LAW205 Law For Accountants Assignment Sample
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Introduction
This Law assignment discusses the case of Ravi who runs the soil and water contamination testing business. This case is related to the insolvency of the business and in this, it is identified that which law is applicable in order to determine the right results (Rolfe et al., 2011).
Discussion
Case Summary
Ravi is the individual who runs the water contamination testing business and Ravi sold the sole-trader business to the company at an inflated price. For selling the company, he took a lent of $90000 to meet the purchase, registration and set-up costs (Goode, 2011). In regards to security of that loan, Ravi mortgages their land and that is later transferred to the company as part of the sale of business.
Furthermore, it is identified that purchased company earn profit in 2016 but by the end of second year, the business become slumped and it reached to the position of insolvent. In order to handle such issue, the administrator is hired and he identified that company currently have worth $95000 in total. But the company owes $ 210000 to creditors (Di Martino and Vasta, 2010). It means that creditors are still unpaid as per the case. Thus, there are various decision are need to be taken in this case.
Issues in case study
The above mention case mentioned various issues. Likewise, firstly company faces loses in its second year only and it cerate the situation of insolvency. At the same time, the creditors are unpaid which tend to be biggest issue. These issues raise various questions such as company has assets of $95,000 in total then how they can pay the creditors of $120000 (Muchlinski, 2012). Moreover, there is one more question is raised in the form that should Ravi is liable to get back $90000 which he spent to meet the purchase, registration and set-up costs etc. In concern to such issue, there is firstly need to identify the law which provide suggestion that whether Ravi is entitled to get back money of $90,000 (Klausner, 2013). In regards to this relevant law is applied. In a similar manner, it is also found that whether unsecured creditors are required to get back of money. So, these study needs to be addressed in regards to resolve the issues in case.
Issues 1:
First issue is that Ravi is sold his Sole-trader business to the company and in doing. So, he lent $90000 in order to meet the purchase, registration and set-up costs etc. Moreover, after end of the trading, it is identified that company has not able to generate that much profit. It results in mortgage of company. Thus, this action create an problem in the form that whether Ravi is entitled to get back $ 90000 which he is invested for selling of company (Strine, 2014).
Applicability of Law:
In this case, the law of insolvency act 1986 is applied and it is stated that this law regulates the companies that are unable to pay their debts. The modern policy of UK insolvency law has taken an attempt to provide support to the company in regards to minimise the losses and fairly distribute the burdens between the employees, community, creditors and other stakeholders etc. In concern to bankruptcy, the UK laws grant the protection of banks or other parties that contract for a security interest. If a security is fixed over a particular period of time then the priorities are provided to the creditors first in regards to make them pay (Finch and Milman, 2017).
Additionally, secured creditor generally dominates the insolvency procedures as a floating charge holder can select the administrator of its choice. In law, the administrators are meant to prioritise the company and duty of all creditors. In this duty, insolvent company assets are sold as a going concern to a new buyer and free from the creditors’ claims. Thus, this law supports the secured creditor first in regards to fulfil all the obligations and then decide what should be done for making profit or should they need to dissolute the company. Based on this study, it is stated that the law of solvency act is the appropriate one for the situation of the Ravi and it also provide the proper solution in regards to solve the issue.
Solution
In regards to this law, it is identified that secured creditors are entitled to get the pay first as they are dominates the insolvency procedure (Siems and Deakin, 2010). According to the case, Ravi is also a secured creditor and the law of insolvency clearly stated that secured creditors are firstly got the money as compare to unsecured creditors. So, the company needs to pay first the Ravi $ 90000 from their total asset which is $95000. That’s mean company has left with the $5000 in hand. At the same time, it also identified that the Creditor will receive payment from the Insolvency Practitioner from the proceeds of the realization of the assets of the insolvent company. The assets of the insolvent company includes the following such as cash assets, land, building and other tangible assets which includes plant and machinery but it does not include the leasehold interest in those assets. Basically, the secured creditors mean that particular lender or creditor by contract has a right to have a security interest in specific collateral which protects their interest. According to the law of bankruptcy, the company needs to focus or prioritise the payment of claims of the creditors. Thus, the company tend to firstly pay back all the creditors then they need to take the decision of liquidation.
Moreover, it is also important to understand that there are many options for dealing with the problem related to the financial difficulties. In concern to this, the organisation can make talking to different creditors, lodging so that they could reach on the appropriate decision and solution. It can be that if company develops a proper relation then creditor could get ready to become the part of the company and help them to reposition it in the market. Thus, this practice also contributes towards the fulfilment of different people needs and wants.
Issues 2:
There is an issue related to the company insolvency within which creditors are not paid. However, the administrator also found that company has only total of $ 90000 as assets and the creditors owned $ 210000 which is quite more for the company to pay. So, in that case, the situation of bankruptcy tends to be occurred (Tolmie, 2013). This is the biggest issue that needs to be resolved by hiring an expert or specialised lawyer who has proper knowledge about the cases of insolvency.
Solution
In the case of bankruptcy, it is identified that the unsecured creditor are liable to ask for the amount get back. It is mentioned in Schedule F of a Bankruptcy petition which defines that secured creditor can’t be enforced their security interest in company assets and unsecured creditors need to receive administrator consent or court permission in order to enforce their debt claims. In regards to this, the creditors are take part in the two meetings. Firstly, the meeting where creditors are right to vote on the replacement of the administrator and the creation of a committee of creditors and secondly meeting is to vote on the company future. Other than that, it is estimated that unsecured creditors has a certain rights in case company is not fulfilling the obligations in regards to make payment timely. In that situation, an unsecured creditor is liable to apply on the court for winding up the company liquation. It can be occurred in the form of liquidations (Doyle and Keay, 2016).
As per this study, it is stated that creditors are liable to get back the money from the company event after the company get insolvent. However, company insolvency is quite complicated and highly regulated. So, in that case creditors need to take help of lawyers for sue the company. Besides that, the creditors play the role as a shareholder of company and take decisions. This practice also helps when company goes on liquidation as creditors will get some amount in that time.
At the same time, the company after pay to the Ravi then there is needed to address the other creditors by providing them the money through use the option of liquidation.
Conclusion
From the above study, it is concluded that according to the bankruptcy law needs to pay first to the Ravi as he is the secured creditor so he is first liable to pay back all his debts i.e. 90000. Afterwards, the company requires to paying other unsecured creditors either by making part of the company or to liquid the company. Thus, this way company can pays all its obligations. First obligation is to pay the secured creditors i.e. Ravi and then fulfil the other creditors obligation through liquid the company or to invite the creditors as their equity shareholders. This action allows the company to redeem its all obligations.
References
Di Martino, P. and Vasta, M., 2010. Companies’ insolvency and ‘the nature of the firm’in Italy, 1920s–70s. The Economic History Review, 63(1), pp.137-164.
Doyle, L.G. and Keay, A., 2016. Insolvency Legislation. UK: Jordans.
Finch, V. and Milman, D., 2017. Corporate insolvency law: perspectives and principles. UK: Cambridge University Press.
Goode, R.M., 2011. Principles of corporate insolvency law. Australia Sweet & Maxwell.
Klausner, M., 2013. Fact and fiction in corporate law and governance. Stan. L. Rev., 65, p.1325.
Muchlinski, P., 2012. Implementing the new UN corporate human rights framework: Implications for corporate law, governance, and regulation. Business Ethics Quarterly, 22(1), pp.145-177.
Rolfe, J., Greiner, R., Windle, J. and Hailu, A., 2011. Testing for allocation efficiencies in water quality tenders across catchments, industries and pollutants: a north Queensland case study. Australian journal of agricultural and resource economics, 55(4), pp.518-536.
Siems, M. and Deakin, S., 2010. Comparative law and finance: Past, present, and future research. Journal of Institutional and Theoretical Economics (JITE)/Zeitschrift für die gesamte Staatswissenschaft, pp.120-140.
Strine Jr, L.E., 2014. Can We Do Better by Ordinary Investors; A Pragmatic Reation to the Dueling Ideological Mythologists of Corporate Law. Colum. L. Rev., 114, p.449.
Tolmie, F., 2013. Corporate and personal insolvency law. UK: Routledge.
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