Q.1

Fred and George Weasel were the sole directors and shareholders in a company that they set up ten years ago called Swordplay Ltd. The company sells jokes, novelties and fancy dress costumes. They sought to cash in on their names and any possible Harry Potter connection. The company had a share capital of 100 1 shares, and they each took 50 of these. As Fred and George were getting older, they felt that they should appoint Sirus, Fred's son, as managing director to oversee the company's day to day affairs. Sirus was appointed managing director and was given 20 shares.

Last year, George discovered that the company had been selling fancy dress costumes to Sorted Hat Ltd (a company owned and controlled by Fred and Sirus) at an undervalue. When George confronted Fred and Sirus, they passed two resolutions - one to remove George as director, the other to approve the sale of the fancy dress costumes. Malboy is a creditor of Swordplay Ltd and is owed 10,000 despite repeated requests for payment he has not received any money he now wishes to take legal action against the company. George meets Malboy in the local public house and after discussing the matter they decide to combine forces against Swordplay Ltd and the directors. They have heard that it is relatively simple to apply to wind the company up.

Requirement

Advise George and Malboy as to the suitability of the remedy of winding up and critically evaluate how likely they are to be successful..

(25 marks)

Q. 2

Universal was a small insurance company that went into creditors' voluntary liquidation in November 2017. The company suffered heavy losses during 2016 as a result of unexpectedly high travel insurance claims. Its eventual collapse stemmed from the failure to make adequate provision for these claims in the company's reserves. The liquidators have informed the former officers of the business that they intend to bring proceedings against the former managing director and several of the company's former non-executive directors as well as all former directors. In outline, the liquidators are alleging that the directors should have ceased trading in mid-2016, around the time when the losses were firstreported.

Requirement

Discuss the above scenario paying particular attention to the issues of wrongful and fraudulent trading.

(25 marks)