Corporate Secretarial Case Study - Business Law

This paper analyzes the breach of legal obligations committed by Sportive and its director since it had been incorporated. The main purpose of company law is to ensure that the directors do not misuse their positions to cause harm to the stakeholders and shareholders of the company or to the public.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note
Total Words: 14008

1BUSINESS LAW
Corporate Secretarial Case Study
750763
University of Portsmouth
Word Count: 14315

2BUSINESS LAW
Question A
Introduction
The law related to companies in the United Kingdom, is governed by the
provisions of Companies Act 20061 (CA). This section of the paper would analyze the
breach of legal obligations committed by sportive and its director since it had been
incorporated. The main purpose of company law is to ensure that the directors do not
misuse their positions to cause harm to the stakeholders and shareholders of the
company or to the public. On the other hand the primary purpose of employment law is
to promote fair and good employee relations and ensure balance between the rights
and liabilities of employees and the employer, with help from the Employment Rights
Act 19962. There are several areas of law including company law and employment law
which an organization has to abide by while carrying out its operations. These laws
include the way in which the company is to be managed and how the employees of the
company are to be treated. There are several areas of company operations which are
subjected to provisions of company law. These include directors’ duties, issue of
shares, insolvent trading, and payment of dividends, board meetings, company
disclosures and meeting resolutions such as the amendment of constitution. In relation
to employment law, the operations of the company which fall within the legal provisions
include unfair or wrong full dismissal, right to notice and disciplinary proceedings.
Whether the company in context has violated any legal provisions or not can be
identified by the analysis of facts in relation to the company with the existing legal
1 Companies Act 2006
2Employment Rights Act 1996

3BUSINESS LAW
provisions such as statutes and case law. For this section of the paper, the legal issues
are identified as the initial step. After the identification of the legal issues the paper
identifies the relevant legal areas with respect to the issues. The legal provisions which
have been identified are applied on the facts of the case to conduct the analysis and
finally a conclusion has been reached.
The Legal issues
1. Is the change in articles done before the share allocation valid under the
provisions of the CA?
2. Is the amendment of articles with respect to the two new Articles 22(g) and 43A
valid under the provisions of the CA?
3. Has there been a breach of directors’ duty committed by the directors of the
company?
4. Has the directors indulged in the breach of insolvent trading provisions?
5. Was the dismissal of Mrs Allen after the interview considered as valid under the
Employment Rights Act 1996?
6. Was the issue of dividends by the company legal?
7. Was the termination of Mrs Kicker valid under the provisions of the Employment
relations Act and is Mrs Mason obliged to provide a reference?
8. Is it legal not to provide information to Mrs Mason about the meetings and run the
meetings without her references?
Rules

4BUSINESS LAW
Under section 558 of the CA3 it has been stated by that the allotment of share
has to be managed and planned carefully. A director who has allotted shares in an
unlawful manner is liable for a criminal offence even if the allotment is valid.
Under the provisions of section 551(1)4 it has been provided that a director has to
have an authority to issue shares provided by the article or an ordinary resolution. This
authority can be varied or revoked by a general resolution.
In the case of Re Mackenzie and Co Ltd5 it has been stated by the court that
when a right in relation to a share has been abolished it would lead to the variation of
class rights and in case there is a small alteration it would not lead to a variation.
According to section 630 of the CA6, protection offered to the class rights holders
may not be reduced by the articles, but may only increase the protection. There are two
ways in which class rights can be varied. These include compliance with the article
clauses or approval of 75% shareholders of the class or an approval by passing special
resolution in a meeting consisting of the concerned share class.
Under common law, companies have the power to distribute profit to its members
with respect to the limitations under the CA or the articles. Under section 8307 it has
been stated that a company has the right to issue dividends in relation to the profit
which is present for the purpose. Further, it has been provided under section 830(2)8 of
3Companies Act 2006, s 558
4Companies Act 2006, s 551
5 Re Mackenzie and Co Ltd [1916] 2 Ch 450 (Ch)
6Companies Act 2006, s 630
7Companies Act 2006, s 830
8Companies Act 2006, s 830(2)

5BUSINESS LAW
the CA, profit which are available for distribution include its realised profit subtracted by
its realised losses. The total of its profit and losses are to be considered from the day
the company had commenced business. The distribution of dividends is only possible
when the total derived is positive.
The duties of directors of a company in UK are provided under section 171-177
of the CA. These are known as the general duties9. According to the duties, the
directors are required to function within the limits of their powers, promote company
success, deploy independent judgement, exercise reasonable, diligence care and Skill,
avoiding conflict of interest, not taking bribes and declaring interest in transactions. In
addition, under the provisions of s 182-226 of the CA10, it is the duty of the directors to
get approval for loans, service contracts, property transactions and payment for losses
of office.
Under the operations of section 171 of the CA, the directors are required to
function within the limits of their powers and also act for a proper purpose. An act which
is indulged into be the director for the purpose of maintaining control within the company
is to be considered as an act for improper purpose11.
Section 172 of the CA provides rules relating to promoting the success of a
company12. In the case of Extrasure Travel Insurance Ltd v Scattergood [2003]it had
been provided by the court that in case actions causes harm to the company the court
9Companies Act 2006, s 171-177
10Companies Act 2006, s 182-226
11Companies Act 2006, s 171
12Companies Act 2006, s 172

6BUSINESS LAW
would not be persuaded easily to believe that the action is in the interest of the
company13. Under the section14, the directors who are making decisions must give
regards to the consequences of the decision, interest of company employees, fostering
business relationship with customers and suppliers, assessing impact of operations on
the environment, maintaining business conducts and acting fairly between the members
of the company15. In the case of Fulham Football Club (1987) Ltd v Tigana [2004]16, it
had been stated that the breach of the duty is analyzed in the light of whether the
directors acted in an honest breach.
Under section 173 of the Act it is the duties of the directors to implement
independent judgment17. They must have the ability to exercise their discretionary
powers as provided by the case of Fulham Football Club Ltd v Cabra Estates plc18. In
case such independent judgment is not used, this would lead to the breach of this duty.
Based on the the provisions of s 174 of the CA, the directors are expected to
deploy a standard of care which is same as that of a reasonable person19. This is
analyzed in relation to the general experience, skill and knowledge which is expected of
a person indulging in the same functions as carried out by the directors. In general law
the skill and knowledge which is actually possessed by the directors is taken into
consideration. The provisions have been further discussed in the court of Re Barings plc
(No 5) [2000]20.
13Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598 (Ch)
14Companies Act 2006, s 172
15Omar, Paul J. Directors' duties and liabilities.Taylor & Francis, 2017.
16Fulham Football Club (1987) Ltd v Tigana [2004] EWHC 2585 (QB),
17Companies Act 2006, s 173
18Fulham Football Club Ltd v Cabra Estates plc [1992] BCC 863
19Companies Act 2006, s 174
20Re Barings plc (No 5) [2000] 1 BCLC 523 (CA).

7BUSINESS LAW
Under the provisions of sections 17721 and 18222 of the CA, it has been stated
that any interest in a proposed transaction or arrangement has to be disclosed by the
directors as soon as reasonably practicable.
Under the provisions of section 21 of the CA it has been stated that the articles of
associations can be amended by the company23. This can be done through the passing
of a special resolution. In addition if the articles prohibit certain kinds of alterations they
cannot be carried out under section 22 of the CA24.
Section 993 of the CA provides rules in relation to an offence of fraudulent
trading25. It has been stated through the section that in case a business of an
organization is carried out with an intention of defrauding the company creditors, of a
creditor of any other person, or for any purpose which is fraudulent in nature, all
individuals who are a part of carrying out the business transaction knowingly are held to
have committed an offence in such manner26. This is applicable irrespective of whether
the company is or has been subjected to the procedure of winding up. A person who is
found to have violated this section is liable of an imprisonment which can be extended
up to ten years and fines or both27. This issue has been discussed by the court in the
case of Re Patrick and Lyon Ltd [1933]28. Wrongful trading takes place when the
directors have knowledge that the company has become insolvent and there is no plan
in relation to how payment is to be made to the creditors. It takes worse effect where the
21Companies Act 2006, s 177
22Companies Act 2006, s 182
23Companies Act 2006, s 21
24Companies Act 2006, s 22
25Companies Act 2006, s 993
26Companies Act 2006, s 993(1)
27Companies Act 2006, s 993(3)
28Re Patrick and Lyon Ltd [1933] Ch 786

8BUSINESS LAW
directors allow the degree of credit to increase in such a period. However, if the
directors determine that the financial difficulty is temporary (or temporary according to
them) and they indulge in trading to enhance the position of the company it is not
unlawful, as such actions are to benefit the company. It would more likely be considered
as wrongful trading in a situation where there is no chance of recovery.
The insolvency test is provided by the Insolvency Act 198629. Under the test
insolvency is not always consider to be permanent, however the signs of insolvency
have to be recognized. Insolvency can be identified by analyzing whether the liabilities
of the company have become more than their assets30 or the company does not have
the capacity of paying off debts as and when its falls due31. In case these answers are
positive the company can be taken as being insolvent. However, in case the insolvency
arises due to temporary reasons then it may not account to a wrongful trading32.
An unfair dismissal takes place when an employee has been terminated from its
position because of reasons which cannot be considered as fair33. It is not lawful in UK
to dismiss an employee in a wrongful or unfair manner. This is dealt by the provisions of
the Employment Rights Act 199934.
Application
This section of the paper discusses the relevant facts and analyzes them in the light of
the case laws and statutes present in the situation. It has been provided through the
29 Insolvency Act 1986, s 123
30Insolvency Act 1986, s 123(2)
31Insolvency Act 1986, s 123(1)(e)
32Insolvency Act 1986, s 214(b)
33Employment Rights Act 1996, s 98
34 Employment Rights Act 1996

9BUSINESS LAW
facts of the case study that Mrs Mason had set up a sole proprietary company which
had been converted by her to Sportive Ltd. This means that as the business had been
converted to a corporation structure it would be subjected to the provisions of the CA35.
The company had one director and one company secretary. The director was Mrs
Mason and the company secretary was her husband who had no experience or
knowledge in managing a company.
She wanted to convert the company to a public company from a private
company. There was no argument raised by Mr Mason in this situation. Under section
173 of the Act it is the duties of the directors to implement independent judgment36.
They must have the ability to exercise their discretionary powers as provided by the
case of Fulham Football Club Ltd v Cabra Estates plc37. In case such independent
judgment is not used, this would lead to the breach of this duty. This may mean that it
was the violation of his duty to exercise discretion. Two new directors had been brought
into the company for the purpose of accommodating the expansion. There had been a
wish on the party of Mrs Mason to control the company and therefore she had amended
the articles. The amendmentof the articles is not an issue. This is because under the
provisions of section 21 of the CA it has been stated that the articles of associations can
be amended by the company. This can be done through the passing of a special
resolution38. In addition if the articles prohibit certain kinds of alterations they cannot be
carried out under section 22 of the CA39. There were no express restrictions imposed
upon Mr Mason for the purpose of alteration of the articles. However, it had been
35Companies Act 2006
36Companies Act 2006, s 173
37Fulham Football Club Ltd v Cabra Estates plc [1992] BCC 863
38Companies Act 2006, s 21
39Companies Act 2006, s 22

10BUSINESS LAW
provided by the operations of section 171 of the CA40that the directors are required to
function within the limits of their powers and also act for a proper purpose. An act which
is indulged into the director for the purpose of maintaining control within the company is
to be considered as an act for improper purpose. In this situation the alternation of the
articles had not been done in a proper purpose for the company and therefore it is the
breach of this section made by Mrs Mason. As Mr Mason did not prohibit such actions
he would also be liable along with Mrs Mason.
The change of the articles has also led to the variation of class rights in the
present situation. This is because in the case of Re Mackenzie and Co Ltd41 it had been
stated by the court that when a right in relation to a share has been abolished it would
lead to the variation of class rights and in case there is a small alteration it would not
lead to a variation. Under section 558 of the CA42 it has been stated by that the
allotment of share has to be managed and planned carefully. A director who has allotted
shares in an unlawful manner is liable for a criminal offence even if the allotment is
valid. Under the provisions of section 551(1)43 it has been provided that a director has to
have an authority to issue shares provided by the article or an ordinary resolution. This
authority can be varied or revoked by a general resolution.
According to the CA, protection offered to the class rights holders may not be
reduced by the articles, but may only increase the protection44. According to section 630
40Companies Act 2006, s 171
41 Re Mackenzie and Co Ltd [1916] 2 Ch 450 (Ch)
42Companies Act 2006, s 558
43Companies Act 2006, s 551
44Companies Act 2006, s 630

11BUSINESS LAW
of the CA45, protection offered to the class rights holders may not be reduced by the
articles, but may only increase the protection. There are two ways in which class rights
can be varied. These include compliance with the article clauses or approval of 75%
shareholders of the class or an approval by passing special resolution in a meeting
consisting of the concerned share class.
There are two ways in which class rights can be varied. These include
compliance with the article clauses or approval of 75% shareholders of the class46 or an
approval by passing special resolution in a meeting consisting of the concerned share
class47. This may therefore be valid variation of class rights but done for an improper
purpose.
In addition, it has been provided through the facts that the company had made a
promise to the shareholders that it is going to make considerable profits. However it
turned out that the predictions made by the company were not accurate and the sales
were not as expected. This made the company suffer losses in the first year. It was
stated by Mrs Mason that this is normal and next year would be more profit. In this
situation the profit made by the company was nominal. In addition, it had been provided
that the loss which the company had made in the situation was £300,000 in 2015/16
and on the other hand the profit which had been made by the company was only
£50,000 in 2016/17. Although the losses were more than the profit the directors had
made a recommendation to provide dividends. It had been discussed through the rules
that under common law, companies have the power to distribute profit to its members
45Companies Act 2006, s 630
46Companies Act 2006, s 630(4)(a)
47Companies Act 2006, s 630(4)(b)

12BUSINESS LAW
with respect to the limitations under the CA48 or the articles of association. Under
section 830 it has been stated that a company has the right to issue dividends in
relation to the profit which is present for the purpose49.
Further, it has been provided under s 830(2) of the CA, profit which is available
for distribution includes its realised profit subtracted by its realised losses50. The total of
its profit and losses are to be considered from the day the company had commenced
business. The distribution of dividends is only possible when the total derived is
positive. However in this case the realised profit subtracted by its realised losses would
result in a negative balance of 250,000. This means that under the provisions of 830(2)
of the CA, the company had no right to issue the dividends and thus the provisions of
this section gave been breached. Section 172 of the CA provides rules relating to
promoting the success of a company51. In the case of Extrasure Travel Insurance Ltd v
Scattergood [2003]52 it had been provided by the court that in case actions causes harm
to the company, the court would not be persuaded easily to believe that the action is in
the interest of the company. Under section 172, the directors of whom are making
decisions must give regards to the consequences of the decision, interest of company
employees, fostering business relationship with customers and suppliers, assessing
impact of operations on environment, maintaining business conducts and acting fairly
between the members of the company. In relation to the issues considered, the
directors of Sportive in this situation have not given regards to what has been previously
stated under the provisions of section 172. They have further acted in an improper
48Companies Act 2006
49Companies Act 2006, s 830
50Companies Act 2006, s 830(2)
51Companies Act 2006, s 172
52Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598 (Ch)

13BUSINESS LAW
purpose which also leads to the breach of s 171 as the directors are required to function
within the limits of their powers and also act for a proper purpose. Thus issue of
dividends hasled to the breach of s 171, 172 and 830. They have further breached the
provisions of s 174 of the Act as it states that the directors are expected to deploy a
standard of care which is same as that of a reasonable person53. This is because a
reasonable person in the position of the directors would not have issued dividends
where the company had made more loss then profit in the previous year.
It had been provided through the facts of the case study that the company is not
able to make profit as the competitors has reduced the price and the company is no
able to do so because of their financial position. In this situation the company had been
notified by the auditors that the company is close to insolvency and would not be able to
avoid liquidation. It has also been provided that the debts which were present had been
paid off by the directors of the company as most of them except Mr. Most was of the
opinion that they can trade out of the situation. However the payment of debts also has
not helped the financial struggle of the company. The board made a decision to borrow
more money worth £2 million from Southsea Bank plc which has been secured over
Sportive’s registered office. Section 993 of the CA provides rules in relation to an
offence of fraudulent training. It has been stated through the section that in case a
business of an organization is carried out with an intention of defrauding the company
creditors, of a creditor of any other person, or for any purpose which is fraudulent in
nature, all person who are a part of carrying out the business transaction knowingly is
held to have committed an offence in such manner. This is applicable irrespective of
53Companies Act 2006, s 174

14BUSINESS LAW
whether the company is or has been subjected to the procedure of winding up. A
person who is found to have violated this section is liable of an imprisonment which can
be extended up to ten years and fines or both. In this case the directors can be liable for
such wrongful trading as the organization is in an insolvent state and the chances of
recovery are very less.
However, in the case of Re Patrick and Lyon Ltd [1933] Ch 78654 it was clarified
that wrongful trading takes place when the directors have knowledge that the company
have become insolvent and have no plan in relation how payment is to be made to the
creditors. It takes worse effect where the directors allow the degree of credit to increase
in such a period. However if the directors determine that the financial difficulty is
temporary or temporary according to them and they indulge in trading to enhance the
position of the company it is not unlawful. It would be considered as wrongful trading in
situation where there is no chance of recovery. Thus in this case as it is clear that the
directors had the intention of recovering the state of the company may not be liable.
It has been stated that Mrs Mason has not been provided with any notice about
the meetings and work is carried out by the directors without her. This is a breach of the
provisions set out in s Section 310 of the CA 200655
Mrs Allen had been terminated by Mrs Mason. An unfair dismissal takes place
when an employee has been terminated from its position because of reasons which
cannot be considered as fair56. It is not lawful in UK to dismiss an employee in a
wrongful or unfair manner. This is dealt by the provisions of the Employment Rights Act
54 Re Patrick and Lyon Ltd [1933] Ch 786
55Companies Act 2006, s 310
56Employment Rights Act 1996, s 98

15BUSINESS LAW
199957. This termination can be considered as legal. This is because the articles of the
company had been amended in a proper way. In addition it has been provided by 168
and 169 of the CA that a director can be removed from its position through the passing
of an ordinary resolution or through the provisions of the company article. This means
that the removal of Mrs Allen is valid under the CA58. In addition she had been involved
in a gross misconduct as she had caused harm to the reputation of the company she
works for. This is an adequate ground for a summary dismissal and her termination is
not unfair.
It has also been provided through the facts that Mrs Mason has dismissed Mrs
Kicker. This is because she had made a few personal remarks through twitter. She had
been terminated for the same. There was no mention of any connection to her
employment in the tweets. She had been terminated immediately. This means that she
has been terminated in an unfair manner under the provisions of the ERA 199959. She
can claim compensation form the company because of the unjust treatment which had
been received by her.
The facts further state that Mr Most was a partner in the company which has
been appointed as the auditor of sportive. This means that there may be elements of
personal interest involved in the situation. Under these circumstances under the
provisions of s 177 and s 182 of the CA, where it has been stated that any interest in a
proposed transaction or arrangement has to be disclosed by the directors as soon as
57 Employment Rights Act 1996
58Companies Act 2006, s 168, 169
59Employment Relations Act 1999

16BUSINESS LAW
reasonably practicable, Mr Most also has the same liabilities60. Thus he has breached
this section.
Conclusion
In this situation the alternation of the articles had not been done in a proper
purpose for the company and therefore it is the breach of this section made by Mrs
Mason. As Mr Mason did not prohibit such actions he would also be liable along with
Mrs Mason. There are two ways in which class rights can be varied. These include
compliance with the article clauses or approval of 75% shareholders of the class or an
approval by passing special resolution in a meeting consisting of the concerned share
class. Thus the variation of class rights is valid but done for an improper purpose. Thus
issues of dividends have lead to the breach of s 171, 172 and 83061. They have further
breached the provisions of s 174 of the Act as it states that the directors are expected to
deploy a standard of care which is same as that of a reasonable person62. This is
because a reasonable person in the position of the directors would not have issued
dividends where the company had made more loss then profit in the previous year. The
directors had the intention of recovering the state of the company may not be liable for
wrongful trading. Mrs Mason has not been provided with any notice about the meetings
and work is carried out by the directors without her. This is a breach of the provisions
set out in s Section 310 of the CA 2006. The dismissal of Mrs Allen is fair but that of Mrs
Kicker is unfair63. Provisions of s 177 and s 182 of the CA, where it has been stated that
60Companies Act 2006, s 177 and 182
61Companies Act 2006, s 171, 172 and 830
62Companies Act 2006, s 174
63Companies Act 2006, s 310

17BUSINESS LAW
any interest in a proposed transaction or arrangement has to be disclosed by the
directors as soon as reasonably practicable have been violated by Mr Most64.
Question 2
Introduction
It has been stated by the annual report of the company that it had totally
complied with the provision of the Corporate Governance Code. This section of the
paper reviews the conduct of the company in relation to its compliance with the code.
The corporate governance code is followed by the organization for the purpose of not
only ensuring compliance but also having effective management in place to handle the
affairs of the company. The corporate governance code which has to be discussed in
relation to this part of the paper is that of 2018 version of the Corporate Governance
code of UK.
The 2018 code provides for five specific principles. The first of the principles are
that of broad leadership and company purpose, the second principle is that of divisions
of responsibilities, the third element is that of composition, evaluation and succession,
the forth element is that of audit, risk and internal control and the final element is in
relation to remuneration. Each of the guidelines issues by the code have their own
principles and provisions which are to be analyzed for the purpose of deriving
compliance with the code. The code of have been revised over the years for the
purpose of incorporating the CG demands in the UK. In relation to the core of this code,
an updated set of rules are present in relation to long term sustainable success of the
64Companies Act 2006, s 177 and s 182

18BUSINESS LAW
organization. The effectiveness of the code is largely dependent on how the companies
and the boards perceive the spirit of the principals.
.
Issue
The issues which have been identified which respect to this section is that
whether the provisions of the Corporate Governance Code 2016 (CGC 16) have been
complied with by the company. The issue is also to determine future compliance with
2018 code.
Rule
CGC 16
The four main principles provided by the 2016 corporate governance code are that of
leadership, effectiveness, accountability and remuneration. The primary purpose of this
code is to ensure intracranial effective and prudent management so that long-term
success of the company can be delivered. The code defines corporate governance as a
system through which companies are controlled and directed65. The Governance of the
company is the responsibility of the board of directors. On the other hand it is the role of
the shareholders to appoint auditors and directors and to be assured that they have put
in place a proper governance structure66. It is the responsibility of the board of directors
65 Financial Reporting Council, ‘The UK Corporate Governance Code’ April 2016
66 Financial Reporting Council, ‘The UK Corporate Governance Code’ April 2016.

19BUSINESS LAW
to set the strategic aims of the company, deploy effective leadership to give effect to the
aims, supervise the business management and report to the shareholders67.
Leadership
Under the principles of leadership every organisation has to be led by an effective board
of directors which have the collective responsibility of ensuring the long-term success of
the corporation. There should be a clear distinction between leadership and executive
branch of the company so that they can both effectively carry out their functions. No
person in the company should be provided with Supreme powers of making decisions. It
is the responsibility of the chairman who lead the board and also ensure that the
leadership is effective in relation to all areas of his role. The non executive directors also
have the responsibility of raising constructive challenges and developing strategies as a
part of the responsibility of being a part of unitary board68.
Effectiveness
Under the provisions of effectiveness the board of directors along with the committees
formed by have to ensure appropriate balance of experience Independence knowledge
and skills in relation to the company so that they can discharge their responsibilities and
duties effectively69. There is a requirement of a transparent rigorous informal procedure
for the appointment of new directors in the board. The directors who have been
appointed should be provided with adequate time with respect to the management of
the company so that they can effectively discharge their duties. The directors are also
67 Financial Reporting Council, ‘The UK Corporate Governance Code’ April 2016
68 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Section A) April 2016
69 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Section B) April 2016

20BUSINESS LAW
required to basic induction when they join the board and should continuously refresh
and update their knowledge and skills70. The board is also required to be provided with
quality information which is required to discharge the duties of an effective manner.
There has to be a rigorous informal annual evaluation carried out by the board with
respect to its own performance and the performance of the directors and committees
individually. It is the duty of the board to subject all the directors to the process of
election for the purpose of satisfactory performance at a regular interval.
Accountability
In relation to accountability it is required that the boat presents a balanced
understandable and fair assessment of the prospects and position of the company. It is
the responsibility of the board to determine the extent and nature of the primary risk it is
going to take for the purpose of achieving the company’s strategic objectives. It is
required by the board of directors to have in place a sound internal control and risk
management system. It is also the duty of the board to establish a transparent and
formal arrangement for the purpose of taking into consideration how they are going to
apply the principles of risk management internal control and corporate reporting and
also for the purpose of appropriately maintaining relationship with the auditors of the
company71.
Remuneration
70 Financial Reporting Council, ‘The UK Corporate Governance Code’(Section B) April 2016
71Financial Reporting Council, ‘The UK Corporate Governance Code’(Section C) April 2016

21BUSINESS LAW
With respect to Executive remuneration it is the responsibility of the board that such
remuneration should be designed for the purpose of promoting the long-term success of
the organisation. the elements which are related to performance should be stretching
transparent and applied rigorously. A transparent informal procedure should be in place
for the purpose of developing policy with respect to Executive remuneration and also for
the purpose of setting out remuneration packages for every director. No director should
be given the power to decide his or her own remuneration72.
RELATION WITH SHAREHOLDERS
With respect to relationship with shareholders the director should indulgent to dialogues
with shareholders with respect to common understanding of the company’s objectives. It
is the responsibility of the board as a whole to ensure that satisfactory dialogues take
place with the shareholders. For the purpose of encouraging participation and
communication with investors the board should utilise general meetings73.
Important provisions
It has been provided in court provision A.2.1 that the role of a chief executive and
chairman should not be used by the same individual. There must be a clear division of
responsibilities between the chief executive and the chairman which should be set out in
a written and agreed manner by the board74.
It is provided by code provision A.4.1 that it is the responsibility of the board to appoint a
non executive director as a senior independent director for the purpose of providing a
72 Financial Reporting Council, ‘The UK Corporate Governance Code’(Section D) April 2016
73 Financial Reporting Council, ‘The UK Corporate Governance Code’(Section E) April 2016.
74 Financial Reporting Council, ‘The UK Corporate Governance Code’(Code A.2.1) April 2016

22BUSINESS LAW
sound board to the chairman and also to serve as a mediator for the directors when
required. It is the responsibility of the chairman to organise meeting with the non
executive directors where executives are not present.
Under code B.1.1 it is the responsibility of the board to ensure that the non executive
directors do not have any link with the company which can compromise with their
Independence75. Code B. 2.1 requires a nomination committee which should have
majority of its members as independent non-executive directors. In addition the
committee has to be shared by a non executive Director and the chairman should not
share the nomination community76. Under the provisions of code B. 6.1 there should be
a statement made by the board in the annual report of how its performance is being
evaluated. It should be the responsibility of the non executive directors to review the
responsibility of the board77.
It is the responsibility of the board of directors to ensure that the present to the
shareholders appropriate information in relation to the performance of the company so
that it can be accessed by the shareholders accurately. Under code C.3.1 the board
should have at least 3independent non executive directors in the audit committeefor big
companies and 2 for small companies’78.
2018 CGC
Broad leadership and company purpose
75 Financial Reporting Council, ‘The UK Corporate Governance Code’(Code B.1.1) April 2016
76 Financial Reporting Council, ‘The UK Corporate Governance Code’(Code B.1.2) April 2016
77 Financial Reporting Council, ‘The UK Corporate Governance Code’(Code B.6.1) April 2016
78 Financial Reporting Council, ‘The UK Corporate Governance Code’(Code C.3.1) April 2016

23BUSINESS LAW
With respect to the broad leadership and company purpose the principles of the
code provide that a successful company has to be led by an entrepreneurial and
effective board, who have the role of promoting sustainable success in the long term
and extracting value for the owners while making contribution to the society79. It is the
responsibility of the board to establish the purpose of the company along with strategies
and values and be content themselves in relation to the fact that they have aligned the
culture80. It is also the duty of the directors to act with integrity along with leading by an
example and enhance the desired culture81. It is also the responsibility of the board of
directors to ensure that they make necessary resources available before the company
for the purpose of attaining its goals and also have a proper system of measurement82.
The board also has the duty of establishing an effective and prudent framework of
control for the purpose of assessing and managing risks. For the purpose of ensuring
the obligations owed to the stakeholder and shareholders, it is the responsibility of the
board to have in place effective engagement with the parties and also to enhance their
participation in the company83. The board of directors also gave the responsibility of
ensuring that workforce practices and policies are in compliance with the goals of
supporting the sustainable long term success of the company. The workforce has to be
provided the opportunity to raise any matter which concerns them before the board.
79 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose A)
July 2018
80Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose B)
July 2018
81 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose C)
July 2018
82 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose D)
July 2018
83 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose E)
July 2018

24BUSINESS LAW
According to the provisions of the first guideline, the board has to be able to
evaluate the platform in which the organization stores its values in the long run. It has to
be described in the annual report of the company about the way in which the
organization have addressed the risks and opportunities in relation to its success. The
board should also be able to assess the sustainability of the company in long term and
how the board is going to achieve its goals84.
The board has the responsibility of monitoring and assessing culture, it should
change the policies and strategies of the company which it considers not to be in
compliance with the goal of achieving the company’s success. It also has the
responsibility of ensuring that the management has taken corrective actions in relation
to the policy85.
In case it has been identified that 20% of votes have been casted against the
recommendations of the board then it is the responsibility of the board to explain the
actions it is planning to take to address the issues of the shareholders86. It is the duty of
the board for the purpose of engaging with the workforce to appoint a director from the
workforce, have a workforce advisory panel and a non executive director87.
Division of responsibilities
84 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose 1)
July 2018
85 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose 3)
July 2018
86 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose 4)
July 2018
87 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Broad leadership and company purpose 5)
July 2018

25BUSINESS LAW
There are primarily four principles which have been provided under the guideline
of division of responsibilities. Under the first principles the responsibility of the chair is to
lead the board and be accountable for effectiveness of the way in which company is
directed88. It is their duty of demonstrating objectives decision making and promoting a
culture of debate and culture. The board is further asked to have a proper combination
of executive and non executive directors so that the decision making of the board is not
influenced by a single person or a small group. Leadership and executives should be
clearly distinguished in the company89. Sufficient time has to be provided by the non
executive directors to meet the responsibility of the boards. They have to give strategic
guidance, constructive challenges, give advice and hold the management liable90. The
board which is supported by a Company Secretary, should take into consideration that
there are processes, policies, information, resources and time which is required for the
propose of functioning in an effective manner91.
The role of the chairperson and executive should not be exercised by the same
person. The circumstances which are dependant in relation to analysing the
independence of the report include the fact that whether a non executive director had
any relationship with the company in the last five years92. At least half of the board
should be the non executive directors of the company for the purpose of the boards to
be considered as independent93. There has to be a non-executive director who has
been made the senior independent director of the company94. The role of the non
88 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities F) July 2018
89 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities G) July 2018
90 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities H) July 2018
91 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities I) July 2018
92 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities 10) July 2018
93 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities 11) July 2018
94 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities 12) July 2018

26BUSINESS LAW
executive director is to remove and appoint non executive directors95. The advice of the
company secretary should be made accessible to all the directors of the board96. It is
the responsibility of the CS to advice the board in relation to matters of governance97.
Composition Succession and Evaluation
Under these guidelines, there are three specific principles which have been laid
by the CGC98. These include the fact that the appointment of the board has to be
subjected rigorous, transparent and formal procedures and there have to be an effective
plan for the senior management and the board in relation to succession99. Appointment
and succession plans have to be based on objective and merit criteria ad in relation to
they have to promote diversity in relation to ethnic, social and gender backgrounds and
personal strengths100. The board must have combination of knowledge, experience and
skills. It has to be taken into consideration that membership and length of appointment
is refreshed regularly. There has to be an annual evaluation of the board in relation to
its diversity, composition and the way in which the members work effectively together
for the purpose of achieving the objective101.
Under this guideline all directors have to be subjected to re-election annually. For
the appointment of executive and non executive directors open advertisement or search
95 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities 13) July 2018
96 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities 14) July 2018
97 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Division of responsibilities 15) July 2018
98 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Composition Succession and Evaluation)
July 2018
99 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Composition Succession and Evaluation J)
July 2018
100 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Composition Succession and Evaluation k)
July 2018
101 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Composition Succession and Evaluation l)
July 2018

27BUSINESS LAW
consultancy needs to be used. Performance has to be evaluated annually in a formal
and rigorous manner102.
Audit Risk and Internal Control
The fourth guideline also comprises of three principles103. Under the principles
the board has the responsibility to establish a transparent and formal procedure and
polices for the purpose of ensuring the effectiveness and independence of external and
internal audit functions and must be content in relation to integrity of narrative and
financial statements104. It is the responsibility of the board to provide a balance, fair, and
understandable analysis of the prospects and position of the company105. It is also the
duty of the board to establish procedures for the purpose of managing risks, overseeing
the framework of internal control and analysing the extent and nature of the primary
risks which the organization is willing to indulge in for the purpose of achieving long
term strategic objectives. There has to be an audit community of non executive
independent directors established by the board. This must be at least three or in case of
smaller companies at least. At least one such member must have financial experience
in relevant matters. They must also have knowledge in relation to the area in which the
company operates106.
102 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Composition Succession and Evaluation
18) July 2018
103 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Audit Risk and Internal Control) July 2018
104 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Audit Risk and Internal Control M) July 2018
105 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Audit Risk and Internal Control N) July 2018
106 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Audit Risk and Internal Control 0) July 2018

28BUSINESS LAW
The primary responsibilities and the role of the audit committees must include,
monitoring financial statement integrity, providing the relevant advice, reviewing internal
financial controls of the company, monitoring the effectiveness of internal audit functions
of the company, reviewing the external auditors objectivity and independence, reviewing
the effectiveness of the external auditors and notifying the board how the responsibility
have been discharged107.
It is the duty of the board to indulge into robust engagement in the assessment of
company’s principal and emerging risks. It is the duty of the board to confirm in relation
to its annual report that the task has been completed. It has the duty of managing the
risk management system as well as the internal control system of the company. Taking
into consideration the principle risks and current position of the company, the annual
report has to contain how the board has assessed the prospects of the organization and
the period over which it has done so108.
Remuneration
Remuneration practices and policies have to be designed for the promoting and
supporting strategies in relation to long term sustainable support of the company. The
remuneration of the executive have to be aligned with the values and purpose of the
company and be linked clearly with the successful providing of long term success for
the company109. There has to be a transparent and formal procedure in place for the
107 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Audit Risk and Internal Control 25) July 2018
108 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Audit Risk and Internal Control 27) July 2018
109 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Remuneration P) July 2018

29BUSINESS LAW
purpose of developing executive remuneration policies as well as that of directors and
senior managements. No director should decide his or her own remuneration110. It is the
duty of the directors on exercise discretion and independent judgement with respect to
authorizing the remuneration outcomes, considering the individual and company
performance along with wider circumstances111.
Application
Mrs Mason had set up a sole proprietary company which had been converted by
her to Sportive Ltd. The company had one directors and one company secretary. The
director was Mrs Mason and the company secretary was her husband who had no
experience or knowledge in managing a company. She wants to convert the company
to a public company from a private company. As it has been done the CGC 2018 would
be applicable when the shares of the company had been listed on the London stock
exchange.
It has been provided though the facts of the case study that in January 2016 the
company had issued a new class of shares known as class A shares and have them
listed on the LSX. When the process of listing was completed successfully, the
company became a listed company. There have been a few changes identified by Mrs
Mason that in order to comply with the governance regime, some governance changes
would be required. In relation to such changes the company had employed two new
executive directors whose names were Mr Most and Mr Stretch. They were appointed
110 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Remuneration Q) July 2018
111 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Remuneration R) July 2018

30BUSINESS LAW
as the financial and retail operation directors respectively. There has been an
appointment of two new non-executive directors named Mr Red and Mrs Frame. Mr
Frame was a mechanic for the company form the time it had been incorporated
however he resigned from the role before he was made the NED. He had been provided
the title of directors of product development. These have been various board
communities which have been set up and include committees like the remuneration
committee, audit committee and nomination committee. The remuneration committee
consists of two NEDs and Mrs Mason, the nomination committee consists of Mr Mason
and two NEDs and the Audit committee consists of Mr Most and two NEDs. Mrs Kicker
had been provided the position of a general counsel and she is also now the CS of the
company. There has been a further decision through which Elite Accounts LLP had
been appointed as the auditor. However, Mr Most had been working in the company as
a partner two years before.
The above facts are to be analyzed the light of guideline three four and five which
are that of Composition Succession and Evaluation, Audit Risk and Internal Control and
Remuneration. There are basically three committees which have been formed within the
company. The first breach of non-compliance with the board had been in relation to the
third guideline which states that all directors have to be subjected to re-election
annually. For the appointment of executive and non executive directors open
advertisement or search consultancy needs to be used. Performance has to be
evaluated annually in a formal and rigorous manner. There is no such procedure
undertaken by the company.

31BUSINESS LAW
The nomination committee or the appointment committee has several functions
such as appointment and succession plans have to be based on objective and merit
criteria ad in relation to they have to promote diversity in relation to ethnic, social and
gender backgrounds and personal strengths. The board must have combination of
knowledge, experience and skills. It has to be taken into consideration that membership
and length of appointment is refreshed regularly. However no such compliance has
been observed in relation to the board of sportive.
Under the principles of the fourth Guideline the board has the responsibility to
establish a transparent and formal procedure and polices for the purpose of ensuring
the effectiveness and independence of external and internal audit functions and must be
content in relation to integrity of narrative and financial statements. . There has to be an
audit community of non executive independent directors established by the board. This
must be at least three or in case of smaller companies at least. At least one such
member must have financial experience in relevant matters. In the given situation the
audit committee which have been formed by the company consists of executive
directors and non-executive directors where it is required under the code that the
committee should only have non executive directors. In addition, the independence of
the audit company have been compromised in relation to the audit committee as Mr
Most had a relationship which was less than two years ago. It had been provided by the
second guideline in relation to division of responsibilities that the circumstances which
are dependant in relation to analysing the independence of the report include the fact
that whether a non executive director or auditor had any relationship with the company
in the last five years.

32BUSINESS LAW
In addition, at least half of the board should be the non executive directors of the
company for the purpose of the boards to be considered as independent. There has to
be a non-executive director who has been made the senior independent director of the
company. The role of the non executive director is to remove and appoint non executive
directors. In this situation half of the board does not comprise of non executive directors
and thus it is a non compliance with the code. There is also no non-executive director
who has been made the senior independent director of the company and the director do
not have the role to remove and appoint non executive directors in sportive and thus it is
a clear non compliance with the CGC.
It had been further stated through the facts of the case study that there have
been appointment of two new executive directors one of them is Mr. Frame, he has
been working with the company since it had been incorporated. This means that his
independence as a non executive director is in question and it may lead to the breach of
the CGC 16 as well as CGC 18. Under code B.1.1 it is the responsibility of the board to
ensure that the non executive directors do not have any link with the company which
can compromise with their Independence. Here there is a clear link between Mr. Frame
and the company which may compromise with his independent decision making and
thus it is a breach of the CGC 16. In addition it may also breach CGC 18 as it states that
the circumstances which are dependant in relation to analysing the independence of the
report include the fact that whether a non executive director had any relationship with
the company in the last five years. Therefore this situation is a clear non compliance
with the CGC by the company.

33BUSINESS LAW
In addition it has been provided that MR. Stretch has been made by the chairman
of the company. He was also a Director of Retail Operations. This means that now the
position of the chairman and executive is occupied by the same person and this is a
visible non compliance with the CGC 16. This is because in the code it has been
provided in code provision A.2.1 that the role of a chief executive and chairman should
not be used by the same individual. There must be a clear division of responsibilities
between the chief executive and the chairman which should be set out in a written and
agreed manner by the board. Thus where Mr Stretch is the executive and chairperson
both it is also a breach of the CGC by the company. The chairperson should not have
any influence on the remuneration, but when Mrs. Mason was in chair she was also a
part of the remuneration committee which is also a breach in relation to the CGC. With
respect to Executive remuneration it is the responsibility of the board that such
remuneration should be designed for the purpose of promoting the long-term success of
the organisation. the elements which are related to performance should be stretching
transparent and applied rigorously. A transparent informal procedure should be in place
for the purpose of developing policy with respect to Executive remuneration and also for
the purpose of setting out remuneration packages for every director. No director should
be given the power to decide his or her own remuneration112. These provisions have not
been complied with. It may also lead to the future compliance with 2018 board as under
the rule remuneration practices and policies have to be designed for the promoting and
supporting strategies in relation to long term sustainable support of the company. The
remuneration of the executive have to be aligned with the values and purpose of the
company and be linked clearly with the successful providing of long term success for
112 Financial Reporting Council, ‘The UK Corporate Governance Code’(Section D) April 2016

34BUSINESS LAW
the company113. There has to be a transparent and formal procedure in place for the
purpose of developing executive remuneration policies as well as that of directors and
senior managements. No director should decide his or her own remuneration114. It is the
duty of the directors on exercise discretion and independent judgement with respect to
authorizing the remuneration outcomes, considering the individual and company
performance along with wider circumstances115.
Conclusion
The first breach of non-compliance with the board had been in relation to the
third guideline which states that all directors have to be subjected to re-election
annually. For the appointment of executive and non executive directors open
advertisement or search consultancy needs to be used. Performance has to be
evaluated annually in a formal and rigorous manner. There is no such procedure
undertaken by the company. The board must have combination of knowledge,
experience and skills. It has to be taken into consideration that membership and length
of appointment is refreshed regularly. However no such compliance has been observed
in relation to the board of sportive. In addition, the independence of the audit company
have been compromised in relation to the audit committee as Mr Most had a
relationship which was less than two years ago. There is also no non-executive director
who has been made the senior independent director of the company and the director do
not have the role to remove and appoint non executive directors in sportive and thus it is
113 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Remuneration P) July 2018
114 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Remuneration Q) July 2018
115 Financial Reporting Council, ‘The UK Corporate Governance Code’ (Financial Reporting Council, ‘The UK
Corporate Governance Code’ (Remuneration R) July 2018

35BUSINESS LAW
a clear non compliance with the CGC. Here there is a clear link between Mr. Frame and
the company which may compromise with his independent decision making and thus it
is a breach of the CGC 16. The chairperson should not have any influence on the
remuneration, but when Mrs. Mason was in chair she was also a part of the
remuneration committee which is also a breach in relation to the CGC. Further, where
Mr Stretch is the executive and chairperson both it is also a breach of the CGC by the
company.

36BUSINESS LAW
Answer 3
The primary aim of this section of the paper is to find out which procedure would
be suitable for sportive in case they do choose to go with the process of winding up.
There are two types of processes which can be selected as an alternative to winding up
of the company. These are administration and Company Voluntary Arrangements. The
features along with their advantages and disadvantages have been discussed in this
section of the paper for the purpose of deriving the best possible alternative for sportive
instead of liquidation.
Administration is a procedure which had been introduced in 1986 in context with
insolvency law for managing a company which is subjected to difficult financial situation.
This procedure is also available in relation to partnership. The essential characteristics
of this procedure is that it is regarded as a alternative way to winding up of the company
and its primary aim is to rescue the organisation from financial difficulties it is subjected
to. The aim of the appointment of administration is that it would be able to provide a
better result for the organisation and its creditors as compared to what the result would
have been if the company would have been wound up directly. Administration is initiated
with an administrative order through which the court appoints a person known as
administrator to take over the affairs of the company. The law in relation to
administration has been inserted by the Enterprise Act 2002116 into schedule B1 of the
Insolvency Act 1986117. The emphasis of the legislation was to prohibit the appointment
of Administrative receivers and instead initiate the appointment of administrators.
116 Enterprise Act 2002
117 Insolvency Act 1986, Sch B1

37BUSINESS LAW
The history and nature of Administration has been discussed by the court in the
case of Kaupthing Singer & Friedlander Ltd (In Administration), Re [2010] EWCA Civ
518118. In context to administration it was stated in the court that this is a process which
has been introduced in 1986 to the insolvency legislation. In this process the right of the
creditors with respect to gaining an order against the company to recover their debt is
restricted unless there is the conclusion made by the administrator. However, this is
subjected to a few exceptions according to the will of the administrator and the leave of
the court. Until the 2002 enterprise legislation had been passed the process of
Administration was generally brought to an end by and assets distribution was done in
relation to a company voluntary arrangement, scheme of arrangement, creditors’
voluntary liquidation or upon the orders of the administrator compulsory liquidation. The
legislation introduced a change that the distribution could be done by the administrator
to the creditor in the same way like liquidation. In this process the administrative can
directly distribute the assets to the creditors and move to the winding up of the company
without getting into the process of liquidation.
An administrator has been defined by schedule B1 as a person who has been
provided appointment with respect to the schedule for managing the affairs of the
company. The company remains in the process of Administration at the time when the
appointment of an administrator is done and when the administrator has concluded
administration it comes out of the process of Administration119.
Administration can be obtained by undertaking one of the three routes made
available under the legislation. This can be done through a court order, by a holder of a
118Kaupthing Singer & Friedlander Ltd (In Administration), Re [2010] EWCA Civ 518
119 Insolvency Act 1986, Sch B1

38BUSINESS LAW
floating charge and by the directors of the company. Administrator is provided as a
status of court officer irrespective of the route which is used to appoint him120.
The primary duties of an administrator include the fact that he must carry out his
functions with the name of bringing the company out of the ongoing concerns or by
ensuring that a better result is derived in relation to the creditors of the company as a
whole as compared to the result which would have been obtained if the company had
been wound up directly or realising the property of the company so that it can be
properly distributed among preferential or secured creditors.
Under paragraph 4 it is the responsibility of the administrator to carry out his
obligations in the quickest and most efficient possible manner121. The administrator has
the right to do anything in relation to the organisation with respect to the management of
its property business and affairs under para 59122. It is also the duty of the administrator
to make statements with respect to the purpose of Administration by setting out
proposals. The process initiates with calling a meeting of the creditors which may also
require additional creditors meeting as deemed fit by the creditors committee. He has
also has been provided the power to make a distribution to the creditors under
paragraphs 65. Thus the process will generally come to an end in a period of one
year123.
120 Insolvency Act 1986, Sch B1
121 Insolvency Act 1986, Sch B1 Para 4
122 Insolvency Act 1986, Sch B1 para 59
123 Insolvency Act 1986, Sch B1 para 65

39BUSINESS LAW
However, there are certain conditions which the court will take into consideration
before appointing an administrator. This will only happen when the company has
become unlikely to be able to repay its debts. In addition the court would also take into
consideration that the process of Administration would be able to reasonably achieve
the primary purpose of Administration as provided in paragraph 11124. Under paragraph
25 it is stated that the administrator can only be appointed if a petition of winding up has
been made and is yet to be disposed125. When the company is subjected to the process
of Administration there cannot be any resolution passed with respect to winding up of
the company.
In relation to the process of Administration all business documents issued on
behalf of the company or the administrator has to provide the name of the administrator
and the fact that the company is into the process of Administration. The process of
Administration under paragraph 76 has to be strictly temporary126. The process of
Administration has to come to an end within a one year period. This period can be
extended for a further period which cannot be more than one year by consent. In
addition the process of Administration can also be brought to an end by the
administrator if he has a believe that the purpose of Administration is difficult to be
achieved on it has already been achieved. The process of Administration can also be
terminated through an application of the creditors. The primary group to whom the
administrator owes a duty is to his appointers and not the creditors of the company as a
124 Insolvency Act 1986, Sch B1 para 11
125 Insolvency Act 1986, Sch B1 para 25
126 Insolvency Act 1986, Sch B1 para 76

40BUSINESS LAW
whole as provided in the case of Medforth v Blake [1999] 2 BCLC 221127.the primary
functions of the administrator includes seeking repayment of debts which is owed by the
person who has appointed him. There are no powers or duties imposed on the
administrator receivers which ask him to put together an act for the purpose of rescuing
the company. The process of administration is also temporary.
Another way by which insolvency can be avoided by the company is known as
company voluntary arrangements. This arrangement is like a contract between the
creditors and the company which is made under the provisions of the insolvency act.
This law is primarily based on the statue and case laws help the interpretation. A
voluntary arrangement is defined as a contract which is formed between the creditors
and the company which once accepted by the creditors main result in a scheme
arrangement of the companies affairs for compensation with respect to the satisfaction
of debts. When the process is in place the debts of the creditor is replaced by
contractual rights such as right to receive dividends. Irrespective of this arrangement
being a contract there is no requirement for a consent provided by the individual
creditors in case the statutory procedure is followed as stated by the case of Britannia
Heat Transfer Ltd (In Administration), Re [2007] B.C.C. 470128
Section 1A sch.A1 provides for voluntary arrangement with Moratorium and
section 2 provides for arrangements without Moratorium129. Under section 382 of the
Companies Act it is stated that Moratorium can only be used by small companies130. If
the company is found to be eligible in relation to the process the directors have to issue
127Medforth v Blake [1999] 2 BCLC 221
128 Britannia Heat Transfer Ltd (In Administration), Re [2007] B.C.C. 470
129 Insolvency Act 1986, s A sch.A1
130 Companies Act 2006, s 382

41BUSINESS LAW
a document setting out the terms of the arrangement and explain to the creditors that
why they should accept the arrangement within 7 days. The Moratorium leads to the
protection of the company with respect to action taken by individual creditors and also to
provide protection to the body of creditors. Therefore the time during which the
Moratorium is in effect no petition other than an accepted petition can be presented for
the winding up of the company. There must also be no meeting call without the
permission of the nominee of the leave taken from the court. There must also be no
resolution passed with respect to the winding up or putting the company into the
process of Administration. The nominee has to be satisfied that the company has
sufficient funds available to carry out its business during the period for which the
Moratorium is applicable. He must withdrawal his consent to act when he is satisfied
that the above procedure cannot be implemented.
Voluntary arrangements without the use of Moratorium can be made by the
directors of the company when the company is not in administration or liquidation. On
the other hand the administrator can apply for this process when the company is in
administration. The directors must submit to the nominee the statement of the
company’s affairs, the terms of the voluntary arrangement and other information as
required.
The process of Administration as well as voluntary arrangements can be
implemented by sportive in this case. However it would be better for sportive to go for a
CVA procedure. In situation where the directors of a company are not able to decide the
right time to approach are insolvency practitioners they should seek impartial expert
advice. The process of Administration can have an impact on the Goodwill of the

42BUSINESS LAW
company. An administrator would not indulge in to trading unless they are satisfied that
it would be better for the creditors. They also have a limit of one year imposed on them.
This time may not be sufficient for them to retain the good Wheels of the first cement
suppliers who may want to choose another company. There would be a lot of rebuilding
required in case the company can be saved. on the other hand when company
voluntary arrangements are in place they allow the company to carry on trade with very
little impact on the day to day business of the organisation. The company would be
allowed to retain any profit made by them as long as monthly repayments are made.
Suppliers may be happy to carry out business with the company who is into a voluntary
arrangement even when they may want to have cash payment for delivery.
When administration is used as a process it may put the control of the business
in the hands of the administrator or the insolvency practitioner. It would be the
responsibility to decide whether the company should continue to trade or should be
liquidated or should be put into CVA. Although, directors may be involved in the
decision making process but they would have very little control over the process. On
the other hand when CVA is used the directors of the company can maintain control
over it and continue trading. Everything in these arrangements are done in a timely
manner and the directors would have knowledge when repayment is required. However
when the limits of debts are very large for a CVA administration has to be used. In this
situation TUPE regulations and employee rights have to be taken into consideration.
Using a CVA allows the company to buy time for the purpose of restructuring and have
a appropriate plan in place for the future. This may also include the reduction of cash-
flow burden by the company by the termination of suppliers or employees if required. In

43BUSINESS LAW
case of Administration administrators are required to undergo an investigation with
respect to the conduct of the directors in the management of the company. On the other
hand no such investigation and required in a CVA. In relation to administration a new
period of tax is created which means that no touch losses can be offset against future
profits. On the other hand in case of a CVA tax losses can be carried forward for being
offset in the future against profits.
When CVA is implemented the directors are provided breathing space in relation
to the time needed to deal with the potential confidence loss of suppliers. It also allows
for detailed analysis with respect to requirements and business and production of
business and marketing plan. On the other hand the time which has been provided in
relation to administrator is with respect to allowance to restructure, closure or sale. The
company has the scope of arrangement in case finance and management is available.
In situation of CVA the creditors are provided overtime dividends and thus they would
be content and happy upon receiving such profits and stay with the company. There is
no dividend provided to creditors on case of an administration. The fee which is involved
in payment of CVA for a proposal is not insubstantial. They need to be paid from the
cash flow. However by process cash flow is much improved. On the other hand fees in
case of administration would be 5-10 times more than that of CVA. The cash is
controlled by the administrator and he takes his fee via the ratification of creditors as he
needs them. In addition, in the process of administration lawyers have to be involved
which can be a costly affair for the company.
There is a leverage of £100,000 of tax debts with respect to CVA. No payment of
PAYE or VAT is required until the arrangements have been approved. However if it

44BUSINESS LAW
takes too long the arrangements may not be approved. To the contrary, it is compulsory
for the administrator to pay tax and Vat while the company is in administration. In case
of CVA the overdrawn directors current accounts have the capacity to be reserved back
in PAYE. However, although there can be tax debts no actions can be taken against the
directors. On the other hand in case it is not cleared the directors in administration are
mandated to pay the loan personally. The process of CVA is a time defined process
involving fixed meeting dates with the creditors and making the position transparent and
moving the pressure of the directors. In the situation of administration the equity value
of the business is written off generally. The process of CVA provides protection to the
companies in relation to any form of aggressive actions taken by the creditors. However
it is likely that the company has to pay for the new supplies obtained. In administration
there are chances that all creditors may lose their money.
When a CVA has been opted the finance directors is required to go forward to
help the financial reporting structure of the company and attract investment by sticking
to the business plan. In case of an administration the directors can be removed instantly
without any kind of recompense under the provisions of s 13 of the Insolvency Act 1986.
The administrator also has the right to appoint managers and directors131.
Through the analysis of the rules regarding both the procedures it is clear that
the procedure of CVA would be the best in case sportive does not want to be wound up
currently. The process is also very cheap and leaves the control of the business in the
hands of the directors who may have a better opinion to deal with the business. The
131 Insolvency Act 1986, s 13

45BUSINESS LAW
directors of sportive can make proposal deal in 4-8 weeks and use the time for the
purpose of working out requirements and building an outline plan. The process would
also help the directors of sportive to remove freneticism, have time for controlled
restructure and have more focus on their primary job rather than considering other
problems such as fighting tax. It would help the directors of sportive to recover control of
the company and primarily focus on its business operations. They can get proposals
approved which would help is the restructuring of business and attract new profits for
sportive. They can also save viable business through the process of CVA. The process
of CVA provides protection to the companies in relation to any form of aggressive
actions taken by the creditors. However it is likely that the company has to pay for the
new supplies obtained. In administration there are chances that all creditors may lose
their money. Therefore the process of CVA is most suitable for sportive as compared to
administration.
Answer 4
This section of the paper discusses the consequences of the company being
subjected to liquidation. It has been provided that sportive have assets of £1.8 million
which excludes the value of the registered office of the company. In addition to the
money which is owed by sportive to Southsea Bank worth £2 million, the company is
also owed with £40,000 to assorted trade creditors and £30,000 in unpaid tax. Further, it
has been provided by Portmouth Bank plc that the company still owes them £50,000.
The additional cost of liquidation has been estimated to be £20,000.

46BUSINESS LAW
There are two types of winding up which a company can be subjected to known
as members’ voluntary winding up and creditors’ voluntary winding up. Both of the
procedures can be initiated through the passing of a special resolution. In case a
director of solvency is made, five weeks prior to the resolution, the winding up would be
a members’ voluntary winding up. In case there is no declaration it is a creditors’
voluntary winding up. There are several consequences once a procedure of winding up
has been initiated. Firstly the company is stopped for carry on any form which business
which is not required for the purpose of the winding up process. Secondly, without the
consent of the liquidator there can be no transfer of shares during the process. Thirdly,
the alternation of status of the members of the company is void. All powers provided to
the directors ceases to be in effect. All the employees of the company are dismissed but
can be appointed again by the liquidator. All floating charges on assets are crystallise.
The liquidator is provided with a wide range of powers. These powers include the
ability to pay creditors in full, the power of compromising debts and claims owed by the
company, the power of bringing legal proceedings under the provisions of the IA and the
powers to generally defend legal proceedings as well and the power to carry business
by selling the properties of the company. The liquidator can appoint a agent if such acts
cannot be performed by him alone and he can do all this required to wind up the
company and distributes its assets.
In relation to the distributions of assets, through several sections the IA clarifies
the role of the liquidator to gather the assets of the company and distribute them to the
creditors. In case there are any surplus the assets can be distributed to the people who
are entitled to them.

47BUSINESS LAW
S 107 of the IA 1986 states that the property of the company in relation to the
voluntary winding up of the company is to be applied pari pass on the liabilities of the
company and has to be distributed among the company members according to the
rights and interest held by them in the company132. The meaning of paripassu signifies
with equal steps. However the rules are subjected to a few exceptions. This is in relation
to secured creditors or charge holders, preferential creditors and liquidation expenses.
The people who expressly hold charge can in a simple way take the charged assets for
the purpose of selling it and satisfying their debts. In case the proceeds which have
been realised are more than the actual debts owed to the creditors, the surplus have to
be returned to the company. The charge holder has no requirement to rely in liquidator
to get the asset. In case of floating charges the position is a bit more complex because
of the reforms which have been made through the provisions of the Enterprise Act
2002133. The liquidator has the responsibility of first determining the assets which would
be transferred to the person having a floating charge. The liquidator has to set aside a
specific percentage of the assets to pay of the creditors who have not been secured.
The percentage includes 50% in relation to the initial £10,000 and till the amount of
£600,000 at a rate of 20%. However, the rules would not be applicable in case the total
assets of the company are calculated to be less than £10,000.
Certain debts are classified by law as preferential debts. This means that these
debts have to be paid before other kind of debts other than those which have been
secured by a fixed charge and the expenses of liquidation. Under sch 6 of the IA the
groups who would be considered as preferential debts include contributions to pension
132 Insolvency Act 1986, s 107
133 Enterprise Act 2002

48BUSINESS LAW
schemes, employee remuneration and any amount which have been paid in relation to
holiday pay134. Among themselves these types of debts rank equally. Therefore in
relation to the process distribution of assets the first debt which has to be addressed by
the creditors include liquidation charges followed by preferential creditors, debts which
are secure by floating charges, unsecure creditors, deferred debts and the remainder is
distributed to members. In order to file a petition of liquidation a payment of £1,600 is to
be made and the court hearing requires £280.
This means that the company has to initially pay liquidators remuneration and the
fees required to administer the process. Administrative expenses and cost can be
incurred in relation to holding meetings, distributing funds, providing reports and
accounts and investigating the conduct of the directors. Fixed charge holders are
generally assets based lenders and bank and who have title over the assets of the
business. The company loses the right to sell or trade the item over which fixed charge
has been imposed135. These may include vehicles, machinery and plant.
Assets which have been used are generally fundamental to a business and re
not generally sold in the normal course of business. In relation to the original
agreement, the asset can be sold by the liquidator or charge holder.
Assets which have been subjected to a floating charge include fixture and fittings,
stock, raw materials or work in progress. These assets can be traded in the general
course of business. These creditors can be provided with a distribution form the net
134 Insolvency Act 1986, sch 6
135

49BUSINESS LAW
proceeds of the company property subjected to dilution of a prescribed part. The rues
in relation to a floating and a fixed charge are provided in debentures.
The unsecured creditors of the company include trade creditors, customers,
contractors, suppliers and few staff claims. The unsecured creditors who are associated
with the company are to be paid off after the unsecured creditors have been paid. In
case there is any amount left after the repayment of the creditors it is distributed last
among the shareholders.
Under s 245 it has been stated that a floating charge which has been taken over
the property of the company would be invalid in case it was made two years on which
he insolvency ended and if it has been given by a person who is connected to
company136.
It has been provided through s 212 of the IA that in the course of winding up if
the court finds out that a person had retained or misapplied or is accountable in relation
to any money or property of the company or being guilty if any breach of duty or
misfeasance in relation to the company. This can be any person who is the officer of the
company. The court may ask the person to repay such money137.
It has been provided through the situation that there are several debts which
sportive are subjected to. The first of the debts which is currently claimed is by
Portsmouth Bank plc. They are claiming an amount worth 50000 which had been
forgiven upon immediate payment of 45000. According to the rule of part consideration
136 Insolvency Act 1986, s 245
137 Insolvency Act 1986, s 212

50BUSINESS LAW
as the amount has been paid before date it would be a valid consideration and sportive
are not required to pay the amount to Portsmouth Bank plc. Therefore there is no fixed
charge over the registered property of the company which is worth 700000. Further, it
has been provided that Bike Parts Ltd have been paid off by a loan which has a floating
change over all the assets of sportive which is worth 30000. This loan has been
provided by Mrs Mason.
In addition a loan has been taken form Southsea Bank plc which is worth $2m
and this has a fixed charge over the registered property of the company. In the present
situation the total assets which Sportive have are about 1.8 million. In case the
registered property value of the business is taken into consideration the total value of
assets which the company has would be a total of 8.8 million as the property is worth
7m. S 107 of the IA 1986 states that the property of the company in relation to the
voluntary winding up of the company is to be applied pari pass on the liabilities of the
company and has to be distributed among the company members according to the
rights and interest held by them in the company138. The meaning of paripassu signifies
with equal steps. However the rules are subjected to a few exceptions. This is in relation
to secured creditors or charge holders, preferential creditors and liquidation expenses.
The people who expressly hold charge can in a simple way take the charged assets for
the purpose of selling it and satisfying their debts. In case the proceeds which have
been realised are more than the actual debts owed to the creditors, the surplus have to
be returned to the company. The charge holder has no requirement to rely in liquidator
to get the asset. In case of floating charges the position is a bit more complex because
138 Insolvency Act 1986, s 107

51BUSINESS LAW
of the reforms which have been made through the provisions of the Enterprise Act
2002139. The liquidator has the responsibility of first determining the assets which would
be transferred to the person having a floating charge. The liquidator has to set aside a
specific percentage of the assets to pay of the creditors who have not been secured.
The percentage includes 50% in relation to the initial £10,000 and till the amount of
£600,000 at a rate of 20%. However, the rules would not be applicable in case the total
assets of the company are calculated to be less than £10,000 According to the rules
discussed where there is liquation the first right would be of Southsea Bank plc. This is
because they have a secured creditor. Thus, they will be paid by selling off the
registered property of the company first and will have to return the remaining 5m to the
company. Fixed charge holders are generally assets based lenders and bank and who
have title over the assets of the business. The company loses the right to sell or trade
the item over which fixed charge has been imposed140. These may include vehicles,
machinery and plant. Assets which have been used are generally fundamental to a
business and re not generally sold in the normal course of business. In relation to the
original agreement, the asset can be sold by the liquidator or charge holder.
This means that that the total assets of the company which the liquidator would
be able to work with would be 6.8m. From the remaining assets of the company, the
liquidator would have the right to initially deduct 20000 which is in relation to liquidators’
fees and other administrative charges. This is because the company has to initially pay
liquidators remuneration and the fees required to administer the process. Administrative
expenses and cost can be incurred in relation to holding meetings, distributing funds,
139 Enterprise Act 2002
140

52BUSINESS LAW
providing reports and accounts and investigating the conduct of the directors. After that
the floating change which is held by Mrs Mason over all assets of the company would
have to be paid off which is worth 30000. However under s 245 this would not be a valid
change as it has been done by a person connected to the company and within two
years preceding the winding up of the company. Thus she would also be paid with the
unsecured creditors. The other creditors of the company are unsecured creditors as the
company does not have any preferential debts. Thus the £40,000 is to be paid to the
assorted trader creditors. This means that sportive would have a balance of 5.9m which
is to be distributed among the shareholders of the company in a ratio in which the
shares are held by them. After the process of liquidation the company would be wound
up and brought to an end. As consequences of liquidation there are several things
which the directors of Sportive would take into consideration. Firstly the company is
stopped for carry on any form which business which is not required for the purpose of
the winding up process. Secondly, without the consent of the liquidator there can be no
transfer of shares during the process. Thirdly, the alternation of status of the members
of the company is void. All powers provided to the directors ceases to be in effect. All
the employees of the company are dismissed but can be appointed again by the
liquidator. All floating charges on assets are crystallise. The directors may also be
subjected to the investigation conducted by the liquidator. The liquidator is provided with
a wide range of powers. These powers include the ability to pay creditors in full, the
power of compromising debts and claims owed by the company, the power of bringing
legal proceedings under the provisions of the IA and the powers to generally defend
legal proceedings as well and the power to carry business by selling the properties of

53BUSINESS LAW
the company. The liquidator can appoint a agent if such acts cannot be performed by
him alone and he can do all this required to wind up the company and distributes its
assets. Thus there may be legal action taken against the directors of sportive if it is
found that they have not carried out their obligations in good faith. Thus the winding up
can be carried out in the manner discussed above.

54BUSINESS LAW
Bibliography
Andersen, Paul Krüger. NORDIC & EUROPEAN COMPANY LAW. Diss. Stockholm
University, 2017.
ANDREAS. DONALD CAHN (DAVID C.). COMPARATIVE COMPANY LAW: Text and
Cases on the Laws Governing Corporations in Germany, the Uk... and the Usa. CAMBRIDGE
University Press, 2018.
Beatty, Jeffrey F., Susan S. Samuelson, and Patricia Sánchez Abril. Business law and the legal
environment. Cengage Learning, 2018.
Böckli, Peter, et al. "European Company Law Experts (ECLE): The consequences of Brexit for
companies and company law." Rivista delle società 62 (2017): 455-499.
Britannia Heat Transfer Ltd (In Administration), Re [2007] B.C.C. 470
Business, Doing. "Doing Business 2014." Gruppa Vsemirnogo banka Doing Business [The
World Bank Group Doing Business]. Available at: http://russian. doingbusiness. org/rankings
(date accessed: 20/02/2015) (2014).
Companies Act 2006
D'Angelo, Nuncio. "Directors of Insolvent Trustees and Trusts: Duties and Liabilities in Respect
of Beneficiaries and Trust Creditors." COMPANY AND SECURITIES LAW JOURNAL35.2
(2017): 75-101.
DEREK. FRENCH. MAYSON, FRENCH & RYAN ON COMPANY LAW. OXFORD
University Press, 2018.

55BUSINESS LAW
Employment Rights Act 1999
Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598 (Ch)
Financial Reporting Council, ‘The UK Corporate Governance Code’ April 2016
Financial Reporting Council, ‘The UK Corporate Governance Code’ July 2018
Freudenberg, Brett, and Dale Boccabella. "Changing Use of Business Structures: Have
University Business Law Teachers Failed to Reflect this in their Teaching." J. Australasian Tax
Tchrs. Ass'n 9 (2014): 180
Fulham Football Club (1987) Ltd v Tigana [2004] EWHC 2585 (QB),
Fulham Football Club Ltd v Cabra Estates plc [1992] BCC 863
Hannigan, Brenda. Company law. Oxford University Press, USA, 2018.
IMOGEN. MOORE. CONCENTRATE Q&A COMPANY LAW: Law Revision. OXFORD
University Press, 2018.
Insolvency Act 1986
Kaupthing Singer & Friedlander Ltd (In Administration), Re [2010] EWCA Civ 518
Kubasek, Nancy, et al. Dynamic business law. McGraw-Hill Education, 2015.
Law, Jonathan, ed. A dictionary of business and management. Oxford University Press, 2016.
Lim, Ernest. "CORPORATE GOVERNANCE AND COMPANY LAW: THE DISCONNECT
BETWEEN ACCOUNTABILITY AND DIRECTORS'DUTIES." HONG KONG LAW
JOURNAL47 (2017): 733-761

56BUSINESS LAW
Lowry, John, Arad Reisberg, and Anna Donovan. Pettet, Lowry & Reisberg's Company Law.
Pearson Higher Ed, 2018.
Medforth v Blake [1999] 2 BCLC 221
Omar, Paul J. Directors' duties and liabilities. Taylor & Francis, 2017.
Pearce, Prafula. Company Law for Business and BLW21 Company Law for Business: Selected
Sections of the Corporations Act 2001 (Cth). Curtin University, Curtin Law School, 2018.
Re Barings plc (No 5) [2000] 1 BCLC 523 (CA).
Re Mackenzie and Co Ltd [1916] 2 Ch 450 (Ch)
Re Patrick and Lyon Ltd [1933] Ch 786
Twomey, David P., Marianne M. Jennings, and Stephanie M. Greene. Anderson's Business Law
and the Legal Environment, Comprehensive Volume. Nelson Education, 2016.
Walsh, David J. Employment law for human resource practice. Nelson Education, 2015.