Business Law Coursework Sample: Expansion, Tax Liability, and Bankruptcy Analysis

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Question: 01

Procedure for Implementation of Expansion Plans

FF Furniture Ltd is planning to expand its business. In this regard, two steps taken by the current directors include the sale of existing premises and purchase of new even larger premises and appointment of a new director under two years’ service contract who will help with company’s growth and brand management.

Appointment of a new director

The existing directors, who are also shareholders, are considering recruiting Kehinde Palmer as she can help with substantial growth and bring new sales opportunities for the company.  However, two directors with 66.67% shareholding and voting rights consider two years of service contract appropriate, while another shareholder with remaining voting rights thinks one year of the contract is more appropriate.

An ordinary resolution of the members can be proposed by the members holding majority voting rights in the company. A written resolution, which is “passed by the members representing a simple majority of the total voting rights of eligible members”, may be more appropriate.

Regardless of whether a written resolution is proposed by any director or member of the company, it shall be said to have the same effect after being passed as if passed by the company itself in a general meeting or by the members or class of its members.

In this scenario, Louis Firth and Leroy Watkins have simple majority shareholding, i.e. 60%, compared to 40% by Martin. Being a private company with share capital, thus majority shareholders have one vote in respect of each share held by him; either of these two directors/members can send or submit a copy of the resolution to every eligible member. The resolution’s copy must be accompanied by “a statement informing the members on how to signify their agreement to the resolution along with a date by which the resolution must be passed”.

Obtaining a loan for expansion

In this regard, an ordinary resolution will need to be proposed by Martin to avoid any conflicts of interest. The directors in the company are required “to avoid situations in which they have, or can have, any direct or indirect interest that may possibly conflict with the company’s interests”. For instance, in the loan transaction with North Western Bank Ltd, there is a risk that Martin may give priority to his personal interests over company’s interests in that his spouse (associate) will earn a commission by way of a loan to the company.

In carrying out such transactions, there is also the risk that management may ignore other financing options that may be more favourable for the company.

Before approving the loan transaction, Martin is required to disclose all relevant facts regarding the loan from North Western Bank Ltd. A special resolution shall be more appropriate, which is necessary to be passed by at least 75% of members or a class of members.

Change of Business Address

As the company is considering changing its premises, a notice shall be served to the registrar regarding the change of registered office. Further provisions under this section state responsibilities of management pursuant to a change of address, i.e. to remain available for inspection, by the registrar or anyone appointed by the registrar, of any document, register, or index, or mention the new registered office’s address in the documents, not later than fourteen days succeeding the date of the notice.

Question: 02

Corporation Tax Liability

Corporation tax is usually paid on the profits or chargeable gains earned by all limited companies, unincorporated associations, and foreign companies having branches or offices in the United Kingdom. Being a limited company, Rendell Forensics Limited is liable to calculate and report corporation tax in this regard, which is usually imposed on the disposal of the company’s assets, including land and property, equipment, machinery, and shares.

Corporate Tax Act sets out procedures for computing and reporting the amount on which tax rates are applied for the respective accounting period by companies. Accordingly, total profits for a given accounting year are calculated, and then amounts which can be relieved against the entity’s total profits for the period are deducted.

Calculation of Corporate tax liability

Calculation of Capital loss on disposal of Equipment

Principles

Chargeable gain or Capital loss, whatever it may be, in respect of the equipment disposed of during the given accounting year is first calculated. The first step will be to work out the asset’s value at the time of sale, which in the given case is the amount received, i.e. £780,000. Then, any expenditure incurred by the company in respect of the purchase, improvement, or disposal (not including maintenance costs) of the asset is carried right away from the sale value.

As the asset was held before December 2017, the HM Revenue & Custom’s inflation factor is derived according to the period’s indexation allowance. In the present case, the inflation factor for purchase costs incurred in April 2015 and improvement costs in October 2017 will be different, as demonstrated above in the calculations section. The impact of this factor is reduced from the profit on the sale of an asset to reach a chargeable gain or capital loss, as the case may be.

This is worthwhile to notice here that the amount received in respect of the sale shall be reduced from gross receipts, and disposal costs included in the operating expenses shall also be excluded.

Similarly, taxable profits are calculated normally for the year, i.e. by reducing all expenditures incurred for the purposes of carrying out business activities. Further, no exemption is available to the company for the taxability of chargeable gains in the current period.

Treatment of capital loss

Loss arising in respect of the chargeable asset shall be reported to the HMRC for reduction against other taxable gains, as they cannot be offset against income. However, as there is no chargeable gain arising on other ‘business assets’, the unused losses can be deducted from previous tax years or claimed in the future against chargeable gains arising in those years.

Question: 03

Role of Trustee in Bankruptcy

A bankruptcy trustee, appointed by the court to oversee Faisal’s estate, holds the powers in this capacity to carry on his business so far as it is considered necessary for winding up beneficially and so far as he is capable of doing this without the need to contradict the requirements the bankrupt is subject to, under other enactments. In this regard, he can initiate, institute or defend legal proceedings in respect of the bankrupt’s (Faisal) estate, including the transactions with creditors.

Faisal is unclear regarding what it means for him to be ‘bankrupt’ when the total value of an individual’s debt obligations exceeds the financial assets in his ownership. The appointed trustee shall make such compromise as he thinks expedient regarding all claims arising out of or incidental to Faisal’s estate. In short, the trustee deals with any property compromised in the estate to which the bankrupt is beneficially entitled in exactly the same way the bankrupt himself might have dealt with.

The likeliness of getting ‘Homeless.’

Mr Faisal cannot be made homeless, based on the grounds as critically analysed below:

Although Faisal and Jayne Morris are not legally married but are residing in a house which Jayne solely owns, and both have a daughter as well, it can be assumed that both can be legally termed as ‘cohabitants’ or ‘civil partners’. Thus, both have beneficial interests, rights, and obligations towards each other in this capacity.

Under the provisions of the Insolvency Act, where a person is declared bankrupt while his spouse or civil partner’s home rights are a charge on his estate, then the cost shall continue to exist regardless of the bankruptcy status of the first partner. Further, the condition also binds the trustee and any other persons deriving title under the trustee. However, the bankrupt’s dwelling house is completely in charge of his cohabitant (fiancé), Jayne Morris, who inherited the house several years ago. According to the Family Law Act, if one civil partner (Jayne Morris) is wholly entitled to the occupation of a dwelling house by virtue of beneficial interest, the other spouse shall not be “entitled”. If the bankrupt succeeds to (legally) proving that the ownership of the house belongs completely to his civil partner, then he cannot be made homeless by the trustee in bankruptcy.

Also, without regard to the fact that whether or not Faisal’s civil partner has home rights over their present residence under the Family Law Act, the bankrupt has a right not to be “evicted” or “excluded” from the dwelling house, except with the court’s leave. This implies that Faisal has had a beneficial interest in the dwelling home since the date of bankruptcy.

Besides, where any application is made, by the trustee in bankruptcy, against the land, which also includes the dwelling house, which is in the ownership or possession or occupation of the bankrupt, or his civil partner or spouse, the court may make such order which it deems just and reasonable.

Exemption of Bankrupt’s estate

en where Faisal fails to prove sole ownership of the dwelling home by another partner, he cannot be made ‘homeless’ based on the exemption provided by 283(2)(b) Insolvency Act 1986, which states that:

A Bankrupt’s estate does not comprise any provisions that are necessary to satisfy the domestic needs of the bankrupt and his family members.

Exemption of Faisal’s Work Equipment

Faisal’s van and work equipment with a current cumulated resale value of £2100 are necessary for personal use in his business, being a handyman.

Under the provisions of the Insolvency Act 1986, van and other equipment, including power tools, do not qualify for the definition of “bankrupt’s estate”, as these are necessary to enable Faisal to carry out routine job activities.

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