sufficient distributable profits
...

s
...
694(1) a contract to purchase own shares is required; and
s
...
The contract may be entered into with the
purchaser conditional on the ordinary resolution being passed
...
695(3) The selling shareholder can vote on the resolution at the
GM but the resolution will be ineffective if the votes represented
by the shares he is selling, vote in respect of the shares being
sold carried the resolution
...

s
...


Distributable profits

s
...
696(2) Contract must
be available 15 days
before GM including
date of the GM itself or
sent with any written
resolution

s
...
694(2) Ord Res to
approve contract (the
articles may specify
Spec Res)

Capital
Check that shares were issued as redeemable
shares
s
...
687(1) Only private companies
s
...

s
...
714 Copy of directors’ statement and auditors’
report must be made available to members at
GM or, s
...
720(1)-(2) be available for inspection at the
registered office

s
...
714 A written statement of
solvency by directors in
support
s
...
714 Copy of directors’
statement and auditors’
report must be made
available to members at GM
or, s
...
720(1)-(2) be available for
inspection at the registered
office
s
...
716(1) Spec Res to approve
payment out of capital
s
...
721(1)-(2) Creditors have a
right to object within 5
weeks of the date of the SR
to approve payment out of
capital

Detail of procedures for share buyback – Redemption

Distributable profits
Check that shares were issued
as redeemable shares

s
...
707(1) and 708(2)
Returns must be sent to
Companies House
together with a
statement of capital
within 28 days of the
purchase
...
707(1) and 708(2)
Returns must be sent to
Companies House
together with a
statement of capital
within 28 days of the
purchase
...
707(1) and 708(2) Returns
must be sent to Companies
House together with a
statement of capital within
28 days of the purchase
...
706 Cancel/reissue
share certificates
s
...
706 Cancel/reissue
share certificates
s
...
706 Cancel/reissue share
certificates
s
...
716(1) SR to approve payment out of capital
s
...


Coradon will become a significant shareholder as they can block a Spec
Res, because 100,000 is roughly 9% so his shareholding would go up to
29%
...

If the shares are not redeemable, it will be a purchase
...


Post Meeting Matters?
* Filings at Companies House
s
...
708(1) and a notice of cancellation of the shares
together with
s
...

Note that there is no employee share scheme in this
scenario so s
...

File Form PSC01 within 14 days after updating the
register of people with significant control (‘PSC register’)
to give notice of JL being an individual person with
significant control
...
)
1
...
Notice period?
3
...
Agenda?
•
Disclosure of interest:
s
...
JL should also declare
his (indirect) interest in the contract
...


×

Propose board resolutions to:
1
...
s
...
direct the company secretary to give notice of the
GM in accordance with s
...


×
2
...

4
...
e
...
e
...
e
...

2
...


Notice period?
Quorum?
Agenda?
×
s
...


4
...
695(3) EL can vote on a show of hands provided that
his vote does not carry the resolution and if a poll is
demanded he should only vote in respect of the shares
which are not proposed to be purchased
...


Close meeting
...

1
...
Notice period?
3
...
Agenda?
×
Chairman reports that ordinary resolution has
passed
...


*
5
...


Voting? (i
...
how many directors need to vote in favour of
the resolutions?)
Close meeting
...
248(1) and s
...


*

Other
New share certificate to be issued and old share
certificate cancelled
...
702(3) Keep a copy of the contract at the registered
office (or such other place specified in the regulations
under s
...


(Where the GM is held on short notice, only Board meeting I will be
required which will be adjurned and BM II will not be needed
...
Who calls the meeting?
6
...
Quorum?
8
...
177(1) EL to disclose his interest in a contract for the
company to purchase his shares
...


6
...


MA 14(1) enter into the purchase contract (EL
and JL could not vote (check articles)
authorise a director to sign the contract (the
contract could then be signed by a director and
completed);
direct the company secretary to deal with post
meeting matters
...
113 Update register of members
...
790M Update PSC register to reflect EL’s new
shareholding
...
5% from 25%)
...


×

Propose board resolutions to:
4
...
s
...
s
...
direct the company secretary to give notice of the
GM in accordance with s
...


×

Notice: try short notice

Voting? (i
...
how many directors need to vote in favour of
the resolutions?)
What happens next? (i
...
does the meeting close or is it
adjourned?)
Post Meeting Matters? (i
...
which of the following should be
dealt with following BM1?)
×
Minutes?
×
Company Books?
×
Filings at Companies House?

GM:
6
...

8
...
694(2) to propose an ordinary resolution to approve
the terms of the contract for the purchase of shares
...
716(1) a special resolution to approve the use of
capital to pay for such purchase
...
716(2) Note that the GM at which the special
resolution is moved must be held within one week of
the date that the company’s directors sign the
statement confirming there will be no grounds on
which the company could be found unable to pay its
debts and that the company will be able to continue
business as a going concern throughout the next year
...
714 (2) and (6) The auditor’s report will be annexed
to the directors’ statement
×

9
...
307(5) Provided approval can be obtained, the
meeting can be held and the resolutions proposed on
short notice
...

s
...

There would therefore not be any point in calling the
meeting on short notice
...
695(3) and s
...


SHARE PURCHASE OUT OF CAPITAL (FULL NOTICE) TIMELINE:
KEY TO ABBREVIATIONS
DS = Directors’ Statement of solvency
AR = Auditors’ Report
OR = Ordinary Resolution
SR = Special Resolution
CH = Companies House
RO = Registered Office
Day 1 Pre-BM 1: s
...
Distribute notice of GM (14 clear days)
...
Close meeting
...

8
...
Notice period?
10
...
Agenda?
×
Chairman reports that ordinary resolution has
passed
...
723(1) The contract gives the directors
authority to carry out the purchase in the two
week period starting five weeks from the date
of the special resolution approving payment
out of capital but which is conditional on there
being no objection from creditors
...


*

Other
New share certificate to be issued and old share certificate
cancelled
...
702(3) Keep a copy of the contract at the registered office (or
such other place specified in the regulations under s
...


*

12
...
e
...
Close meeting
...

Day 2 to 16 s
...
716(2) Earliest date DS can be executed, i
...
SR must be passed
within a week
Day 16
GM:

-

2 x resolutions:
- s
...
694(2) OR to approve contract
...
However, the share purchase cannot take
effect until the resolution is passed

-

s
...
720(1)-(2) DS and AR must be on display at
GM and remain available for inspection at RO from the date of
notice under s
...
**

BM 2:
-

s
...
e
...


-

Secretary will be instructed to carry out filings/notices (to be
completed by day 23/31) and other PMM to be dealt with
...
719(1)(a)-(b) publish a notice in the Gazette and a national
newspaper or give notice in writing to the company’s creditors
of the approval for the payment out of capital
s
...
720(1)(a)-(b) make the directors’ statement and auditor’s
report available for inspection at the registered office for five
weeks from the date the special resolution approving the
payment out of capital was passed
...
29(1) and 30(1) File special resolution within 15 days of its
passing
s
...
708(1) and a notice of cancellation of the shares together with
s
...

Note that there is no employee share scheme in this scenario so
s
...

File Form PSC01 within 14 days after updating the register of
people with significant control (‘PSC register’) to give notice of
JL being an individual person with significant control
...
113 Update register of members
...
790M Update PSC register to reflect EL’s new shareholding
...
5% from 25%)
...


Day 16 to 51 s
...

Day 23
-

s
...
719(1) Co must publish notice in the London Gazette and
s
...
719(4) DS and AR must be filed at CH no later than the date
of the first notice above and
s
...


Day 31 s
...

Day 52 to 65 s
...
ss
...

2
...
702(2)-(3) Keep copy contract at RO for 10 years from
conclusion of contract
...

s696(2)(a) Written resolution procedure

Minutes
s
...
355(1) Minutes of board meeting and GM to be
drawn up and entered into minute book
...
They should:
* take advice from a financial advisor/insolvency practitioner
* Have regular discussions (possibly daily) to assess the company’s
financial position and decide whether or not to cease trading
...

* Do not take on more debt as this would constitute to breach of
duty or even wrongful trading and
* Pursue debtors rigorously
s
...


Serve statutory demand and if it is
not satisfied, petition the court to
wind up the company
Sue, obtain judgment and if
judgment debt remains unsatisfied,
petition to wind up the company

Compulsory liquidation
Compulsory liquidation

Do nothing:
Doing nothing means that directors might be held liable for wrongful or
fraudulent trading and could be disqualified
Directors may be in breach of their statutory duties, especially s
...
This can avoid the time and cost
of insolvency procedures but the creditors may not agree to the deal
...
– see Past Transactions below
...

grant new or additional security
ii
...

a debt for equity swap: issue new shares to the creditors

CORPORATE INSOLVENCY PROCEDURES:

Enter into a SoA or CVA:

If the directors conclude that the company is unlikely to be able to
trade out of its difficulties, they have several options:
* Do nothing
* Enter into informal negotiations with the company’s creditors
* Enter into a Scheme of Arrangement or Creditors’ Voluntary
Arrangement
* Go into administration – Schd B1 IA 1986 to give the company
time during which the creditors cannot enforce insolvency
without the consent of the court
...
28-49 IA 1986 Call in a receiver, or
* Go into liquidation and wind up the company

Scheme of Arrangement:
ss
...
If a company wishes to compromise
secured liabilities and it does not have 100% agreement among
creditors, the company must use a Scheme of Arrangement
...

Options for the company
Main aim of the company
Insolvency procedure
Aim is to save the company
Seek a compromise
Where the company cannot be
saved but it has a viable business
which can be saved and the
company needs protection from
hostile creditor action to achieve
this
...


Consensual agreement binding only
on those creditors which agree to it
(no insolvency procedure is used)
Formal arrangement / CVA or
scheme of arrangement (sometimes
combined with an administration)
Administration

Administration then Liquidation

Consensual agreement (binding only
on those who agree to it); no
insolvency procedure is used Or
Scheme or (rarely) CVA
Administration
Fixed charge Receiver
Administration or Administrative
Receivership
No action is taken other than the
secured creditor sending a
reservation of rights letter
...
e
...

If the company does not fulfil its obligations under the CVA, the
nominated supervisor will petition for the company to be wound up
...
g
...


Company Voluntary Arrangement:
s
...

The directors formulate a written proposal for repayment
...

The proposal will nominate a licensed insolvency practitioner
(IP) to act as the supervisor
...

The nominee will seek creditors’ approval using a permitted
decision-making procedure under the IR 2016 (virtual or
physical meeting)
...

The compromise must be agreed by 3/4 in value of the
creditors voting in favour
...

The nominee must call a separate shareholder meeting (to be
held within 5 days) who must pass an ordinary resolution
...

Must be sanctioned by the court
...

s
...
This
moratorium protects the company from hostile creditor action
...
382(3) CA 2006 Small companies are defined
...
For floating charge holders, no risk of avoidance
Cons for creditors:
Supervisor has no power to challenge transactions at an undervalue or
to avoid floating charges unlike a liquidator or administrator and many
companies will not qualify for a moratorium
...
28-49 IA 1986 Types of receivers:

If enforcing a floating charge: use the Administration procedure
...


Debenture = contains a floating charge
...

Schd B1, para 14 IA 1986 Qualifying Floating Charge defined
...
A fixed charge
receiver becomes the receiver only of the property charged and
is only entitled to deal with that property
...


Administrative receivers:
Most common
...

- There is no moratorium period here
- EA 2002 only an option for Pre-15 Sep 2003 QFCHs
...
- Uncommon, only where a creditor
started winding up proceedings and the directors wish to appoint
administrators before the winding up order
...

The out-of-court procedure:
1
...

×
If an AR has already been appointed then no
administrator can be appointed
...

×
To appoint, it files a notice of appointment at court,
serves notice on any prior QFCH and the appointment
commences on the date of the filing
...


If the directors or the company appoint the administrator, then
they must file notice of intention to appoint an administrator
at the court and serve it on any QFCH giving them 5 days’
notice
...
The directors will file a
notice of appointment with the court within a further 5 day
window
...
This means that no winding up order can be
made, no AR can be appointed, no steps can be taken to enforce any
security and no legal proceedings can be instituted or continued
...

The administrator then runs the company – the directors can make no
decision without his consent
...

Small Business Enterprise and Employment Act 2015 They can pay a
dividend to secured creditors out of the proceeds of the creditor’s
security and can now pay the prescribed part dividend to unsecured
creditors
...

Administrator’s appointment terminates automatically after 12 month
Pros for a QFCH:
May avoid bad publicity for a lender compared to appointing an AR,
prevent the other creditors from taking enforcement action, and enables
transactions at an undervalue to be disavowed
...

Cons for a QFCH:
Costs of court order and administrator, short delay whilst administrator
is appointed (5 day notice period), the lender does not itself control
whether floating charge assets will be sold, the administrator mist act in
the interest of all creditors
...

Pros for a company:
Administration is preferable for the company to AR as in the former case
the primary objective is to save the company whereas in the latter it is
to maximise assets in order to repay the creditor who appointed the
receiver
...
73 – 229 IA 1986 Go into liquidation and wind up the company to
realise and distribute the company’s assets in the order of priority
...
Voluntary liquidation: dissolves 3
months from the filing by the liquidator of the final accounts and return
...

Given the ability of a QFCH to appoint an administrator out-of-court
following an event of default under the loan agreement, it is usually an
unsecured creditor who will apply to the court for a winding up order
...
s
...
s
...
s
...
s
...
s
...
– don’t
mention it in an exam on an insolvency question
...

The shareholders pass:
* a special resolution to approve the CVL; and
* an ordinary resolution appointing a liquidator but within 14 days
a creditors’ meeting is will be convened to either approve the
liquidator or put forward their own choice of liquidator
...
The directors lose
their powers upon the liquidator’s appointment
...
to realise the company’s assets for cash, identify the company’s
creditors and the amount owed to them and then pay a dividend
to the creditors proportionately (creditors rank pari passu)
...
To maximise the assets available for distribution to the
company’s creditors by:
* challenging voidable antecedent transactions or to sue
the directors for wrongful or fraudulent trading
...
178 disclaiming onerous property available equally in
both solvent and insolvent liquidations
...

A liquidator He will usually sell assets on a piece-meal basis rather than
selling the assets and business as a going concern
...
In
such a case, the purpose of the liquidation will be payment of a dividend
...


Preferential creditors
Schd 6 IA 1986 Members of pension schemes and employees
can claim wages of up to £800 plus accrued holiday pay each
for the last 4 months
...


Creation of the prescribed part fund from floating charges (if
available) for unsecured creditors
Must be paid to unsecured creditors in full if under £10,000
...


KEY: FIRST -> THEN Eg
...

CVA -> ADMINISTRATION
An administration is unlikely to follow a CVA but may follow if the
creditors vote down a CVA proposal or a CVA terminates
...
A CVA cannot compromise a secured
creditor’s rights under its security without its consent
...

6
...

Two charges: If there is a deed of priority – pay out according
to it
...


ADMINISTRATION -> LIQUIDATION
May occur only after administration has come to an end
...


8
...


Interest owed to unsecured creditors
Interest from the commencement of the winding up
...


Shareholders
Preferential shareholders are in priority to ordinary
shareholders but check the articles
...

ADMINISTRATION -> CVA
Possible
...

ADMINISTRATION -> ADMINISTRATIVE RECEIVERSHIP
Not possible
...

ADMINISTRATIVE RECEIVERSHIP -> LIQUIDATION
Possible
...


PAST ACTIONS IN INSOLVENCY:
The following transactions do not apply for administrative
receivership, except for: Transactions defrauding directors

LIQUIDATION -> CVA
Possible
...


Personal liability of directors:

LIQUIDATION -> ADMINISTRATION
Not possible
...
Usually a petition to appoint a liquidator is an event of default
...
;lRelevant Date QFCH to appoint an AR
...


Company Directors Disqualification Act 1986 Max 15 years
ss
...
213 IA 1986 that can be brought by a liquidator or
s
...


ss
...


Liquidators Administrators
I
...
213(2) and 246ZA(2) brought against a director or any other person
ss
...


Add up all assets, add up all liabilities
...


Conclusion: there will be a shortfall of £42,000 (excluding the
liquidator’s fees and expenses)
...


ORDER OF PRIORITY ON WINDING UP:

GO THROUGH THE ORDER OF PRIORITY
CHECK HOW MUCH REMAINS FOR UNSECURED CREDITORS:
The balance available for the unsecured creditors is split so they ‘rank
and abate equally’ as follows:
152,600 x 100 = 67
...
94 pence for every
pound owed
...
Liquidator’s fees and expenses of preserving and realising
assets subject to fixed charges
2
...


Amount due to fixed charge creditor in so far as realised by
the sale of the assets subject to the fixed charge
The proceeds of selling fixed charge (or mortgage) assets must
first be used to pay off the debt secured by such charge (or
mortgage)
...
Such litigation will
require prior approval from preferential creditors, floating
charge holders, or the Court, otherwise the liquidator cannot
claim the costs of litigation
...
213(2) and 246ZA The director or other person will be liable to make
such contribution to the company’s assets as the court thinks proper
...
10 CDDA 1986 Disqualification order is likely
...
993 CA 2006 Criminal sanctions can also be brought
...
214(2) and 246ZB(2) IA 1986 The test: the company becomes
insolvent and at some point prior to that the director knew or ought to
have concluded that there was no reasonable prospect that the
company would avoid insolvent liquidation or administration
...

I
ss
...
Claims can be brought
against directors
...
251 CA
2006, de facto and non-executive directors)
...
123(2) Balance sheet test
ss
...

ss
...

ss
...

ss
...

s
...

BLP – All chapters – Revision notes | Page 22 of 28

Such claims are not brought in every case because of the risk that the
creditors will get even less after the court and liquidator’s extra fees
...
212 IA 1986 Where liability is already established
s
...

s
...
misapplication of any money or assets of the company;
2
...
238, preferences s
...
breach of any statutory duty or directors’ duty:
a
...
s
...
s
...

d
...
171 a director failing to act within his powers
e
...
174 negligence
s
...
239) is not possible
where the company is on the brink of insolvency
...
6 CDDA 1986 Disqualification order is likely
...

The court’s sanction will be an order reversing the transactions or
providing for financial restitution to restore the company to the position
it would have been in had the transaction not occurred
...
241(2)-(2A) bona fide purchasers for value without notice who were
not a party to the original transaction are protected
...
238, 239 or 423, but no
consent is required to bring an action under s
...

Definitions:
s
...

s
...

ss
...
Administration
2
...
129 Liquidation
ss
...

s
...

Transactions by a company at an undervalue:

Preferences by a company:
PAYING UNSECURED CREDITORS IN PRIORITY TO OTHER CREDITORS
s
...

s
...

The preference is voidable if:
1
...
239(2) and s
...

3
...
239(3) make an order as it thinks fit
s
...

Transactions defrauding creditors:
s
...
423(3) where the intention was to put assets beyond the reach of
creditors or to prejudice their interests – harder to prove
s
...
However, the more recent the
transaction, the more likely it is that intent can be shown
...
423(2) The court may make such order as it thinks fit
...
425(1) Non-exhaustive list of orders
...
245 IA 1986 A liquidator or administrator can simply avoid a floating
charge – where an unsecured creditor has obtained a floating charge to
secure an already existing charge for no new consideration
...
245 only applies in a liquidation or administration
...

s
...
240(1) the charge was created within the
×
1 year (if granted to unconnected persons) or
×
s
...

s
...

s
...

Re MC Bacon The granting of security couldn’t be challenged
...
s
...
240(1)(a) 2 years prior to the insolvency
2
...
240(2) must have been insolvent at the time of the transaction
or have become insolvent as a result
...
This will be presumed if the transaction is with a connected
person – otherwise it has to be proven
...
241(2A) rebuttable presumption that an acquisition by a subsequent
purchaser was not in good faith
s
...


s
...

s
...
test)
...
239(6) This desire to prefer is which is presumed if the
transaction is with a connected person
...


s
...


s
...

Re Yeovil Glove Co
...

s
...

s
...
H within 21 days
...
238 and 239
...
238(3) such order as it thinks fit
...
241(1) Non-exhaustive list of orders
...
239 These will also be a voidable preference
s
...
*
CHANGE OF NAME
Whose authority needed to make the change?
s
...
77(1)(b) by following the procedure set out in latter – often immediate
and handed over at a board meeting)
What type of resolution (board, ordinary or special) if any?
Special resolution or otherwise as provided in the articles
...

Post meeting matters?
s
...

What type of meeting?
Board Meeting
Post meeting matters?
None
APPOINTMENT OF SECRETARY
Whose authority needed to make the change?
MA 3 and MA 5 The directors – identity depends on when the new
directors are appointed
...
270(1) Private company not required to have a secretary
What type of resolution (board, ordinary or special) if any?
Generally by Board Resolution
What type of meeting?
Board Meeting if appointed by Board Resolution
Post meeting matters?
ss
...
167 The company must inform the registrar of the appointment
within 14 days on form AP01
...
162(2) Must update the register of directors
s
...


APPOINTMENT OF NEW CHAIRPERSON
Whose authority needed to make the change?
MA 12(1) Outgoing director who was chairperson would automatically
cease being chairperson on his resignation
...

What type of resolution (board, ordinary or special) if any?
Board Resolution
...

Post meeting matters?
None
TRANSFER OF SUBSCRIBER SHARES
Whose authority needed to make the change? Section?
s
...
544(1) MA 26 Stock Transfer Form (STF) (change is only
effective once the new members have been entered into the Register
of Members)
What type of resolution (board, ordinary or special) if any?
Transferor shareholders executed STF
s
...

Usual to have a Board Resolution approving the share transfer, the entry
of the new member into the Register of members and instructing the
secretary to issue new share certificate
...

What type of meeting?
Board Meeting
...
86 A company must always have a registered office
s
...

What type of resolution (board, ordinary or special) if any?
Board Resolution to instruct secretary to complete the required form
...

Post meeting matters?
None
CHANGE OF ACCOUNTING REFERENCE DATE
Whose authority needed to make the change?
s
...

What type of resolution (board, ordinary or special) if any?
Board Resolution to instruct secretary to complete the required form
...

Post meeting matters?
None
APPOINT AUDITORS
Whose authority needed to make the change?
s
...

s
...

What type of resolution (board, ordinary or special) if any?
Board Resolution
...

Post meeting matters?
None

What type of meeting?
Board Meeting
...
Who calls?
MA 9(1) Called by any director
2
...
Quorum
MA 11(2) The quorum is 2
...


Agenda:
× Propose board resolutions to (possible resolutions):
s
...

4
...

6
...

8
...
248(1) Minutes of the board meeting (x2) and GM
s
...

s
...
357 Keep copy of all meetings and resolutions

*

Other
s
...
82 Disclose the company name in specified locations
s
...
162 Update register of directors
s
...
790E Update the PSC Register

× Board resolution to approve the form of notice of GM
...
311(1) date, time and place of meeting;
s
...
325(1) a statement that a member may appoint a proxy
× s
...
307(1) and s
...
1147 Post: deemed received 48 hours after it was posted
s
...

× s
...
310(1)(a) every member and
* s
...
502(2) If there are auditors – send to them too
...
ADJOURN BM
2
...
RECONVENE BM
BM I:
9
...

4
...


Quorum?
Practically, it makes sense for all the directors to attend if
possible, since the consent of all directors is needed to call
the GM on short notice
...
Agenda?

Threshold:
MA 7(1) Board agrees by majority decision on the agenda items
...

MA 13 A chairman’s casting vote for use when there is deadlock

×

Voting methods show of hands – each director has one vote
...


Close BM
...
318(1) where only 1 member, quorum is 1
...
318(2) The quorum is 2
...
323(1) Need to see a copy of the board minutes authorising
authorised representative to act at the GM
s
...


2
...


Voting
s282(1) Ordinary resolution - 50% < X of those voting
s
...
75% of those voting
s282(3) Decisions are made on a show of hands (1 vote each)
MA 42 Must vote on a show of hands unless a poll is demanded
...


4
...


BM II:
1
...

2
...
to remove
...

3
...
Adjourn BM
GM
BM II (Reconvened)
Could take place as near as convenient afterwards
...
307(4) Consent to short notice document is required

WRITTEN RESOLUTION PROCEDURE
Structure:
4
...
GM
6
...
281 Only private companies may pass a shareholders’ resolution by
way of a written resolution
...
Agenda?
×

Propose board resolutions to:
* s
...

s
...


Post meeting matters (PMM):
* Cosec to file the following with the Registrar of Companies:
1
...
17(b), 29(1)(a) and s
...
s
...

s
...
There
are two elements to the consent required for short
notice and these are that approval must given by:
× the majority in number of the members of the
company (so that, out of six shareholders, a
minimum of four must consent); who
× together hold at least 90% in nominal value of
the issued shares of the company
...


If a director abstains from voting on a decision, he/she does not
count towards the number of people voting
...
To get a majority,
you would need 3 out of 4 directors voting in favour of the
resolution
...


s
...
issue
s
...
392 AA01 change of Accounting Reference Date
s
...
790VA(2) PSC07 ceasing significant control x2
Stock Transfer Forms

BLP – All chapters – Revision notes | Page 25 of 28

s
...

s
...
87(1) change the registered office
×
s
...
485(3) appoint Deloitte LLP as company auditors
×
s
...
Transferee only needs to sign in limited
circumstances
...


s
...
283(2)-(3) Written SR – min
...
All votes on WRS are on a poll
...


The board meeting will then adjourn for the written
resolution to be signed, this could be signed straightaway
...
Agenda:
×
s
...

PMM:
WRS additional documentation:
Board meeting minutes only x1
s
...

Board Meeting I:
1
...

Short notice
Written resolution

×
GM:

2
...
Agenda?
× Report on the formation of the company
...
87(1) Change the registered office
× s
...
113(2) s
...

× s
...

× s
...
771 and MA 26 receive and approve the transfers of
subscriber shares and to instruct the cosec to enter the
new shareholder in the register of members ASAP
...

Cosec to file the following with the Registrar of Companies:
× s
...
167(1) TM01 resignation of directors x2 within 14 days
× s
...
276(1) TM02 resignation of secretary within 14 days
× s
...
s
...
s
...
s
...
s
...

5
...
776 issue a new share certificate to RHP and cancel the
old share certificates;
6
...
790M update the register of people with significant
control to reflect RHP’s shareholding (within 14 days);

GM:

11
...
77(1) change the name of the company

BM II:
4
...


Propose board resolutions to:
1
...
288(3)(a) to propose a written resolution to
adopt new articles
...
21(1) Adopt new articles of association by special resolution
Eg:
amend the articles to remove the chairperson’s casting
vote set out in MA 13
amend the articles so that MA 14(1) does not prevent a
director with an interest in a transaction from
participating in the decision-making process
×

Propose board resolutions to:
1
...
MA 5 to impose a £50,000 limit on directors
acting independently; and

Cosec to file the following with the Registrar of Companies:
1
...
26(1) Copy of new articles of association to Comp
...

Written resolution
Cannot use short notice procedure for service contracts
...
188(1) Service contract provides for a guaranteed term of 2 years
s
...

BM I:
14
...

Disclosures of interest:
(a) Karen Watts to disclose her interest in the new service
contract
...
177(6)(c) Karen Watts is not obliged to disclose her
interest in her service contract but it is likely to remain
the practice that she will do so as it will stop her from
voting in the resolution and this is standard procedure
to be followed
...
188(5)(b) Here, however, the notice could not be less
than 15 days as the service contract to be entered into
with Karen Watts must be displayed at the Company’s
registered office for at least 15 days
...

GM:

12
...
188(2)(a) To propose an ordinary resolution to
approve the duration of the service contract to be
entered into with Karen Watts

BM II:
14
...
approve entry into the service contract
2
...
Voting?
MA 14(1) Karen Watts cannot count in the quorum for or vote
on the board resolutions to approve entry into and authorise
a signatory for the contract in which she is interested (the
service contract)
...
228(2)(a) Retain a copy of the service contract at the registered office
for inspection
s
...


REMOVAL OF DIRECTOR

FULL NOTICE – SHORT NOTICE – WRITTEN RES

TIMINGS OF REMOVAL:
Board agrees to removal of a director:
Day 1:
s
...

MA 7(1) Directors need to pass a majority decision at the BM and a board
resolution to call a GM to pass an OR to remove a director
s
...
312(1) and s
...
312(2), s
...
360(2) 14 clear days notice to GM
DAY 30 EARLIEST FOR GM
Decide whether we have:
×
a cooperative board (directors complying with s
...
304)
Cooperative board:
Day 1:
s
...
168(1) and propose OR to remove director
Directors need to pass a majority decision at the BM and a board
resolution to call a GM to pass an OR to remove a director
s
...

Cannot use written res or short notice procedure for removing
directors

Day 22:
Directors serve notice of GM and OR on other SH
s
...

Not clear days as 360(1) doesn’t apply to s
...
Quorum
MA 14(1) The interested director will not count in the quorum
MA 14(3)(a) unless the company previously disapplied MA 14
...


Agenda
× Propose board resolutions to:
1
...

2
...
302 call a GM to pass the ordinary resolution
3
...
312(1) and s
...
312(3) Where that is not practicable, 14 days’ notice
and an advertisement in a newspaper
s
...
169(3) The director has the right to make written
representations to the company and to have the
company distribute these to the members in advance
of the meeting
...
288(2)(a) Written resolution cannot be used
...
303 The directors can be required to call a GM by the
shareholders
s
...


Agenda:
s
...
168(1) The shareholders must pass an ordinary resolution
approving the removal of the director
...
Agenda:
× pass a board Resolution terminating the director’s service
contract
...

PMM:
2
...
s
...
H
...

3
...
s
...
s
...
303(1) Notice submitted by disgruntled shareholders to call GM
s
...
304(1)(a) Within 21 days directors must call GM
Day 23:
Disgruntled shareholders serve notice of GM and OR on other SH
s
...
303 notice or
those holding more than 50% of voting rights represented by them
...
305(4) In the same way as GMs are called by directors
...
307(1) and s
...

Short notice
Written resolution
BM 1:
1
...


Quorum:
Agenda:
Disclosures of interest:
(b) s
...

Propose board resolutions to:
(a) s
...
s
...


BM II:
1
...


3
...


LOAN TO DIRECTOR

FULL NOTICE – SHORT NOTICE – WRITTEN RES
For this question you may use:
Full notice procedure – this example is using full notice
procedure, which is common for these type of qs
...

BM I:
1
...

s
...
198(4), s
...
201(4) Alternatively, if the
written resolution procedure is used, this memorandum
should be sent out with the written resolution
...

GM:

–

BM II:
2
...


Agenda
×
To propose an ordinary resolution to approve loan
to the director/SPT
Quorum:
MA 14(1) prevent directors from counting in the quorum and
voting on board resolutions in respect of transactions in which
they are interested – unless the company disapplied this MA
...
177 Unless an exception applies, the director involved in the
proposed SPT or loan must declare it by making a written
declaration under s
...
185)
MA 3 The board can now enter into the SPT contract or
executed the loan instrument/enter into the loan agreement
under the general power of the board
...
190(1) For an SPT, the director could have entered the
contract at the first BM, but to have done so the contract
would have had to have been conditional upon subsequently
gaining the members’ approval

---