Tutorial One
Part A: The Birth of a Company
Alf, Callum, and Gary all go to law school together. One night when cramming for exams, Callum laments out loud that the case reports on Westlaw were insufficient for helping to determine the ratio decidendi and the weight that Law Lords place on them when making their rulings. Gary, a whiz in computer science and algorithms, writes a program that can trace the cases found in a particular judgement and then map how often subsequent courts use those cases in their judgements. In practice, the program provides practitioners and students of the law valuable insight about the most relevant cases to discuss when making submissions to the court. Alf, who took economics and accounting as his first degree, draws up a business plan to help get the project off the ground. Callum becomes the front-man for soliciting sales of the app and begins travelling the country promoting it, which is now branded as the “Law Street Journal” to practitioners and legal academics. Callum enters into service level agreements with the University of Strathclyde and several high profile law firms to deliver and support the increasingly popular app at subscription prices of £5000 per annum. Alf begins to solicit investors and opens a bank account to put the money raised to help fund the development of the business. Unknown to Alf and Callum, Gary develops a computer program that scans all Westlaw judgements illegally mining data from their massive database of case reports. Subscriptions to the new app take off like wildfire.
Alf and Callum become increasingly worried about Gary’s drinking and partying lifestyle. They form a company and register their business under the name, “Law Street Ltd”at Companies House. One weekend, while Gary is on a bender, Callum reprograms the app so that when new customers go to pay for their subscription the money goes directly into the new company’s bank account. Gary is not happy about being isolated from the new business. He receives and subsequently hides a cease-and-desist letter from Westlaw who have discovered his hack and took steps to prevent Gary’s program from mining their proprietary data. The newly formed company receives a letter threatening legal action from the Wall Street Journal who claims that “Law Street Journal” is causing confusion among their readers and demand they change the name of the business.
A bug in the app causes it to stop working. The law firms who had paid £5000 in subscription fees begin to threaten legal action against Callum. Callum responds to the legal threats by informing them about the new limited company which was registered at Companies House as “Law Street Journal” and promises that if they move their SLA to the new company, it will only be a matter of time before the app is working again. Unable to pay their creditors, Alf and Callum decide to take matters into their own hands. They form another company called Royal App Ventures Ltd. Alf and Callum transfer the money given to the company by investors into the new firm’s bank account. Gary wants to buy into this firm and take a stake in the company. Alf and Callum are concerned that Gary’s partying lifestyle will be the undoing of the company.
1. What legal issues arise in the above scenario?
2. How would you advise Alf, Callum, and Gary about their potential liabilities?
3. If you had been retained by the three at the formation of the business, what advice would you have given them?
Part B: Limited Liability and the Veil of Incorporation
1. What is meant by corporate personality and limited liability?
(Shareholders)

2. What is meant by the ‘veil of incorporation’?
3. On what occasions will the courts ignore the veil of incorporation? Trying to frustrate the operation of law.
+PREST is applicable here. The courts looked for any fraud but nothing was found.
VTb was a bank that lend money
Insolvencies:
Part C: The Death of a Company
Fraz, OS, and Shkur are in business (Yaldi Ltd) together producing top quality HD televisions under the brand name Yaldi TVs. They rely on importing parts from the Far East and assembling the final products at a factory in Govanhill. The business has proven to be very lucrative and marketed under the catchy slogan, “for the avoidance of doubt, no-one can top Yaldi Televisions”. The niche products are a big hit among footballers, their wives and even the Queen. To increase their market presence, they take lines of credit from various banks. In turn, the bank grants a floating charge over the assets at the Govanhill compound. A fixed security is granted over the main office building located on Calder Street. However, the UK government places an import ban on the type of microprocessors used in the televisions under the Yaldi brand. Production grinds to a halt, the unassembled stock accumulates, suppliers go unpaid, and the creditors are getting worried.
1. Explain the definition of a Company Voluntary Agreement (CVA) once the cva is approved the bnefit of it is u can keep
2. Consider the procedures that are required to approve the CVA.
3. What is the effect of the CVA? Can it be challenged by creditors who do not agree?
As the import ban takes its toll on the production, the bank comes under pressure to realise the outstanding debt on its books. It appoints an administrator to realise the assets and to recover its money. The administrator is also a Director of a shadowy property management company named KBSH Holdings. The administrator begins to sell the Yaldi Ltd property at a deep discount to market to the property management company.
1. What legal issues arise from the appointment of an administrator by a floating charge holder?
2. Explain what the “hierarchy of purposes” that an administrator is meant to abide by?
3. How would the Company challenge the Administrator selling off the assets below market value?
The government’s import ban does not look like it is going to be lifted anytime soon. Fraz thinks that the company does not have much hope of being able to survive much longer. He sells the company’s delivery vans to his family members for £2000. The vans were worth £28000. The following summer, the company was able to pay off the floating charge holder after bringing in a fourth investor named Balal. Furthermore, the company was able to sell a small parcel of land that it owned in the adjacent lot to a property developer for £30K, although the property was worth £100K. It was still able to pay its debts in consequence of this transaction. The company goes into compulsory liquidation. After the commencement of the winding up, the directors sold their remaining stock to another company.
1. Advise the liquidator as to the validity of the above transactions: A. The sales of the company’s delivery vans. B. Were the sale of the van and the land transactions defrauding creditors? C. Was the sale of the stock valid after the commencement of the winding up? D. What remedies does the liquidator have against the directors of the company?
At the time of the liquidation, there are the following assets: Factory and land: £500,000 Intellectual Property: £250,000 Stock: £50K Cash in bank: 10K
There are is a fixed security for £500K over the factory and land. There is a floating charge granted in return for £250K in security registered in 2003. The directors are able to register a second floating charge 12 days before the liquidator is appointed for a loan facility of £500K. The Company owes £1,000,000 to unsecured creditors.
1. How would the debts rank in a liquidation event?
2. What relief (if any) is there for unsecured creditors?