Company Law

Company Law

Assignment 2

Question 1

In this case Peter has been employed by Floxy Ltd for the past 20 years and also holds a stake in the company in the form of debentures and ordinary shares. The company is now insolvent, with the result that large amounts are owed to creditors and wages have not been paid for the last month, which in Peter’s case amounts to £5,000.

In relation to debentures, s738 of Companies Act 2006 states that “‘debenture’ includes debenture stock, bonds and any other securities of a company”.

When a company becomes insolvent, the Insolvency Act 1986 states that the directors are usually replaced by a qualified insolvency practitioner. One of the main duties when liquidating a company is the collection of its assets, e.g. property, money owed to the company and money which people are liable to pay to the company upon its liquidation. These assets are then used to settle debts the company owes to its creditors.

In relation to Peter’s shareholding and unpaid wages, s74 of the Insolvency Act 1986 states that all members of the company are liable to the company to the extent of their shares which are not paid fully. Therefore, since Peter has £10,000 worth of shares which are paid to the extent of 75%, he would be liable to Floxy Ltd for £2,500 upon liquidation of the company.

When it comes to the winding up of the company, there are various different insolvency procedures, such as administrative receivership, administration, voluntary arrangement, creditors’ voluntary winding up by the court and appointment of a provisional liquidator.

Two of these can only be instigated by the courts: winding up by the courts and appointment of a provisional liquidator; however, since there has been no mention of the courts getting involved, it is highly unlikely that it can be any of these two.

Administrative receivership is when a receiver takes control of the company’s assets for the benefit of the company’s main secured creditors. No...