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Law Notes Debt Restructuring Notes

Directors Duties And Corporate Governance Notes

Updated Directors Duties And Corporate Governance Notes

Debt Restructuring Notes

Debt Restructuring

Approximately 77 pages

Debt Restructuring Law notes recently updated for exams at top-tier British Universities. These notes, written at King's College London, cover all the LLB banking law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London). These were the best Debt Restructuring Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through over a hundr...

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Overview:

  • An introduction to directors’ duties in the UK

  • Zooming in on directors’ duties in the area of corporate insolvency

  • Recent high-profile failures: BHS and Carillion

    • Carillion plc: A large listed company with extensive overseas operations. It was involved extensively with the government via public-private partnerships.

      • What happened?

      • Who was to blame?

      • What are the lessons learnt?

      • A need for reform?

    • British Home Stores: A large privately-owned UK retailers.

  • Government Reform: Corporate Governance 2019

Carillion:

  • Key facts and timing:

    • The second-largest construction company in the UK as of 2017.

    • A plc with a complex group of subsidiaries.

      • It acquired several rivals in the sector (and with it their pension fund deficits).

    • 2016 accounts published on 2 March 2017: Everything seemed fine.

    • 10 July 2017: A 845 million provision was announced, and share price fell by 70% in response.

    • September 2017: A further 200 million provision announced, leaving it with net liabilities.

    • Not “too big to fail”: Request for government assistance unsuccessful.

    • January 2018: Compulsory liquidation.

  • Compulsory liquidation:

    • Carillion entered compulsory liquidation with PwC as special managers rather than administration, though it was clear that administration was preferable.

      • This is because none of the big-4 accountants were willing to take on the office of administrator.

      • Being administrator meant taking on part of Carillion’s employees and contracts. The exposure that this created was simply too large.

    • Liabilities exceeding 2 billion with less than 30 million in the bank.

  • The Department for Business, Energy, and Industrial Strategy (“BEIS”) report:

    • The report highlighted a lack of meaningful competition in the statutory audit market and recommended referring the case to the Competition And Markets Authority (“CMA”).

    • Carillion’s directors were criticised

    • Carillion’s professional advisors were also criticised.

    • The report raised concerns regarding independence and audit quality:

      • Auditors need to demonstrate “skepticism, integrity, objectivity, and independence”.

      • The task must be approached with an “enquiring mind”; it is not just a matter of looking out for “arithmetic irregularities”.

British Home Stores: A British institution incorporated in 1928. It was the workers, suppliers, and pensioners that lost out the most from this.

  • Sir Philip Green: Accused to taking large sums of money out of BHS and transferring them to family members and overseas trusts.

  • Administration: Sold for 1 to someone who was later found to be an undischarged bankrupt, with the buyer assuming all of BHS’s liabilities as part of the consideration.

  • Liquidation: BHS was eventually liquidate.

  • Select committee findings

Patisserie Valerie:

  • A pot of 20 million was found to be missing, and a finance director was charged.

Directors’ duties and liabilities:

  • Fiduciary and statutory duties:

    • Part 10 of the Companies Act 2006 sets out the statutory minimum.

      • S171: Duty to act within powers.

      • S172: Duty to promote the success of the company.

      • S173: Duty to exercise independent judgment.

      • S174: Duty to exercise reasonable skill, care, and diligence.

      • S175: Duty to avoid conflicts of interests.

      • S176: Duty to not accept benefits from third parties.

      • S177: Duty to declare one’s interest in proposed transactions with the company.

    • This applies to all directors, including shadow directors.

    • The (past) common law interpretation of fiduciary duties is still relevant.

  • Directors’ duties in the “twilight zone”, when the company is verging on insolvency:

    • Cash flow insolvency = The company unable to pay its debts as they fall due; Balance sheet insolvency = The company’s liabilities exceed its assets.

    • The directors will be under pressure from:

      • Employees and pension funds;

      • The government and the public relations department;

      • Trade creditors; and

      • Her Majesty’s Revenue and Customs (“HMRS”.

    • Key issues for directors on insolvency:

      • A shift in duties: Directors should shift their focus from shareholders to creditors;

      • Wrongful trading;

      • Fraudulent trading;

      • Misfeasance; and

      • Disqualification.

    • S214 Insolvency Act 1986:...

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