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Company law - Coursework Example

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Name: Instructor: Subject: Date: Company Law The world is arguably becoming a global village, and the tumultuous economic climate has left most companies on the verge of liquidation and bankruptcy. A company can be viewed as a legal entity that is artificial because it does not have the ability to live or die…
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Company law
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Download file to see previous pages Dissolution of a company can be voluntary or through winding up. Voluntary liquidation of a company occurs when the shareholders of a company come to a consensus, pass a resolution saying that they have agreed to dissolve the company. On the other hand, the court may give out an order for the winding up of a company commonly done at the behest of a creditor who has not been paid. According to Ahmadu and Robert (425) global trends have led companies to be cautious in the way their operations are halted. Question 1 Liquidation of any company entails the winding up of financial statements in order to create time for effective dismantling of the structure of the company and help in fairly distributing the assets of the company to its creditors. Liquidation provides the only true way of ending the activities and operations of a company because both the assets and financial structure are evaluated (Ahmadu and Robert, 471). The court order for compulsory winding up Zed Ltd provides both the company and creditors with transparency and accountability because an independent entity, the liquidator, is given the task of protecting the interests of the shareholders, directors, creditors, and members. Since the court has appointed a liquidator, it shows that the creditor had enough proof to show that Zed Ltd truly is not able to pay all its debts. In addition, the company has in the recent past had cash flow problems. Therefore, Zed Ltd is insolvent. In the case of Niger Merchants Co. v Copper (1877) 185 ChD 557n, Jessel MR proposed that pursuing a winding-up petition for a solvent company is an abuse of the court’s process (Hicks and Goo, 609). Other such cases include Mann v Goldstein, and the sentiments of Malins VC in Cadiz Waterworks Co. v Barnett (1874) LR 19 Eq 182. Zed Ltd is unable to pay its debts; hence the creditor can apply to the court for a petition for winding-up. Section 123 provides information that can be used to substantiate whether or not a company is unable to pay its debts. The companies act provides provisions that are to be followed during liquidation as asserted by OECD (246). Although Zed Ltd was not aware of the petition filed in court by one of their creditors, the law requires the company not to accept any deliveries of goods for which it has not prepared any payment procedures. Also, the company is supposed to maintain the current status of its creditors, but it should not improve or make worse the situation. Nonetheless, any improvement or worsening of the situation may lead the directors to incur personal liability or be liable for misfeasance (Debt UK, 2008). The company has to ensure that no assets fall into the hands of creditors because they may be available for set off. Zed Ltd was under pressure to pay up its outstanding bills and debts; it sold a spare machine for ?10,000 whose initial price was ?9,000. Moreover, the company had donated a minibus to a charity in an attempt to promote the company’s image. However, Zed Ltd was not aware of the petition filed against it in court. The sale of the spare machine and the issuance of the minibus to charity involve company assets. However, the minibus was given to charity on 15 October 2009; creditor cannot challenge this move because it had taken place before the petition ...Download file to see next pagesRead More
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