The Financial Relationships of Contigrain Ltd - Research Paper Example

 1 The Financial Relationships of Contigrain Ltd Introduction The scenarios described in the problem point to the important issue of liquidation that may suddenly come up in the process of two or more organisations engaging in business relationships1. The principals affected in these business deals are: Contigrain Ltd, located in Southampton, England; Agriplus Plc of London; Munchy Feeds Ltd of Northampton; Mr. Giles; Hampshire Supplies Ltd; and, indirectly, Industrial Finance Ltd. Looking at the conditions of their financial transactions, it is possible to determine which parties have contravened English Common Laws2. Discussed in the succeeding paragraphs are appropriate pieces of advice for the embattled Contigrain Ltd. The transaction between Contigrain Ltd and Agriplus Plc The following observations are made about the financial transaction between Contigrain Ltd of Southampton and Agriplus Plc of London: Contractual Agreement: There exists a contractual agreement between Contigrain Ltd and Agriplus Plc for the supply of 100 tonnes of Brazilian peanut extract with an agreed price tag of 1000 pounds per tonne. This necessitated Contrigrain Ltd to make a down payment of 50,000 pounds by inter-bank transfer, promising to pay 1. Farrar, J., 1979. Company insolvency. Taylor & Francis, p. 25 2. Hudson, J., 1996. The formation of the English law: law and society in England from the Norman conquest to Magna Carta. Longman, p. 107. 2 the balance when the shipment arrived in Southampton. This confirms that there existed a legal contract that was meant to bind both parties and equally force them into fulfilling their obligations as far as the financial relationship is concerned3. Liquidation of Agriplus Plc: It is an undeniable fact that Agriplus Plc has been liquidated two days before the arrival of the shipment from Brazil. This means that it has ceased being a corporate entity with which Contrigrain Ltd struck a business deal with4. Contrigrain has taken the right step to request that the liquidator respect the contractual agreement it has had with Agriplus Plc before the company’s liquidation by releasing the peanut extract aboard the ship5. Legal rights for Contrigrain Lts under Insolvency Act 1986. The UK Insolvency Act 19866 clearly addresses the kinds of rights a company like Contrigrain Ltd can have when a company it is dealing with suddenly goes liquidated. Even though the liquidator has refused to grant Contigrain’s request, the company can sue for damages if all the facts of transactions required by the Insolvency statute that details the agreement between the company and Agriplus Plc are intact. 3. Whincup, M., 2006. Contract law and practice: the English system with Scottish, Commonwealth, and Continental comparisons. Kluwar Law International, p. 3 4. Bhandari, J. & Weiss, L., 1996. Corporate bankruptcy: economic and legal perspectives. Cambridge University Press, p. 434 5. Tomasic, R., 2006. Insolvency law in East Asia. Ashgate Publishing Ltd., p. 45 6. Insolvency Act 1985, obtained from The Office of Public Sector Information (UK). 3 According to the requirements of Insolvency Act 1986 section 14, sub-section 1a, “The administrator (liquidator) of a company may do all such things as may be necessary for the management of the affairs, business and property of the company,and…” Reflecting on this statement, the liquidator in charge of Agriplus Plc should listen to the complaints from Contrigrain Ltd about releasing the peanut extract on the ship. However, Contrigrain Ltd needs to satisfy some requirements before the shipment of the peanut extracts could be transferred to it. These requirements are clearly stated in Insolvency Act 1986 section 16, sub-section 1a: “Where property is disposed of under section 15 in its operations of application to Scotland, the administrator shall grant to the disponee an appropriate document of transfer or conveyance of the property, and – (a) that document has the effect of disencumbering the property of or, as the case may be, freeing the property from the security.” But section 15, sub-section 2 states that, “where, on application by the administrator, the court is satisfied that the disposal (with or without other assets) of—“ Contrigrain can carry out the following processes in order to have access to the bill of laden, which is the document that explains the conditions of shipment from Brazil to Southampton. Written notification: The director of Contrigrain can first of all notify the liquidator in writing, stating the reasons why the bill of laden of the peanut extracts 4 from Brazil should be released. Contrigrain Ltd must show the liquidator a copy of the contract between the company and Contrigrain for the said goods. Other supportive documents may be required to convince the liquidator to allow the quantity of shipment meant for Contrigrain be released to it. Legal suit: And if the liquidator seems not to be convinced that there was a financial transaction between Agriplus and the company, Contrigrain would have to proceed to the court for legal interpretation of the agreement between the two companies7. If all necessary documents, recording, facts are presented to the court, it is possible for the court to order that the liquidator release the bill of laden for Contrigrain ltd, as indicated in the statutes above, so that Contrigrain could offload the exact quantity of the shipment it has already contracted with Agriplus Plc before the suddenly liquidation of the company. Essence of Bill of laden: Even though Contrigrain Ltd was not the original consignee of the shipment: that is, the agreement to ship the peanut extracts from Brazil to Southampton was done between the carrier (the owner of Monrovia) and the consignee (Agriplus Plc). But, having the bill of laden in hand as a result of the court permission, it is possible for Contrigrain Ltd to receive its contracted quantity of peanut extracts. The undeniable fact is that the company must be able to prove to the court beyond every reasonable doubt that it had had a contract with Agriplus Plc. 7. Marsh, P., 2001. Contract negotiation handbook, 3rd edn. Gower Publishing Ltd., p. 32 8. Mitchelhill, A., 1990. Bill of laden: law and practice. 2nd edn. Chapman and Hall, p. 85 5 Although, it must be stated here that the bill of laden is not, in itself, a transferable security as in the case of shares and bonds, but it is a document that reveals that a shipment agreement had been reached in the past between the carrier and the shipper9. Committee of creditors: it is important to be pointed out that Contrigrain Ltd alone may not be qualified to receive the bill of laden alone: since the company only ordered for 100 tonnes of the total 500 tonnes of peanut extracts on the carrier, Monrovia. Therefore, the best approach to handle this case is for Contrigrain Ltd to become a member of committee of creditors (that is, working closely those whose peanut extracts are also on the career). The Insolvency Act 1986 section 26 supports the establishment of committee of creditors, who will work together in all areas including holding meeting about the attitude of the administrator (liquidator), and also working together to seek legal justice at the court10. The financial transaction between the Contrigrain Ltd and Munchy Feeds Ltd Evidence of contractual agreement: The financial relationship between Contrigrain Ltd and Munchy Feeds Ltd is plainly guided by a contract that has the following terms: 9. Smith, J., 1987. A compendium of mercantile law. William S. Hein Publishing, p. 117 10. Tolmie, F., 2003. Corporate and personal insolvency law. 2nd edn. Routledge-Cavendish 6 (i) The price of the goods hereby supplied shall be paid in full within 30 days of delivery; (ii) Title to the goods hereby supplied shall remain with the seller until the price is paid in full; (iii) If the goods hereby supplied are mixed with any other goods then the seller shall become owner in full of the resulting mixture until the price of the goods hereby supplied shall be paid in full. Taking a cognizance look at this contract, the contract between Contrigrain Ltd and Munchy Feeds can be described as illegal, because it is not enforceable under English Common Law11. Hence, the both parties went ahead with the contract until Munchy Feeds went liquidated. Here is what Contrigrain Ltd could do to get its money from the liquidator (administrator) now charge of Munchy Feeds: Legal action: It is only through legal action that Contrigrain Ltd could recover its money from the liquidated company. Hence, Contrigrain Ltd needs to tender all the necessary documents that would indicate that the two companies have engaged in a financial transaction, as required by Insolvency Act 1986 section 16, sub-secction 1a. Contrigrain Ltd does not need to work in conjunction with any creditors in this case; because it only involves it and Mucnhy Feeds Ltd. 11. Furmston et al., 2007. Cheshire, Fifoot & Furmston’s law of contract. 15th edn. Oxford University Press. 7 The financial transaction between Contrigrain Ltd and Mr. Giles Mr. Giles bought a five-year-old delivery truck from Contrigrain Ltd on November 30, 2009. However, the truck has been so defective that it began to develop mechanical faults often as a result of engine problems. Here, Contrigrain Ltd has broken a serious law in United Kingdom by selling a faulty truck to Mr. Giles without disclosing the real condition of the truck12. These laws in the United Kingdom discourage any seller from purposely selling faulty goods to consumers: they Consumer Protection Laws, Unfair Contract Terms Act 1977 and Sale of Goods Act 1979. Considering that the action of Contrugrain Ltd has contravened the British law, the company could rectify its mistake in the following ways as prescribed by the Sale of Goods Act 1979: Offer of repair: Contrigrain Ltd could offer to repair the engine of the delivery truck at no extra cost to Mr. Giles. This is a level-playing situation. Or else, if Mr. Giles drags Contrigrain to court, he may likely win some damages for tort or deceptive sale of faulty goods, which the Common Law strongly opposes. Refund: Contrigrain Ltd could decide to refund the total cost of the truck to Mr. Giles and get the truck back. This is one of the provisions in the Sale of Goods Act 197913. 12. Seshadri, V., 2006. Consumerism: with selected home appliances. Mittal Publications, p.77. 13. Thomas, W., 1980. The Sales of Goods Act 1979: with annotations. Taylor & Francis, p. 23 9 Defiance: Another part of illegality Contrigrain Ltd may decide to tow is to declare that the company has no knowledge of how faulty the truck was before it was bought by Mr. Giles. However, this argument may not be convincing enough in the court to persuade the judge from awarding damages to Mr. Giles. As indicated in the UK Common Law that sellers should think about the welfare of their consumers when selling any of their goods14. The financial transaction between Contrigrain Ltd and Hampshire Supplies Ltd The financial relationship between Contrigrain ltd and Hampshire Supplies Ltd is a little bit complicated in the sense that Contrigrain bought an old reconditioned mobile conveyor belt from Hampshire Supplies Ltd, which was in turns obtained from Industrial Finance Ltd on hire-purchase. Even though Hampshire Supplies Ltd has paid some amount of money, but as long as it has not fully paid all the cost of the conveyor, it still belongs to Industrial Finance Ltd15. Unfortunately the conveyor belt has been experiencing breakdowns; and now that Industrial Finance Ltd has gone liquidated, the following options are left for Contrigrain Ltd: 14. Bridge, M., 1998. The sale of goods. 2nd edn. Oxford University Press US, p. 2 15. Kothari, V., 1986. Lease, financing & hire-purchase: including venture capital, mutual funds, factoring, and merchant banking. 2nd edn. Wadhwa and Co., p.32 9 Seeking a legal recourse: Contrigrain Ltd can seek a legal recourse against the administrator of Industrial Finance Ltd, seeking for refunds or money to repair the faulty conveyor belt; this is highly encouraged in the Sale of Goods Act. However, on a serious term, such a decision may not come quite easily except through the court order. This is clearly indicated in Insolvency Act 1986 section 15 sub-section 2 which states thus: “ (2) Where, on an application by the administrator, the court is satisfied that the disposal (with or without other assets) of—(a) any property of the company subject to a security to which this subsection applies, or (b) any goods in the possession of the company under a hire-purchase agreement, would be likely to promote the purpose or one or more of the purposes specified in the administration order, the court may by order authorize the administrator to dispose of the goods as if it were not subject to the security or to dispose of the goods as if all rights of the owner under hire-purchase agreement were vested in the company. The statute above is self-explanatory enough in the sense that the administrator of Industrial Finance Ltd may give an order for the hire-purchased good to be given to the current purchaser, if though all the money had not been paid. In a situation that this arrangement comes up, Contrigrain Ltd has other options to employ in solving the problems arising from the conveyor belt. These options include: Repair option: Contrigrain Ltd can ask Hampshire Supplies Ltd to repair the conveyor belt as required by the Sale of Goods Act 1979. This option is only 10 possible if the court has passed the ownership of the conveyor belt to Hampshire Supplies Ltd after the liquidation of Industrial Finance Ltd. Seek Refunds: Contrigrain Ltd can also seek an outright refund: in this case, a court order may be necessary to compel Hampshire Supplies to comply to this demand16. In a situation whereby the court refuses to grant the ownership of the conveyor belt to Hampshire Supplies Ltd., Contrigrain Ltd could repeat the same procedures described above to seek redress and damages against the liquidated Industrial Finance Ltd17. That involves dragging the administrator/liquidator of Industrial Finance Ltd to court for an order that would force the administrator to repair the faulty conveyor belt. As stated above, the Insolvency Act 1986 requires that the administrator acts in the capacity as it is needed to satisfy the day-to-day management of the liquidated company18. Applying the statutes and principles above, it is possible for Contrigrain Ltd to solve all its legal problems with either Hampshire Supplies ltd or Industrial Finance Ltd. 16. Artis, M., 1996. The UK economy: a manual of applied economics. Oxford University Press, p. 322 17. Peel, M., 2003. The liquidation/merger alternative. Beard Books, p. 60. 18. Lacy, J., 2002. The reform of United Kingdom company law. Routledge, p. 223. 11 Conclusion It is interesting to notice that all the cases involving Contrigrain Ltd above are basically legal issues, which rally around important UK laws and statutes, which include but not restricted to Sale of Goods Act 1979, Consumer Protection laws, Insolvency Act 1986, and Unfair Contract Act of 1977. The purposes of all these laws are to guarantee that when companies are in financial relationships, they should do so in strict observance of the laws. Any failure to do business according to the laws would definitely result in legal battles as reflected in the examples above. United Kingdom laws have provisions that safeguard all financial transactions; it is left for the companies to play by the golden rules. In recent years, the number of cases involving liquidated companies has increased greatly: A situation that calls for more intimate understanding of all UK laws that guide business relationship among British companies and their international counterparts. Interesting enough, there are some EU regulations that try to protect the member countries from fraudulent practices during trade and business relationship. The purpose of this is to make fair trading possible, and to discourage sharp practices that could rob consumers of their rights and hopes. In the light of this, a company like Contrigrain Ltd can successfully run its business without worrying about being cheated or defrauded. Also, the company can be aware of the rights of customers it deals with. For instance, it will know that selling faulty truck to Mr. 12 Giles is illegal and punishable under the UK laws of business operations, This knowledge would forever change the way businesses are run in the entire UK. References Artis, M., 1996. The UK economy: a manual of applied economics. Oxford: Oxford University Press Peel, M., 2003. The liquidation/merger alternative. Maryland: Beard Books. Bhandari, J. & Weiss, L., 1996. Corporate bankruptcy: economic and legal perspectives. Cambridge: Cambridge University Press. Bridge, M., 1998. The sale of goods. 2nd edn. New York: Oxford University Press US. Farrar, J., 1979. Company insolvency. London: Taylor & Francis. Furmston M., Cheshire, G., & Fifoot, C., 2007. Cheshire, Fifoot & Furmston’s law of contract. 15th edn. Oxford: Oxford University Press. Hudson, J., 1996. The formation of the English law: law and society in England from the Norman conquest to Magna Carta. London: Longman. Lacy, J., 2002. The reform of United Kingdom company law. London: Routledge Kothari, V., 1986. Lease, financing & hire-purchase: including venture capital, mutual funds, factoring, and merchant banking. 2nd edn. New Dehli: Wadhwa and Co. Marsh, P., 2001. Contract negotiation handbook. 3rd edn. Surrey: Gower Publishing Ltd. Mitchelhill, A., 1990. Bill of laden: law and practice. 2nd edn. London: Chapman and Hall. Seshadri, V., 2006. Consumerism: with selected home appliances. Mittal Publications, p.77. Smith, J., 1987. A compendium of mercantile law. New York: William S. Hein Publishing Co. The Office of Public Sector Information (UK) (2009). ‘Insolvency Act 1986’, The Office of Public Sector Information, UK Thomas, W., 1980. The Sales of Goods Act 1979: with annotations. London: Taylor & Francis Tolmie, F., 2003. Corporate and personal insolvency law. 2nd edn. London: Routledge-Cavendish. Tomasic, R., 2006. Insolvency law in East Asia. Surrey (UK): Ashgate Publishing Ltd. Whincup, M., 2006. Contract law and practice: the English system with Scottish, Commonwealth, and Continental comparisons. 5th edn. Bedfordshire: Kluwar Law International. Read More