Law for Accounting: Company Formation, Contractual Agreement, Intellectual Property, Employment Legislation

This report from Desklib's Law for Accounting course provides expert advice on different aspects of trading as a limited company, including company formation, financing requirements, administration, shareholders, capital maintenance, contractual agreement, intellectual property, and employment legislation. The report also covers issues relating to insolvency, malpractice, fraud, bribery, money laundering, computer misuse, and cybercrime. The course code for this unit is R/617/6922, and it is offered by AWARDS FOR TRAINING AND HIGHER EDUCATION (ATHE).

AWARDS FOR TRAINING AND HIGHER EDUCATION (ATHE)
Unit R/617/6922: Law for Accounting
Course Project:
Task1: Report for partner advising Jodie Hart on company formation, contractual agreement,
intellectual property, employment legislation.
Task 2: Report for partner advising Dayloan Ltd on issues relating to insolvency, malpractice,
fraud, bribery, money laundering, computer misuse and cyber crime
Words Count: 13801

CONTENTS
Task 1 (a)............................................................................................................................... 6
Task 1 (a) section (i) Company Formation .........................................................................7
Task 1 (a) Section (ii) Financing a Company .....................................................................8
Shares Issued at a Premium:..........................................................................................9
Shares with Pre-Emption Rights:.....................................................................................9
Task 1 (a) Section (iii) Administration of Company:............................................................9
1) Director: ..................................................................................................................... 9
Task 1 (a) Section (iv) Removal of Company Director......................................................12
2) Company Secretary...................................................................................................12
3) Other Officers of the Company:.................................................................................12
Task 1 (a) Section (v) Advantages for Jodie of running a business as a registered
company include:.............................................................................................................. 12
Task 1 (a) Section (vi) The Disadvantages for Jodie running a business as a registered
company include:.............................................................................................................. 13
Task 1 (a) Section (vii) Veil of Incorporation......................................................................13
Case Law:..................................................................................................................... 14
Corporate body.............................................................................................................. 14
Limitation of partner liability...........................................................................................14
Taxation of LLP............................................................................................................. 14
Advantages over limited company.................................................................................15
Task 1 (a) Section (ix) Shareholders.................................................................................15
Task 1 (a) Section (x) Transfer shares in a UK company..................................................15
Task 1 (a) Section (xi) Analysis of Capital Maintenance ..................................................15
Reduction of Capital .....................................................................................................16
Example of Capital Reduction ......................................................................................16
TASK 1 (B) ANALYSIS OF THE ELEMENTS AND NATURE OF CONTRACTUAL
AGREEMENT ...................................................................................................................... 17
Task 1 (b) Section (i) Requirement of Data Protection Legislation ...................................20
Task 1 (b) Section (ii)The purpose of the GDPR ..............................................................21
Task 1 (b) Section (iii) Penalties for Non-Compliance. UK General Data Protection
Regulation (UK GDPR) ....................................................................................................21
Fines for infringement of the UK GDPR ........................................................................21
Task 1 (b) Section (iv) Impact of non-compliance of GDPR..............................................23
TASK 1 (C) INTELLECTUAL PROPERTY ...........................................................................23
Section (i) Protecting Intellectual Property........................................................................24

Copyright....................................................................................................................... 24
Registration of Jodie's training material.........................................................................24
Enforcement of copy right..............................................................................................24
Civil Actions................................................................................................................... 24
Importance of training material for Jodie:.......................................................................25
TASK 1 (D) TORT LAW .......................................................................................................26
Section (i) Introduction .....................................................................................................26
Issue of liability under tort law.......................................................................................26
Case law Donoghue v Stevenson..................................................................................26
Section (ii) Vicarious liability..............................................................................................27
Case law ...................................................................................................................... 27
Section (iii) Remedies available to injured person.............................................................28
Section (iv) Negligence and breach of the duty on the part of Jodie.................................28
My opinion. ................................................................................................................... 28
Section (v) Employee and employment ............................................................................28
Section (vi) Assessment of impact of legislation relating to employment are as follows: . .28
Statutory responsibilities of Jodie .................................................................................30
Health & Safety ............................................................................................................ 30
Employees Welfare ......................................................................................................30
Discrimination................................................................................................................ 30
Pay & Benefits .............................................................................................................. 31
Employees’ Responsibilities: ........................................................................................31
Issues of employee's dismissal ....................................................................................31
I) Wrongful dismissal (the common law route) ..............................................................32
ii) Unfair Dismissal (the statutory route) ........................................................................32
Case law ...................................................................................................................... 32
Justification for Dismissal..............................................................................................32
iii) Remedies for Unfair Dismissal..................................................................................34
TASK 2 SECTION 1: THE PROCESS OF INSOLVENCY ...................................................35
What is insolvency? .........................................................................................................35
Corporate insolvency: ......................................................................................................35
Cash-flow test: ................................................................................................................. 35
Balance sheet test: .......................................................................................................... 35
Law for Insolvency: ..........................................................................................................35
a) Administration:.......................................................................................................... 35
b) Company Voluntary Arrangement (CVA): .................................................................36

c) Liquidation: ............................................................................................................... 36
Section 2: Advice for Dayloan Ltd ........................................................................................36
Winding up Petition ..........................................................................................................38
Winding Up Order ............................................................................................................ 38
Official Receiver Appointed ..............................................................................................38
Dayloan Ltd assets are sold .............................................................................................38
Dissolution of Dayloan .....................................................................................................38
Section 3: Fixed Charges: ...................................................................................................38
Floating Charge ............................................................................................................... 39
Section 4: Common HMRC Enforcement Methods of Debt Collection:.................................39
Debt Collecting Agencies:.................................................................................................39
Taking Control of Goods: .................................................................................................39
Direct Recovery of Debts: ................................................................................................39
Accelerated Payment Notice: ...........................................................................................39
Winding Up/Bankruptcy Petition: ......................................................................................40
VAT Bond: ....................................................................................................................... 40
Section 5: Good Lending Practices ......................................................................................40
Section 6: Poor Lending Practice ........................................................................................41
My opinion: ................................................................................................................... 41
Section 7: Explanation of elements and consequences of malpractice, fraud and bribery....41
My Opinion: .................................................................................................................. 42
ii) Fraud: ........................................................................................................................... 42
iii) Bribery ......................................................................................................................... 43
My Opinion: .................................................................................................................. 44
My Opinion: .................................................................................................................. 44
Section 8. Money Laundering: .............................................................................................47
My Opinion:................................................................................................................... 48
Section 9. Computer misuse: ...............................................................................................49
Relevant Case Law: .........................................................................................................49
The act makes the following illegal: ..................................................................................50
Unauthorised access to computer material: .....................................................................50
Unauthorised modification of data: ...................................................................................50
Section 10. Cybercrime: ......................................................................................................50
Cyber-Dependent Crimes: ...............................................................................................51
Cyber-Enabled Crimes:....................................................................................................51
Recent examples of Cybercrime ......................................................................................51

Section 11: .......................................................................................................................... 52
Corporate governance (CG): ............................................................................................52
Organisation for Economic Co-operation and Development (OECD): ..............................52
Purpose of Corporate Governance...................................................................................52
Risks of Non-Compliance in Corporate Governance: .......................................................52
My opinion: ................................................................................................................... 54
Section 12. .......................................................................................................................... 56
Selflessness: .................................................................................................................... 56
Integrity:............................................................................................................................ 56
Objectivity:........................................................................................................................ 56
Accountability:................................................................................................................... 56
Openness:........................................................................................................................ 57
Honesty:............................................................................................................................ 57
Leadership:....................................................................................................................... 57
Public Service: ................................................................................................................. 57
Respect: ........................................................................................................................... 57
Reference............................................................................................................................. 58

The purpose of my report is to advise Jodie Hart on different aspects of trading as a limited
company, contractual agreement, intellectual property and employment legislation.
 Jodie Hart is trying to decide whether to form a limited company for her new training business.
 Given the assumption that the business was recently launched, it is assumed that in the near
future, it will be a small and medium size enterprise (SME).
TASK 1 (A)
In my capacity as an advisor, I will advise Jodie Hart on different aspects of trading as a limited
company in the following aspects:
 Process of company formation
 Financing requirments
 Administration
 Directors
 Sectretary
 Other officers of the company
 Role of shareholders
 Charectrictics and advantages of trading as a limited company
 Limited liability
 Separate entity
 Tax Efficiency
o Dividend
o Pension
 Professional status
 Name protection
 Capital maintenance requirement
 Veil of Incorporation
Company Law Considerations
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Jodie Hart’s company must follow companies Act 2006 to comply with company law. The detailed
requirements of the company law (affecting different aspects of limited company) that she must
consider are as follows:
Task 1 (a) section (i) Company Formation
Jodie has to submit the IN01 Form-This form is prescribed by Companies House, in order to register as
a new company. It includes the company’s name, company type, principal business activities, address
of the registered office, particulars of the directors and secretary(s) of the company (if any). It also
includes details of share capital, people with significant control (PSCs) and whether and election has
been made to keep information on the public register, these requirements are supplemented by
regulations which include for example,
 The details requirements for the form and content of financial statement.
 Choose an available name on the Companies House register.
 Decide who she wants to nominate as director.
 Directors’ salary must be reported in profit and loss account.
 Decide how many shares and to whom she wants to issue them to in order to raise the finance.
 Where Jodie wants to register the company (her registered company and business addresses
could be the same).
Following exemptions will be available to SME in respect of reporting.
 Jodie’s new company will be classified as a ‘small’ company, if it has any 2 of the following
characteristics:
a) Having turnover of less than £10.20 million.
b) Balance sheet is not more than £5.1 million.
c) No more than 50 employees.
 Jodie’s company accounts will be prepared in accordance with the provisions applicable to the
small companies’ regime and in accordance with the provisions of FRS 102 Section 1A-Small
Entities.
 Micro-entities are very small companies. Jodie’s company will be a micro-entity, if it has any 2
of the following:
a) Having annual turnover of £632,00 or less.
b) Balance sheet is no more than £316,000.
c) No more than 10 employees.
 Jodie’s company accounts will be prepared in accordance with the micro-entity provisions of
the Companies Act 2006 and FRS 106, the FRS applicable to the micro-entities regime.
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 Section 477 of the Companies Act 2006 allows Jodie company to be expect from audit.
My recommendation. In the short term her company accounts will be prepared under the provision
of micro-entity. In future, if the annual turnover increases above £632,000, but remains under £10.2
million, then the accounts will be prepared under the provision of small company.
 Jodie will have to get an audit if her company’s articles of association say she must, or her
company shareholders ask for it.
Task 1 (a) Section (ii) Financing a Company
Jodie is advised that a limited company can raise funds by shares issue to an external party by asking
them to complete form SH01 and send them to Companies House. Then Jodie needs to take the
following steps:
 Update the register of members and register of allotments.
 Include the allotments in the company’s next confirmation statement.
 Show the new shares issued within the company’s accounts.
Jodie can also use her personal savings and introduce it as a share capital to start the business. Banks
provide a ready external source of finance for limited companies. However, if the company is newly
registered and the directors do not have any previous experience of running a company, they will need
a security against the loan. Jodie can also provide “personal guarantee” if required, with a consequence
of putting her personal assets to a risk.
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Shares Issued at a Premium:
A premium share can be obtained by paying above the nominal value of a share. When Jodie's
company starts performing well, has a good reputation and becomes financially strong, then in order
to attract new capital she can decide to issue shares at premium. For example, if her company
issues a share of nominal or face value of £10 at £11, it issues shares at 10% premium.
Shares with Pre-Emption Rights:
Shareholders in Jodie’s company can benefit from ‘pre-emption rights based on their existing
shareholding which means they get first refusal of new shares before being offered to new
investors as stated in Section 561 to 576 of Companies Act 2006.
Task 1 (a) Section (iii) Administration of Company:
A limited company requires more organization as compared to sole-traders and LLP's and can be
done by the following members of staff:
1) Director:
A comprehensive procedure for the appointment, role, responsibilities, and removal are discussed as
below. Jodie should be made aware of these procedures.
Appointment of First Director:
A company cannot be formed without a director. In small and medium sized companies generally,
directors are also the first shareholders. So, if Jodie decides to be the director, then she has to provide
her name and other details on the Form IN01 and submit to Companies House. Jodie as a director will
automatically commence office on the date of incorporation and her details should be the first entries
on the register of directors.
Should Jodie decide to appoint a new director in future, she will have to follow the following steps as
the process of appointing subsequent directors is usually a little more complex. As Jodie will be running
a small company, therefore outlining a detailed procedure is not necessary.
Step 1: Process Initiation: Being existing director Jodie has to start the process of appointing another
director, but she has to make sure that new appointee is over 16 years of age, is not bankrupt and has
not been previously disqualified particularly as a director.
Step 2: Director's service contract: A copy of the service contract must be available for inspection at
the company’s registered office address or Single Alternative Inspection Locations (SAIL) as stated in
the Companies Act 2006, section 288. If the appointment is for more than 2 years, then Jodie’s
company must comply with section 188 of the Companies act 2006.
Step 3: Consult the articles of association: When considering the appointment of directors, the
company's articles of association should be consulted. It is the articles that govern the formal
process for adding a director to a limited company.
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Step 4: Approval for appointment: This must follow a strict protocol which includes:
Appointment by the board, call a general meeting of the shareholders and put
appointment by ordinary resolution to vote.
Step 5: Obtain written Consent to Act from newly appointed director as required by The Small
Business, Enterprise and Employment Act 2015.
Step 6: Confirm the newly appointed director's full details with The Companies House.
Step 7: Inform Companies House about the appointment of the new director: This must be done
within 14 days by sending form AP01.
Step 8: Update the Register of Directors and Register of Directors' Residential Addresses: Both
registers should be updated with the newly appointed director's details with Companies House.
If Jodie decides to be the director of her company, she must be made aware of the following
responsibilities
Responsibilities to Companies House and HMRC
Timely information that Jodie is responsible includes:
 updating the confirmation statement.
 preparing and submitting the annual accounts.
 any change in her company's officers or their personal details.
a change to her company's registered office
registration of charges (mortgage/bridging loan)
any change in her company's people with significant control (PSC) details.
Jodie can appoint and delegate roles within company, but she will still be legally responsible for her
company's records, accounts and performance.
Duties of Jodie as a director
The Companies Act 2006 states:
1.A director must act within his power i-e schedule a general meeting at any time and respond to
shareholders within 21 days if they present a valid request for a meeting to take place.
2.A director must act honestly in the best interest of the company.
3.A director maintain impartial judgment
4.A director maintain knowledge, skill and experience as a director
5. While being a director, any type of conflict of interest must be avoided, i.e. dealing with parties
outside the company.
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6. Any kind of benefits from third part is not allowed.
7. Director must disclose any interest to the board, whereby a conflict of interest can occur and can also
include people connected to him e.g., immediate family members.
Task 1 (a) Section (iv) Removal of Company Director
If Jodie is not satisfied with the performance of any other director or for any other reason a director
must be removed, then form TMO1 has to be sent to Companies House.
2) Company Secretary
Companies Act 2006 does not require to appoint a secretary for a small limited company as this will be
the case with Jodie’s company. However, company’s secretary, sends current information to the
Companies House.
3) Other Officers of the Company:
Currently Jodie's business is classified as SME, but as the business grows, she should be made aware
of hiring important staff i.e. Chief Executive Officer (CEO) to liaise with other government and
regulatory authorities. Chief Finance Officer (CFO), to update shareholders about the financial state of
the company and if required enter discussion with the bank and other lenders about future plans to
grow the company and its financial requirement. CFO can also build a strong relationship with a
business relationship manager of a bank.
Task 1 (a) Section (v) Advantages for Jodie of running a business as a registered company
include:
 Tax efficiency: In current tax year (assuming the advice given is for the period between 06
April 2021 and 05 April 2022 and if she doesn't have any other income) Jodie can earn
annually £50,270 and will only pay £2,678 in taxes. {director salary £9,568 + dividends £5,002
(including annual dividend allowance) = £14,570 as tax free aggregate income and the
remaining dividend of £35,700 taxed @ 7.5%}. Please note that the dividends can only be paid
from post-tax profit (currently 19% corporation tax rate) and are exempt from NI Contributions.
This tax efficiency can be applied to each of her adult family members assuming shareholders
doesn't have any other income. Being a sole trader, the tax rate could be between 20% - 45%
and payment for Class 2 & Class 4 NIC is also applicable.
 Limited Liability: Liabilities of the owners are limited in a company. While a sole trader is
responsible and liable for all the business and activities associated with it. This is one of the
biggest reasons why entrepreneurs run their business under limited company.
 Separate entity: A limited company has its own separate legal status. Therefore, it
keeps going indefinitely, regardless of who owns or directs it.
 Professional status: Director can enjoy more prestige while working under a limited
company.
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 Company pension: As a director and shareholder of the limited company, Jodie can
invest pre-tax sum in a pension scheme, up to £40,000 pa. This means that her company will
not have to pay 19% corporation tax on their profits.
Name protection: Once the name of Jodie's company is registered with Companies House,
the name is protected forever.
Raising finance: Jodie can always raise finance by issuing shares to anyone including her
family members, if required.
Improvement in credit history: Being a company, the financial records will be available for
the public and any other financial institution to view. This will help improve the company's
creditability.
Task 1 (a) Section (vi) The Disadvantages for Jodie running a business as a registered company
include:
Preparation of limited company accounts needs much more professional knowledge e.g.,
reconciliations of opening and closing balances of trial balances, sales, purchases, VAT and
wages control accounts etc.
 The requirements to keep certain records and reporting for a registered company are
more than those of other business structures. e.g., accounts submitted to Companies House as
well as to HMRC and corporation tax return (CT600) to be submitted to HMRC, thus creating
more administrative burden.
 In order to update company’s records with Companies House, Jodie must submit
annual confirmation statement by filling form CS01.
 Certain personal information of the directors and persons with significant control will
be available in the public domain.
Task 1 (a) Section (vii) Veil of Incorporation
The veil of incorporation limits the personal liability of company directors, officers and employees for
actions taken by the business. However, Jodie can still be liable for business activities if she fails to
follow corporate guidelines, misuse of assets or act irresponsibly.
Case Law:
A good example is the case of Salomon vs A Salomon & Co Ltd, where the liquidator perceived
Salomon and his company was a combined business. But under section 74(2) of the Insolvency Act, a
company is a separate legal entity, therefore Salomon couldn’t be held liable for his company’s debts.
However, there are cases when the court will lift the veil if there is evidence that individuals are trying to
use the limited liability company as a means to avoid liability and hide assets.
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Task 1 (a) Section (viii) Limited Liability Partnership (LLP): Although Jodie is trying to trade as a
limited company, she may also be made aware of the structure and characteristics of Limited Liability
Partnership at the meeting.
Corporate body
An LLP is a type of corporate body that is created and registered at Companies House and introduced
under LLP Act 2000.
The general idea of an LLP is that it combines some of the key feature of a Ltd company with those of
a traditional partnership and must have minimum of two members and there is no upper limit. The LLP
is a separate legal body from its members.
Limitation of partner liability
Here the members are only liable for a pre-determined amount which should be detailed in LLP
agreement. In a partnership, the liability of the partners is unlimited. If LLP was to ever run into financial
difficulties, then the member's personal assets will be somewhat secure as compared to those
operating traditional partnership where partners are personally liable for the partnership debts and any
legal claims made against it. This is why many professional firms i.e., accountancy and law practices
are now operating under LLP structure, so partners enjoy greater protection against legal action and
misconduct of other partners in the firm. This feature is shared with limited companies.
Taxation of LLP
Each member will take his share of profit as agreed in the member's agreement, unlike in a traditional
ltd company, there is no corporation tax implications on profit. Each member completes self-
assessment tax return and thus is liable to pay income tax and self-employed class 2 & class 4 NIC.
LLP must prepare annual accounts known as LLP partnership tax return and submit them to
Companies House and HMRC respectively.
Advantages over limited company
Protection from other member's negligence/misconduct
 A corporate entity can also be a member of the LLP
 Members can easily be added and removed.
 No implication of benefit in kinds, therefore, no need to complete P11D.
 Greater privacy as the details of its profit split in its member's agreement which is not
filled at Companies House and not on public records.
Task 1 (a) Section (ix) Shareholders
Finance can be provided to companies as a means of support by the shareholders of the company. In
small and medium sized companies’ shareholders can also be the directors. Therefore, Jodie can also
be shareholder and director of her company. Should Jodie decide to increase the number of
shareholders she should be made aware of role with specific duties to maintain of shareholders such
as:
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Major business decisions which may affect shareholders must be approved in a general meeting called
by the director of the company. Also, shareholders are involved when a director needs to be removed
or the name of company is changed.
Task 1 (a) Section (x) Transfer shares in a UK company
Shares can be exchanged for cash payments, goods or services or to write off debts,
shareholders may wish to leave the company and transfers his/her shares to another
person. Jodie has the power to authorise the transfer of shares. If there is a need that
the details of a new shareholder to be updated at Companies House, then a new
Confirmation Statement (Form CS01) must be filed.
Task 1 (a) Section (xi) Analysis of Capital Maintenance
Since Jodie will be running a small and medium sized business therefore currently the
issue of capital maintenance is not of major concern for her, but it will be better if she is
made aware of this by discussing the following points in meeting.
Maintenance of capital that is also called as recovery of capital and is a concept of
accounting that states that income of the company should only be considered after it
has recovered fully its capital associated with operation for a specified accounting
period or cost has been retained. During high inflation, a business might adjust
valuation of its assets to examine the level of capital maintenance achieved.
Below are the two basic types of capital maintenance:
i. Financial capital maintenance: This type only includes the funds that are
available at the start of the accounting period and at the end of the accounting period
and does not include the value of other assets during the period.
ii. Physical capital maintenance: Its main focus is on the ability of the business
to retain cash flows into the future by keeping access to assets that generates
income.
Physical capital maintenance means that a business only earns profit if its operating
or productive capacity at the end of accounting period is greater than its productive
capacity at beginning of an accounting period except if owner has made any
contribution etc.
Reduction of Capital
The term Capital reduction refers to the situation when equity of a company is
decreasing through share repurchases and cancellations. This repurchases and
cancelations also known as share buybacks. This reduction in capital is done
because of many reasons like producing more efficient capital structure and
increasing value of the shareholder etc.
After reduction in capital, the quantity of shares present in the company will be reduced.
While the market capitalization of the company will not change because of which the
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number of shares present for trading and the float will be decreased.
Example of Capital Reduction
Many large companies usually reduce their capital through repurchase agreements.
For instance, a broadcasting company of America named as Sirius XM Radio that
gives ad-free satellite radio services made an announcement on January 29, 2019 that
the directors of the company have approved an additional $2 billion repurchases of
common stock and this will increase the buyback authorization of the company to $14
billion in 2019 in total since 2013. The company will repurchase the stock through cash
on hand, future borrowing and future cash flow from operations.
TASK 1 (B) ANALYSIS OF THE ELEMENTS AND NATURE OF CONTRACTUAL
AGREEMENT
Section (i) The Nature of a Contract
By one definition a contract is "a promise or a set of promises for the breach of which the law gives a
remedy, or the performance of which the law in some way recognises as a duty; Contracts arise out of
agreements, hence a contract may be defined as an agreement creating an obligation. A failure to
complete the contract may lead to a breach of contract, although a situation can exist where the parties
may release each other from further obligations (discharge by agreement) (Marson 2012, p. 229).
Section (ii) Analysis of the Elements of Contractual Agreement
Offer: A person only with capacity to contract can make an offer. In the scenario John
is only an agent and he made offer without letting Jodie know. Also, he has no legal
capacity to agree on a price.
Acceptance: In a contract an offer must be accepted between parties. Jodie as a
principal did not accept the delivery date of 31st August.
Consideration: It is an important requirement and the bargaining element of a
contract. In this scenario Harry said he will think, So, no offer had been accepted and
no consideration was given. Harry later said he would like to sell but at his own
convenience, Jodie is not aware of this.
Intention to create legal relations: Neither party in the scenario
intended to enter into legal relations.
Capacity to contract: Harry's offer of change of delivery had to be accepted by Jodie
as she had the legal capacity to enter into contract.
Certainty: In a contract there should be an element of certainty. In this scenario Jodie
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did not agree on a certain date of delivery.
With reference to the given scenario there can be an additional element of the
contract that must be considered:
Consent: There must be a consent by the principal for a contract to be validated.
Jodie did not give consent to the price, nor did she agree on an alternative delivery
date.
My Opinion:
Harry's argument that a contract was made is not correct because:
Major elements of a contract as mentioned above are missing.
Jodie as principal and Harry as seller perceived John as an agent and was subject to
Jodie's control. Therefore, John must consent to her, before agreeing with the third
party (Harry). As John was not part of the business but was only helping Jodie. In my
opinion, whatever John agrees with the third party must be ratified by Jodie.
Also, in the contract process negotiations occur and there were no negotiations
occurring between Jodie and Harry regarding the change of delivery date. Case
Law Harvey v Faceyl. (Marson 2012, p.125)
Also, the confirmation of the terms of contract should have been obtained as Harry
only informed John about the delivery date. As Jodie was not aware of it, so there
were no contract obligations created between Jodie and Harry. Simply informing the
agent and not getting confirmation from the principal is not a valid contract. Case law
Gibson v Manchester City Council (Marson 2012, p.126)
Also, Harry did not send an invitation or a willingness to enter a contract or to change
the delivery date with Jodie. So, there was no contract established. Case law Store v
Manchester City Council (Marson 2012, p.126)
Section (iii) There are some remedies for breach of contract.
Damages are available as the primary remedy in breach. Damages must not be too remote; they must
drive from the breach and have been in the reasonable contemplation of the parties when the contract
was formed.
Damages are not designed to penalise the party in breach and hence they must be quantified to reflect
the losses sustained by the innocent party (Marson 2012, p.248).
Above however doesn’t apply to Jodie and Harry because there was no contact between them.
Section (iv) Explanation of the principles of agency and their impact on business.
Currently there is no agency relationship exists in Jodie’s business, but the following explanation may
help her in the future.
Agency means the relationship between two persons. In an agency relationship one
person is called an agent who by law represents the other person called the principal.
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The agent holds legal position of the principal. The agent usually prepares contract for
the principal if, the principal is going to be engaged in some kind of contract with other
party. The principal-agent relationship could be between two persons or could be
between two business entities.
All kind of relationships in agency are fiduciary in nature. That means that the relationships include a
confidence and trust up to some level. The agent should act in the best interest of the principal
because any negligence can cause legal obligations for the principal.
Some of the basic examples of agency relationship includes lawyer/client,
employee/employer, and officer/corporation and receiver/administrator.
Section (v) Issues that are relating to an agency are:
Should Jodie want to hire an agent to promote her new business, she should be aware. of the following
issues that might arise in a principal-agent relationship.
The business environment is full of conflicts of interest at different stages. A conflict of
interest usually arises when the people of business entities care for their personal
interest rather than taking care about their professional responsibilities. For instance,
the director’s primary duty is to increase the wealth of the shareholder, now if the
directors work for their own interests and neglects the rights of the shareholders then in
this case the conflict of interest arises between the shareholders and the directors. The
most famous scandal of this kind is mentioned below:
Enron’s failure was due to hiding losses by the management from its shareholders
and from the general public through accounting techniques.
Section (vi) Impact on Business
Running a personal training business can be sensitive; therefore, if an agent makes
any mistake, this can cause problems for Jodie's newly launched business because
eventually, reputational and monetary costs will be borne by her.
Case Study
Nicholas William Lesson is a former derivatives trader who was well known for
bankrupting of Barings Bank which is one of the oldest merchant banks of the United
Kingdom. He made a lot of unauthorised, fraudulent and speculative trades that took
the bank in 1995 to collapse, and he was sentenced to prison for his actions.
Advantages and disadvantages to Jodie of using commercial agents are as
follows:
If Jodie had used an agent, the lines of communications with Harry would have been
clear, in the sale and purchase of furniture and a misunderstanding would not have
occurred.
Disadvantages to Jodie of an agency relationships can be that Harry’s perception of
John as an agent caused misunderstanding between both parties.
17

Task 1 (b) Section (i) Requirement of Data Protection Legislation
United Kingdom has the Data Protection Act of 2018 that is implemented as General
Data Protection regulation (GDPR).
Every person using his/her personal data must be followed by the rules referred as
‘data protection principles’. The individual should make sure that the information is:
 Fair, transparent, lawful and securely used
 Used for explicit and specified purposes
 Used in an adequate way, limited to necessary actions only
 Including strict protection from any unauthorised or unlawful access,
processing, destruction or damage.
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Task 1 (b) Section (ii)The purpose of the GDPR
The purpose is to protect personal information of public. Therefore, Jodie must follow the rules on data
protection as her business uses personal information of trainees, staff, customers for example when
she:
 Recruits staff
 Manages staff records
Markets products or services
 Uses CCTV
This could include:
 Keeping a record of customers addresses.
 Recording staff working hours
 Giving delivery information to a delivery company
Task 1 (b) Section (iii) Penalties for Non-Compliance. UK General Data Protection Regulation
(UK GDPR)
If Jodie fails to obey the United Kingdom’s GDPR, then in this case she could face
action taken by the Information Commissioner’s Office (ICO).
The office could issue the following sanctions on breach of the rules:
 Reprimands and warnings
 Bans on data transfers and data processing (which could be temporary or permanent)
 Administrative fines
Some of these sanctions might be imposed on the processors and data controllers,
thus it will badly have an impact on her day-to-day operations of business.
Some of these will apply to both data controllers and processors, hence significantly
impacting her everyday business operations.
Fines for infringement of the UK GDPR
If she fails to comply with the United Kingdom’s GDPR, then she may face
substantial fines. Fines have two tiers:
1) Higher fines for infringement of any principles of data protection or
individuals’ rights of about £17.5 million or 4% of global turnover annually –
whichever is greater.
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2) A fine for infringement of other provisions like administrative needs of
the legislations of £8.7 million or 2% of global turnover annually - whichever is
higher. The fines are optional and are not mandatory, but it depends on the
ICO how he/she imposes it based on case to case and this is the last option
the ICO office could use.
20

While determining the level of penalty the ICO will consider many different factors like:
 The gravity, nature, duration of the violation, the extent to which
the damage is made, the number of people affected. The ICO will also
check whether the action was intentional or unintentional.
 ICO will check for any previous history of the
violations
 Is there any kind of action taken by the person to
mitigate damages?
 Whether the controller has co-operated with the ICO or not?
 Check more on the reporting of any serious breaches of the
personal data.
Task 1 (b) Section (iv) Impact of non-compliance of GDPR
My opinion: The fines imposed on the breach of data protection regulation could
be worst. Jodie needs to consider that there could be other impact on her
business in addition to financial loss such as:
 Private claims to compensate for the damages occurred. These
claims could be from individuals or could be from consumer protection
bodies acting on behalf of their clients.
 Losing consumer trust
 Reputation can also be damaged
Therefore, it is important that Jodie should follow proper data protection principles, and take care of
individual rights, and should take appropriate organisational and technical measures to protect the
personal data that she uses.
TASK 1 (C) INTELLECTUAL PROPERTY
Intellectual property is a product of someone's intellect that has commercial value and may be
exploited. It provides legal rights of ownership and control and is typified by copyright of artistic and
literally work, patents, trademarks, and design rights (Marson 2012, p. 553).
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Section (i) Protecting Intellectual Property
Intellectual property is a broad term. Essentially, it is used to describe the patents to protect new
inventions, trademarks that are used by businesses that may define brands, logos, and the shapes of
products, design rights and registered design, and copyrights. In short anything that provides the owner
with protection against unauthorised use of his/her literacy, artistic, and dramatic works sound
recordings and software and database and so on. Below are the regulations regarding the protection
afforded and the mechanisms available to enforce rights (Marson 2012, p. 553).
My opinion. The training material that Jodie has produced is an intellectual property for her business.
The following are the elements she needs to meet in order to protect her training material.
Copyright
The law relating to copyright is governed, through statue, by the Copyright, Designs and Patent Act
1988 (CPDA). The protection of copyright is afforded to anyone's creation of literacy, dramatic, musical,
or artistic work, or the creation of an employee who is contracted to create such works. Through this
ownership, control may be exercised as to who may use the work and how permission will be granted
(through licensing, for example).
Registration of Jodie's training material
A significant protection afforded to Jodie of copyright in the UK is that it is automatic. Unlike other
protection of intellectual properties rights. there is no registration process. Due to the lack of any kind of
formal registration, Jodie may be concerned as to how to prove the ownership. Tactics include sending
a copy of the work in the dated and unopened package to oneself, or leaving a copy of the work with
the solicitor (Marson 2012, p. 556).
Jodie is entitled to protect her training material under CPDA 1988 act for the duration of 25 years.
Enforcement of copy right
When Jodie observes that someone has breached her copyrights, the first step that she may take is to
inform the transgressor. This informal measure may be achieved through a letter, (either personally
drafted or through a solicitor). Many cases cease at this stage. However, when the other party does not
respond, or may challenge the ownership of the copyright, then Jodie will have to initiate legal
proceedings against those parties. The penalties for infringing copyright may include civil and criminal
liability (Marson 2012, p. 558).
Civil Actions
Section 96 of the CDPA 1988 provides that infringement of copyright is actionable by Jodie and relief
may be available through damages, injunctions, and their transgressor being held to account.
Availability of injunctions is a more useful remedy than a damages action. Here the court orders the
transgressor to stop infringing the copyright immediately through an interim order until the full hearing.
A further injunction may be ordered following this hearing (Marson 2012, p. 558).
Jodie's work could be protected by copyright in other countries through international agreements, for
example the Berne Convention.
22

Importance of training material for Jodie:
My opinion
Training material that Jodie has produced is very significant to her business, because such material will
meet the needs of individual trainees. It will help Jodie to generate the revenue for her business by
developing the skills of her current employees. Her training material needs to be protected so that an
existing employee doesn’t replicate her business model.
23

TASK 1 (D) TORT LAW
Tort law concern with the compensation for harm in related to the rights of
people for health, safety, a clean environment, property, economic interest or
relationship. Tort are usually divided into four different categories such as assault,
battery, international infliction and emotional distress. Since Jodie is engaged dealing
in the public at the business premises, which requires her to be aware with the tort law.
Section (i) Introduction
Tort law create an obligation even if the prior agreement is not established between the parties
whereas, the civil law places the obligations only for those parties associate with the legal contract.
The aim is to take a reasonable care of the associated stakeholder even if the actions are taken
internationally or unintentionally. Tort, the term is developed from the French word open, wrong close.
This act provides the right to the injured person in form of compensation. The aim is to place the
victim back into the position prior to the tort was originally occurred with due support of the monetary
compensation. One of the most important torts is negligent that usually result into some form of human
injury or any kind of physical damage. The focus of the tort law is to make business aware to the
extent belong to the potential liabilities associated with workers, visitors to business premises, other
businesses, and for the people. This act result into safer practices and risk free operations and
services ensure limited damage for the people or society.
Issue of liability under tort law
The tort law set an obligation for the necessary party to take the full accountability against any
action that is undertake. The legislation ensure the complete responsibility of the stakeholder to make
sure that the actions undertaken by the stakeholder would not cause to any kind of damage to the
people. This act further involve claims of negligence such as fault liability: where someone is at fault.
The act allow the injured party getting compensation for the resultant loss/injury. All such contingency
situation or damage that is occurred due to any negligence will be insured with the proper
compensation to the party suffered in the injury. Certain situations' whee damage occurred due to 'act
of God' will generally not be compensated as there is no party from which to claim. There are certain
damages which are unavoidable will not be covered in the form of compensation. For example
producer of good is liable for the quality of the product but the seller is not the one responsible for
customer choices and expectations.
Case law Donoghue v Stevenson
The doctrine of vicarious liability, one person may found to be liable for the torts of another (for
example employer may found liable against the torts of his or her employee, or the principal being liable
for the loss of his/her agent). Fault can also be removed in claims under the Consumer Protection Act
1987 where the liability is strict.
Section (ii) Vicarious liability
Vicarious liability is defined as acting on behalf of the other individual. In the general situation
tort liability impose when the damage in occurred due to the negligence of the person. The individual
found guilty will have to pay compensation of the value equivalent to the damage that is occurred. The
law also provide the condition where some relationship exist between defendant and a third party, then
the law can extend liability to that third party in case of the following conditions are fulfilled.
24

A relationship (master servant, principal agent, employer employee etc.)
 wrong act done in the course of employment
 respondent to superior
 ‘let the principal be liable'
 The person committed crime with the prior instruction of another person. The instructor would
also be liable for the criminal action occurred.
In the present case study Jodie is liable for the actions taken by her employees as
explained under the principle of vicarious liability. Following are the case laws
support the judgement.
Case law
i. Beard v London Omnibus Co (In this case there was an employee employer relationship to be
proved but the accident happened outside of the course of employment therefore no vicarious
liability established)
ii. Limpus v London Omnibus Co, (the employer found to be liable because the injury resulted from
an act done by the driver in the course of service and for his master's purposes).
iii. State Bank of India v Shyama Devi (There was no employee employer relationship therefore
no vicarious liability established)
Following atre the tests that needed to satisfied enough In order to establish a successful claim
or negligence.
1) The duty or care.
2) Breech or that duty.
3) Consequential damage.
4) Successful claim.
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Section (iii) Remedies available to injured person
Succesful claim for the compensation may be awarded to injured visitors at Jodie's business premises
can demonstrate in the following points.
 Damages and injunctions.
 Losses incurred such as loss of earnings
 Medical expenses
 Travel expenses
 Damages for pain and suffering loss of amenity and so on
Section (iv) Negligence and breach of the duty on the part of Jodie
My opinion.
Jodie is liable against the negligence to the extent she owed her visitors a duty of care. The
primary duty and responsibly of her was to take a complete care of all the areas that can possibly
cause to any type of damage. The responsibility is to ensure the complete safety and protection against
the damaged part.
Jodie may also found to be liable for breaching health and safety regulations as she did not
carry regular electrical equipment safety checks by a qualified electrical engineer.
Jodie may also be found liable as she did not provide appropriate training to her staff on how to
use electrical equipments.
Section (v) Employee and employment
Employee is the person appointed over a certain role by the
employer or owner of the business as per the contract of employment or
agreement established by both the parties. The employer set all the roles
and responsibilities of the employee with the support of agreement.
Jodie and her employees should also follow the rules, regulations, terms and conditions
associated with the contract till the end of the employment contract. The restrictions of the contract may
also eliminate in case with the mutual communication new conditions may established that can further
eliminate the original contract. This will further include establishing new contract between both the
parties such as employer and employee.
Section (vi) Assessment of impact of legislation relating to employment are as follows:
Jodie being an employer need to make sure that the business must ensure all the
respective regulations related to her staff pay, holiday entitlements, working hours,
contracts and much more.
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Statutory responsibilities of Jodie
Once the employee join the organisation being an employer Jodie must has
given him/her certain statutory rights related health and safety, employee welfare, anti-
discrimination related rights, pay and such like rights. This is important for the
employee own certain rights in against to get an employment opportunity at the
business entity.
Health & Safety
This is the responsibility of Jodie to ensure the proper health care benefits of
its staff. The premise must also cope with all health and safety measures such as fire
exit and all other. Insurance related benefits must also be allocated to employees at
work place. This is also a part of the responsibility of the employer to conduct regular
assessments so that risk can mitigate by the employer before any injury or damage
occur (if there any). This step would also have supported to the Jodie to take
appropriate measures for mitigating the risk. Moreover, Jodie is also responsible for
not to provide training to staff regarding different tactics over managing workplace
risks.
Employees Welfare
Employee welfare is defined as ensuring the satisfaction of the employees
associated with the work place in against of getting the employment opportunity at the
organisation. In order to give clear and safe working environment to the employees at
workplace Jodie needs to ensure all types of health care and safety related services
such as first aid, clean drinking water and protective clothing (this is particularly
important for her business) etc. Along with this at least 20 minutes of break should
also be allocated to such employees work for 6 days in a week. Jodie must also
ensure a normal work routine of 48 hours a week unless there is a mutual agreement
between employer and employee.
Discrimination
As per the Equality Act 2010 this is against the law. Discrimination is a conduct that
involve creating a practice where some people get to take unreasonable advantage
in against of implication of certain rule or action. In the usual circumstances the
practice of discrimination is occurred with the use of following practice.
 being in a civil partnership or being married.
 Gender relocation.
 Being on maternity leave or being pregnant.
 Race like ethnic or national origin, belief, religion, nationality and colour, sexual orientation etc.
 Employees talk among each other regarding discrimination
claim of another employee should also be protected from
discrimination.
27

Pay & Benefits
As per the employment Rights Act of 1996 following are the certain rights
employees get in regard to their pay and its protection:
 At least minimum wage should be paid to the employees
 Holiday pay
 Guarantee payment among others
 Payment in Lieu.
 Provide pay slips to the staff contain all details related to income, national insurance, student
loan (if applicable), sick pay of the statutory workers, maternity and paternity pay, shared
parental leave and adoption pay etc.
Employees’ Responsibilities:
As per the Health and Safety at Work Act of 1974 there are certain duties and
responsibilities for workers as well in against to own the employment opportunity at
the organisation. It is important for the employees to understand the procedures and
policies. Their general duties are to:
 Take care of themselves while at work
 Take care of others at work
 Not to misuse any equipment.
 Not to disclose the confidential information about the organisation with any individual not in the
position of knowing such knowledge.
Issues of employee's dismissal
Employer or the management in the organisation get all rights to dismiss any
employee over some fundamental basis. In against to terminate the employees for
doing some misbehave or some kind of unethical action employer must be more careful
in dismissing an employee. The law requires for the employer to follow correct
procedures while accessing any right to terminate the employees work in organisation.
If these are disregarded, claims for unfair dismissal may be made and if it is found to be
true than employee get the legal right against the employer for such unethical
behaviour at work place (Marson 2012, p.359). The reason of termination or dismissal
must be strong enough and justify the act of management.
My opinion. In case of any employee at the workplace do not adhere to the responsibilities properly
and found responsible for any kind of misbehave at workplace Jodie has the right to start dismissal
procedure as follows: Jodie must give at least one-week prior notice of dismissal to her employees if an
28

employee has worked for more than one month and less than two years. Additionally, she should give
2 weeks’ notice if an employee who has continuously worked for more than two years.
I) Wrongful dismissal (the common law route)
Dismissal is an act or conduct that completely create a situation where the whole contract get
terminated. Under the governance of contract law, employment contract may have included a term
regarding notice period. This is a duration of time for which employee need to service after the
resignation is accepted of the employee. Even in the absence of such a clause, statute establishes the
minimum notice that must be provided. In case the notice period is not adhered, without giving any
justifiable reason possible actions can be taken against the employee by the organisation. The act of
breaching the contract may lead to some legal actions against the employee (Marson 2012, p. 340).
Wrongful dismissal is punishable in the act of law.
ii) Unfair Dismissal (the statutory route)
Unfair dismissal is an act under labour law in which termination is made without conveying any
good reason behind the practice follow. Previously the year 1971 there was not any statutory right
allocated to people for protection against the practice of unfair dismissal. 1971 was the year of
Industrial Relations Act where the proper rights are allocated to the people or employee facing the
issue of unfair dismissal. Employment Tribunals are established by the government to conduct the legal
hearing against any unethical practice in the form of unfair dismissal.
Section 94 (1) of the Employment Rights Act 1996 (ERA), provide right to employees to not to
process for any unfair dismissal. The ERA 1996 impose 'potentially fair' reasons to justify a dismissal.
The act completely prohibit the right to dismiss employees without any good or valid reason (Marson
2012, p.361). In case of any unfair dismissal is done employee will get right to make reasonable legal
actions against the employer or the organisation.
Case law
In the case law of Mr. Addis vs Gramophone, employee was dismissed after a
6 months' notice was issued. Mr. Addis who was working as a manager in
Gramophone company in Calcutta. In the October month of year 1905 he was
given a 6 months’ prior notice for his dismissal that was legally required.
However, Gramophone as an employer took many steps in the time frame of 6
months to stop Addis to act as manager that resulted into leaving his job within
two months. Mr Addis took Gramophone to the court and jury compensated
him by giving reward of £340 and £600 for his wrongful dismissal by the
Gramophone.
Justification for Dismissal
In the present case Jodie may explain the decision for her employee’s being dismissed is
potentially fair in case of fulfilment of more than one conditions outlined in Employment Right Act 1996
are followed:
 That capability or qualifications of the employee section 98 (2-a);
29

 The conduct of the employee section 98 (2-b);
 That the employee was made redundant section 98 (2-c);
 That to continue the employment would amount to a contraventions of statute section
98 (2-d);
 SOSR means Some Other Substantial Reasons of a kind to justify dismissal section
98 (1-b);
Section 92 of ERA 1996 allow the employee for getting the right to know the reason of
dismissal. The act will further assist the employee in attempting to establish a defence on the basis of
the Jodie's assertions under section 98. In case the Jodie refuses, or fails to respond, then the tribunal
may award the employee a two week's pay. Jodie also carry the opportunity for selecting as many
reasons under section 98 as she wishes. This is also essential that for claiming any of the reason
proper evidence must be presented before the court. In the case of Smith v City of Glasgow Council
the employer proposes three reasons for the employee dismissal due to incapability, but due to lack or
evidence one of them would not come to be stated as true, the House of Lords declared that the
employee was unfairly dismissed. It was not possible for the court to distinguish if this reason was any
less or more serious than the other two submitted (Marson 2012, p. 364-365).
30

My Opinion
In the current case study Jodie has wrongfully dismissed her employee without any valid
reason. The implication of this provision has supported the rights of the work force to ensure a proper
job security.
iii) Remedies for Unfair Dismissal
Unfairly dismissed employee get a right of compensation as he/she was dismissed
immediately without giving him/her reasonable notice. Compensation is allotted so that employee get
sufficient financial support before getting any new job. Jodie must also be aware with the fact that there
are remedies available for her employees in against of unfair dismissal. Law or tribunal provide a
complete support to the employee for overcoming the unfairness in the dismissal. There are total of
three remedies available are reinstatement; re-engagement and compensation (ERA 1996, s.112).
These are the remedies that are initially explained to the claimant and the tribunal identifies whether
the employee wishes to be reinstated to his/her previous job. Court provide a complete support with the
use of its legislative power. In case employee is dismissed without any valid reason that could favour
the employee to get the job back (Marson 2012, p. 375). If the employee reject the offer than the level
of compensation which further be reduced by the court.
My Opinion
Jodie also found responsible for not keeping the safety records updated related to electrical
equipment and as a result an investigation by the Health and safety Executive can be held. Following
negative impacts on Jodie's business:
 Higher insurance premium of coming years.
 Loss of reputation.
 Disturbance to the daily operations of her training business while investigations are carried out.
END OF TASK 1
31

TASK 2 SECTION 1: THE PROCESS OF INSOLVENCY
This report is prepared to advice Dayloan Ltd on the insolvency process that it will follow, and detailing
the criminal charges they could face and penalties that could be imposed on them. The end of the
report describes on how the company should have been directed and governed.
What is insolvency?
Insolvency occurs where a company does not have resources i.e., cash or assets to pay its creditors
any debts when they are due. For an individual the term bankruptcy is used.
Corporate insolvency:
To determine whether a company is insolvent, two tests apply:
Cash-flow test:
When a company is unable to pay its debts when they become due. (a company is considered to be
unable to pay its debts if it can't pay a court order against or if it owes more than £750, on the demand
of a creditor the debt has not been paid within three weeks)
Balance sheet test:
When a company's assets are worth less than the amount of its present and future liabilities. In the
given scenario, Dayloan Ltd has failed the cash flow test for corporate insolvency.
Law for Insolvency:
The Insolvency Act 1986 (c 45) is an Act of the Parliament of the United Kingdom that provides the
legal platform for all matters relating to personal and corporate insolvency in the UK.
Insolvency laws in the UK provide three main measures for handling insolvency in companies. These
are:
 Administration;
 Company voluntary arrangement;
 Liquidation.
a) Administration:
The administration of a company gives time so that the company’s assets can be
utilised in best possible way to pay its creditors. The main role of the administrator
is to manage the different affairs of the company’s property and business for
benefiting its creditors. The person appointed as an administrator must be an
insolvency practitioner.
The objective of administration is to rescue an organisation from insolvency through a going concern
principle and to realise that the value of the assets of the company are more for its creditors.
32

b) Company Voluntary Arrangement (CVA):
It means when an organisation makes arrangement with its creditors, this arrangement
is subject to the court’s approval. In this arrangement the company has already agreed
the terms and conditions with its creditors regarding debt payment and its settlement.
An administrator could also propose the company regarding CVA. Moreover, the directors, liquidators
(where a business is being wounded up) could also propose CVA in other circumstances.
c) Liquidation:
It has two different types.
i) Voluntary Liquidation:
Voluntary liquidation is further divided into two kinds i.e., Member Voluntary
Liquidation (MVL): in this type the directors make a statuary declaration regarding
solvency of the company and the second type of Creditors Voluntary Liquidation
(CVL) that means that the directors of the company have not made the declaration
regarding solvency
ii) Compulsory Liquidation:
In some cases, the High Court of the country may also announce the winding-up of
the business. This could be the case when the petitioner is creditor of a company and
has made the petition regarding liquidation of the company. In the petition it is clearly
mentioned that the company cannot pay its debt and should be liquidated so that the
creditors can get their money back. Other petitions could be placed on the company
regarding its liquidation i.e., the petitioner could be the company itself, the directors of
the company, creditors and official receiver of the company.
Right of employees:
The staff get the right to claim the redundancy claim. Along with host of other
statutory entitlements employee get this right as well.
Right of unsecured creditor:
Unsecured creditor are not secured hence they come after the secured
creditor. They do not hold charge over a company proeprty but get the right to claim
the due once the secured creditor are fully discharged.
Bankruptcy and personal insolvency
This is a process involve setting off the due against the individual or personal
asset. This is a legal obligation to set off all due against the personal property.
33

SECTION 2: ADVICE FOR DAYLOAN LTD
My advice on the insolvency process for Dayloan Ltd is that since Dayloan Ltd is
insolvent and already owes a large amount of corporation tax, it has no cash or any
other means to pay its debts, it therefore must be compulsory liquated. Compulsory
liquidation (WLIC) is the formal procedure of insolvency in which the Dayloan Ltd will
be shutdown forcibly. This type of liquidation could be initiated by the outstanding
creditors (mainly HMRC) of Dayloan Ltd through a court order named as Winding Up
Petition (WUP). A WUP will inform Dayloan Ltd that someone has registered a
petition regarding closure of the business and also the liquidation of its assets.
Dayloan Ltd will follow the following procedure of compulsory liquidation:
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Winding up Petition
It is the first step of compulsory liquidation and also called WUP, is for the creditor
(HMRC as Dayloan Ltd owes a large amount of corporation tax) to issue a WUP
against the company. HMRC must wait at least 21 days for the debt to have been
repaid. Once a WUP has been issued to the HMRC, seven days must pass before this
is advertised in the London Gazette. Following the advertisement, Dayloan Ltd will
typically find that their bank accounts will be frozen leaving Dayloan Ltd unable to
perform any trading activities. The ethical code also made is more liable for the
company to liquidate the whole business. The ethical principle motivate the business
venture to liquidate efficiently with proper documentation and without inviting any kind
of fraud in the business.
Winding Up Order
After passing of 7 days of the WUP, the judge will further decide the next step. When
the court is satisfied from the liquidation of Dayloan Ltd, it will issue a Winding Up
Order and will appoint an official receiver, at this point the trade must be stopped.
Official Receiver Appointed
After appointment of the official receiver (liquidator), the directors of Dayloan Ltd will
not be able to deal with the company’s matters anymore. However, the directors will
assist the official receiver and will give different details of debtors and creditors of the
company and also the information related to assets of the company will be disclosed
to the official receiver. The business law direct the company to appoint the receiver to
present all information completely. The basic idea is that ethical values also
interlinked and direct the business venture to appoint the receiver. This is a legal
requirements that need to meet by business venture.
Dayloan Ltd assets are sold
The formal liquidation process of the company is started. At first the official receiver
will sell the assets of the company e.g., property, machinery and equipment, vehicles
and also the cash at bank will be drawn by the official receiver and will use all the
money to repay debt of the company. When it comes to selling the asset ethical
treatment must be there with the operations. Not any senior management or
employee take an unethical advantage for gaining some kind of benefit in the whole
process. All records must keep by the stakeholder to depict that the processes are
implemented clearly and in the most effective manner.
Dissolution of Dayloan
After sales of all of the assets of the Dayloan Ltd. the company will be shutdown
officially and its name will be removed from the register at Companies House.
This means that the company is no longer exists. Any unpaid debt at this stage
will be written off unless the director of Dayloan Ltd gives a personal guarantee.
In such circumstances it’s the director’s responsibility to repay the remaining debt
and the creditors will also be secured in this way.
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SECTION 3: FIXED CHARGES:
These charges are usually attached with an identifiable asset and can include
property, land, copyright, machinery and trademark etc. Thus, if Dayloan want to
sell these assets as well, then they need approval from the lender to pay its debts.
Examples of fixed charges are rent deposits, mortgage payments, bill of sales,
chattels and leases and factored book debts etc.
Floating Charge
While in the fixed charge an asset can be identified easily. Floating charge is a type of charge
that floats above ever-changing assets like inventory and stock, debtors, moveable plant and
machinery, furniture and fittings etc.
It is important here to note that the assets with fixed charge are repaid before the floating charge
assets are repaid.
My opinion: Although Dayloan Limited has won a number of assets, due to the lack
of proper training of their staff to assess the title ownership of those assets they
cannot be sold to pay their creditors. This also demonstrates that internal controls
within the company were either weak or were not available.
SECTION 4: COMMON HMRC ENFORCEMENT METHODS OF DEBT COLLECTION:
Debt Collecting Agencies:
HMRC can hire debt collecting agencies for smaller outstanding balances as these
agencies are expert in this area.
Taking Control of Goods:
If the team employed to collect debt is found unsuccessful then its enforcement team
takes on responsibilities. This team usually have much experience and power to chase
debts. One of their powers is that they can take control of Dayloan Ltd’s assets.
Direct Recovery of Debts:
This authorise the HMRC enforcement team to take money from the bank account
of the Dayloan Ltd directly to repay its debt. This tool is mostly used when the
enforcement team considers that the Dayloan Ltd will not pay the debt, rather than
it cannot pay.
Accelerated Payment Notice:
This method can be used by HMRC if they win a court order against a tax
avoidance scheme that Dayloan Ltd could have been involved in.
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Winding Up/Bankruptcy Petition:
When some matters are prolonged, then the HMRC team usually reports to the
petitioning for the company to wind up its business activities (in other words the
business is declared as bankrupt). Such petition is filed only if the company debt
exceeding £20,000. Though, the team can file a petition for winding up of the business
activities if the debt exceeds £750.
VAT Bond:
This doesn't apply to Dayloan Ltd as loans to consumers are VAT exempt
Options available to HMRC to recover outstanding corporation tax:
My opinion:
In Dayloan Ltd.’s case, taking control of goods could be one of methods for HMRC.
Direct recovery of debt can also be an option, but it is unlikely that there are any
funds being left in the company's bank account. As stated earlier in this report that
HMRC will likely to follow the process of WUP of Dayloan Ltd.
SECTION 5: GOOD LENDING PRACTICES
The Lending Practice and its standards for personal customers, has set out standards
of good practice in relation to credit card, overdraft and unsecured loan products and
services provided to customers, across the lifecycle from the initial design stage
through to dealing with customers who find themselves in financial difficulty. The
procedures and areas that Dayloan Ltd needed to follow can be described below:
 Account maintenance and servicing
 Consumer vulnerability
 Financial difficulty
 Governance and oversight
 Money management
 Product and service design
 Product sale
My opinion: In the interest of consumers and for Dayloan Ltd, it could have systems
and procedures in placed e.g., staff training, monitoring by the senior managers,
carrying out due diligence on applications, adherence to the policies and
accountability of staff, managing complaints. However, they failed to put appropriate
internal control systems.
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SECTION 6: POOR LENDING PRACTICE
My opinion:
It seems Dayloan Ltd is responsible for not adhering to appropriate procedures in
providing loan services to consumers in the following areas:
 Creditworthiness assessment of the borrowers
 The subject matter of the assessment of
creditworthiness
 The borrower's income and expenditure assessment.
 Open-end agreements
 Credit account running and its assumptions
and providing credit lending to joint borrowers and
businesses
 The extent, scope, and proportionality of creditworthiness assessment
 Creditworthiness assessment where there is a guarantor.
 Procedures and policies for creditworthiness assessment.
SECTION 7: EXPLANATION OF ELEMENTS AND CONSEQUENCES OF
MALPRACTICE, FRAUD AND BRIBERY.
Dayloan Ltd is also being investigated for the offences of malpractice, fraud, bribery, money
laundering and computer misuse. All these are serious allegations and carries serious
penalties. The details are as follows
i) Malpractice: This is a type of negligence usually called as professional negligence.
This type of negligence occurs when a professional with a license i.e., an engineer,
accountant, lawyer or a doctor fails to give services as required by the standards set out
by the governing body.
Malpractice could be divided into four different elements:
Duty:
The service provider (defendant) has some duty to fulfil towards the claimant.
Breach:
The duty is breached by the defendant.
Causation:
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The damage done directly affected the claimant by breach of the duty by the
defendant.
Damages:
The damage caused is directly proportional to the harm caused to the claimant.
Consequences of malpractice for Dayloan Ltd
My Opinion:
Creditors and customers of Dayloan Ltd can make complaints to the Insolvency Service if they have
reasonable grounds to suspect Dayloan Ltd of:
 Breach of duty for not providing appropriate type of credit i.e. where the principal and
interest would increase.
 Not following the law by providing loans fraudulently, sanctioning loans to unqualified
consumers.
 Causing harm and stress due to ever increasing instalments, that consumers cannot
afford and are about to or have declared themselves bankrupt which result in bad credit
history.
 Any other irregularities in its business dealings.
The consequence of the malpractice is categories into three different categories criminal
liability, monetary liability and disciplinary liability. The practice related to the malpractice create a legal
implications over the respective stakeholder. The practice consider as the criminal activity or action that
is punishable in front of the act of law. In against to this practice court impose a monetary obligation on
the basis of the seriousness of the act or conduct. Disciplinary actions also impossed by the court
against the act of malpractice. All the three actions allow the court to restrict the activity and demotivate
the people to proceed any such action covered under the act of malpractice.
Defence against malpractice for professional accountants
This involve claiming the legal cost and incurred at the time of claim. Damages and
compensation cost will also be awarded. Service and produced cost that will be covered to lose the
money.
Case law
Gregg (FC) v. Scott is a case where the medical negligence is occurred. The real situation of
patient was different but due to negligence doctor identified the whole case in a different way. The
result of this client get to loose its life. This is a proper case of malpractice.
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ii) Fraud:
This is the crime of getting money by tricking or deceiving people, or a crime of similar nature. Fraud
Act presented in 2006 was approved and came into force on 15th January 2007 in Northern Ireland,
Wales and England.
In order to identify that there has been a fraud, the prosecutor or investigator should
identify following conditions.
 The facts that have been misrepresented.
 The facts were material to the transaction and were intended in
such a way to be relied upon.
 The victim relied upon the misrepresentation due to which the
harm is caused.
Consequences of Fraud:
My opinion:
Dayloan Ltd could have misrepresented the terms and conditions. Failing to disclose proper
information to vulnerable consumers, this could have detrimental effect on their financial
circumstances e.g., payday lender Wonga was charging an interest rate of 4,000% that
increased the cost of small loan taken out for very short period of time.
After being found guilty of fraud, directors and senior staff of Dayloan Ltd could be liable of:
Under section 1, the maximum penalty for offences are 7,9 and 12 months’
imprisonment and up to 10 years’ imprisonment on indictment conviction.
According to Section 10 of the Fraud Act, the maximum penalty for offences is up to
10 years’ imprisonment.
Under section 6 and 11, the maximum penalty for an offence is imprisonment for 12
months and conviction on indictment is 5 years
Fraud has been prohibited by the act of law. The consequence of fraud is in the
form of legal actions taken by the court. The fraudulent actions consider as the legal
misconduct result into long term prison sentences. The action consider as the
misbehave in the eye of law. This act is denoted as the unethical practice in the face of
law. Any type of misrepresentation's is consider as fraudulent action. Court do not
support such type of treatment.
Case law
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The case law of Reddaway & Co v Banham & Co is a case of proper
fraud. This is a case of civil fraud that was detected. This is a critical case
of fraud that was detected present all the key finding related to fraud.
iii) Bribery
It is a type of crime in which one party gives some kind of money or gift etc. for
exchange of some illegal work done for them by the second party. This involves
providing some advantage against behaving in a certain way. For example if a
person claim a condition where other person associated with certain designation
need to act certainly or do some actions as per the instruction given by other. In
against to process the action the instructor provide some certain level of advantage
to the person respond for the action. The bribe can be in form of cash, assets or any
other form of advantage. Offering bribe is completely prohibited by the law. The basic
concept of bribe is about to allocate some kind of advantage in against to process a
certain action or activity.
Bribing a public official thus requires proof of the following essential elements:
(1)a public Official;
(2)the defendant's corrupt Intent;
(3)a benefit-"thing of value"-given, offered, or promised to the public official;
(4)A Relationship between the thing of value and some official act (or fraud or omission of duty)
As per Financial Conduct Authority (FCA) a loan company must comply with strict requirements in
order to obtain a license to operate.
My Opinion:
Dayloan Ltd could have bribed an officer who did not perform appropriate checks on requirements and
granted them license to operate as a lending company.
Bribery offences in UK are dealt with The Bribery Act 2010 under sections1,2,6 and 7.
The effect of Bribery 2010 on Dayloan Ltd and how it could be affected:
According to Bribery Act of 2010 there are four different statutory offences/crimes:
Section 1: offering a bribe
Section 2: accepting and making agreement to receive bribe
Section 6: Bribe agreed by the foreign public official
Section 7: Failing to prevent bribery is a corporate offence
Section 9: U.K has introduced several procedures that aims to defend businesses
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against the corrupt elements and provide guidance regarding how to avoid bribery.
My Opinion:
Dayloan Ltd failed to put adequate procedures to prevent bribery. Investigators will
look at the followings procedures to establish if they were adequately implemented at
Dayloan Ltd to stop bribery.
Proportionate Procedures:
Although Dayloan Ltd is a small loan company but it was dealing with an important
industry i.e., lending money to community who are in financial difficulties therefore the
risk of corruption and bribery was high. Thus, different procedures were required to be
taken into consideration.
Top-Level Commitment:
The associated persons along with the employee within the Dayloan Ltd could only be
involved in corruption policies if their directors are involved too. Thus, the demonstration
was needed from top level employees in Dayloan Ltd. in order to show other employees
that bribery or any kind of corruption is not accepted in this organisation.
Risk Assessment:
Risk assessment is a practice that involve assessing the level of risk involve in certain action.
This is about to evaluate the potential damage that can occur if a certain step taken found to be wrong.
The basic aim of risk assessment is about to identify the possible amount of damage that can be faced
by the stakeholder in against to make a certain decision. In context to the business venture all such
potential damage associate with taking any decision is considered as the risk factor. The risk
assessment is further to measure the level of damage may occur as a consequence of taking a certain
action. The Dayloan Ltd were required to take different risk assessment measures in order to make
sure where and why corruption can be occurred in their organisation. This would have resulted in
finding out different internal and external risks and how such risks were controlled.
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Due Diligence:
Due diligence is a respective action that is to be taken out before processing
for any action or taking out a certain activity. This is deemed to be an exercise of
care that a responsible individual or management should be overlooked at before
processing further or taking any decision related to agreement or a contract. Dayloan
Ltd could have followed a risk-based approach to due diligence that would have
allowed the staff to understand who were dealing with them. According to Bribery law,
in case of any corruption by the official/officer of the organisation, the same
organisation will be held liable for that corruption which is why it was necessary for the
Dayloan to keep track of every single person that they were doing business with.
Communication:
Dayloan Ltd needed to ensure that all of their employees and other persons
associated with the business were fully aware of the anti-bribery policies. This could
have been done by arranging different seminars and also documentations could have
been made that allowed the employees to understand the policies.
Review and Monitoring:
Review is defined as collecting information over a regular basis. This is
about to identify the efficiency of the actions to be taken. Monitoring and reviewing
both the term denote the same practice which require to identify where the practices
process as per the operations are planned. As Dayloan Ltd was operating in a
constantly changing sector therefore its environment and personnel were changing
too, and thus, different risks that could affect them were changing constantly. Thus, it
needed to perform review and monitor of their policies regarding corruption and
bribery and provide training to its staff to make sure the effectiveness of such
policies could be achieved.
Some of the consequences of bribery that may apply for Dayloan Ltd:
Even when the bribery isn't found out and tried in court, it can still affect Dayloan Ltd in any of the
following ways:
Reputational Damage:
This may not directly apply to Dayloan Ltd as it is insolvent, but it definitely will have negative impact on
other companies in the same industry.
Financial Damage:
No business and customer wants to work with and associate themselves with a company who is even
accused of bribery therefore it loses business. Again, Dayloan Ltd is insolvent and this may not
specifically apply to them e.g.in January 2020, Airbus was forced to pay a record £3bn in fines for
paying huge bribes on an endemic basis to land contracts in 20 countries. This shows the true power of
the 'unlimited fines' a company could be forced to pay if it found guilty of bribery.
Reduced Employee Morale:
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Employees of a company will lose enthusiasm as they feel that they are part of a company which is
being investigated of bribery. This is particularly important to the employees of Dayloan Ltd as they will
not feel positive and confident to apply for any jobs in the same or a different industry.
Penalties:
If the directors, senior management of Dayloan Ltd and government official found guilty of bribery they
could face following penalties
Senior management of Dayloan Ltd could face up to 10 years’ penalty of imprisonment
and unlimited fine depending on the severity of the bribery crime. According to The
proceeds of Crime Act 2002, if Dayloan Ltd. has obtained any finances through bribery,
they should immediately return it otherwise they will be seized. Directors of Dayloan Ltd
could also be disqualified to hold such position for 15 years because they lacked the
top level commitment to implement sufficient procedures. Also the government official
will be terminated from his/her job.
Case law
The famous case of Rolls Royce apologises after £671m bribery settlement
with UK and US authorities.
SECTION 8. OFFENCES AND PENALTIES RELATED TO MONEY LAUNDERING:
Anti money laundering regulation in UK
This is detected by the proceeds of crimi act 2002, the terrorism act 2000 and
Money Laundering, Terrorist Financing and Transfer of Funds 2017.
Obligation
It is a process in which the criminals tend to show that the money that they have is
earned legitimately. Their utmost actions include taking dirty money and clean it in an
effective way.
The following professions and institutions must be registered to follow anti money laundering legislation
(AML) with their relevant authorising bodies and HMRC. They are also obliged to inform National Crime
Agency (NCA) by completing a Suspicious Activity Report (SAR)
 Accountancy {Under HMRC Money Laundering Regulation 17(9)}
 Tax and Insolvency practitioners
 Financial, lending and money service business e.g Dayloan Ltd
 Auditing firms
 Solicitors who are involved in financial transactions (property and shares
 Estate agents
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 Auction houses
 Casinos
The main legislation that could be applicable to Dayloan Ltd for anti-money
laundering and counter-financing of terrorism include:
 Crime Act 2002 and its procedures
 Act of Terrorism 2000
 Terrorist financing, transfer of funds and money laundering
 Act of Criminal Finances 2017
 Freezing of Assets of Terrorists Act 2010
 Crime and Security Act 2001
 Counter-terrorism Act 2008, Schedule 7.
My Opinion:
Dayloan Ltd has committed money laundering if they:
 Disguised, concealed, transferred, possessed and used
criminal property
 Eliminated criminal property from the U.K
 Entered a settlement with someone to give facility to the criminal
property and its control by or on behalf of another person.
 Involved in tax evasion, theft, fraud, bribery and terrorist
financing
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Consequences of money laundering for Dayloan Ltd:
Depending on the outcome of money laundering investigations, the directors and
senior officers, a person associated and also in control of business of Dayloan Ltd
could either be tried in a Magistrate's court where the sentence could be 6-12 months
and unlimited fine.
Offences of less than £5,000 get lenient penalty, whereas other offences could result in a custodial
sentence of 2 years. However, Crown Court can issue fines up to £30 million and prison sentence up to
14 years if £10 million or more has been laundered.
Example:
Five major banks in the U.K have been fined for the offences of money laundering
previously. Recently, the Standard Chartered Bank received an order to pay £842
million to the UK and US authorities for their failings like negligence in enforcing control
to stop money laundering. Similarly, the Dayloan Ltd will also need to prove that they
did adopt appropriate measures to control money laundering.
Under anti-money laundering supervision guidance Dayloan Ltd will also have to prove
that they had appropriate policies and procedures for the following:
 Full responsibilities of directors and senior management.
 Assessment of risk, customer due diligence, policies,
control and procedures
 Reporting of any kind of irregular activity
 Keeping of record
 Training regarding awareness of staff
 Principal agent relationship
Failure to comply with regulations
In the proportion to the financial value of failure the damage will be recovered. All the penalties
that HMRC is imposed will also be recovered.
SECTION 9. OFFENCES AND PENALTIES RELATED TO COMPUTER MISUSE AND
CYBERCRIME.
Computer misuse act
The Computer Misuse Act 1990 protects personal data held by organisations from
unauthorised access and modification and was introduced partly in response to the
decision in R V Gold & Schifreen (1988).
Relevant Case Law:
Stephen Gold and Robert Schifreen were involved in modems and computer
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business in late 1984 and early 1985 and obtained unauthorised access to view the
data held by British telecom. Both faced charges under section 1 of Forgery and
Counterfeiting Act 1981 and were fined £600 and 750 respectively.
The act makes the following illegal:
Blackmailing, viruses, computer fraud and hacking. If someone found fails to comply
with the misuses of the computer act, then they were usually fined and could also lead
to their imprisonment.
Unauthorised access to computer material:
This means to use someone computer without their permission (such as hacking). The
penalty for such crime is 6 months’ imprisonment and up to £5000 fine. Hacking
includes entering in someone’s computer and stealing the data etc. and the penalty is 5
years’ imprisonment and unlimited fine.
Unauthorised modification of data:
This crime includes the deleting or modifying the data and penalty for such
crimes is 5 years’ imprisonment and unlimited fine. The induction of spyware or
malware into the computer carries 10 years’ imprisonment and unlimited fine.
Case law:
News International (a formal UK daily newspaper) phone hacking scandal happened in
2011, a discussion took place to amend the law to define the smart phones having
features of internet browsing. It was also said that such amendment could also
introduce a new crime of making the availability of information with intention e.g.,
disclosing the information publicly such as passwords or other necessary information.
The act was amended in 2015 by introducing part 2 and Sections from 41 to 44 of the
Serious Crime Act 2015.
My Opinion:
Given the culture of not adhering to the procedures and policies at Dayloan Ltd it is
also likely that they will be held responsible for hacking the competitor's computer.
Depending on the outcome of the investigation the offenders are potentially facing
a prison sentence starting from 6 months to 5 years and unlimited fine.
Offences and penalties
In case of unauthorised use of computer material will cost to six months in
prison and a fine of £5,000 fine. Unauthorised access will cost to a five year
sentence in prison. Unauthorised modification will further be cost to five year
prison. Making, supplying and obtaining in the form of misuse will cost to 10 years
in prison.
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SECTION 10. CYBERCRIME:
Cybercrimes are dealt with under Fraud Act 2006.
Definition:
It is an umbrella term that is mostly used to define two closely linked but distinct
types of crime related activity. The National Cyber Security Strategy of the
government defined them as:
Cyber-Dependent Crimes:
All such crimes that could only be committed through using information and
communications technology (ICT) devices, whereas these devices are both the target
of the criminal and the tool to be used to committing the crime such as developing and
propagation malware used for financial gain, hacking to steal and destruction of data
etc.
Cyber-Enabled Crimes:
These types of crimes could be increased in scope or scale with using the computers,
network of computers or other kinds of fraud and data theft related to internet.
My Opinion:
Based on types of cybercrime, Dayloan Ltd is involved in Cyber-
dependent crimes. If Dayloan Ltd is found guilty of hacking, they will face
penalties under the following legislation.
Cybercrimes are dealt with under Proceeds of Crime Act 2002 and
Computer Misuse Act 1990, the penalties that could be issued to directors
and officers ranges from 2-10 years' imprisonment or fine or both
depending on the seriousness of the offences.
Recent examples of Cybercrime
1) One of the world’s largest meat processors JBS, despite spending on IT amounting
to $200m and employs 850 employees who are technical specialists, still paid $11m
after a cyber-attack shut down their operations including slaughterhouses in the
United States, Canada and Australia. Most of its operations were restored after
paying ransom, but the headquarter in Brazil said that there could not be any further
risks of data theft.
The producer of meat was forcibly stopped from slaughtering the cattle in the United
States for a day. This move disrupted the food supply for the whole week that further
caused shortage of food supply and price inflation in the country.
2) Colonia Pipeline, which is one of the largest fuel pipeline companies in the
USA was also a victim of cybercrime. Due to this attack the supply of fuel was
disrupted for several days. The company paid a huge amount of $4.4m as ransom in
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crypto currency, but the specialised taskforce created by Joe Biden Administration
has so far recovered most of the crypto currency payment.
Cybercrime under fraud act
All such offences that are covered in Fraud act 2006 are applicable for the
action. Other legislative implications like e Theft Act 1968, Theft Act 1978,
CMA, Forgery and Counterfeiting Act 1981, and Proceeds of Crime Act
2002 (‘POCA’) will also be covered.
Offences and penalties
Five year sentence of prison and a fine of a £5,000
SECTION 11:
Corporate governance (CG):
“It is a system by which companies are directed and controlled.” Cadbury Report.
1992.
Organisation for Economic Co-operation and Development (OECD):
Also defines corporate governance as a system that relates to the internal means by
which corporations are operated and controlled”.
Purpose of Corporate Governance
The main purpose of CG is to ensure the accountability, transparency, credibility, trust
and integrity of the corporation. A good corporate governance protects businesses,
employees, public, customers and is entrusted to increase wealth of the shareholders.
It also shows infrastructure of the company and way of command from the higher level
to the lower level of employees.
In Dayloan Ltd corporate governance was an important area, which was missing.
The risks of non-compliance of corporate governance attached to Dayloan Ltd and
any other company are explained below:
Risks of Non-Compliance in Corporate Governance:
Non-compliance of the CG practices can lead the organisation to have lack of
confidence of all the parties related with the business, and it can also decrease its
growth. This is the case in Dayloan Ltd as it appears it did not follow the practices of
good CG and eventually became insolvent.
i) Loss of Shareholder Confidence:
If a company is not following the CG practices, it is usually at risk of weakening
shareholder confidence. Lack of CG practices may lead the shareholders to think again
about the structure and business strategy of the organisation. In the case of Dayloan
Ltd, being a small loan company, if the director is also the shareholder, then loss of
shareholders' confidence is not relevant. If, however, it had few shareholders that have
49

invested in the business, then loss of their confidence could have played a part in its
insolvency.
ii) Difficulty to Raise Capital:
A negative perception regarding company’s strategies caused due to lack of
adherence to good CG practices and therefore creates difficulties in rising capital. This
may be in the case of Dayloan Ltd, as the banks and lenders who provide funds to
companies refused to lend more money to them for meeting their liabilities when they
became due.
iii) No Risk Management:
If the corporate governance practices are not followed, it may lead to lack of risk
management inside the company that further affects the investment of the company i.e.
extending credit to those parties who might not pay back even after giving extension. If
a company is involved in a large number of risk-laden investments, then it puts the
company in danger to repay its creditors and it also damages the reputation of the
company. Moreover, this can further lead to a domino effect of defaults by the creditors
that further cripple a company and affect its business with other industries to which the
current business deal with. Dayloan Ltd did not manage its risks and therefore owes a
large amount of corporation tax to HMRC.
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iv) Increased Government Oversight:
Dayloan Ltd is being investigated for money laundering, malpractice, fraud, bribe and
computer misuse. This is clearly an indication of their non-adherence to corporate
governance principals. The company is likely to face fines and penalties for its
executives as explained earlier in this report.
My opinion:
Internal control is a vital part of CG and in my opinion the following 5 parts of which
were missing at Dayloan Ltd
1. Control Environment:
This is the responsibility of management to introduce internal controls at each level of
the company. Ethnical values and integrity, operating style and management style and
assigning the responsibility and authority fall under the definition of control
environment. In the case of Dayloan Ltd it seems the staff did not know the scope of
their responsibilities.
2. Risk Assessment: Assessment of risk means to evaluate the exposure and flow of
risk. For Dayloan Ltd. It was found that a number of risks were present for the
organisation, and it failed to identify and analyse those risks so the negative impact of
those risks could have been mitigated. It seems that the directors failed to perform
risk assessment on continuous basis.
3. Control Activities:
It shows the procedures and policies of the business. These activities include top-level
reviews and to introduce separation of duties. It also establishes new procedures and
setting up new perception of control in order to diversify the duties and responsibilities
among the staff. Dayloan Ltd did not hire sufficient staff members due to which the
duties were not assigned as required. Therefore, all the tasks related to risk
assessment could have been conducted by same individual.
4. Information and Communication:
Within the business exchange of information happens all the time, therefore
clear lines of communication should not only flow from management to
employees, but also from employees to management so that each and every
member of the organisation can easily follow up his duties and
responsibilities. In case of Dayloan Ltd there were no clear lines of
communications present because none of the staff member raised any
concerns when things started to go wrong in the company.
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5. Monitoring:
It is the continuous process of examining the performance of organisation internally.
Dayloan Ltd., and its board members should have evaluated the activities of the
management and other senior staff members, and also should have properly analysed
the financial statements to get a clear picture of its financial health. Dayloan Ltd did not
recruit independent board members for their company who had financial expertise to do
so.
SECTION 12.
In addition to above mentioned corporate governance principals, directors and senior
management at Dayloan Ltd should also had adhered to "The Nolan Principles"
published in May 1995 as they are relevant to public life, non-executive directors as
well as directors of Dayloan Ltd since they were providing lending services directly to
the general consumers.
My Analysis:
A brief relevance to Dayloan Ltd of the seven principles are below:
Selflessness:
Public office holders need to take decisions independently in terms of interest of the
general public. Directors of Dayloan Ltd clearly did not follow this principal by not
adhering to responsible lending practices.
Integrity:
Public office holders should avoid putting themselves under any kind of pressure to
organisations or people that might have negative affect on them while working. Such
people with responsibilities should not make any decision for their personal, friends and
family members benefits. Dayloan Ltd are accused of bribing a government official,
thus compromising integrity of all the parties involved.
Objectivity:
Public Office holders should take all decisions impartially and without fear and favours.
Dayloan Ltd could have compromised its objectivity by lending money to consumers
who were not qualified to obtain a loan at first place.
Accountability:
The Public office holders are answerable and make themselves available for scrutiny of their actions.
As Dayloan Ltd was dealing with consumers directly therefore directors of Dayloan Ltd are particularly
accountable to them by asking why none of them or senior manager did not implement all the policies
and procedures that they must had to follow as a responsible lender.
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Openness:
Public Office holders cannot withhold information from the general public unless
allowed by law. Senior management at Dayloan should give reasons for their decisions
why they did not intervene when clearly the internal control systems at all levels were
so week and were not reviewed.
Honesty:
Truthful is the prerequisite for public office holder. It is evident that management of
Dayloan Ltd failed to operate honestly at every level as they are being investigated for
many serious offences.
Leadership:
Public office holders need not only to demonstrate leaderships in their dealings with
others but also must challenge poor behaviour. As Dayloan Ltd is insolvent this
indicates that it had serious issued of leadership at the top which failed not only to
lead by example but also failed to motivate and challenge the other staff when things
started to go wrong. These principles are extended further with two other
requirements in the Scotland.
Public Service:
When the holder of public office is also a member of the board of a public body they
must act in the interest of general public.
Respect:
Public office holders should give respect about the opinion of their fellow colleague
and other employees and treat them with courtesy at all time.
End of Task 2
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