Business Law

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Questions

PART A

You are Zac Trainee, a trainee at NewLaw LLP.

Please read the attached email (Document A) from your supervising solicitor, Samantha Supervisor, and then draft a memorandum as instructed in this e-mail.

PART B

This is a continuation of Part A.

Please assume that all issues with Hans have been resolved. However recent events have left the partners concerned about liability generally. As Nipuni is about to join as a new partner it is an appropriate moment to reflect on the future of the business. They want some advice as to whether they should incorporate the business. Harry is concerned about liability and management flexibility. Christina is very enthusiastic about incorporation if it means her own private wealth is protected, she inherited a considerable amount of money last year.

Please briefly advise on the potential choices open to Harry, Christina and Yulia of different business structures to address only these concerns. (Please note you do not need to discuss public companies).

PART C

This is a continuation of parts A and B

Please assume it is late June 2023

Harry, Christina, Yulia and Nipuni eventually decided to set up a company, HCYN Limited. Yulia’s husband also invested in the company on incorporation. It has expanded and now has a logistics branch, planning and advising on export and import regulation, supply chains and international movement of goods. It has been highly successful and now has six shareholders and five directors.

The board has been very impressed with the work done by one of their employees Arya Patel and the proposal is to offer her a directorship and to grant her a new 4-year fixed term service contract with no notice or break clause. All are in agreement at both board and shareholder level.

Harry is ready for retiring, he wishes to remain as a shareholder but will retire from the board when Arya joins. The original partners Christina and Yulia want to make him an ex-gratia payment of £250,000 in recognition of the fact that he was the founder of the original partnership and has been central to the business‘ success over the last 24 years. There is no provision in his service contract for any payment on retirement. Yulia’s husband will support her in this. Nipuni does not really agree but she does not want to upset Harry as he was the one who originally recommended her and supported her joining the business. She will abstain from voting. Christina and Yulia wish to effect these proposals as quickly as possible, they propose to have a board meeting next week on Wednesday 5th July and if shareholders need to be involved the company usually prefers to obtain shareholder resolutions by holding a general meeting on short notice, if at all possible. Mark Stevens came into the company as a substantial investor when the company expanded, he is against the payment to Harry thinking it too large and unnecessary. All directors will be present at any board meeting and all shareholders will attend any shareholder meeting.

Details of the shareholdings, directorships and articles are set out in Document B.

Read the facts above and Document B.

Please advise:

1. which shareholder resolutions, if any, need to be passed to effect these proposals;

2. if shareholder resolutions are required, confirm whether it is procedurally possible to obtain the resolutions by holding a general meeting on short notice, and if not, why not?

Whether or not holding a general meeting on short notice is a possible option, the company now wishes to obtain any shareholder resolution by shareholder written resolution.

3. Please produce a chronological plan showing the company procedural requirements which must be satisfied in order for the company to effect all the proposals, this plan should also include any necessary board meetings as well as the shareholder written resolution procedure.

Where appropriate, your chronological plan should also explain briefly, with reference to the facts set out above, whether any resolutions are likely to pass and any administrative requirements. Please include in footnotes relevant primary and secondary sources in support of the points of law and principles made.

The total word count for all questions should NOT exceed 2000 words. Any words over this total will not be marked.

(100 marks)
 
DOCUMENT A
(for use in Part A)

To: Z.Trainee@NewLaw.com
From: Sam.Supervisor@NewLaw.com
Subject: HHCY
Ref: SS/1234
Date: [ ] July 2022

Dear Zac

I met with new clients of the firm this morning about some concerns that they have about a former partner. They are also considering bringing in a new partner Nipuni Mendis. I have set out the details below and I would like your help in preparing a research memorandum for me which I can then use to draft a letter of advice to the clients.

Harry Jones, Christina Wang and Yulia Bondarenko are in partnership together and trade under the name ‘HHCY Consultancy’. The partnership was formed in 1998.They advise on planning issues, particularly for large developments. There were originally 4 partners, but Hans Lange left the partnership six weeks ago at the end of May. The remaining partners are continuing with the business. They have a written partnership agreement, and the partnership agreement provides for the method of valuing the partnership assets to enable the remaining partners to buy out Hans. The agreement provides that the valuation and payment to Hans has to be done within 3 months of him leaving and that the firm should give all necessary notices of a partner leaving the firm. The firm’s own accountants have nearly finished the valuation and have indicated that the partnership is worth £1.2 million, and that Hans is entitled to £180,000 once his share of all existing liabilities amounting to £120,000 have been deducted. There is no dispute about this, and Hans has agreed the figure. The agreement also provides that the remaining partners will indemnify Hans for any liability he incurs in respect of any debts that have been taken into account in arriving at the value of his share of the partnership.

Hans contacted Harry three days ago about a few issues he is concerned about:

1. although Hans agrees that his share of liabilities incurred up to the date he left is £120,000, he is worried that the bulk of this relates to a 10-year loan taken out with EastWest Bank PLC and that there is 2 years left of the term. Hans has heard about the proposal that Nipuni Mendis is brought in as a new partner and Hans has asked Harry if that means Nipuni will therefore be liable for the loan so that Hans can be released from all obligations. Please advise.

2. Hans has received an invoice at his home address from an IT company, ITSol Ltd. Hans had been in charge of all IT issues and had a good working relationship with ITSol Ltd. ITSol Ltd had mistakenly sent the invoice directly to Hans, it is in the sum of £24,000, dated a week ago, for the supply of new computers being delivered next week. He wants the firm to confirm that ITSol Ltd have been told about the fact he has left the partnership as Hans is worried about liability for this debt. Harry says that he recalls the accountants saying that the firm should send all the usual notices about Hans leaving, but they have been so busy that they never got round to checking what that meant and what they needed to do. Please advise.

There are no other terms in the partnership agreement relevant to these issues apart from those mentioned.

Please can you prepare a memorandum for me as soon as possible, advising on these issues. Please ensure that you cite the law in full as I will also put your memorandum on the training file.

Many thanks
Samantha

Samantha Supervisor
Associate Solicitor
NewLaw LLP
Sam.Supervisor@NewLaw.com

 
DOCUMENT B
(for use in Part C)

HCYN LIMITED
SUMMARY FROM COMPANY SEARCH

Company incorporated September 2022
Auditors French and Storey LLP
Shareholders
Number of £1 ordinary shares Directors
Name
Harry Jones 300 (fully paid) Chief Executive Officer
Christina Wang 300 (fully paid) Finance Director/Chair
Yulia Bondarenko 300 (fully paid) Projects Director
Nipuni Mendis 200 (fully paid) Operations Director
Bohdan Bondarenko 100 (fully paid) None
Mark Stevens 1,000 (fully paid) Non-Executive director

THE COMPANIES ACT 2006
PRIVATE COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION OF
HCYN LIMITED

1. The Model Articles for private companies limited by shares, as amended by the following articles, shall apply to HCYN Limited (the “Company”).

2. A director of the Company must not, without the prior consent of the board of directors, enter into any contract if the value of the contract exceeds £2,500.

3. A director may vote and form part of the quorum on any resolution at a meeting of the directors, notwithstanding that it relates to a matter in which the director has an interest which conflicts or may conflict with the interests of the Company.

4. If any resolution is put to a general meeting for the removal of a director from office, then, notwithstanding section 284 of the Companies Act 2006, the shares of that director shall, on that resolution, carry on a poll five votes for every share held.

[END]