Company Business Law

Before making any decision regarding the problem of the two companies, there are important factors that are worth looking into regarding Chabilis and Muscadet status. First, these two companies are wholly owned subsidiaries of Brandy plc which is a large public company “with a sound prosperous reputation.” Second, these companies have very close connection with Brandy plc to the point that “all profits made by the subsidiaries have been paid directly to the parent company.” Third, these two subsidiaries cannot make any decision by themselves as all the decision requires the approval of Brandy plc. Finally, Brandy plc guarantees any overdrafts and liabilities such as covenant in leases.

Given this relationship between these subsidiaries and their parent company, it appears that Chabilis and Muscadet have a strong backing from their parent company and that all its transactions were given approval by Brandy plc and were even guaranteed by the mother company. Furthermore, all their decisions have first to be approved by Brandy plc which means that they have no inherent power to decide or to inter into transaction unless it is duly approved by their parent company. Thus, their standing credits outside Brandy must have been granted on account of Brandy plc.

The problems faced by Chabilis and Muscadet were acute to the point that they were wound up as insolvent by their creditors. Central to the problem was the financial melt down of the companies amidst drop in the production of grapes primarily for making wine. This came as despite of poor harvest of grape in 2008 and 2009, their creditors continued to extend credit line in view of their close connection with Brandy that eventually resulted lead to bankruptcy.

Thus in the final analysis, Brandy plc   were responsible with what happened to these two subsidiaries as they were directly involved in the two companies financial affairs as well as in running these companies. The fact that both companies could not decide anything without the approval of Brandy means that they are equally liable to the creditors of the two companies.

Given this back ground, it would be unfair for the subsidiary companies to be liquidated without taking Brandy plc into the scene, unless they are the one that initiated the liquidation of the two companies. If they did, it would really be unfair for the two companies to be liquidated with out Brandy taking their share in addressing the problem.

I would therefore advice the liquidator to do the following processes; first, he should call a meeting with all the creditors involved and asked them a certain period of time, perhaps a month so he can come with a potential solution to the problem. Everyone knew that liquidating a company asset means bringing to its end the existence of that company, so it would be necessary to explore all options before opting for liquidation.

Besides there are pertinent legal regulations that must be satisfied before a company liquidation could be executed. As Peter and Bisimba (2007) argued, payment of debts after realization of the assets of an insolvent company is often controversial area of the insolvency law (2007: 187). According to Peter and Bicimba, distribution of sales is effected on the following order;

·        Costs of selling the assets including costs of maintaining the assets such as insurance policies to protect the assets, executing the repair to make the property saleable.

·        The liquidator’s and the receiver’s expenses

·        Costs of trustees of the debenture

·        Costs of all rents, taxes, rates and outgoings whatsoever affecting the property

·        Statutory payments in a winding up

·        Payment 1st ranking debenture/mortgages with interest

·        Payment of debts to subsequent charges’ debts, with interests

·        Payment to creditors

·        Payment of any balance amounts to liquidator

Given all these considerations it is certainly necessary for the liquidator to meet with all the creditors of the two companies in order to inform them of the potential conflict if the issue is not resolved prior or incase of liquidation. They should also see to it that they complied with the existing law under IA 1986 regarding their rights to receive their share.  The liquidator should fully discuss the costs of liquidation in view what has been discussed above, otherwise it would be a very complicated issue.

Second, he should call a meeting with the Brandy plc executives to discuss whether they see liquidation as the last resort for these two companies. Under Insolvent Act 1986 s 213, it states that the parent company may be held liable as party to the fraudulent trading, or as shadow director, liable for wrongful trading under IA 1986, s 214 (Sealy and Worthington 2008: 70).

The liquidator should emphasize to the management of Brandy plc their liability especially in view of the two provision of IA 1986 in order to give them opportunity to redeem the company and to inform them of their responsibility and accountability under the existing law. Brandy plc should realize that they have violated the law by acting as shadow director of the company and of fraudulent trading which allowed the two subsidiary companies to go bankrupts.

Third, I will advice the liquidator to evaluate what type of liquidation that could be applied in the sense that it might be complicated given the connection of the two companies with Brandy plc. According to Slorach and Ellis, there are two types of winding up or of liquidation; compulsory liquidation and voluntary liquidation (Slorach & Ellis 2007: 287) and both are designed to bring the existence of the company to an end.

Compulsory liquidation may be a bit complicated as it begins with filing a petition in court on a number of grounds. Slorach and Ellis noted that the most common ground is the company “is unable to pay its debt…” (2007: 288). However, even this requires careful attention as there are legal regulations that must be satisfied such as; a.)

If the demand payment in the prescribed form for more than seven hundred fifty pounds has been left at the company’s registered office and the company has neglected to pay the debt, or to secure or compound for it to the reasonable satisfaction of the creditor for three weeks, or, (b.) the execution or other process issued on a judgment, decree or court order is returned unsatisfied, or (c) it is proved that the company is actually unable to pay to pay taking into account contingent and prospective liabilities, or (d) it is proved that the value of the company’s assets is less than the amount of its liabilities taking into account contingent and prospective liabilities (Slorach and Ellis 2007: 288).

Voluntary winding up on the other hand can be done in two ways; first, is through passing a special company resolution to liquidate all assets. Second is through passing an ordinary resolution to the effect that the company should be wound up as it cannot continue in business because of its debts. Although both types of liquidation can be applied, it seemed that compulsory liquidation is more applicable in view of the connection of Brandy with subject companies. By voluntary liquidation, it might relieve Brandy of their accountability by throwing all the burdens to Chabilis and Muscadet. However, this will be unjust and will justify the unfair trading of Brandy. By filing in court for compulsory liquidation, Brandy plc will be oblige to take their share as under section 213 and 214 of IA 1986, Brandy were involved in the collapsed of the companies.

Further advice to the liquidator is to come up with a clear picture of the entire receivership. That is, who gets how much and the rights associated with it. The corporate insolvency law derived from the Insolvency Act 1986 requires the identification of the rights of the creditors before the company liquidation. Goode (2005) stated, “Recognizes and adopts rights conferred by the general law and by contract.

If for example we want to know the rights of a secured creditor, when the debtor company goes into liquidation, we must first ascertain what rights he acquired before the winding up” (Goode 2005: 69). The importance of the identification of the creditors’ rights according to Goode was that it is the only way to assess in the light of the statutory provisions “the legal impact of winding-up on the continued existence and enforceability of those rights” (2005: 69).

Thus, I would ask the liquidator to determine the scope of the rights of each creditor under the corporate insolvent law and find out how far those rights are affected by the winding up.    With these advices, the liquidator could avoid potential issues that might arise in view of legal technicalities that could later be exploited and will serve as the basis to challenge the legitimacy of liquidation.  These advices will further save the two companies from premature take over as well as save the parent company from humiliation as a result of the discovery of their fraudulent shadow management of the two companies.

The incident happened on the morning of 12 December 1988 at 8:10 a.m. when a crowded commuter train, travelling northwards from Poole to Waterloo in central London, ran into the rear stationary train cutting just north of Clapham station (Reason, J.T. and  Hobbs, A. 2003: 82). While the cause of the accident was immediately realized, it caused the lives of thirty-five people, injuring five hundred with sixty-nine of them seriously.

Investigation revealed that the cause of the accident was a “wrong-side signal failure—one failed unsafe, or fell on the wrong side of safety” (Reason and Hobbs: 82). The accident involved two collision and three trains which had all proceeded based on the false clear signal. The signaling systems according to Anthony Hidden were intended to maintain intervals between trains and to ensure that these intervals “can be maintained with complete safety” (Hidden: p. 4). Apparently, the cause of accident was a human error but not on the part of the train drivers but on the inability of the maintenance contractor of the wiring system that produces the signalization.

According to Hidden’s report, it was during the alterations of the wiring system that the cause of accident occurred. A wire that should have been removed remains in the system that created false electrical contact with its old circuit. This unnecessary connection has been able to feed current into the new circuit when it was supposed to have been dead. This prevented the signal from turning red which caused one of the worst rail crashes in the English history killing more than thirty people and seriously injuring more or less five hundred people.

In the context of Corporate Manslaughter, a company cannot be considered guilty of manslaughter “simply because its employees have recklessly caused death” (Monks and Minow 2008: 25). This line of argument according to Monks and Minow is based on the legal opinion that for a company to be considered guilty, “it is required that man slaughtered should be established not against those who acted for or in the name of the company but against those who were to be identified as the embodiment of the company itself” (2008: 25).

In the case of Clapham Junction rail crash, based on the above legal opinions, there are no way those responsible for the worst accident could not be held guilty as it falls in the context of corporate responsibility. It means, it was not the electrical maintenance contractor that has to be blame but the ‘embodiment of the whole company to which the electricians who repaired and were maintaining the signalization belong.

A corporate slaughter could hardly be won in court because the English law requires that “to find a company a company guilty of manslaughter, the illegal acts must be committed by those identified as the embodiment of the company it self,” that is, “one must identify as guilty the person who represents the directing minds of the corporation” (Monks & Minow: 25).

While this is a lamentable reality, current opinions on corporate manslaughter points out where the problems are why corporations continue to evade multiple cases of murders. One such argument points out that the culture of indifference to human safety in the pursuit of profits that have come to be ingrained within corporate policy and management should be the concern of criminal law (Tully 2005: 178).

But with the assent of Corporate Manslaughter and Corporate Homicide Act 2007 (CMCH) it provides a new dimension in the prosecution of corporations that committed serious violations such as manslaughter.

Apparently, companies had taken advantage of the old law by exploiting its loopholes especially with regards to the general concept of the ‘embodiment directing the operation’ which provide these companies shield against prosecution. Under the new Act however, “Courts will be able to look at management systems and practices, and will provide a more effective means of prosecuting the worst corporate failures effectively (2008: 13). Booty (2009) pointed out that this new act removes the need to identify the controlling mind of an organization and it applies to:

·        Companies incorporated under companies legislation or overseas

·        Other corporations including public bodies incorporated by stature, organizations incorporated by Royal Charter, limited liability partnerships.

·        All other partnerships, trade unions and employers, associations, if the organization concerned is the employer

·        Crown bodies such as govern departments

·        Police force.

Given the scope of this new Act, similar occurrence would surely be prosecuted. The Clapham Junction rail accident was surely one of the worst rail accidents in the English history yet it appears that no one was convicted as a result of negligence resulting to multiple homicides. Under the old corporate manslaughter Act, the old law needed to prove the identity of the controlling mind before any sentence could be executed.

The impact therefore of this new law on the liability of corporations is that they now cannot escape prosecution as the aim of this law is to set out more clearly the extent of the duty of care owed by companies and other organizations and to overcome some of the legal technicalities, which in the past have made it difficult to secure convictions of corporate dependants (Lynch 2009: 53).

The impact of this law on liability is particularly emphasized on the duty of care which is the primary concern of this law. This Act includes the following duties to which any breach of such duties will be tantamount to violation of this law.

·        A duty owed to employees or others working for the organization

·        A duty owed as an occupier of premises

·        A duty arising from the supply of goods or services

·        A duty arising from the carrying out of construction or maintenance

·        A duty arising from the use or keeping of any plant or vehicle.

As previously stated, the Clapham rail accident was obviously a result of negligence on the part of transport companies that manage the operation of the ill-fated trains. Yet despite the impact of the accident, the impact of the law to such kind of corporate crimes were minimal as there was almost no convictions relating to such kind of crime. Lewis and Thornbory pointed out that this new Act attempts “to close the loophole that has in the past resulted in few organizations being prosecuted” (Lewis and Thornbory 2010: 69).

Under this new law however, its impact encompassed all the areas where potential crimes might be committed, and the offense is concerned with the corporate liability of the organization itself and does apply to individual directors, senior managers, or other individuals, but individuals can already be prosecuted for gross negligence manslaughter/culpable homicide and for health and safety offenses (Booty: 6).

According to Booty, this Act creates “a new offence for convicting an organization where a gross failure in the way activities were managed or organized results in a person’s death. An organization will be guilty of the new offence if the way in which its activities are managed or organized causes a death and amounts to a gross breach of a duty of care to the deceased” (Booty: 7).

Clearly, corporate liability should not be going unpunished. Admittedly, it is difficult to run after the large companies who committed crimes against lives and properties and it would be very unfair if merely on the ground of technicality, they can evade the full powers of the law. However, with the all encompassing scope of the new law, its impact on liability of all corporate business and government departments and agencies, will definitely placed them under the harsh consequence of violating its provisions and  there is no way they can  escape prosecution of the law.

The impact of Corporate Manslaughter Corporate Homicide Act on liability is that it is now the standard by which companies and government departments can be prosecuted without fear of losing on technicalities. The provisions of this new Act clearly specify  areas where violation can be potentially committed which in the old laws where not specific.  The old law was indeed ineffective in the prosecution and conviction of worst crime such the Clapham Junction rail accident that claimed the lives of thirty five people, the injury of more than five hundred, and the damage to public property

In other words, there is now a strong ground for corporate liabilities and for corporate crimes. It would not be difficult therefore to prosecute and to prove corporate crimes because of the specific provisions of the duty to care wherein violations of any of its provision would render guilty of crime.

Therefore, unlike the old law on corporate manslaughter, the new law provides more justice, more fairness, and more option for the justice department to prosecute such crimes. In effect, it provides a greater liability, accountability, and responsibility for all small, medium and even large business corporations, government departments, and agencies whereby they can be held accountable for the crimes they committed in view of the provisions of the duty to care.

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