Tom is studying Chemical Engineering at Bradford University where he has developed a new fermentation process of cheese. His fermentation process is more economical and alsoconsolidates curd of milk solids into cheese in a more environmentally friendly manner. The cheese produced by this process is more nutritious and tastes good too. Tom’s process is so good that he was awarded the young innovator prize by the University. After completion of his degree, Tom has decided to develop his cheese fermentation process into a business. He discussed this idea with his friend Jamal, who has been working as a business manager in MyD-Dairy for the past 15 years. Jamal introduced Tom to Jackie who is in the business of the distribution of dairy products for the past decade and is interested in establishing a new line of cheese production business. All three of them are very excited about this new business idea. Tom’s parents have promised to give him a £10,000 personal loan for the business. Both Jamal and Jackie have committed to invest £20,000 each from their personal savings. However, they need at least £100,000 initial capital to set up a new state of the art cheese factory. They have approached a bank which has agreed to give them a start-up loan of £50,000 if they can give personal guarantees. Tom, Jamal, and Jackie incorporate their enterprise as T2J Ltd in January 2020. Tom holds 20% shares while Jamal and Jackie take 40% each. All three of them are the directors of the company. Their business starts well and gradually they receive many orders from several customers. They shared profits according to the percentage of their respective shares in the company after the payment of the bank loan. A large supermarket contacts Jackie, who is in the business of distribution of dairy products for the past decade, to place a large order of cheese. Jackie thinks that this order is solely based on her personal contacts and does not want to share the profits from this order with Tom and Jamal. Therefore, Jackie sets up another company to process the order and does not disclose this order to Tom and Jamal. After a short period of time, T2J Ltd, faces financial trouble. The orders had dried up, and they had £10,000 worth of stock which they could not sell. They took out a loan from a second bank for £20,000 to try to salvage their business through improved quality of their dairy products and distribution services. The bank insisted on a “first fixed charge” over the company’s fixed assets together with a floating charge over the company’s entire undertaking. The floating charge contained a restriction preventing the company from granting any other charge over its assets which ranked in priority or equal to the bank’s charge as well as a clause which stipulated that the bank’s floating charge would crystallise immediately in the event of the company attempting to grant a competing charge in favour of anyone else. The charges were duly registered. However, losses keep on piling up. Against the advice of their financial consultants andaccountants, Jackie pushes to take out a loan of a further £25,000 from a third bank with a registered charge on the company’s assets and invests £10,000 of her own money into the business. The business continued to lose money and they defaulted on repayments to the banks. The administrators were called in and they began the process of winding up the company. With reference to directors’ duties under the Companies Act 2006 and relevant case law, critically examine Jackie’s decision to take the order from the large supermarket,conceal it from other directors (Tom and Jamal), and set up her separate company to fulfil that order.
Tom is studying Chemical Engineering at Bradford University where he has developed a new fermentation process of cheese. His fermentation process is more economical and alsoconsolidates curd of milk solids into cheese in a more environmentally friendly manner. The cheese produced by this process is more nutritious and tastes good too. Tom’s process is so good that he was awarded the young innovator prize by the University.
After completion of his degree, Tom has decided to develop his cheese fermentation process into a business. He discussed this idea with his friend Jamal, who has been working as a business manager in MyD-Dairy for the past 15 years. Jamal introduced Tom to Jackie who is in the business of the distribution of dairy products for the past decade and is interested in establishing a new line of cheese production business. All three of them are very excited about this new business idea.
Tom’s parents have promised to give him a £10,000 personal loan for the business. Both Jamal and Jackie have committed to invest £20,000 each from their personal savings. However, they need at least £100,000 initial capital to set up a new state of the art cheese factory. They have approached a bank which has agreed to give them a start-up loan of £50,000 if they can give personal guarantees.
Tom, Jamal, and Jackie incorporate their enterprise as T2J Ltd in January 2020. Tom holds 20% shares while Jamal and Jackie take 40% each. All three of them are the directors of the company. Their business starts well and gradually they receive many orders from several customers. They shared profits according to the percentage of their respective shares in the company after the payment of the bank loan.
A large supermarket contacts Jackie, who is in the business of distribution of dairy products for the past decade, to place a large order of cheese. Jackie thinks that this order is solely based on her personal contacts and does not want to share the profits from this order with Tom and Jamal. Therefore, Jackie sets up another company to process the order and does not disclose this order to Tom and Jamal.
After a short period of time, T2J Ltd, faces financial trouble. The orders had dried up, and they had £10,000 worth of stock which they could not sell. They took out a loan from a second bank for £20,000 to try to salvage their business through improved quality of their dairy products and distribution services. The bank insisted on a “first fixed charge” over the company’s fixed assets together with a floating charge over the company’s entire undertaking. The floating charge contained a restriction preventing the company from granting any other charge over its assets which ranked in priority or equal to the bank’s charge as well as a clause which stipulated that the bank’s floating charge would crystallise immediately in the event of the company attempting to grant a competing charge in favour of anyone else. The charges were duly registered.
However, losses keep on piling up. Against the advice of their financial consultants andaccountants, Jackie pushes to take out a loan of a further £25,000 from a third bank with a registered charge on the company’s assets and invests £10,000 of her own money into the business. The business continued to lose money and they defaulted on repayments to the banks. The administrators were called in and they began the process of winding up the company.
- With reference to directors’ duties under the Companies Act 2006 and relevant case law, critically examine Jackie’s decision to take the order from the large supermarket,conceal it from other directors (Tom and Jamal), and set up her separate company to fulfil that order.
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Advise Tom, Jamal, and Jackie on their potential liability to secured and unsecured creditors of their company under the Companies Act 2006, the Insolvency Act 1986, and the relevant case law.
by Bartleby ExpertAdvise Tom, Jamal, and Jackie on their
by Bartleby Expert