THE CHARTERED INSTITUTE OF LEGAL EXECUTIVES UNIT 5 CORPORATE INSOLVENCY * SUPPORTING MATERIALS

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1 12 June 2015 Level 4 CORPORATE INSOLVENCY Subject Code L4-5 THE CHARTERED INSTITUTE OF LEGAL EXECUTIVES UNIT 5 CORPORATE INSOLVENCY * SUPPORTING MATERIALS Information for Candidates on Using the Supporting Materials This document contains the supporting materials for your examination. You have 30 minutes reading time to read the supporting materials and question paper. It is strongly recommended that you use the reading time to read the supporting materials and question paper fully. However, you may make notes on the supporting materials, question paper or in your answer booklet during this time, if you wish. Do not turn over this page until instructed by the Invigilator. * This unit is a component of the following CILEx qualification: LEVEL 4 DIPLOMA IN DEBT RECOVERY AND INSOLVENCY Page 1 of 8

2 INSTRUCTIONS You work in the Corporate Department of Kempstons LLP Solicitors, The Manor House, Bedford, MK42 7AB. The head of department and your supervisor is Nigel Alewayo, Chartered Legal Executive Partner. Document 1 Document 2 Document 3 Document 4 Telephone Attendance Note: Nigel s secretary attending Brenda Smythe Letter from Nigel to Brenda Smythe from Nigel Alewayo from Nigel Alewayo Page 2 of 8

3 DOCUMENT 1 TELEPHONE ATTENDANCE NOTE Secretary to Nigel Alewayo (Head of Corporate) New Matter: Date: Brenda Smythe [today s date] Brenda Smythe telephoned the office to speak to Nigel, who is currently out of the office at a meeting. Brenda wants to set up a bridal shop with Aoife Donovan, the daughter of a friend of hers. Brenda has a number of questions about how they should start trading. Although Aoife is only 26 years old, she has previous experience of running a bridal shop and is a good saleswoman; however, she has only ever worked as an employee before. Brenda has inherited 50,000 from her late mother s estate and Brenda intends to use this as start-up capital for the business. Aoife cannot afford to put any money into the business. The plan is that Aoife will work full-time in the business in the shop, while Brenda will be the owner and manager, and will deal with premises, payroll, taxes and all the administration. Brenda is concerned because her friend Maud (Aoife s mother) told her that Aoife is not awfully good with money, which Brenda took to mean that Aoife is careless with money and quite possibly in debt. Brenda s business objectives are: She has seen high street premises that are ideal. She is keen to start trading as soon as possible. She does not want to take on Aoife as her employee personally. She does not want to take responsibility for Aoife s current debts. She does not want Aoife spending the business s money. Turn over Page 3 of 8

4 DOCUMENT 2 Kempstons LLP Solicitors The Manor House Bedford MK42 7AB Tel: Fax: nigel@kempstonsllp.co.uk Our ref: /BJS Your ref: Date: [Today s date] Dear Brenda Re: Bridal Shop Business Thank you for instructing Kempstons LLP in this matter. I understand that you are keen to sign the lease of the premises so that you can open the bridal shop and start trading as soon as possible. With that in mind, may I ask you to telephone my secretary to arrange a meeting to come in and discuss setting up a limited company, as I consider a private company limited by shares to be the best way to achieve your business objectives, and I wish to outline to you the benefits of this means of trading. My property colleague can then advise on the terms of the lease. Yours sincerely Nigel Alewayo Chartered Legal Executive Head of Corporate Law Authorised and regulated by the Solicitors Regulation Authority Kempstons LLP SRA No Page 4 of 8

5 DOCUMENT 3 From: To: Subject: Date: nigel@kempstonsllp.co.uk trainee@kempstonsllp.co.uk Kempston Office Supplies Limited - general corporate file /KOSL [today s date] Tony Wendall and Maz Asif, who own Kempston Office Supplies Limited, a private company limited by shares ( the Company ), came in to see me today. They recently lost a large contract that represented the bulk of the Company s business. The loss of this contract has been sudden and so Tony and Maz were taken unaware and were not able to plan for the sudden drop in income. The Company is now late with a number of trade payments and creditors are pressing for payment. The Company has never encountered trading difficulties before and is up to date with all its filing requirements at Companies House. Tony and Maz believe the Company has a viable future provided they can organise a breathing space to restructure and seek new sales avenues. Bedford Bank PLC holds a debenture comprising a fixed and floating charge over all the assets and undertaking of the Company created 15 April Maz s friend, Steven, was the director of a company that recently went through the same thing when it got into financial difficulties (it has since shut down), and he has offered to deal with the creditors and sort everything out for a fee of 1,000; he tells Tony and Maz that hiring a qualified insolvency practitioner is a waste of money because they just incur extra fees. Steven has also suggested, in the meantime, paying some of the money coming into the Company from customers into a new bank account to ensure Tony and Maz get back the 10,000 each of them has personally lent to the Company. Page 5 of 8 Turn over

6 DOCUMENT 4 [N.B. matters have moved on one month from the facts in Document 3] From: To: Subject: nigel@kempstonsllp.co.uk trainee@kempstonsllp.co.uk Kempston Office Supplies Limited - general corporate file /KOSL Date: [one month after the date in Document 3] As you know, Kempston Office Supplies Limited was put into administration a month ago. Unfortunately, it proved impossible to rescue the company. Therefore, on the advice of the insolvency practitioner, the company underwent a pre-pack in which the business was sold as a going concern to a new company, with Tony and Maz taking office as directors of the new company. This transaction was effected yesterday. The directors did not follow any of the advice previously given by Maz s friend Steven. Unfortunately, roles could not be found for all the staff in the new company, and one sales staff and two dispatch workers have been made redundant. The bank is happy as it has a debenture over the assets and undertaking of the new company. However, one of the old company s previous suppliers (i.e. a trade creditor) is very unhappy about the whole situation and has been on the telephone to Tony saying he is going to sue Tony and Maz for all they are worth. It is now proposed to dissolve the old company, Kempston Office Supplies Limited, without putting it into creditors voluntary liquidation. Tony and Maz are understandably anxious about the whole procedure, so please consider the position outlined above so we can discuss it on my return to the office. End of Supporting Materials 2015 The Chartered Institute of Legal Executives Page 6 of 8

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