On the advice of his accountant, Derek registered a private limited company to conduct his smallmanufacturing business. The initial shareholders of the company were Derek, his wife Madison, and her fatherPatrick, who each took 1,000 shares in the company, each with a nominal value of 1. The accountantexplained that they did not have to pay the full nominal value of the shares at once, so they each paid only

25p per share taken.Unfortunately the business has not proved successful and Derek and the other shareholders have decided thatit is better to liquidate the company rather than run up any more debts. The current situation is that thecompany's land is worth 20,000 (secured with a 20,000 loan) and it has further assets to the value of7,750, but it has debts to business creditors of 10,000 and owes the bank a further 10,000 on its bankoverdraft.

Required

(a) State the liability of Derek, Madison and Patrick in respect of the company's debts

(b) Explain how the company's debts will be paid out of its liquidated assets