Case Law 1

Mr. Robert Morgan was a sole proprietor dealing in the manufacture of sanitizers. He owned a factory with machinery and equipment, which he financed from his personal savings as well as a loan from Loans a Lot Bank Ltd.

After years of operating as a sole proprietor and after repaying the loan to the Bank, he decided to form a company so that he could get the benefits of separate legal personality and limited liability. Mr. Morgan therefore incorporated "Morgan's Chemicals Ltd.," with Mr. Morgan as the sole shareholder and director.

In an effort to expand the production of the newly formed company, Mr. Morgan decided to take another loan, this time in the company's name, from Loans a Lot Bank Ltd. to purchase a large amount of raw materials and buy additional machinery. He also decided to insure the machinery with Disadvantage General Insurance Company.

Shortly after purchasing the raw materials and taking the loan, there was a rapid improvement in the Covid-19 situation and so the demand for sanitizers had all but disappeared. Morgan's Chemicals Ltd was therefore not able to repay the loan or any other company debt.

To add insult to injury, very shortly after the fall in demand for the Company's products, fire destroyed the machinery and other company assets.

The Bank is now taking legal action against Mr. Morgan and going after his personal assets saying 'this one man company, that has little or no assets is really an agent for Mr. Morgan."

Mr. Morgan also approached the insurance company asking that the proceeds of the policy be paid to him directly and not to the liquidators of the company that they were planning to pay, because he is the one who had built the business. The insurance company is refusing his request and he wants to take legal action against them.

Required

Using case law, provide advice to Mr. Morgan on -

1. The likelihood of success of the Bank's legal action against him. (10 marks)
2. The likelihood of success of his action against the insurance company. (10 marks)

(20 marks total for Question 1)

Case Law 2

1. Miss Daisy Chambers, an accounts teacher, made the following pronouncement to her students "There is very little difference between a private company and public company in terms of their purpose, powers and accountability"

One of her students, Arnold Gordon, comes to you for advice, as to the extent to which the statement is true or false.

Advise Mr. Gordon, giving examples to justify your answer. (10 marks)

1. Mr. Robert Campbell and his friend David Francis are planning to go into the transportation business. They are concerned about their personal liability, if something should 'go wrong'. They are also concerned about their privacy, in that they would prefer not to have the financial affairs of their business submitted to any regulatory body. They are not sure whether to go the route of opening a company or a partnership and would want to know the differences between the two business forms and the pros and cons of each.

Required

With the concerns of Mr. Campbell and Mr. Francis in mind and by using bullet points, provide a summary of at least five (5) differences between the two business forms and the pros and cons of each.

(10 marks)

(20 marks total for Question 2)

Case Law 3

Miss Grace Sinclair and Miss Marjorie Burton are suppliers of raw materials to Lipton's Novelties and Gifts Ltd. The company has been operating for over twenty years but over the last few years the company has not been paying its bills on time to Ms. Sinclair and Ms. Burton.

It has now been over 12 months since a very substantial amount has been owed to them by the company and they have exhausted all efforts in appealing to and threatening the company for payment.

Miss Grace Sinclair and Miss Marjorie Burton are very despondent and wonder if they could take steps to wind up the company given the fact that their previous efforts have borne no fruit.

Required

Advise them on theprocedure they would have to follow. (15 marks)

Case Law 4

Binder Books Ltd. has fifteen shareholders members, which included Charles, who was a freelance chartered accountant, not employed by the Company.

The Articles of Association for Binder Books Ltd. contained a provision that Charles should be employed by the Company, to do the Company's accounts by July 20, 2021 for a stated fee.

Several months after the date stated, Charles did not hear from the Company and after several enquiries, he was told that the Company decided to hire another accountant.

Charles is hopping mad has decided to take action against the Company.

Required

Using Case Law, provide advice to Charles. (10 marks)