Business Entities Coursework

Business Entities Assessment

MA Business Management (2nd Year)

Iain McCormick

H00182042

01/03/16

Business Entities C18CM2

Ms Josephine Bisacre

In this assessment the author will analyse and evaluate legal issues with regards to cheapskate ltd. The shareholders will be advised on what areas to address and in turn can consider legal consequences upon those involved with illegal wrongdoing.

The first and main issue for the shareholders to address is Jims disqualification as a director in 2015 which will make him unable to be a director until 2025. Jim (Sid) has undertaken a criminal offence as he has continued operating as an executive director of cheapskate ltd even though he was disqualified for 10 years. Jim has a fiduciary duty to inform fellow directors and shareholders that he has a criminal conviction. It states in section 13 of the Company Directors Disqualification Act 1986 If a person acts in contravention of a disqualification order he is liable on conviction on indictment, to imprisonment for not more than 2 years or a fine, or both; and on summary conviction, to imprisonment for not more than 6 months or a fine not exceeding the statutory maximum, or both. An example of a disqualification case is Re Sevenoaks Stationers (Retail) Ltd [1991] BCLC 325 in which Mr Cruddas was director of five companies which became insolvent leaving a large sum of unpaid debts. The court felt that the main reason for the failure of the companies was the lack of financial control which was brought upon them. It was his responsibility to have control over the finance as he was a chartered accountant. The company audits and accounts had not been properly kept up to date and accurate, however there was no evidence that Cruddas was dishonest. He had made loans from one company to another and Sevenoaks Stationers had guaranteed the debts of another of his companies. Another fact is that he had also continued to trade while the company was insolvent. He was disqualified from acting as a director for seven years the grounds that his conduct made him unfit to be concerned in the management of a company.

Furthermore, it states in section 15 of the Company Directors Disqualification Act 1986 that there are civil consequences for the disqualified director and the other directors who are imprudent enough to allow the disqualified director to take part in the proceedings of directors. If the company does not honour its obligations, all the directors can be made jointly and severally liable for the company’s obligations which were incurred while a disqualified director was allowed to take part in running the company. This means that even though Mary was not aware of Jims disqualification that she can be made jointly and severally liable for his actions while participating as a disqualified director. Mary has a duty for fellow directors and should ask questions of them if they become suspicious of criminal offences. According to s.174 of the Company Act 2006 (CA, 2006) Mary has a duty to exercise reasonable care, skill and diligence but a director is not bound to give continuous attention to the affairs of the company, however, where duties may properly be left to some other official, a director is justified, in the absence of grounds for suspicion, in trusting that official to perform his duties honestly in which Jim has not.