Law Business Organisation - Essay Example

1                                                          Scenario Recap        The following facts are obtained from the scenario described in the question: The three plumbers, Charlie, Edwin, and Adam operated their business together for two years shouldering the financial responsibilities of rents, utilities and insurance together. However, their business “Plumbers Express” was not a registered business then. They eventually registered their business as private limited company on May 1 with Charlie, Edwin and Adam becoming the sole shareholders and directors. The initial assets of the company are: (i) the building Charlie sold to the company at 200,000 pound; (ii) the computer and printer Edwin bought from Computer Galore Ltd. On May 15, a payment request was received from Plumbers Mate Ltd for payment of the debt incurred by Adam for himself on March 15 (before their business was registered). Plumbers Express Ltd went into insolvent liquidation in August due to bad management. The current liabilities of the company include the payment to: (i) the solicitors; (ii) Computer Galore Ltd and Plumbers Mate Ltd; (iii) Charlie’s building that was sold.                                                                                                                                                  2       Now that a liquidator has been appointed, it is the liquidator’s responsibilities to solve all these problems within the powers given to it by the UK Insolvency Act 1986.                                   Duties of the Liquidator    The section 33 (a) of Insolvency Act 1986 state s that a liquidator is appointed, probably by court, to handle some issues concerning the company. These issues include but are not restricted to: (i) settling all past financial obligations (contracts and debts) the company has incurred before the liquidation; (ii) holding regular meetings with the creditors with the hope of providing them the latest information about the company’s progress; (iii) and, continuing the company’s business activities (s. 134 (5)).                               The Liquidator and Plumbers Mate Ltd            The liquidator is not expected to be concerned with any financial obligation or contract any of the three plumbers, namely Charlie, Edwin, and Adam may have had before the company was formed on May 1. In other words, Plumbers Mate Ltd should not bother the liquidator to pay for the services offered to Adam before the company was established. This realization absolves the liquidator of any financial payment to Plumbers Mate Ltd, and Adam should be duly informed to pay up his debt with the Plumbers Mate Ltd.  Although, it is not indicated in the scenario that the service bought by Adam was later reverted to Plumbers Express Ltd—the new                                                                                                                                        3 company, Adam should hold a meeting with liquidator to explain his part in the process.                                      The Liquidator and the Creditors         There is no record in the scenario that Plumber Express Ltd borrowed money directly from any bank or financial institution, but the donation of a building worth 200,000 pound by Charlie and Edwin buying a computer and printer from Computer Galore Ltd could be debited against the company. Hence, the liquidator should see “the interests of the company are in the reality the interests of the creditors alone” (Keay 181). The best way to understand how this assertion applies is by considering the case Kinsela v Russell Kinsela Pty Ltd whereby the judges emphasized on recognizing creditors as important stakeholders in the company. Already, Edwin and Charlie are significant stakeholders in Plumbers Express Ltd, and their actions to provide the company a building and office accessories should be seriously recognized by the liquidator.  Section 40 (1-3) of the Insolvency Act 1986 expresses that the asset of the Plumbers Express Ltd currently under the control of the liquidator is considered as floating charge, and the liquidator should strive to handle the company’s preferential debts before the company wound up. And this may entail that the debts are settled with the company’s assets that are set apart to settle general creditors. Applying this section of the Act, it is clear that both Charlie and Computer Galore Ltd can recoup their expenses/money from Plumbers Express                                                                                                                                  4 Ltd’s accounts—however, the liquidator must initiate certain proceedings before this could happen in case Plumbers Express Ltd do not have enough funds to offset its debts. Although the nature of the proceedings may be different from one company to other; since the financial status of Plumbers Express Ltd is not provided in the scenario, one could assume that the company was suffering from acute financial difficulty. And to resolve this issue, the liquidator must seek the cooperation of the creditors to arrive at a particular payment structure that would be generally accepted by all the creditors (Wood 42).                                      Power to Dispose of Charged Property      In case the cash at hand is not enough to pay Computer Galore Ltd and Charlie, the liquidator should understand that he or she has the power to dispose of the charged property of Plumbers Express Ltd. According to section 43 (1-7) of Insolvency Act 1986, the liquidator has the power, though granted by court, to offer the property of the company for sale (Bourne 284). The decision about how much to sell off the property would not be made by the liquidator or the creditors; this is the sole responsible of the court handling the case. However, the liquidator’s discretion is required to ascertain the level of repayment in accordance with the available funds. In Aiden Shipping Co Ltd v Interbulk Ltd, the liquidator was responsible for managing all the proceedings that led to the disposal of the charged property, the collection and banking of the same money, but was not responsible for paying the                                                                                                                                    5 cost of carrying out the proceedings. So, the liquidator for Plumbers Express Ltd should be aware of this fact.  In a similar vein, the Metalloy Suppliers Ltd v MA (UK) Ltd describes a situation whereby the liquidator got the proceedings wrong and was liable for the administrative costs of the proceedings. This calls for more pragmatic approach on the part of the liquidator managing Plumbers Express.                  The Responsibilities of the Company’s Members   If the liquidator could not raise enough money to offset the debts of the company, the present or immediate past members of the company are liable to bear some of the financial responsibilities of the company. This is in accordance with section 74 (1) of Insolvency Act 1986, which expresses that “When a company is wound up, every present and past member is liable to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of the contributories among themselves.” In this circumstance, the liquidator can insist on Charlie forfeiting some of the money he was expecting for the house he had sold to Plumbers Express Ltd. Likewise, Edwin would have to pay some of the cost of procuring the computer and printer from Computer Galore Ltd. These actions are legal and expected of the two members. Adam would also be required to contribute to other financial obligations the company may have incurred during the period that they were all members of Plumbers Express Ltd. It is advisable that the liquidator hold regular meetings with them to fashion out the appropriate procedures needed to achieve this objective.                                                                                                                                 6                           Payment of the Solicitor’s charges    The legal services provided by the company’s solicitors should be paid in full so as not to break the trust two entities have had in each other. This action is in line with the requirement that the liquidator should identify the parties the company is owing and arrange meetings to discuss the issue to arrive at a conclusive agreement. Since the solicitors have never been members of the company, they would not be required to contribute any amount of money to help the company pay off its liabilities and debts. The solicitors would have had a contractual agreement with the company, and to maintain law, the contractual agreement should not be breached by the liquidator (Blond and Petrillo 30). The solicitors’ service may still be needed in the future in case the liquidator wants to appoint a manager to continue the business activities of Plumbers Express Ltd.                  The Continuation of Plumbers Express Ltd Business Activities If the liquidator feels like continuing the business activities of Plumbers Express, he or she can appoint managers that would help in strategizing every aspect of the company’s operations. Incidentally, the section 44 (1b) states that, “the administrative receiver is personally liable on any contract entered into by him in the carrying out of his functions (except in so far as the contract otherwise provides) and [F1, to the extent of any qualifying liability,]on any contract of employment adopted by him in the carrying out of those functions” It is clear that                                                                                                                                     7 liquidator would be held responsible for other contracts he or she initiated after taking over the company’s administration. The immediate past members or stakeholders in the company may be asked to help in running the company or are totally rejected by the liquidator. This is because the liquidator is not bound by law to include them in the day to day running of the liquidated company.                   Administrative Requirements of the Liquidator As a court-appointed liquidator, the court must be briefed often about the proceedings going on at the company. The section 47 (2) of Insolvency Act 1986 requires that the following information must be properly processed by the liquidator and provided when needed. Section 47 (2) describes this action as providing a “A statement submitted under this section shall be verified by affidavit by the persons required to submit it and shall show—(a)particulars of the company’s assets, debts and liabilities; (b)the names and addresses of its creditors; (c)the securities held by them respectively; (d)the dates when the securities were respectively given; and (e) such further or other information as may be prescribed” This practice is needed to make sure  that the liquidator follow the appropriate standards of accountability. And when needed, a complete account of the day-to-day operations of the company can be provided to the court that needs to review them in order to ascertain that due process has been observed and that the liquidator’s actions would not sink the company into deeper debts, as the case may be in some instances whereby the liquidator failed to run the company according to standards.                                                                                                                                  8                                Conclusion In the foregoing, it is clear that the liquidator has several options to adopt in managing the affairs of Plumbers Express Ltd: He or she (i) could dispose of the charged property of the liquidated company to raise enough funds to offset the company’s liabilities and debts; (ii) could ask the immediate past members of the company to partake in bailing the company out financially—the three members are Charlie, Edwin and Adam; (iii) raise enough funds to settle the money owed the solicitors since they might have entered into a contractual agreement with the company before it went insolvent; (iv) could continue to run the day-to-day affairs of the company by engaging in business activities that are likely going to yield some profits and help the company to get out of debts; (v) could  abide by the standards of management so as to prevent future failures that could make the company to collapse complete and put the liquidator in a position for prosecution.               In all these circumstances, one thing is very clear there: the liquidator does not have any liability toward anyone who had had business interactions with any of the stakeholders ever before the company itself was founded. That is, the Plumbers Mate Ltd does not have any legal standing to seek financial payment from the liquidator, since the company was yet to be formally established when one of the stakeholders entered into a transaction with the company. All the points raised in this analysis support the fact that the job of a liquidator requires careful planning and conformity to the standards of management, which is a key!                                                                                                                              9                                                                    Works Cited Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 950 HL. Blond, Neil and Petrillo, Louis. Contracts. New York: Aspen Publishers, 2007. Print. Bourne, Nicholas. Principles of Company Law. 3rd ed. London: Routledge, 1998. Print. Keay, Andrew. Company Directors’ Responsibilities to Creditors. London: Routledge, 2007. Print. Kinsela v Russell Kinsela Pty Ltd [1986] 4 ACLC 215 at 221 Metalloy Suppliers Ltd v MA (UK) Ltd [1997] 1 BCLC 165 at 169. The National Archives (Legislation.gov.uk). Insolvency Act 1986, 2011. Web. 31 January 2011. http://www.legislation.gov.uk/ukpga/1986/45/contents Wood, Philip. Principle of International Solvency. London: Sweet and Maxwell, 2007. Print.                    Read More