- 20 Marks
BCL – L1 – Q95 – Legal implications relating to companies in difficulty or in crisis
Question
Kofi Amo set up a radio station, Amo FM, investing GH¢10,000 initial capital. After some years, the business is not successful. At the end of the fifth year, furniture and fixtures were worth GH¢5,000; the delivery van was valued at GH¢2,000, and Kofi lived in a small flat valued at GH¢50,000, which he owns. This house was mortgaged from Apex Finance, with an outstanding balance of GH¢40,000 to pay off the mortgage.
Now the business has hit hard times: rent for the office location has increased, and Kofi owes the landlord GH¢10,000; workers have not been paid for months, with salary arrears of GH¢7,000; the bank overdraft is GH¢15,000, and the bank has refused to extend it; Kofi has received a demand from the National Communication Authority to renew the license for GH¢8,000.
(a) If all of your assets were sold off, would you be able to meet all of your liabilities?
(b) What options do your creditors have? Is your home safe?
Answer
(a). Candidate shall identify that this case involves both hire purchase and liquidation or organizational difficulties.
Hire purchase is a system by which one pays for a thing in regular instalments while having the use of it; in this case, the ‘mortgage of the house’ is a hire purchase. On the other hand, Amo FM is faced with possible liquidation due to financial difficulties the station is facing.
NO, because the assets at hand (which is GH¢7,000) are not enough to settle the liabilities of GH¢32,000.
(b).
Creditors can go to court and obtain a judgement against their debt.
The earliest in time to obtain a judgement debt can lay claim to the assets worth GH¢7,000.
Judgement debt will be pending any financial recovery that will be available from the debtor.
NO, the home of the debtor is not safe since he is a sole proprietor with unlimited liability.
- Tags: Assets, Creditors, Judgement Debt, Sole proprietorship, Unlimited Liability
- Level: Level 1
- Uploader: Samuel Duah