Jim Jones owned and operated a business in agricultural contracting.It was successful and profitable.He incorporated a company called Jim Jones Contracting Company Limited (the company) and transferred his business, including all the assets he used in the business, to the company in consideration of the issuance of shares to him.

Jim, his wife, Edith, and their friend, Charles Goodfellow, solicitor, were the directors of Jim Jones Contracting Company Limited.Jim and his wife, Edith, were blessed with nine sons and two daughters over the years.As they grew up Jim transferred some of his shares to each son and daughter to encourage them to participate in the family business, which they duly did.

Jim Jones Contracting Company Limited's profits plummeted.Peter Alberts, a local chartered accountant, was commissioned to investigate the company's business and advise on measures to restore its profitability.Amongst other recommendations including marketing and diversification, Peter Alberts advised the company to undertake significant cost cutting measures.He advised that costs should be incurred only if strictly necessary.

The directors considered Peter Alberts' report and asked the company's accounts clerk to do the board paper recording the costs the company incurs.Amongst these costs are the significant fees it must pay Peter Alberts annually to prepare the company's annual financial statements. The directors resolved unanimously to terminate its relationship with Peter Alberts, believing the companies accounting records would suffice in the meantime.

The company traded on but was unable to compete effectively and became insolvent.A liquidator was appointed by order of the High Court following an application by a major creditor, Mike Brown Machinery Imports Co Ltd.The liquidator found it exceedingly difficult to liquidate the company because the company lacked financial statements.The company's accounting records were also chaotic.Accordingly, the liquidator found it very difficult to ascertain what the company's assets and liabilities were.These difficulties caused the liquidator to incur significantly more costs than is usual for a liquidation of this type of company.Hence, the funds available for creditors were greatly reduced and Mike Brown Machinery Repairs Co Ltd is facing a very significant shortfall on the debt owed to it.

You are the accountant at Mike Brown Machinery Repairs Co Ltd, and your manager, the chief executive officer, directs you to make a report advising him what, if anything, Mike Brown Machinery Repairs Co Ltd should do.

Required

What should be the right advices you can give to the chief executive officer of Mike Brown Machinery Repairs Co Ltd , giving legal reasons.

Legal Sources

Companies Act 1993, Parts 8, 11, & 16