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The bpp revision question book describes a scenario where the directors of a company issue fully paid up £1.00 shares to new members at a discount price of 60pence per share.
Upon insolvent liquidation owing a considerable sum of money to its unsecured debtors our member is liable up to the missing share value only depending on the liability of the ltd company. I selected liable in full for the missing value but apparently I’m wrong
I thought shares could not be issued at a discount unless via some none cash consideration as a ltd company. This is a limited company but our member only paid £12000 for 20,000 shares. No other consideration
Is this correct?
Thank you!
If I have understood the scenario correctly, the member is potentially liable for the full amount of $8,000
However, if the company owes its unsecured creditors only $5,000, what’s the point of asking for the full $8,000
BUT!!!! I would have selected “liable in full”
You say that it is a limited company – may I infer that you mean that it is a private company?
And you say that there is no mention of alternative non-cash consideration being received
Then I would still select ‘liable in full’
I can’t see the question in my edition of the BPP revision kit 🙁
Thanks MIke, sorry to clarify this is from “Mock Exam 1” in the 2018/19 BPP Practice & Revision Kit (Page 152). This is in section B, question 4.
I was very confused by the answer as ever example I have seen previously indicates if the member purchases shares at a discount which is not allowed they will be obliged to pay in full (plus interest).
If you do have the same copy of the textbook and wouldn’t mind commenting further I would really appreciate it.
And yes, sorry the company is Heave Ltd so a private limited company. Sorry still getting used to using the correct terminology 🙂
OK, I’ve found Heave … and it’s as I suspected although I would imagine that the situation is exceedingly rare in practice
As the answer states, Fin is liable to Heave Ltd for the remaining amount of 50p per share
But if (unlikely!) the extent of the debt due to the unsecured creditors can be covered by an amount of less than £10,000, the answer suggests that Fin would be required to pay only that lesser amount
Now I’m going to disagree with BPP on this point!
Firstly, the question states that “Heave Ltd has gone into insolvent liquidation owing a considerable sum of money to its unsecured creditors”
The wording of that sentence suggests that an amount greater than £10,000 is due to the unsecured creditors … dependent upon your interpretation of the word ‘considerable’
Secondly, consider the position of those members / directors that have paid the full nominal value of the shares held by them. If Fin is required only to pay such lower amount than £10,000 and thus paying up to, say 90p in total on the £1 shares held by him, that would result in those other fully-paid-up members losing £1 of their investments whereas Fin would only be losing 90p
I’m going to agree with you and we can jointly disagree with BPP and say that Fin is required to pay the full amount of 20,000 shares x 50p = £10,000
When the liquidator has collected all the amounts due to Heave Ltd, realised all the Heave Ltd assets and distributed those aggregate funds according to the rules of distribution in a liquidation, then – and only then – will Fin possibly get some sort of refund / repayment on his investment
At the same time, those other members who were fully-paid-up as at the commencement of the liquidation will also receive a refund / repayment of their investment
Better?
NB in my edition of the revision kit Fin paid 50% of the 20,000 x £1 for the 20,000 shares and thus owed the remaining 50% – ie still owed £10,000
Much better and I feel much more comfortable about this now! Thank you very much
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