Company law revision question and answer

(a) Joe owns 2000 shares in Lotto Limited and 1000 shares in Jolles Ltd. He sells all his shares in Lotto Limited to Janet and 500 shares in Jolles Ltd. to Jeremy. All the shares in Lotto Limited are partly paid up. Six months later, Lotto limited goes into liquidation.

(i) In the absence of any express agreement, discuss the liability of Joe and
Janet in relation to the company‟s debts. (8 marks)
(ii) State the steps to be taken to register the transfer of shareholding from Joe and Jeremy. (4 marks)

(b) Outline the exceptional cases when a member may be held liable in excess of the limited liability which he undertook when he became a member of the company.

This problem is based on the liability of members for debts of the company. In this case Joe sold all his shares to lotto ltd to Janet and the shares are partly paid up.
• By the time Lotto Ltd went into liquidation Joe is not a member of the company.
• Since Janet‟s name is on the register of members of Lotto Ltd, she is a contributory andis liable to make good the amount outstanding on the shares. This amount is a debt due to the company from her.
• Joe is not liable for the debts of the company as he is not a member. However, since Janet is bound to indemnify him in respect of the liability on the shares, Joe is liable to repay Janet the amount paid to the liquidator. This argument is based on the fact that in a contract of sale of shares, it is implied that the transferee will indemnify the transferor in respect of all calls and other liabilities arising on the shares after the transfer.

• Joe and Jeremy must execute the proper instrument of transfer.
• Joe must present the executed instrument of transfer and the share certificate to Joles Ltd for certification. The share certificate is retained Joles Ltd for cancellation.
• Jeremy must present the certified instrument of transfer for stamping i.e. payment of stamp duty.
• Jeremy must present the stamped instrument of transfer to Joles Ltd for registration.
• On registration of the transfer, the share certificate is cancelled and two others issued, one in the name of Joe for the 500 shares retained and the other in the name of Jeremy for the 500 shares acquired.


Reduction of number of members
Under section 33 of the Companies Act, if at any time, the number of members of a company falls below the statutory minimum and the company continues to carry on business for more than 6 months while the number is so reduced all persons who are members after the 6 months and who are aware that the company has less than 2 or 7 members are personally liable for all the debts of the company incurred after the 6 months and may be sued for them.

• Non-publication or misdescription of the company‟s name
Under section 109 (4) of the companies Act a member who is an officer of the company may be held liable to make good any liability arising if he signed or authorized the signing of a negotiable instrument on which the company‟s name is not published or is misdescribed.

• Fraudulent trading
Under section 323 (1) of the Companies Act if in the course of winding up it appears that any business of the company has been carried on:
o For any fraudulent purpose or

o With intent to defraud its creditors or creditors of any other person,
• The court may on the application of a creditor, contributory, liquidator or official receiver declare all persons who were knowingly parties to the carrying on of the company‟s business as such personally liable without limitation for all or any of thedebts of the company.
• This section renders members who are officers of the company personally liable for debts and other liabilities of the company. As was the case in Re: William LeitchBrothers Ltd.

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