BLP Guide 3 (New) - Notes for the third portion of the BLP module (Acquisitions-Insolvency) PDF

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Download BLP Guide 3 (New) - Notes for the third portion of the BLP module (Acquisitions-Insolvency) PDF

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2021/22

BLP Guide 3 Exam Notes – – – –

Acquisitions Own Share Purchase & Redemption Insolvency Boilerplate & SPA Drafting

TABLE OF CONTENTS ACQUISITIONS ................................................................................................................................ 5 SHARE AND ASSET SALES ................................................................................................................................. 5 SHARE SALE: ADVANTAGES AND DISADVANTAGES ....................................................................................................... 5 ASSET SALE: ADVANTAGES AND DISADVANTAGES ...................................................................................................... 5 WHO GETS PAID? ...................................................................................................................................................... 6 INITIAL STAGES IN THE TRANSACTION ............................................................................................................... 6 INITIAL DOCUMENTS AGREED .................................................................................................................................... 6 DUE DILIGENCE ................................................................................................................................................ 6 THE STEPS INVOLVED IN A LEGAL DUE DILIGENCE PROCESS ........................................................................................ 7 DIFFERENT TYPES OF DD REPORTS ........................................................................................................................... 7 WARRANTIES (INCLUDING DRAFTING) ................................................................................................................ 7 SELLER – LIMITIING LIABILITY ...................................................................................................................................... 8 MODEL WARRANTIES (DRAFTING):.............................................................................................................................. 9 Accounts: .............................................................................................................................................................................................. 9 Shares: .................................................................................................................................................................................................. 9 Book Debts ............................................................................................................................................................................................ 9 Intellectual Property Rights ................................................................................................................................................................. 10 Litigation .............................................................................................................................................................................................. 10 Condition of Vehicles ..........................................................................................................................................................................10 Customers ........................................................................................................................................................................................... 10 Employees ..........................................................................................................................................................................................10 BREACH OF WARRANTY .................................................................................................................................. 11

KNOWLEDGE OF BUYER AND BREACH OF WARRANTY ............................................................................................... 11 REMEDIES .............................................................................................................................................................. 11 CONSIDERATION OF EXTERNAL JURISDICTIONS ........................................................................................................ 12 INDEMNITIES ................................................................................................................................................... 12 CLAIMING INDEMNITIES ............................................................................................................................................ 12 TAX COVENANT / TAX DEED .................................................................................................................................... 12 Tax indemnities and the Zim case ......................................................................................................................................................13

MISREPRESENTATION ..................................................................................................................................... 13 TYPES OF MISREPRESENTATIONS ............................................................................................................................ 13 REMEDIES AVAILABLE ............................................................................................................................................. 14 NEGLIGENT MISSTATEMENT ..................................................................................................................................... 14 ISSUE WITH CLAIMING MISREP AND WHY BREACH OF WARRANTY IS FAVOURED ........................................................... 14 WHY BOTH WARRANTIES AND INDEMNITIES FOR TAX? ...................................................................................... 15 CONSENTS ............................................................................................................................................................. 15 FINANCIAL ASSISTANCE .................................................................................................................................. 16 WHAT AMOUNTS TO FINANCIAL ASSISTANCE? ........................................................................................................... 16 FINANCIAL ASSISTANCE FOR THE ACQUISITION OF SHARES ........................................................................................ 16 SOLUTIONS ON FINANCIAL ASSISTANCE .................................................................................................................... 18 STRUCTURE FOR A FINANCIAL ASSISTANCE QUESTION .............................................................................................. 19 DISCLOSURE................................................................................................................................................... 20 GENERAL DISCLOSURES ......................................................................................................................................... 20 SPECIFIC DISCLOSURE ............................................................................................................................................ 21 Standards of Specific Disclosure ........................................................................................................................................................21

HOW TO LIMIT LIABILITY FROM EXTENSIVE WARRANTIES ................................................................................... 21 SELLER PROTECTION CLAUSES ...................................................................................................................... 22 RESTRICTIVE COVENANTS............................................................................................................................... 24 OWN SHARE PURCHASE AND REDEMPTION ........................................................................... 25 DOCTRINE OF MAINTENANCE OF SHARE CAPITAL ............................................................................................ 25 DISTRIBUTIONS & DISTRIBUTABLE PROFITS ...................................................................................................... 25

Key: Act; Case

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PAYMENT OF DIVIDENDS (AND INTERIM DIVIDENDS) .......................................................................................... 25 INTERIM DIVIDENDS: ................................................................................................................................................ 26 FINAL DIVIDENDS ..................................................................................................................................................... 26 UNLAWFUL DIVIDENDS ............................................................................................................................................. 26 Director’s duties & unlawful dividends ................................................................................................................................................. 27 Rectifying the position of unlawful dividends ....................................................................................................................................... 27

REALISING CAPITAL GAIN ............................................................................................................................... 27 BUYBACKS ..................................................................................................................................................... 28 REASONS FOR BUYBACKS: ...................................................................................................................................... 28 PRECONDITIONS FOR A BUYBACK ............................................................................................................................ 28 CONTRACT FOR AN OFF-MARKET BUYBACK.................................................................................................... 28 DISCLOSURE REQUIREMENTS .................................................................................................................................. 29 POST-MEETING MATTERS ....................................................................................................................................... 29 REDEMPTION OF SHARES ................................................................................................................................ 29 ISSUE OF REDEEMABLE SHARES .............................................................................................................................. 29 PRECONDITIONS FOR A REDEMPTION ....................................................................................................................... 29 FINANCING A BUYBACK OR REDEMPTION ........................................................................................................ 30 USING DISTRIBUTABLE PROFITS (EFFECT ON BALANCE SHEET) ................................................................................. 30 USING A FRESH ISSUE (EFFECT ON BALANCE SHEET) ................................................................................................ 31 USING CAPITAL ....................................................................................................................................................... 31 EFFECT OF A COMPANY FAILING TO FOLLOW THE CORRECT PROCEDURE FOR AN OWN SHARE PURCHASE OR REDEMPTION .............................................................................................................................................................................. 32 REDUCTION OF CAPITAL .......................................................................................................................................... 32 General rules for a reduction in share capital .....................................................................................................................................32 Restrictions: ........................................................................................................................................................................................33 Key steps to take (procedure for reduction of capital): ........................................................................................................................ 33 Reasons companies may want to reduce capital ................................................................................................................................ 33

EFFECT OF A REDUCTION OF CAPITAL ON THE BALANCE SHEET .................................................................................. 34 Creating distributable reserves by reducing its share premium account to zero: ................................................................................ 34 Creating distributable reserves by reducing its share premium account by £150,000, and using this to pay dividends:.................... 34

JUSTIFICATION FOR REDUCING SHARE CAPITAL ....................................................................................................... 34 .................................................................................................... 35 SCHEMES OF ARRANGEMENT .......................................................................................................................... 35 TIMELINES....................................................................................................................................................... 36 PROCEDURE PLAN: OWN SHARE PURCHASE USING CAPITAL ............................................................................. 37 TAXATION ON A SHARE BUYBACK OR REDEMPTION

Pre-Meeting Verification ................................................................................................................................................................... 37 Board Meeting 1: ............................................................................................................................................................................... 37 General Meeting ................................................................................................................................................................................ 38 Board Meeting 2 ................................................................................................................................................................................ 38 Post Meeting Matters ........................................................................................................................................................................ 39

PROCEDURE PLAN: OWN SHARE PURCHASE USING PROFITS/FRESH ISSUE ........................................................ 40 Pre-Meeting Verification ................................................................................................................................................................... 40 Board Meeting 1 ................................................................................................................................................................................ 40 General Meeting ................................................................................................................................................................................ 41 Board Meeting 2 ................................................................................................................................................................................ 41 Post Meeting Matters ........................................................................................................................................................................ 41 PROCEEDURE PLAN: REDUCTION OF CAPITAL .................................................................................................. 43 Pre-Meeting Verification ................................................................................................................................................................... 43 Board Meeting 1 ................................................................................................................................................................................ 43 General Meeting ................................................................................................................................................................................ 43 Board Meeting 2 ................................................................................................................................................................................ 44 Post Meeting Matters ........................................................................................................................................................................ 44

INSOLVENCY ................................................................................................................................. 46 SECURED LIABILITIES IN DEBENTURE ........................................................................................................................ 46 TURNAROUND STRATEGIES ............................................................................................................................. 46 OTHER OPTIONS ............................................................................................................................................. 46

Key: Act; Case

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INFORMAL NEGOTIATED SETTLEMENT WITH CREDITORS ........................................................................................... 47 PRE-INSOLVENCY MORATORIUM .............................................................................................................................. 47 FORMAL AGREEMENT WITH CREDITORS ................................................................................................................... 48 a) Scheme of arrangement ................................................................................................................................................................. 48 b) Company voluntary arrangement .................................................................................................................................................... 48 c) Restructuring under CIGA 2020 ...................................................................................................................................................... 49 d) Administration ................................................................................................................................................................................. 49 e) Receivership ................................................................................................................................................................................... 51

LIQUIDATION ................................................................................................................................................... 51 COMPULSORY LIQUIDATION ..................................................................................................................................... 52 MEMBERS’ VOLUNTARY LIQUIDATION ....................................................................................................................... 52 CREDITOR’S VOLUNTARY LIQUIDATION ..................................................................................................................... 52 ORDER OF PRIORITY ....................................................................................................................................... 53 CORPORATE INSOLVENCY LIABILITIES ............................................................................................................. 56 FRAUDULENT TRADING (S.213 / S.246ZA IA 1986) .................................................................................................. 56 WRONGFUL TRADING (S.214 / S.246ZB IA 1986) .........