Just wondering if anyone had a vague outline on how to answer this question? Which of the Companies Act have you identified as being relevant? Any help would be much appreciated!!
On the Pulse Limited (“Pulse”) is a market research company based in Bilston,
Wolverhampton. Pulse provides a broad range of market research services to a variety of
customers throughout the UK. Pulse was incorporated in 2005 by three friends, Jatinder,
Ellie and Max, who each subscribed for a third of the shares in Pulse and became
directors. No further shares have been issued and no further directors have been
appointed since the company’s incorporation.
Over the years Pulse has built up a strong national reputation and operates profitably. In
2011, Max identified the finance industry as a potential growth market for expansion.
Jatinder and Ellie thought that this represented a risk, and only agreed to back Max’s plans
if a separate company was incorporated to move into this sector. Pulse Finance Research
Limited (“Finance”) was incorporated in 2011 as a wholly-owned subsidiary of Pulse.
Jatinder, Ellie and Max were all appointed as directors of Finance, with Max given
responsibility for its day-to-day operations.
In the first two years of trading, Finance performed very strongly, posting significant profits
which led to dividends being paid to its parent company, Pulse. After this initial success,
however, Finance has struggled over the past three years, posting a loss each year.
Finance requires support from its parent company, Pulse, if it is to continue trading.
Jatinder and Ellie believe that Finance is insolvent and has become a drain on the
resources of Pulse, and want to shut down its operations. They have decided to call in an
insolvency practitioner to advise on the options available to Finance.
Max does not agree with Jatinder and Ellie about the prospects for Finance. Max believes
that, with continued investment and appropriate marketing, Finance can recover its position
and see a return to its early successes. Max has been leading Finance’s operations for the
last five years, and has built up a strong network in the sector that he does not want to go
to waste.
Max believes that Jatinder and Ellie hold him responsible for the difficulties encountered by
Finance, and feel that money has been wasted on funding Finance through its recent
difficulties that could have otherwise been paid to the three as dividends. As a result, Max
feels that he is being excluded from the management of Pulse. Over the past twelve
months, board meetings have been called that Max has not been able to attend, and when
he has attended he has regularly been outvoted by Jatinder and Ellie on important
decisions. Furthermore, no dividends have been paid over the last three years. Jatinder
and Ellie have both taken increased salaries, but have declined to increase Max’s salary,
stating that he has to take responsibility for the poor performance of Finance.
Meanwhile, it has recently come to the attention of the directors that there is a shortfall of
£750,000 in the accounts of Pulse. Following an investigation by forensic accountants, it
appears that between 2012 and 2014 £750,000 was misappropriated into bank accounts in
the name of Offshoot Communications Limited (“Offshoot”). It transpires that Offshoot is a
company set up in 2011 by Jakob, who was Head of Accounts at Pulse until December
2014. Offshoot was wound up insolvent in November 2015.
You are to provide advice on the following matters, ensuring that you discuss in full the
applicable legal principles:
a) If Pulse Finance Research Limited is insolvent, which insolvency processes
would be available to it, and which would be most appropriate;
b) Whether any claim by Max for unfairly prejudicial conduct pursuant to s.994
Companies Act 2006 is likely to be successful; and
c) Whether Jakob may be made personally liable for receipt of the £750,000
which was paid to Offshoot Communication Limited.