Question:
In relation to company law:
(a)explain the meaning of， and procedures involved in， voluntary liquidation; and
(b)explain and distinguish between;
(i)a members' voluntary liquidation;
(ii)a creditors' voluntary liquidation.
Answer:
(a)This question requires candidates to explain the meaning and procedures involved in the course of a voluntary liquidation in company law. One of the many consequences of incorporation is that a registered company becomes a legal entity in its own right having existence apart from its member shareholders. One of the attributes of this legal personality is that the company has not only separate， but also perpetual， existence， in that it continues irrespective of changes in its membership. Indeed， the company can continue to exist where it has no members at all. Winding up， or liquidation， is the process whereby the life of the company is brought to an end and its assets realised and distributed to its members and/or creditors. The rules governing winding up are detailed in the provisions of the Insolvency Act (IA) 1986 and the exact nature of the procedure depends on the type of winding up involved and depends upon the solvency of the company at the time when liquidation commences. Winding up can be conducted on a voluntary basis， in which case the members of the company themselves determine that the time has come for it to come to an end， or alternatively， the court may make an order that the company‘s life should come to an end. This question refers to the first of these alternatives， voluntary winding up.
Section 84 IA states that a company may be wound up voluntarily:
(i)when any period fixed for the duration of the company by the articles expires， or any event occurs， which shall， according to the articles， lead to its dissolution. Under such circumstances the winding up has to be approved by an ordinary resolution.
(ii)for any other reason whatsoever. Under these circumstances a special resolution is required to approve the winding up.
This is the procedure the members would follow if the company is insolvent.
In any case the winding up is deemed to have started on the date that the appropriate resolution was passed.
(b)(i)A members‘ voluntary liquidation takes place when the directors of the company are of the opinion that the company is solvent and is capable of paying off its creditors. The directors are required to make a formal declaration to the effect that they have investigated the affairs of the company and that in their opinion it will be able to pay its debts within 12 months of the start of liquidation. It is a criminal offence for directors to make a false declaration without reasonable grounds. On appointment， by an ordinary resolution of the company， the job of the liquidator is to wind up the affairs of the company， to realise the assets and distribute the proceeds to its creditors. On completion of this task， the liquidator must present a report of the process to a final meeting of the shareholders. The liquidator then informs the Registrar of the holding of the final meeting and submits a copy of their report to them. The Registrar formally registers these reports and the company is deemed to be dissolved three months after that registration.
(ii)A creditors‘ voluntary liquidation takes place when the company is insolvent when it is decided to wind it up. The essential difference between this and the former type of liquidation is that， as the name implies， the creditors have an active role to play in overseeing the liquidation of the company and there is no declaration of solvency. First， a meeting of the creditors must be called within 14 days of the resolution to liquidate the company at which the directors must submit a statement of the company‘s affairs. The creditors have the final say in who should be appointed as liquidator and may， if they elect， appoint a liquidation committee to work with the liquidator. On completion of the winding up， the liquidator calls and submits their report to meetings of the members and creditors. The liquidator then informs the Registrar of the holding of these final meetings and submits a copy of their report to them. The Registrar formally registers these reports and the company is deemed to be dissolved three months after that registration.
Question:
In relation to employment law, explain the meaning of redundancy and the rules which govern it.
Answer:
Redundancy is defined in s.139(1) Employment Rights Act (ERA) 1996 as being: 'if the dismissal is wholly or mainly attributable to:
(a) the fact that his employer has ceased, or intends to cease,
(i) to carry on the business for the purposes of which the employee was employed by him, or
(ii) to carry on that business in the place where the employee was so employed, or
(b) the fact that the requirements of that business
(i) for employees to carry out work of a particular kind, or
(ii) for employees to carry out work of a particular kind in the place where the employee was so employed by the employer, have ceased or diminished or are expected to cease or diminish.
In order to qualify for redundancy payments, an employee must have been continuously employed by the same employer or associated company for a period of two years. At the outset of redundancy proceedings the onus is placed on the employee to show that they have been dismissed, which they do by demonstrating that they are covered by s.136 ERA 1996, which provides four types of dismissal. These are:
(i) the contract of employment is terminated by the employer with or without notice;
(ii) a fixed term contract has expired and has not been renewed;
(iii) the employee terminates the contract with or without notice in circumstances which are such that he or she is entitled to terminate it without notice by reason of the employer's conduct;
(iv) the contract is terminated by the death of the employer, or the dissolution or liquidation of the firm.
Once dismissal has been established, a presumption in favour of redundancy operates and the onus shifts to the employer to show that redundancy was not the reason for the dismissal.
Employees who have been dismissed by way of redundancy are entitled to claim a redundancy payment from their former employer. Under ERA 1996, the actual figures are calculated on the basis of the person's age, length of continuous service and weekly rate of pay subject to statutory maxima. Thus employees between the ages of 18 and 21 are entitled to ? week's pay for each year of service, those between 22 and 40 are entitled to 1 week's pay for every year of service, and those between 41 and 65 are entitled to 1? weeks' pay for every year of service.
The maximum number of years service which can be claimed is 20 and as the maximum level of pay which can be claimed is ￡430, the maximum total which can be claimed is ￡12,900 (i.e. 1·5 x 20 x 430).
Disputes in relation to redundancy claims are heard before an Employment Tribunal and on appeal go to the Employment Appeal Tribunal. The employer must act as would be expected of a 'reasonable employer' and in determining whether the employer has acted reasonably, the Employment Tribunal will consider whether, in the circumstances 'including the size and administrative resources of the employer's undertaking, the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee' (s.98(4) ERA 1996). Reasonable employers should follow the ACAS Code of Practice on Disciplinary and Grievance Procedures in relation to the way they discipline and dismiss their employees. Thus redundancy, per se, does not provide a justification for dismissal, unless the employer had introduced and operated a proper redundancy scheme, which included, preferably, objective criteria for deciding who should be made redundant, and provided for the consideration of redeployment rather than redundancy.
Question:
Apt Ltd is a small independent book company, which specialises in publishing modern poetry. In January 2013 itsigned a contract with a new poet, called Bel, to publish her second book of poems in August 2014. In March 2013, Bel won a prestigious award for her first book of poems, which had been published privately.
In the light of the fame which now attached to Bel, Apt Ltd launched an extensive advertising campaign publicising the forthcoming book. The campaign was expensive, costing £50,000, but it was successful in generating great interest. As a result, Apt Ltd won a contract to supply a large book club with 100,000 copies of the book, which would make them a profit of £250,000.
Unfortunately in May 2014, Bel informed Apt Ltd that she would not be able to supply the manuscript to it as she had signed a more rewarding contract with Cax plc, a very large publishing company.
Required:
In the context of Bel’s anticipatory breach of contract, explain any possible remedies open to Apt Ltd.
Answer:
The essential issues to be disentangled from the problem scenario relate to breach of contract and the remedies available for such breach.
There is clearly a binding contractual agreement between Art Ltd and Bel, which Bel has stated she intends to break. Normally breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. However, such a definition does not appear to apply in this case as the time has not yet come when Bel has to produce the manuscript. She has merely indicated that she has no intention of doing so. This is an example of the operation of the doctrine of anticipatory breach. This arises precisely where one party, prior to the actual due date of performance, demonstrates an intention not to perform their contractual obligations. The intention not to fulfil the contract can be either express or implied.
Express anticipatory breach occurs where a party actually states that they will not perform their contractual obligations (Hochster v De La Tour (1853)). Implied anticipatory breach occurs where a party carries out some act which makes performance impossible (Omnium Enterprises v Sutherland (1919)).
When anticipatory breach takes place, the innocent party can sue for damages immediately on receipt of the notification of the other party’s intention to repudiate the contract, without waiting for the actual contractual date of performance as in Hochster v De La Tour. Alternatively, they can wait until the actual time for performance before taking action. In the latter instance, they are entitled to make preparations for performance, and claim the agreed contract price (White and Carter (Councils) v McGregor (1961)).
It would appear that Bel’s action is clearly an instance of express anticipatory breach and that Art Ltd has the right either to accept the repudiation immediately, or affirm the contract and take action against Bel at the time for performance (Vitol SA v Norelf Ltd (1996)). In any event, Bel is bound to complete her contractual promise or suffer the consequences of her breach of contract.
Remedies for breach of contract
(i) Specific performance
It will sometimes suit a party to break their contractual obligations, even if they have to pay damages. In such circumstances, the court can make an order for specific performance to require the party in breach to complete their part of the contract. However, as specific performance is not available in respect of contracts of employment or personal service, Bel cannot be legally required to provide the manuscript to Apt Ltd (Ryan v Mutual Tontine Westminster Chambers Association (1893)). This means that the only remedy against Bel lies in the award of damages.
(ii) Damages
A breach of contract will result in the innocent party being able to sue for damages. Apt Ltd, therefore, can sue Bel for damages, but the important issue relates to the extent of such damages.
Damages in contract are intended to compensate an injured party for any financial loss sustained as a consequence of another party’s breach. The object is not to punish the party in breach, so the amount of damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in the same position they would have been in had the contract been properly performed.
The rule in Hadley v Baxendale (1845) states that damages will only be awarded in respect of losses which arise naturally, or which both parties may reasonably be supposed to have contemplated when the contract was made, as a probable result of its breach.
The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not. Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow (Victoria Laundry Ltd v Newham Industries Ltd (1949)).
Applying these rules to the scenario, it is evident that Bel has effected an anticipatory breach of her contract with Apt Ltd and will be liable to it for damages suffered as a consequence.
As for the extensive preliminary expenses, Bel would certainly be liable for them, as long as they were in the ordinary course of Apt Ltd’s business and were not excessive (Anglia Television v Reed (1972)).
As regards the profits from the contract to supply the book club, the issue would be as to whether this was normal profit or amounted to an unexpected gain, as it was not part of Apt Ltd’s normal market when the contract was signed. If Victoria Laundry Ltd v Newham Industries Ltd were to be applied, it is unlikely that Apt Ltd would be able to claim that loss of profit from Bel. However, it is equally plausible that the contract was an ordinary commercial one and that Bel would have to recompense Apt Ltd for any losses suffered from its failure to complete contractual performance.
