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Company Law

When Akil, Carrie, Ibrahim and Ursula were final year business school students they hadtalked about opening a takeaway burger outlet to be called ‘Burgs’. Shortly beforegraduation in July 2017, the four friends decided to go ahead with the venture andregistered Burgs Ltd (‘Burgs’) in accordance with the Companies Act 2006. Ursula did notbecome a director as, unexpectedly, she had been offered a job in Germany, but theother three friends were all appointed as directors.Burgs has 20,000 x £1 issued ordinary shares. As Ursula had more money to invest thanthe others, Akil, Carrie and Ibrahim own 3000 shares each and Ursula owns 11,000shares. Burgs adopted the Model Articles for private companies without amendment.Since Burgs opened its premises, Akil and Carrie have both worked, full-time, managingand running the burger outlet but Ibrahim has had no involvement with the businessother than to attend board meetings, where he never reads any papers and alwayssimply supports Carrie. Business has always been good, and Theresa is employed towork part-time behind the counter. Burgs also provides on-line orders for home delivery.Michel, a retail equipment salesman, recently visited the Burgs’ premises when Theresawas alone, and talked Theresa into agreeing to purchase a refrigerated display unit for£4,000. Theresa signed an order form on which the customer was named as “Burgs Ltd”and the seller was named as Frigidaire Ltd. Michel subsequently telephoned to arrangedelivery. Akil answered the telephone and stated that no such equipment had beenpurchased by Burgs.Over its first three years of operation, Burgs has made losses of £20,000 and £5,000 inits first two years and a profit of £125,000 in its third year. It has never paid anydividends. Akil and Carrie do not wish to pay out any dividends as they wish to openanother takeaway outlet and purchase a storage warehouse. Accordingly they say thatthey need all the cash the company can lay its hands on. Around this time, Akil learns ofthe availability of a storage warehouse on a much sought-after industrial estate anddecides to purchase it for his own use as he needs somewhere to store his smallcollection of classic sports cars.LAW_36585/30053 Company Law Assessed CourseworkPage 3 of 3At a duly convened board meeting held on 5 February 2021 and attended by all thedirectors :frown:

i) Akil and Carrie were granted service contracts with the company for a fixed termof six years.(ii) A contract to purchase a new takeaway outlet Quickburger for £90,000 wasapproved. There were no final accounts available for the new business, but Carriehad just passed her accountancy examinations and she looked over themanagement accounts and assured the Board that it was a good buy. The Boardalso decides to staff Quickburger exclusively with foreign workers as they will bemuch cheaper to employ and this will maximise the company profits.(iii) The taking out of a loan of £250,000 from Money Bank plc (‘Money’) to assist infunding Burgs’ expansion plans was approved. Money asked for the debt to besecured by a fixed charge over Burg’s book debts together with a floating chargeover ‘all assets and business’ of Burg.Given the uncertain times due to the global pandemic and Brexit, Akil and Carrie areconcerned about their potential future liabilities and those of Burg, if the business getsinto financial difficulties and Burg cannot meet its loan repayments.Ursula has recently returned from Germany and is shocked to discover the way in whichBurgs has been managed when an article appears in the local newspaper accusing thecompany of exploiting vulnerable foreign workers. Furthermore, it emerges thatQuickburger had some liabilities at the time of purchase which meant that its net worthwas only £50,000. She accordingly wants to become a director and to remove Akil,Carrie and Ibrahim from the board. She also wants ‘her share’ of the profits made todate and to investigate any breaches of duty by the existing three directors.Consider Ursula’s legal position and explain the steps available to her toachieve her wishes.Also, explain, apply and, where appropriate, critically reflect upon the lawgoverning the rights and liabilities arising in relation to:• The purchase of the refrigerated display unit;• the fixed charge over book debts granted to Money; and• any personal liability of Akil and Carrie if the company should becomeinsolvent whilst they are directors.