business structures and regulations

Based on the case given below, I want you to Advise:
(a) Customers of Telephony whether they could take proceedings against Fone4U to recover the 60% refunds to which they are entitled? (48 marks)

(b) The liquidator of Telephony whether he can recover the loan repaid to Fone4U? (20 marks)

(c) (c) The liquidator of Telephony whether he can take proceedings for wrongful trading against Mayo, Charles, Sandra or Fone4U? (32 marks)

(Total: 100 marks)

ASSESSMENT 2 QUESTION ( The case ):

In January 2010, Fone4U Plc formulated a scheme to sell mobile telephones. The price that customers would pay for the mobiles would be very high, but these customers would be entitled later

to reclaim 60% of that price, provided they applied within three days of the second anniversary of purchasing the mobile. The profitability of the scheme depended upon many customers failing

to reclaim the cost of the purchase, either at all or in accordance with the strict time-limit for doing so. Fone4U calculated that the scheme was potentially very profitable, but also very risky. It

therefore decided to form a subsidiary company, Telephony Ltd, to operate the scheme. Customers purchasing the mobile phones would buy them directly from Telephony Ltd. Fone4U

subscribed for one £1 share in Telephony, but also lent Telephony £200,000. Telephony had three directors, Mayo, Charles and Sandra. It purchased most of the mobiles it sold on to its

customers from Carfone Garage Plc.

For the first two years of the scheme, Telephony was very profitable, with all profits being paid out as dividends to Fone4U. After two years, however, it became clear that the vast majority of

customers would indeed seek to reclaim the purchase price for their mobiles, and would comply with the strict time limits for doing so. This rendered the scheme wholly unprofitable. Fone4U

instructed the directors of Telephony Ltd to continue trading for as long as possible.

Wherever possible, claims for repayment were to be disputed with customers, and all repayments were to be delayed. Mayo objected to this strategy. However, rather than challenging Fone4U’

instruction, Mayo simply resigned from Telephony’s board.

Telephony continued to trade. In July 2012, Fone4U demanded repayment of its loan of £200,000 to Telephony, which Telephony immediately repaid. In August 2012, a liquidator was appointed to

wind up Telephony. Few of Telephony’s customers will recover the refunds of 60% of the purchase price of their mobiles to which they are entitled.
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Substance which will assess yout writing paper:

Whilst it is accepted that information will be reproduced and that there will be errors and misconceptions, students must even at this level demonstrate basic knowledge and understanding of

the statutory and common law provisions governing directors’ duties with specific emphasis on analysis of potential breaches and remedies available. In addition, students must demonstrate

the net effect of liquidation on the parties concerned as well as the powers of the liquidator.

In respect of criticality, whilst the scripts falling within this band will show description or a repeat of given facts, students must still show a basic level of critical analysis of the law whether

statutory or common law such as cases. Criticality involves three stages – stage 1 involves analysis of the specific regulations and statutory provisions governing this area as well as principles

established by relevant case law. For scripts falling within this category, most of this will be from the lecture and seminar sessions rather than from further and better reading. Stage 2 requires

application of these principles to the facts given in the scenario. Scripts falling into this category will normally provide superficial application which will show lack of reading or understanding of

relevant legal provisions. Finally, stage 3 involves drawing relevant conclusions and applying them to the facts given so that a legally-evidenced advice is given to the customers of Fone4U and

the liquidator. Most scripts in this category will fail to properly advise the parties and even where such advice is proffered; it will be superficial without much supporting legal evidence to back

up arguments or the legal authority. Examples commonly falling into this category are those scripts where students would normally write ‘customers should have or could have; if only the

customers did this or that; or the liquidator can do this or that without further analysis; or that the customers should seek legal advice from a solicitor!