Dimyou Ltd is an electronics business making dimmer switches for lights recently incorporated by Alan and Karen, who were previously in a business partnership together. Both are directors and each holds half the shares in the company.

a) Before Dimyou Ltd was registered as a company Karen signed a lease 'for and on behalf of Dimyou Ltd' for factory premises that the company no longer needs. Advise Alan and Karen whether the company is bound by the contract, and if not whether Alan or Karen have any liability for it.

b) Karen is the director responsible for Health and Safety in the company. If she were to be injured in an accident at the company factory, would Karen be able to claim against the company? If Alan had not bought the correct insurance policy for the company, could Karen claim against Alan?

c) Alan and Karen have offered Nick the opportunity to invest in the company to raise capital. He will get a third of the shares in the company, leaving him equal with Alan and Karen, but Nick also wants to be a director and asks that the articles of association be changed to say that he will be director for life. Advise Nick whether this will be effective in ensuring he will be a director, and what else could be done to ensure he is made a director.

d) Dimyou Ltd borrowed £20,000 from Bigbank on 1st February secured by a floating charge over the business and all its assets. On 1st March they borrowed £10,000 from Midbank secured by what the documents say is a fixed charge over the company book debts. Eric is owed £500 for work done for the company. Alan has paid himself £5,000 from company funds without explaining the reason for the payment. Dilli is owed £1,000 for goods supplied to the company under a retention of title clause. If Dimyou Ltd were to go into insolvency, how might the liquidator distribute the assets of the company?

Answer rating: 100% (QA)

Answer a The company is not bound by the contract because it was not signed by a director or officer ... View the full answer