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... payable) which would in the future be have to repaid regardless of the corporate status. The repayment issue will be discussed further in the essay. By purchasing a company the buyer acquires not just a collection of assets and liabilities which is what would happen if a business was purchased but a legal entity or 'person' with attaching rights and liabilities. The main question that faces a buyer, then is whether to buy the shares of the target or the assets instead (and therefore assume certain liabilities of the target business).
One should still remember that on the sale of assets by a company, tax will generally be payable by the company on any gain made and it is likely that further tax will be payable by the company's shareholders when any surplus proceeds are distributed to them. I should also note that generally, the only safe way for a buyer of assets to ensure that it is obtaining the benefit of a particular contract will be to seek the express agreement before proceeding with the acquisition. This kind of problem does not arise when shares are acquired. One should remember that the parties may wish to draw up heads of agreement initially: this can be useful but unless there is an urgent need to get the seller contractually bound, the buyer should not try to make such a document legally binding. However, a preliminary contract may be acceptable and a seller may insist on the buyer signing a binding confidentiality agreement before he starts his investigations to protect himself. I will also add that buyer and seller should consider whether any consents or similar action are needed before proceeding.
If the party is a company, it may need the approval of shareholders under the Articles of Association. In the case study provided in class we understand that Adrian who has the majority stake in the Adventure Travel Ltd is the one who makes the decision for that company. Here I should note that in the case study it is not stated what documents the two companies (Adventure Travel Ltd and Foreign Travels Ltd) had signed between them. Certainly, the financial assistance that Adventure Travel Ltd Provided to Foreign Travel ltd should be documented somewhere showing what party is indebted to what party (let alone other terms of the agreement).
Thus, there is no question as to whether or not Foreign Travel Ltd had a financial liability to Acquisitions Number 1 Ltd (which was already formed by the time the debt was due). The fact that the two companies did not have any signed contract certainly makes the acquisition terms more difficult. Please refer to the financial scheme below: As we see from the scheme above, Foreign travel Ltd was involved in the process of contract preparation and used the credit line of EUR 200, 000 provided by Adventure Travel ltd. One should not forget that because of inferior financial position Foreign Travel Ltd would not be able to receive external financing at the terms provided by Adventure Travel ltd on behalf of Acquisitions Number 1 Ltd. The finances would not be given to Foreign Travels Ltd from Adventure Travel Ltd, for no reason and possessed the implied terms of the verbal contract between the two parties. Foreign Travels Ltd cannot give up on its obligations (implied terms) because of the due diligence law.
There are several areas of a due diligence exercise which are of particular concern to a prospective buyer as well as seller of the business (Aretz, 290). One should remember that under due diligence laws that in our case seem to govern the behavior of the two companies Adventure Travel Ltd and Foreign Travels Ltd, state that the contracts must be fulfilled unless it was almost impossible to do so. The European (actually French) term force majeure (major force) principle should be used to check whether the contract is still valid. This common law concept relieves a party from fulfilling a contract if unforeseen circumstances make it impossible to do so. Speaking about the precedents that occurred in the past and that should be used as examples for the situation between Adventure Travels Ltd and Foreign Travels ltd, I should note that Royal Caribbean, the cruise-line company, announced a week after the attack that its Nordic Empress ship could no longer depart from New York because authorities had taken control of the port (Gleichmann, 90). For the rest of the season she will set sail from Philadelphia instead.
The company will have no obligation to pay its New York port fees. Here is another example. In the 1980 s Westinghouse had a contract with Florida Power & Light to remove spent nuclear fuel, which it planned to reprocess into plutonium (Schaffer, 122). When federal environmental laws got in Westinghouse's way, the company walked away from the contract. Florida Power & Light sued, but a court supported Westinghouse because it was impossible for the company to reprocess the fuel as planned. To make things worse for Foreign Travels Ltd, I should note that historically European, British or US companies during the Suez Canal crisis, the Vietnam War and again during the 1970 s oil embargo, or economic crises were not able to give up on their obligations (implied or explicit) and had to remain committed (Walker-Maitland, 324).
Foreign Travels Ltd, appears to behave unethically, taking into account the large sum it borrowed on the favorable conditions from Adventure Travel ltd. One should also not forget that, although, the case study did not speak about the terms of the agreement that refer to the termination of the contract, it is assumed that Foreign Travels had to remain open and transparent for the Adventure Travel Ltd inspection, which would prevent Adventure Travel from such surprises. So, YES, Foreign Travels Ltd must be held responsible for the violation of the procedures, unethical behavior, due diligence, and potentially fraud, if it is investigated that Foreign Travels Ltd simultaneously created similar acquisition agreement (or crafted one) for the purpose of deliberate contract cancellation. And on a more practical level, The Foreign Travels Ltd by court should be obliged to commit to the contract with Adventure Travel ltd and thus be bought by Acquisitions Number 1 Ltd and still be owing money of EUR 200, 000 to Adventure Travel Ltd. 3) Advise Adrian what action is open to him as regards claiming the 100, 000 sitting in Business Investments Ltd. Martin admits breach of duty as a director but claims to have no personal assets. Business Investments Ltd has been in existence for over five years but has had a relatively small turnover in that time. (approx 1800 words).
Prior to speaking about the fraudulent behavior of Martin, lets take a look at the business processes that took place in Adventure Travel Ltd and Business Investments Ltd. One should remember that Martin, who worked for both companies, was the sole source of difficulties. Martin, the owner of 10 % of shares of Adventure Travel Ltd, on the other hand managed to divert some of the business that Adventure Travel Ltd specializes in and gave the market orders for the similar (if not identical) services to his fully owned company called Business Investments Ltd. Please refer to the illustration of the process below. As it can be seen from the chart above, Adventure travel continues to operate on the market, investing heavily in the advertisement, client search, etc. , while Martin, would provide some of the orders that Adventure Travel Ltd prospected and invested in to his own company Business Investment Ltd. On a more practical matter, Adventure Travel Ltd served as an advertisement agency for Business investments ltd without charging Business Investments Ltd a penny for its services (Miller, 56).
On a legal level, Business Investments Ltd was stealing the corporate information of adventure Travel Ltd and used it against Adventure Travel Ltd (because Adventure Travel Ltd is said to have lost EUR 100, 000 which were earned by Business Investments Ltd as a result of such information theft). The duties that Martin just like Adrian were supposed to have and uphold when working for the Adventure Travel Ltd are the following: A duty to act in good faith for the benefit of the company. By giving orders that belonged to Adventure Travel Ltd to Business Investments Ltd, Martin violated this duty. A duty to act with reasonable care, skill and diligence (Twomey, 143).
What care of the company can there be if Martin did not allow Adventure Travel Ltd to earn as much as it possibly could? A duty not to make improper use of information or position (Andenas, 41). Martin abused the information and thus did not allow Adventure Travel Ltd to earn the money it could have. A duty to avoid conflicts of interest. Martin, who was the owner of a competing firm Business Investments Ltd had conflicts of interest with Adventure Travel Ltd and thus damaged the company. A duty to prevent the company from trading while insolvent.
A company is insolvent if it can't pay its debts as and when they fall due, and this is where many directors find themselves in court facing Civil actions which can lead to: An order to pay the creditors or liquidator. It should also be noted that a fine of up to EUR 200, 000 or disqualification from managing a company. Martin was dismissed from the company and was taken to court for the breach of duty. Certainly, he personally did not have assets, but his acts on behalf of another company he owned make him liable for the information theft. Criminal actions which can lead to jail for up to five years, or fines up to $ 200, 000, or both. A company is in breach of duty if it has failed to do what it reasonably should be expected to do or does what it reasonably should be expected not to do.
If a company is in 'breach of duty' then it has met one of the criterion for being negligent. In working out 'reasonableness' a court takes into account a number of factors, including the likelihood of damage being caused by a company's action or inaction, the extent of damage caused, how cheap and easy it is for a company to take precautions against damage, and the need for the action by the company. At the same time I would like to mention a rather important fact that a plaintiff must prove 'breach of duty', unless the 'facts speak for themselves', meaning the damage is taken to be obviously the result of a company's negligence and clearly an incident within the sole control of the company. I should also note that foreseeability is not relevant to causation of breach of duty, and remoteness of injury. Did the defendant's wrongful act (breach of duty) cause or materially contribute to the harm for which the plaintiff seeks damages. Yes it did.
Adventure Travel Ltd estimated that it lost over EUR 100, 000. If reasonable care had been taken would the plaintiff's injury have been avoided or would have been materially less extensive. Yes, it would but Martin failed to overcome the conflict of interests. Bibliography: Clarkson, Kenneth, West's Business Law: Text and Cases, McGraw Hill, 2002.
Miller, Roger Leroy, Business Law Today, Standard Edition, Prentice Hall, 2001. Schaffer, Richard, International Business Law and Its Environment, Penguin books, 2002. Bennett-Alexander Dawn, Employment Law for Business, Oxford University Press, 2001. Major, Jane, Business Law: The Ethical, Global, and E-Commerce Environment with PowerWeb and Student DVD, Harvard University Press, 2000. Emerson, Robert, Business Law, McGraw Hill, 2002.
Bagley, Constance, The Entrepreneur's Guide to Business Law, Prentice Hall, 1999. Twomey, David, Anderson's Business Law and The Legal Environment, Comprehensive Volume, Prentice Hall, 2000. Hamilton, Robert, Business Basics for Law Students: Essential Terms and Concepts, NY Random House, 2002. Brown, Gordon, Business Law with UCC Applications Student Edition, NY Publishers, 2001. Tracy, Brian, The 100 Absolutely Unbreakable Laws of Business Success, Oxford University Press, 2000. Schmitthoff, Clive, The Harmonisation of European Company Law, Harvard business review, 2000.
Walker-Maitland, Julian, A Guide to European Company Laws, Penguin books, 2001. Rider, Barry, A. K. , Developments in European Company Law, 1996, Berlin Free Press, 2000. Drury, Robert, European Company Laws: A Comparative Approach, Prentice Hall, 2002.
Gleichmann, Karl, European Company Law: Development and Perspectives, penguin books, 1998. Villiers, Charlotte, European Company Law: Towards Democracy? , McGraw Publishers, 1997. Andenas, Mads, Developments in European Company Law: 1999 Directors' Conflicts of Interest: Legal, Socio-Legal and Economic Analyses, NY Random House, 1998. Aretz, Edward, European Company Law, Prentice hall, 2001. Pennington, Robert, R. , Company law in the European Communities, NY Publishers, 1998.
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Research essay sample on Ny Random House Adventure Travel
