The Constitution Of Trader Limited Provides That Any Contracts: Company Law, NUI, Ireland

Question 1

The constitution of Trader Limited provides that any contracts which Trader Limited proposes to enter having a value of €5,000,000 or more must first be approved by the company in general meeting. The board of directors entered into a contract to buy a new headquarters for €6,000,000. When the directors sought approval from the members in the general meetings the members refused to approve the contract. Accordingly, the directors wrote to the seller stating that the contract was not enforceable as they lacked the authority of the members as required by the constitution.

The board of directors of Trader Limited appointed Pat, the company accountant, as a registered person and informed the Registrar of Companies accordingly. Pat entered into a contract to purchase goods for €1,000,000 which proved to be a very high price for poor quality goods. The directors of Trader Limited wrote to the supplier claiming that the contract was invalid as Pat did not have the authority to enter the contract. The board of directors then told Pat not to enter into any further contracts on behalf of Trader Limited. Nevertheless, Pat entered into another contract on behalf of Trader Limited to buy a Ferrari for €200,000 to replace his existing company car, at which stage Pat was fired. The directors then wrote to the Ferrari garage stating that the contract was not binding on Trader Limited due to Pat’s lack of authority.

All of the other parties to the aforementioned contracts have commenced proceedings against Trader Limited to enforce their contracts.

Advise the directors of Trader Limited whether these contracts will be enforced against Trader Limited.

Question 2

a) Supplier Limited has recently been put into liquidation. Two months before it went into liquidation the directors of Supplier Limited sold all of its assets and transferred the proceeds of sale to their personal bank accounts in Panama. At the same time, the directors of Supplier Limited paid off debts due to two of its creditors, Pat and Jane. Pat was paid because he went to the same school as the directors. Jane was paid because she threatened to sue Supplier Limited.

Advise the liquidator of Supplier Limited whether he can take any action against the aforementioned directors and creditors arising from the facts outlined above.

b) Debtor Limited owes one of its creditors €100,000 and is unable to pay the debt. The two directors of Debtor Limited refuse to meet together for a directors’ meeting to discuss the situation as they are not on speaking terms due to a family dispute over a will. Debtor Limited is owed substantial sums of money for the supply of goods to one customer but the directors have lost all records of these transactions and so Debtor Limited is unable to enforce payment.

Advise the directors as to whether Debtor Limited can be put into liquidation and whether there are any possible personal consequences for them arising from the facts outlined above.

Question 3

John has just been appointed as auditor to A Limited. During the course of his audit, he asked the directors for access to the company’s accounting records in respect of the branch in Cork. They told him they would arrange this but, despite several further requests, he was not given access to the Cork records. However, John was given access to accounting records in respect of the main business in Dublin and he found several discrepancies in those accounting records. He considered raising the matter with the directors but expected that they would just ignore him as they had done in relation to the Cork branch. In addition, he was concerned that if he asked too many questions it might prejudice future appointments as auditor of the company. He issued a positive report on A Limited and made no reference to the matters outlined above.

It transpired later on that no accounting records for the Cork branch had been maintained which resulted in a substantial loss to the company as it could not recover debts due for goods supplied by the company.

Advise John in relation to his rights as an auditor and any liability for breach of duty arising from the facts outlined above.

Question 4

a) Log Cabins Limited supplies a full range of sheds and log cabins. It has been experiencing some difficulty paying its creditors recently and has just received a letter from an unpaid creditor stating that unless its debt is paid within 21 days the creditor will have Log Cabins Limited put into liquidation. The directors have recently secured a lucrative contract to supply sheds and log cabins to the army but payment is not due under this contract until 30^th March 2021.

Advise the directors of Log Cabins Limited whether there is any way to save the company from the threatened liquidation and secure its long-term survival.

b) John has been asked by Paddy, the examiner of Insolvent Limited, to supply €50,000 worth of goods on credit to Insolvent Limited. John wants to supply the goods to increase his sales but he is unsure whether he will get paid as he heard from a neighbor that it is only companies in financial difficulty which have examiners appointed. His neighbor also told him that the role of an examiner is to try to save the company.

John turns to you for advice as to whether there are any steps that can be taken which will improve his chances of getting paid and how an examiner goes about saving a company.

Question 5 

 Tom has been appointed as receiver of Failing Limited by Banker plc under a charge which states that it is a fixed charge over the business premises and book debts and a floating charge over all other assets. The fixed charge on book debts allowed Failing Limited to use the proceeds of the charged book debts in its business.

Shortly after his appointment, a creditor called to the premises demanding the return of goods he had supplied, claiming that he still owned the goods as he had not been paid. The goods in question are still on the premises. The  Revenue Commissioners have written to Tom informing him that they are owed €200,000 and claiming that the charge on book debts is not a valid fixed charge. Finally, a former examiner of Failing Limited, John, has informed Tom that he is owed €100,000 in respect of his services as examiner of Failing Limited.

As this is Tom’s first time to act as a receiver he is unsure how he is to proceed in this receivership.