Lara, Alma, Mark and Paul were originally in partnership for three years, running a parcel delivery business.
Question:
Lara, Alma, Mark and Paul were originally in partnership for three years, running a parcel delivery business. In September 2020, they decided to incorporate a company, QuickParcel Ltd (QuickParcel) into which they transferred their partnership business. QuickParcel had an initial share capital of £20,000 made up of 20,000 x £1 ordinary shares. Lara owned 9,000 shares, Alma and Mark owned 4,000 shares each and Paul owned 3,000 shares. It was decided that QuickParcel needed approximately £250,000 to rent a warehouse and buy furniture, hire staff for sorting parcels and purchase logistics equipment and delivery vans for the company. Mark's friend, John, was willing to provide funding and he was issued with 250,000 fully paid-up, non-voting £1 preference shares. Lara and Mark were appointed as joint managing directors, Alma as the finance director as she had accounting experience and Paul as marketing director. Shortly after incorporation, each director entered into a five-year service contract with the company. The company adopted the model articles for private companies limited by shares with the following additional clauses included: (i) Shareholder approval is required by an ordinary resolution in advance to approve any contract committing QuickParcel to spend £30,000 and above; and (ii) The rights attaching to the preference shares include the right to a cumulative, preferential, fixed dividend of 5 per cent annum payable on the 31 January following the relevant year end but no priority in respect of the return of capital on a winding up. The company performed reasonably well in its first few years of trading. In July 2022, Lara attended a business trade fair where she contracted in the name of QuickParcel to purchase handheld parcel scanners worth £35,000 from Itel Ltd. These items were delivered shortly afterwards but QuickParcel did not pay for them at the time. In the following three months, things took a downturn and Lara and Mark decided to issue new ordinary shares to raise capital to finance the business. It was proposed that QuickParcel allot 50,000 £1 ordinary shares. All of the existing shareholders were interested in purchasing the new ordinary shares, but Lara, Alma and Mark allotted the shares to themselves. In late 2022, Paul came across a newspaper article accusing QuickParcel of exploiting vulnerable foreign workers by paying them below the minimum wage and refusing to give them breaks, in order to meet financial targets. Paul was unhappy about the information in the newspaper and the way the company was being managed, and this has led to conflict between him and the other directors. He is concerned about the liabilities that the directors may face in respect of this matter. At a shareholders' meeting in November 2022 where all the shareholders were present, except Paul who was unable to attend because of ill-health, Paul was removed as a director of QuickParcel.
(i) The liabilities the directors and QuickParcel may have with regard to the allotment of ordinary shares in 2022; (ii) QuickParcel's liabilities in relation to the purchase of the handheld parcel scanners from Itel Ltd;
answer the above in the context of company law and use relevant case laws and model articles
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,