Lecture Five Monday

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Beijing Normal UniversityEnglish Company
Law/Commercial Law

• Lecture Five - Monday
• A. Capital Maintenance
• B. Corporate Finance
• C. Company Accounting

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Part A

• Capital Maintenance

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A. Capital Maintenance

• CAPITAL - the life blood of companies!!
• Overview
• 1. Definition
• 2. Terminology
• 3. Rationale
• 4. Raising capital
• 5. Changing capital
• 6. Maintaining capital

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A. Capital Maintenance

• 1. Some definitions
• Oxford Dictionary of Law BILLY LTD
• Gower
• 2. Terminology
• Capital
• Authorised Capital
• Called up share capital
• Paid up capital
• Uncalled capital
• Issued share capital
• Nominal Value Legal Capital
  Assets
• Call

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A. Capital Maintenance

• 3. Rationale -
• CREDITOR PROTECTION
• Limited Liability
• Trevor v. Whitworth (1887) 12 App Cas 409
• What is not Capital?
• Bank loans
• Profit

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A. Capital Maintenance

• CAPITAL REQUIREMENTS - what should they be?
• A minimum level of capital??
• No minimum level of capital??
• objections
• risk??
• Where are the levels set??
• Other EU states - harmonisation?

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A. Capital Maintenance

• 4. RAISING CAPITAL
• ISSUE SHARES -
• finance - Plcs
• control - Ltds
• authorised share capital - maximum sum

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A. Capital Maintenance

• 5. CHANGING THE LEGAL CAPITAL
• INCREASING CAPITAL
• Table A, regulation 32
• Special Resoultion

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A. Capital Maintenance

• 5. CHANGING THE LEGAL CAPITAL, contd
• !!!!REDUCTION OF CAPITAL!!!
• s.135 CA 85 (1), (2) - worked examples
• Re Jupiter House Investments (Cambridge) Ltd
  1985 1 WLR 975 serious property loss.

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A. Capital Maintenance

• 5. CHANGING THE LEGAL CAPITAL, contd
• Further reasons - Why reduce??
• Class - any suggestions??
• Statutory Procedure -
• Court Approval
• Worked Examples - overleaf

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A. Capital Maintenance

• 5. CHANGING THE LEGAL CAPITAL, contd
• s.135 (2) (b) - cancel paid up share
  capital/lost/unavailable
• A MASSIVE LOSS HAS OCCURRED, E.G.
• 100,000 issued share capital - 100,000 assets
• made up of 100,000 1 shares
• the assets owned by the company are now worth
  only 25,000
• company wants to reduce its capital to reflect
  the assets
• reduce the nominal value of each share to 25p
  (0.25)
• why? if there has been a wastage of capital the
  companys profit and loss account will stand in
  debit
• no dividend can therefore be paid
• Reduce the capital extinguish the debt pay a
  dividend.

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A. Capital Maintenance

• 5. CHANGING THE LEGAL CAPITAL, contd
• s.135 (2) (c) - pay off any paid up share capital
  in excess of wants
• Why? E.g.
• Company has sold a large asset and has a large
  amount of cash
• More than it could ever need
• A reduction of capital could be achieved by
  cancelling some shares and returning their value
  to shareholders
• Or by reducing the nominal value of each share
  say from 100p to 75p thus giving each
  shareholder 25p

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A. Capital Maintenance

• 5. CHANGING THE LEGAL CAPITAL, contd
• Article 34 of Table A - special resolution
• ss.136-137 CA 85 - Notice
• s.142 CA 85 - PLCs - serious loss of capital

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A. Capital Maintenance

• 6. MAINTAINING SHARE CAPITAL
• a company purchasing its own shares??
• s.143 CA 85 - cannibalism!
• Trevor v. Whitworth (1887) 12 App Cas 409
• deceased estate vs creditors
• it is inconsistent with the essential nature of
  a company that it should become a member of
  itself per Lord Watson

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A. Capital Maintenance

• 6. MAINTAINING SHARE CAPITAL, contd
• When can a company purchase its own shares now??
• s.159 CA 85 - redeemable shares
• compulsory purchase order made by the court under
  the unfair prejudice provisions - s.459 CA 85

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A. Capital Maintenance

• REFORM
• CLR -
• doubtful whether the benefits of the legal
  capital rules are as significant as is assumed

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Part B

• Corporate Finance

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B. Corporate Finance

• The decisions of finance
• asset need/ purpose
• investment decisions What are the options open to
  the directors- how are we going to finance this
  venture?
• claims against the company - equity or debt -
  issuing securities/borrowing.
• see Eurotunnel plc - online? Butterworths?

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B. Corporate Finance

• An overview of finance stages
• (1) Initial - entrepreneur /banks
• (2) Medium - venture capitalists
• (3) Large - public offering

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B. Corporate Finance

• (1) INITIAL
• MORTGAGE (Re-)
• SAVINGS
• REDUNDANCY
• RELATIVES
• BANK LONS

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B. Corporate Finance

• (2) MEDIUM
• BUSINESS ANGELS
• VENTURE CAPITAL FIRMS - e.g. 3I
• Loss of control?
• Time period
• Some figures -
• Amounts?
• Why - capital gain
• Industry terminology (seed corn, start up, early
  stage, expansion MBO, MBI)
• Rescue

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B. Corporate Finance

• (3) LARGE - PUBLIC OFFERING
• Why?
• Where? (LSE, Tokyo, Shanghai, New York)
• Good/Bad!!??

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B. Corporate Finance

• (3) Contd - The Paradigm!!
• Ordinary shares
• Only public companies - s.81 CA 85
• Our Question (points make prizes!!)
• The LSE
• the two markets (Official List AIM)
• preliminary corporate restructuring
• 1st Stage - IPO/Floatation - types of offer -
• (1) offer - sale or subscription
• offer contents/level/where/risk

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B. Corporate Finance

• IPO Contd
• Offer continued - Agent OR Principal investment
  bank
• what might the offer include
• offer level (fixed price OR tender)
• risk of the offer (Agent or Principal)
• underwriting the offer - the Fee.
• (2) Placing - 2nd kind of offer
• 2nd Stage - Flotation - come to market.
• People involved in the IPO process.

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B. Corporate Finance

• Two main types of finance available to companies
  -
• (1) Equity Finance
• (2) Debt Finance
• (3) Other Forms of Finance

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B. Corporate FinancePART I - EQUITY FINANCE

• (1) Equity Finance
• The main types of Equity Finance are (explained
  later!!) -
• ? Ordinary shares
• ? Preference shares
• ? Redeemable preference shares
• ? Convertible preference shares

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B. Corporate Finance - Equity Finance

• NATURE OF SHARES AND MEMBERSHIP
• Do members have status as
• property owners?
• Pursuant to a contract?
• Why have shares/grant shares?
• small companies
• large companies

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B. Corporate Finance - Equity Finance

• Shares defined
• Borlands Trustee v. Steel 1901 1 Ch. 279 at
  288
• a share is the interest of a shareholder in the
  company measured by a sum of money, for the
  purpose of liability in the first place, and of
  interest in the second, but also consisting of a
  series of mutual covenants entered into by all
  shareholders inter se in accordance with s.14.
  The contract contained in the articles of
  association is one of the original incidents of
  the share. A share is not a sum of moneybut is
  an interest measured by a sum of money and made
  up of various rights contained in the contract,
  including the right to a sum of money of a more
  or less amount.

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B. Corporate Finance - Equity Finance

• Some relevant statutory provisions
• s.22 Companies Act 1985
• s.352 - 362 Companies Act 1985
• s.185-186 Companies Act 1985
• Re Bahia Son Francisco Rly Co (1868) LR 3 QB 584

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B. Corporate Finance - Equity Finance

• RIGHTS ATTACHING TO SHARES (NORMALLY) -
• 1. Dividends
• 2. Right to participate on return of capital or
  in any surplus
• 3. Voting
• Birch v. Cropper (1889) 14 AC 525
• Re National Telephone Co 1914 1 Ch.755

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B. Corporate Finance - Equity FinanceCLASSES AND
TYPES OF SHARE

• Ordinary Shares

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B. Corporate Finance - Equity FinanceCLASSES AND
TYPES OF SHARE

• Preference Shares
• (1) Redeemable preference shares
• (2) Participating Preference Shares

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B. Corporate Finance - Equity FinanceCLASSES AND
TYPES OF SHARE

• Deferred Shares
• Non-voting shares
• Multiple voting shares
• Golden Share

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B. Corporate Finance - Equity Finance

• Transfer and Transaction in shares
• sale
• Stock Exchange Transfer
• Death of Shareholder
• Mortgages of shares
• restrictions on shares

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B. Corporate Finance - Debt Finance

• Debt Finance

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B. Corporate Finance - Debt Finance

• Overview
• (1) Terminology
• (2) The main types of Debt Finance
• (3) The companys POWER to borrow
• (4) Forms of Debt Finance
• (5) Other Types of Finance

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B. Corporate Finance - Debt Finance

• (1) Terminology
• Loan
• Contract
• Debt
• Charge
• Security

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B. Corporate Finance - Debt Finance

• (2) The main types of debt finance
• Banks
• short term overdraft
• medium term loans
• recurring credit facilities
• Capital Markets
• bonds
• marketable loans

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B. Corporate Finance - Debt Finance

• (3) The company POWER to borrow money
• Express power
• Re Introductions 1970 Ch. 199
• Rolled Steel Products (Holdings) Ltd v. British
  Steel Corporation 1985 3 All ER 52
• Implied power
• General Auctions Estate and Monetary Co v. Smith
  1891 3 Ch.432.
• s.?? CA 85? Contd

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B. Corporate Finance - Debt Finance

• (3) The company POWER to borrow money - Contd
• s.35 CA 85
• Reg 70 Table A 85

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B. Corporate Finance - Debt Finance

• (4) Forms of Debt Finance
• The Debenture
• definitions
• s.744 CA 85
• Types
• Qualities and Ingredients
• Charges
• Re Patent File Co (1870) LR 6 Ch App 83 - an
  implied power to give security.

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B. Corporate Finance - Debt Finance

• (4) Forms of Debt Finance - Contd
• Charges Contd
• what can be charged?
• legal charge
• equitable charge
• fixed charge
• floating charge
• crystallisation
• registration and priority of charges
• rights and remedies of debenture holders

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B. Corporate Finance - Debt Finance

• (5) Other Types of Finance
• Loan Notes
• Subordinated Debt
• Guarantees
• Hire-Purchase
• Leasing
• Factoring

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Part C

• Company Accounting A Company Law Perspective

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C. Company Accounting

• Overview
• (1) Theories of disclosure
• (2) Accounting records
• (3) Annual accounts
• (4) The independent audit
• (5) The process of publicity

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C. Company Accounting

• (1) Theories of Disclosure
• rationale
• disclosure places
• protecting who
• Gowers thoughts

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C. Company Accounting

• (2) Accounting Records
• s221 CA 85
• disclosure at any time throughout the financial
  year
• records kept for how long?
• Fine or imprisonment for failure

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C. Company Accounting

• (3) Annual Accounts
• The purpose - Caparo Industries plc v. Dickman
  1990 2 AC 605, per Lord Jauncey at p.662.
• The Company Financial Year (ARP ARD)
• Form and Content -
• Balance Sheet
• Profit Loss Account
• Group Accounts
• Duty to Lay Accounts - Contd

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C. Company Accounting

• s.242A CA 85 -
• Length of period Public company Private
  company
• Not more than 3 months. 500 100
• More than 3 months but
• not more than 6 months. 1,000 250
• More than 6 months but
• not more than 12 months. 2,000 500
• More than 12 months. 5,000 1,000

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C. Company Accounting

• Annual Accounts Contd
• Formalities - director approval
• Miscellaneous
• Standard Accounting Practice
• s.252 CA 85 - dispense with laying of accounts
• Non-Statutory Accounts
• Directors Report

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C. Company Accounting

• (4) The Independent Audit
• purpose
• benefits
• provisions
• appointment
• remuneration
• qualifications and experience
• removal and resignation

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C. Company Accounting

• The Independent Audit Contd
• Rights of auditors
• Auditors duties
• Caparo Industries plc v. Dickman 1990 1 All
  ER 569
• Duty of Care of the auditor
• Re London and General Bank 1895 2 Ch 166
• Re Kingston Cotton Mill Co 1896 2 Ch 279
• Re Thomas Gerrard Son Ltd 1968 Ch 445

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C. Company Accounting

• (5) The Process of publicity
• Lay accounts before general meeting (s.241-2 CA
  85')
• Send accounts 21 days before to relevant
  shareholders and debenture holders s.238 CA 85'
• Filed with the register of companies - s.242 CA
  85
• Now available for public inspection