COMPANY LAW

Charlotte Ann Ltd is a company that manufactures electric cars. It is an eco-friendly company and strongly opposes the manufacture, sale and distribution of petrol and diesel powered cars. The company’s directors are Aftab and Barry, who, between them, own all of the shares in the company. Between January 2009 and December 2012, Ebenezer was also a director of Charlotte Ann Ltd; he acted as the sales and accounts director of the company. Ebenezer resigned his directorship on 1st January 2013.

In May 2012, Ebenezer visited Gurdip, a long-standing customer of Charlotte Ann Ltd. Gurdip was interested in purchasing a number of electric cars. During the negotiations, it emerged that Gurdip owned three classic petrol powered cars which were all in a dilapidated state. Gurdip offered to sell the cars for £1000 in return for a 10% discount on the purchase price of the electric cars. Ebenezer, thinking that, if restored, the cars could be sold at a profit, agreed, but knowing that Aftab and Barry were opposed to petrol powered cars, decided to keep the classic cars for himself. He did not mention the purchase of the classic cars to his fellow directors although he did inform them that he had offered Gurdip a 12% discount on the purchase of the electric cars (the additional 2% accounted for the £1000 purchase price for the classic cars. It was the normal business practice of Charlotte Ann Ltd to offer a 12% discount on a bulk purchase of its electric cars). In February 2013, having carefully restored the cars, Ebenezer sold them, making an overall profit of £100,000.

Last week, during discussions with Gurdip, Aftab and Barry were made aware of Ebenezer’s acquisition of the classic cars. They are very angry about this. They are also concerned because it has recently emerged that, between 2010 and 2011, Robert, who was employed as accounts manager of Charlotte Ann Ltd at the time, stole £100,000 from the company. Due to his financial expertise, during his time as a director of Charlotte Ann Ltd, Ebenezer was accustomed to signing off the accounts prepared by Robert. All accounts from the periods during which the misappropriations occurred were signed off by Ebenezer, who assured his fellow directors that, in his opinion, they were accurate. Ebenezer had no knowledge of Robert’s thefts.

Meanwhile another matter of potential concern has come to the attention of Aftab and Barry. Charlotte Anne Ltd has a wholly owned subsidiary, C.A. Finance Ltd, which was put into liquidation in January 2013.Although both Barry and Aftab were concerned in the management of the subsidiary, Aftab was the sole director of C.A. Finance Ltd. In September 2012, before C.A. Finance Ltd became insolvent, most of C.A. Finance Ltd’s assets were transferred to Charlotte Ann Ltd as part of what Aftab and Barry, at the time, referred to as a ?�group restructure’.

Between 2007 and November 2012, Fozia was employed by C.A. Finance Ltd as office manager. In November 2012, due to negligent work practices, Fozia was seriously injured in a fall at work, in consequence of which she has become paraplegic. Aftab and Barry have heard rumours that Fozia is planning to sue Charlotte Ann Ltd in respect of the negligence. They do not dispute that negligence caused the injury, but they do not think that the matter concerns Charlotte Ann Ltd.

Furthermore, the liquidator of C.A. Finance Ltd is claiming that Aftab and Barry are liable in respect of some debts which were incurred by C.A Finance during the period between the group restructure and the time at which C.A Finance became insolvent. Aftab and Barry are surprised about this, as they had no idea that the removal of most of C.A Finance’s assets would lead to its insolvency.

Aftab and Barry have approached you for advice. They wish to know whether, on the basis of the above, Ebenezer has breached any of his directors’ duties. They also wish to know whether Fozia is likely to be able to sue Charlotte Ann Ltd successfully for negligence and whether the liquidator’s claims regarding the debts of C.A. Finance Ltd are accurate.
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