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Selected Company Law Terms

Administration n.   1. The collection of assets, payment of debts, and distribution to the beneficiaries of property in the estate of a deceased person.

2. The granting of letters of administration to the estate of a deceased person to an administrator, when there is no executor under the will.

3. The process of carrying out duties imposed by a trust in connection with the property of a person of unsound mind or a bankrupt.

Administration order   1. An order made in a county court for the administration of the affairs of a judgment debtor. The order normally requires the debtor to pay his debts by instalments: so long as he does so, the creditors referred to in the order cannot enforce their individual claims by other methods without the leave of the court. Administration orders are issued when the debtor has multiple debts but it is thought that his bankruptcy can be avoided. Relevant rules are set out in Order 39 of the County Court Rules, at Schedule 2 to the Civil Procedure Rules.

2. An order made by the court under the Insolvency Act 1986, directing that, during the period for which it is in force, the affairs, business, and property of a company shall be managed by a person appointed by the court (known as the administrator). In order for the court to grant such an order it must be satisfied that the company cannot or is unlikely to be able to pay its debts when due and that the order is likely to allow, in order of priority, (1) for the rescue of the company as a going concern (the primary purpose); (2) for a better result for the company's creditors than would be achieved if the company was wound up (the second objective); (3) for a distribution to one or more secured or preferential creditors (the third objective). The Insolvency Act does not specify a period for the duration of the order: it remains in force until the administrator is discharged, by the court, having achieved the purpose(s) for which the order was granted or having decided that the purpose cannot be achieved.

While the order is in force the company may not be wound up; no steps may be taken to enforce any security over the company's property or to repossess goods in the company's possession, except with the leave of the court, and no other proceedings or other legal processes may be initiated or continued, against the company or its property, except with the court's leave. From 15 September 2003, in accordance with the Insolvency Act 1986 as amended by the Enterprise Act 2002, a form of out-of-court administration is now possible. Under this provision a company, the directors of a company, or a qualifying floating charge holder can appoint an administrator to manage the company's affairs with a view to achieving the same purposes as an administrator appointed by a court.

Bonus issue (capitalization issue, scrip issue)   A method of increasing a company's issued capital by issuing further shares to existing company members. These shares are paid for out of undistributed profits of the company, the share premium account, or the capital redemption reserve. The bonus issue is made to shareholders in proportion to their existing shareholding (e.g. a 1 for 2 bonus issue means that shareholders receive an extra free share for every two shares they hold).

Capital redemption reserve   A fund established to protect creditors by ensuring that the assets representing a company's capital are not reduced. In limited circumstances a company is permitted to buy back its own shares. If this is provided for by a term in the original share contract the company redeems its own shares. If no such term exists the company makes a purchase of its own shares. In either case the value of the capital sum will be reduced by the amount of the purchase or redemption unless an equal amount is transferred to a reserve that is subject to the same restrictions as the capital.

Capitalization issue See bonus issue

Charge n.   1. A formal accusation of a crime, usually made at the police station after interrogation. A decision to charge a suspect will normally be taken by the Crown Prosecution Service.

2. Instructions given by a judge to a jury.

3. A legal or equitable interest in land, securing the payment of money. It gives the creditor in whose favour the charge is created (the chargee) the right to payment from the income or proceeds of sale of the land charged, in priority to claims against the debtor by unsecured creditors. Under the Law of Property Act 1925 the only valid legal charges are: (1) a rentcharge payable immediately and for a fixed period or in perpetuity; (2) a charge by way of legal mortgage; and (3) certain charges arising under statute (e.g. under the Charging Orders Act 1979). All others take effect as equitable interests. All mortgages and charges over registered land must be registered to be enforceable against purchases of the land; both legal mortgages and equitable charges over unregistered land must be registered as land charges unless the mortgagee or chargee holds the title deeds as security.

4. An interest in company property created in favour of a creditor (e.g. as a debenture holder) to secure the amount owing. Most charges must be registered at the Companies Registry. A fixed charge is attached to specific assets (e.g. premises, plant and machinery) and while in force prevents the company from dealing freely with those assets without the consent of the lender. A floating charge does not immediately attach to any specific assets but “floats” over all the company's assets until crystallization. Until this point the company is free to deal freely with such assets; this type of charge is suitable for current assets (e.g. cash, stock in trade), whose values must necessarily fluctuate. In the event of the company not paying the debt the creditor can secure the amount owing in accordance with the terms of the charge. If the company goes into liquidation (see winding-up) the order for repayment of debts laid down under the Insolvency Act 1986 is that fixed-charge holders are paid before floating-charge holders. A charge can also be created upon shares. For example, the articles of association usually give the company a lien in respect of unpaid calls, and company members may, in order to secure a debt owed to a third party, charge their shares, either by a full transfer of shares coupled with an agreement to retransfer upon repayment of the debt or by a deposit of the share certificate.

Chose n.   A thing. Choses are divided into two classes. A chose in possession is a tangible item capable of being actually possessed and enjoyed, e.g. a book or a piece of furniture. A chose in action is a right (e.g. a right to recover a debt) that can be enforced by legal action.

Clog on the equity of redemption   Any provision in a mortgage deed to prevent redemption on payment of the debt or performance of the obligation for which the security was given. Such provisions are void. An example is an option contained in the mortgage deed for the mortgagee to purchase the mortgaged property before or after the mortgage has been redeemed. Unconscionable provisions in a mortgage (for example, one to prevent redemption for 100 years) are also void. However, a company may issue irredeemable debentures. A provision that would otherwise be unconscionable may be valid if the transaction containing it is a commercial arrangement rather than a mortgage. Thus, such provisions in mortgages of public houses or garages by their tenants or owners to breweries or oil companies will be upheld, provided that they do not infringe the contractual rules against restraint of trade. Under the Unfair Terms in Consumer Contracts Regulations 1994 unfair redemption penalties may also be subject to challenge.

Comfort letter (administrative letter)   A letter sent by the Competition Directorate of the European Commission following a notification for exemption or negative clearance of a commercial agreement that may infringe EU competition law. It is very rare for the Commission to issue a binding decision following such a notification. However, although a comfort letter does not have the force of a formal decision, it would be unusual for the Commission to fine a business in relation to an agreement that was notified and in relation to which a comfort letter was then issued.

Composition n.   An agreement between a debtor and his creditors discharging the debts in exchange for payment of a proportion of what is due. The debtor may have to register the agreement as a deed of arrangement.

Conclusive evidence   Evidence that must, as a matter of law, be taken to establish some fact in issue and that cannot be disputed. For example, the certificate of incorporation of a company is conclusive evidence of its incorporation.

Constructive notice   Knowledge that the law presumes a person to have even if he is actually ignorant of the facts. A purchaser of unregistered land has constructive notice of all matters that a prudent purchaser would discover on inspection of the property or proper investigation of the title. It has also been held that a purchaser has constructive notice of the rights of any person (such as a spouse) who may reside on the property but is not an owner of the legal estate and therefore does not appear on the title deeds. A purchaser of unregistered land is bound by all matters of which he has constructive, as well as actual, notice unless those matters are void against him for want of registration under the Land Charges Act 1972. Those dealing with registered companies have constructive notice of the contents of documents open to public inspection at the Companies Registry.

Constructive trust   A trust that arises by operation of the law. It is a form of implied trust and is exempt from compliance with formalities by section 53(2) of the Law of Property Act 1925. There are two recognized types of constructive trust: the institutional constructive trust and the remedial constructive trust. English law recognizes only the former. An institutional constructive trust automatically comes into being when certain circumstances arise; for example, when a person in a fiduciary position makes an unauthorized profit or when a stranger meddles in a trust. In a domestic setting, a constructive trust may be found to exist when the legal owner of property attempts to deny the rights of another person (usually a cohabitee) who has contributed either directly or indirectly to the purchase of the property, or where the legal owner tries to deny an express agreement to share ownership of the property (Lloyds Bank v Rosset [1991] 1 AC 107 (HL); Oxley v Hiscock [2004] 3 All ER 703 (CA)). By contrast, a remedial constructive trust is a tool of the court that is used at the discretion of the judge to provide a remedy. In those jurisdictions that recognize them, remedial constructive trusts are often used to reverse the unjust enrichment of the defendant, thereby giving effect to restitution. English law has not been prepared to accept the remedial constructive trust (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL)).

Constructive trustee   A person who holds title to property that it is established he holds on constructive trust for another. He is not necessarily subject to the same duties and liabilities as the trustee of an express trust. Until the court concludes that a constructive trust has arisen, the constructive trustee will probably be unaware that he is holding the property on trust for another. Once an individual's status as a constructive trustee has been established, he will be under a duty to the trust, although the extent of his liability may vary from case to case, depending upon the circumstances.

Where personal liability to account has been imposed upon a fiduciary for receiving an unauthorized profit, or upon a stranger for dishonest assistance or for receiving property in breach of trust, the courts have often referred to this personal liability as “liability to account as a constructive trustee”. This use of terminology is misleading and has been criticized (Paragon Finance v D B Thakerar & Co [1999] 1 All ER 400 (CA)).

Contributory n.   Any of the past or present members of a company, who are potentially liable to contribute to the company's assets in the event of a winding-up. The maximum liability is limited, in a company limited by shares, to the amount unpaid on shares. A past member remains liable for this amount if winding-up follows within one year.

Crystallization n.   An event or a condition that is complied with, causing a floating charge to stop ‘floating’ over a company's fluctuating assets (e.g. cash, stock-in-trade) and to fasten upon the existing assets (and value) at that time. This will occur when a receiver has been appointed under the terms of the charge to arrange payment of the debt from assets subject to the charge. Alternatively, other events or conditions may be stated under the terms of the charge when created (e.g. that the company goes into liquidation (see winding-up) or by notice to the company by the holder of the charge. Until crystallization the company is free to deal with assets subject to the charge as it wishes.

Deed of arrangement   A written agreement between a debtor and his creditors, when no bankruptcy order has been made, arranging the debtor's affairs either for the benefit of the creditors generally or, when the debtor is insolvent, for the benefit of at least three of the creditors. A deed of arrangement is regulated by statute and must be registered with the Department of Trade and Industry within seven days. It may take a number of different forms: it may be a composition, an assignment of the debtor's property to a trustee for the benefit of his creditors, or an agreement to wind up the debtor's business in such a way as to pay his debts. The debtor usually agrees to such an arrangement in order to avoid bankruptcy. A similar arrangement can be agreed after a bankruptcy order is made, but this is regulated in a different way.

Derivative claim   A claim in which one or more members of a company, other incorporated body, or trade union seek a remedy for that company, body, or trade union in respect of an alleged wrong done to it. Such proceedings are exceptional; usually an action should be brought by the injured party in its own name. A derivative claim by members of a company will only be permitted when a serious wrong to the company is involved, which cannot be ratified by an ordinary resolution of company members (e.g. an ultra vires or illegal act or a case of fraud on the minority) and the majority of members will not sanction an action in the company's name.

Deed n.   A written document that must make it clear on its face that it is intended to be a deed and validly executed as a deed. Before 31 July 1990, all deeds required a seal in order to be validly executed, but this requirement was abolished by the Law of Property (Miscellaneous Provisions) Act 1989. A deed executed since that date by an individual requires only that it must be signed by its maker in the presence of a witness, or at the maker's direction and in the presence of two witnesses, and delivered. Deeds executed by companies require before delivery the signature of a director and secretary, or two directors, of the company; alternatively, if the company has a seal, the deed may be executed by affixing the company seal. If the deed is a contractual document, it is referred to as a specialty. A promise contained in a deed is called a covenant and is binding even if not supported by consideration. Covenants may be either express or implied. A deed normally takes effect on delivery; actual delivery constitutes handing it to the other party; constructive delivery involved (in strict theory) touching the seal with the finger, and saying words such as “I deliver this as my act and deed”. If a deed is delivered but is not to become operative until a future date or until some condition has been fulfilled, it is called an escrow. The recitals of a deed are those parts that merely declare facts and do not effect any of the substance of the transaction. They are usually inserted to explain the reason for the transaction. The operative part of a deed is the part that actually effects the objects of the deed, as by transferring land. The testatum (or witnessing part) constitutes the opening words of the operative part, i.e. “Now this deed witnesseth as follows”. The premises are the words in the operative part that describe the parties and the transaction involved. The parcels are the words in the premises that describe the property involved. The testimonium is the concluding part, beginning “In witness whereof”, and containing the signatures of the parties and witnesses. The locus sigilli is the position indicated for placing the seal. When a deed refers to itself as “these presents”, “presents” means present statements. The advantage of a deed over an ordinary contract is that the limitation period is 12 rather than 6 years and no consideration is required for the deed to be enforceable.

Floating charge See charge

Insolvency practitioner   A person appointed to officiate in the winding-up or administration of a company or in bankruptcy proceedings. The Insolvency Act 1986 requires the appointment of a qualified practitioner to act as a liquidator, an administrative receiver, an administrator, the supervisor of a voluntary arrangement, or a trustee in bankruptcy. Under the Act, a person is only authorized to act in such a capacity if he has met certain statutory requirements, including membership of an approved professional body (such as the Institute of Chartered Accountants of England and Wales or the Insolvency Practitioners Association).

Insurable interest   An interest (financial or otherwise) in the subject matter of a contract of insurance, which provides the person insured with the right to enforce the contract. An insurable interest (e.g. ownership of goods insured) distinguishes a contract of insurance from a wager or bet. An interest is required by statute for various types of insurance contract (e.g. life insurance).

Investment company   Any company, either private or public, where the business of the company is holding an investment in one or more other companies. The profits of an investment company are subjected to corporation tax at the full rate. The lower rates of tax applied to trading companies are not available. Investment companies must give notice in prescribed form to the Companies Registry. Under the Companies Act 1985 they are subject to special provisions in relation to dividends.

Joint and several   Together and in separation. If two or more people enter into an obligation that is said to be joint and several, their liability for its breach can be enforced against them all by a joint action or against any of them by individual action.

Joint venture   A commercial undertaking entered into by two or more parties, often by setting up a separate joint-venture company in which all partners have shares, to enable resources and skills to be shared. Joint ventures are defined in a European Commission notice of 31 December 1994 as “undertakings which are jointly controlled by two or more other undertakings.” In practice joint ventures encompass a broad range of operations, from merger-like operations to cooperation for particular functions, such as research and development, production, or distribution. A Commission notice of 23 December 1992 sets out how cooperative joint ventures are treated under the EU competition rules.

Law Commission   A body established by the Law Commissions Act 1965 to take and keep the law under review with a view to systematically developing and reforming it. In particular, it considers the codification of the law, the elimination of anomalies, the repeal of obsolete and unnecessary enactments, a reduction in the number of separate enactments, and simplification and modernization generally. The Commission consists of a chairman and four other members, appointed by the Lord Chancellor from among the holders of judicial office, barristers, solicitors, and academic lawyers. There is a separate Commission for Scotland.

Lifting the veil   The act of disregarding the veil of incorporation that separates the personality of a corporation from the personalities of its members and directors. This exceptional course is occasionally sanctioned by statute, for example in relation to wrongful trading or fraudulent trading and inaccurate use of company names, when it may result in members or directors of a limited company incurring liability. It is also employed by the courts, for example if incorporation has been used to perpetrate fraud or gives rise to unreal distinctions between a company and its subsidiary companies, but never so as to defeat limited liability. Very occasionally the courts openly disregard corporate personality but more often they evade its inconvenient consequences by deciding that the acts were performed by the corporation acting as agent or trustee for the company members, to whom therefore they should be attributed.

Liquidation See winding-up

Misfeasance n.   1. The negligent or otherwise improper performance of a lawful act.

2. (in company law) An act by an officer of a company in the nature of a breach of trust or breach of duty, particularly relating to the company's assets.

Nominee shareholder   A company member who holds the shares registered in his name for the benefit of another. The identity of the person with the true interest may be subject to disclosure and to investigation under the Companies Act 1985.

Official receiver   The person appointed by the Department of Trade and Industry who acts in bankruptcy matters as interim receiver and manager of the estate of the debtor, presides at the first meeting of creditors, and takes part in the debtor's public examination. In the compulsory winding-up of a company, he often becomes provisional liquidator when a winding-up order is made.

Parent company See subsidiary company

Share n.   A unit that measures the holder's interest in and liability to a company. Because an incorporated company is in law a separate entity from the company membership, it is possible to divide and sell that entity in specified units. In the case of a company limited by shares the liability of shareholders is confined to the purchase price of the shares. Once purchased, these units of the company become intangible property in their own right and can be bought and sold as an activity distinct from the trading activities of the company in question. While the company is a going concern, shares carry rights in relation to voting and sharing profits. When a limited company is wound up the shareholders have rights to share in the assets after debts have been paid. If there are no such assets shareholders lose the amount of their investment but are not liable for the company's debts.

Preference shares usually carry a right to a fixed percentage dividend, e.g. 10% of the nominal value, before ordinary shareholders receive anything and holders also have the right to the return of the nominal value of their shares before ordinary shareholders (but after creditors). Holders of participating preference shares have further rights to share surplus profits or assets with the ordinary shareholders. Preference shares are generally cumulative, i.e. if no dividend is declared in one year, holders are entitled to arrears when eventually one is paid. Usually preference shareholders can vote only when their class rights are being varied.

Ordinary shares constitute the risk capital (also called equity capital), as they carry no prior rights in relation to dividends or return of nominal value. However, the rights they do carry are unlimited in extent: if the company is successful, the ordinary shareholders are not restricted to a fixed dividend (unlike the preference shareholders) and the high yield upon their shares will cause these to increase in value. Similarly, if there are surplus assets on a winding-up, the ordinary shareholders will take what is left after the preference shareholders have been satisfied. Because ordinary shareholders carry the risk of the enterprise, they generally have full voting rights in a general meeting (though some companies issue nonvoting ordinary shares to raise additional capital without diluting the control of the company).

Redeemable shares are issued subject to the proviso that they will or may be bought back (at the option of the shareholder or the company) by the company. They cannot be bought back unless fully paid-up and then only out of profits or the proceeds of a fresh issue of shares made for the purpose.

A golden share enables the holder, usually the government, to outvote all other shareholders on certain types of company resolution.

Preferential debts   The debts of a company on winding-up or of an individual on bankruptcy that have priority over unsecured debts and those secured only by floating charge. They are defined in the Insolvency Act 1986 and include debts to the trustees of occupational pension schemes and to employees in respect of outstanding remuneration. Debts owed to the Crown (i.e. to HM Revenue and Customs) ceased to be preferential debts from 2003.

Promoter n.   1. A person engaged in the formation or flotation of a company. A promoter stands in a fiduciary relationship to the company; his functions may include drafting a prospectus or listing particulars, negotiating preliminary agreements, instructing solicitors, and obtaining directors. Solicitors, bankers, and other professionals involved in the company, but acting merely in their professional role, are not regarded as promoters.

2. One who introduces a private Bill.

Provable debt   A debt in respect of which a creditor can claim a share of a bankrupt's assets. A provable debt must either be incurred by the bankrupt before a bankruptcy order is made against him or arise after the order is made as a result of an obligation that existed beforehand.

Proxy n.   A person (not necessarily a company member) appointed by a company member to attend and vote instead of him at a company meeting. Directors often offer themselves as proxies by sending out proxy forms with the notice of the meeting. When this is done at company expense, forms must be sent to all company members alike. In the case of a listed company, the form must enable members to direct the proxy whether to vote for or against the resolution; in other cases, it may specify that the proxy is to use his discretion. Usually a proxy can vote only upon a poll. In private companies the proxy can speak at the meeting.

Quorum n.   1. The minimum number of people who must be present at a meeting in order for business to be transacted. The required number is usually laid down in the articles of association, constitution, or rules of the company or other body concerned.

2. Formerly, an indication in a Commission of the Peace of the particular justices (called justices of the quorum) required, at least one of whom had to be present in order for business to be done.

Ratification n.   1. Confirmation of an act. If, for example, X contracts with Y as agent for Z, but has in fact no authority to do so, Z may nevertheless adopt the contract by subsequent ratification. An unenforceable contract made with a minor can become enforceable if the minor ratifies the contract when he comes of age.

2. (in international law) The approval of a treaty, usually by the head of state (or by the head of state and legislature). This takes place when documents of ratification are either exchanged or deposited with a named depositary. Normally a treaty states expressly whether it will bind a party as soon as it is signed by that party's representative or whether it requires ratification. The Vienna Convention on Treaties (1969) provides that when a treaty does not specify whether or not ratification is required, reference will be made to the party's intention. Performance of a treaty may amount to implicit ratification. In the UK the expression “Parliament has ratified a treaty” is misleading, for it is the Crown that signs and ratifies a treaty on behalf of the UK. Parliament, if invited by HM Government, may give its approval for the Crown to do so, but it is the Crown, upon the advice of the responsible minister, that ratifies the treaty. Legislation is nearly always necessary to give effect to the treaty in domestic law, but that is not ratification.

3. (in company law) A resolution of a general meeting sanctioning some irregularity in the running of a company. Some irregularities cannot be sanctioned, such as acts that are ultra vires or a fraud on the minority.

Receiver n.   1. A person appointed by the court under Part 69 of the Civil Procedure Rules to preserve and protect property during the course of litigation.

2. A person appointed under the terms of a debenture or by the court to realize assets charged and apply the proceeds for the benefit of those entitled. Notice of appointment must be given to the Companies Registry and must appear upon business documents. The receiver may have power to manage the company.

3. In criminal proceedings, a person appointed with certain powers in respect of the property and affairs of a person who has obtained such property in the course of criminal conduct and who has been convicted of an offence.

Share n.   A unit that measures the holder's interest in and liability to a company. Because an incorporated company is in law a separate entity from the company membership, it is possible to divide and sell that entity in specified units. In the case of a company limited by shares the liability of shareholders is confined to the purchase price of the shares. Once purchased, these units of the company become intangible property in their own right and can be bought and sold as an activity distinct from the trading activities of the company in question. While the company is a going concern, shares carry rights in relation to voting and sharing profits. When a limited company is wound up the shareholders have rights to share in the assets after debts have been paid. If there are no such assets shareholders lose the amount of their investment but are not liable for the company's debts.

Preference shares usually carry a right to a fixed percentage dividend, e.g. 10% of the nominal value, before ordinary shareholders receive anything and holders also have the right to the return of the nominal value of their shares before ordinary shareholders (but after creditors). Holders of participating preference shares have further rights to share surplus profits or assets with the ordinary shareholders. Preference shares are generally cumulative, i.e. if no dividend is declared in one year, holders are entitled to arrears when eventually one is paid. Usually preference shareholders can vote only when their class rights are being varied.

Ordinary shares constitute the risk capital (also called equity capital), as they carry no prior rights in relation to dividends or return of nominal value. However, the rights they do carry are unlimited in extent: if the company is successful, the ordinary shareholders are not restricted to a fixed dividend (unlike the preference shareholders) and the high yield upon their shares will cause these to increase in value. Similarly, if there are surplus assets on a winding-up, the ordinary shareholders will take what is left after the preference shareholders have been satisfied. Because ordinary shareholders carry the risk of the enterprise, they generally have full voting rights in a general meeting (though some companies issue nonvoting ordinary shares to raise additional capital without diluting the control of the company).

Redeemable shares are issued subject to the proviso that they will or may be bought back (at the option of the shareholder or the company) by the company. They cannot be bought back unless fully paid-up and then only out of profits or the proceeds of a fresh issue of shares made for the purpose.

A golden share enables the holder, usually the government, to outvote all other shareholders on certain types of company resolution.

Retention of title (reservation of title)   A stipulation on a contract of sale that the right of ownership of the goods shall not pass to the buyer until the buyer has paid the seller in full or has discharged all liabilities owing to the seller. It is also known as a Romalpa clause, from the case Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676.

Rights issue   A method of raising share capital for a company from existing members rather than from the public at large. Members are given a right to acquire further shares, usually in proportion to their existing holding and at a price below the market value of existing shares. This right may be sold (renounced) to a third party.

Shadow director   A person who is not a director of a company but who gives instructions (rather than professional advice) upon which the directors are accustomed to act. Certain statutory provisions (for example, those relating to put and call options and the disqualification of directors) apply to both shadow directors and directors proper.

Share premium   The amount by which the price at which a share was issued exceeds its nominal value. Share premiums must be credited by the company to a share premium account, which is subject to the rules relating to reduction of capital and can only be used for certain purposes, e.g. issuing bonus shares.

Statement of affairs   A document that must be prepared by a debtor after a bankruptcy order has been made against him except when the bankruptcy order was made on his own petition or when the court excuses him. It gives details of his assets, debts and liabilities, the names and addresses of his creditors, and what securities they hold. The debtor must send the statement to the official receiver, and the creditors are entitled to inspect it. A debtor who wrongly fails to submit a statement of affairs is guilty of contempt of court.

Statute-barred debt   A debt that has not been recovered within the period allowed by the legislation relating to limitation of actions. Such a debt can no longer be recovered by action. The limitation period for debts due on promises made by deed is 12 years from the date the debt became due. For other debts the limitation period is six years from the date the debt became due. However, in certain contracts of loan that do not provide for repayment of the debt by a fixed date and in which repayment is not conditional on a demand by the creditor, the six-year period will not start to run until the creditor makes a demand in writing for repayment of the debt. The Limitation Act 1980 sets out these periods.

Statutory demand   A standard form used for the enforcement of debts. It typically sets out a demand by a creditor to a debtor to honour payment of an amount owing. The amount may be due immediately or at a future date (if the creditor has reasonable grounds for believing that it will not be paid at this date). The demand will also specify a period of three weeks for repayment or other satisfactory solution. Failure to comply with the demand by the debtor will be evidence of an inability by the debtor to pay creditors and can be used to support a compulsory winding-up petition.

Subsidiary company   A company controlled by another company, its holding (or parent) company. For general purposes, such control is established when the holding company has a majority of the voting rights attached to its shares (either by virtue of its ownership of those shares or because of an agreement with other shareholders) or the right to appoint or remove a majority of its board of directors. If company A controls company B, which itself controls company C, then company C is the subsidiary of both company B and company A. For the purposes of group accounts, a wider definition applies: the subsidiary need not be incorporated and control can also be established in other ways, e.g. when the holding company has the right, under the subsidiary's articles or memorandum of association, to exercise a dominant influence over it.

Transmission of shares   A transfer of shares that occurs automatically, by operation of law, upon bankruptcy (from the bankrupt to his trustee in bankruptcy) or upon death (to the personal representatives of the deceased). The transferees do not become company members until the company enters their names upon the register of members; in the meantime they are unable to attend or vote at company meetings.

Winding-up (liquidation)   A procedure by which a company can be dissolved. It may be instigated by members or creditors of the company or by order of the court. In both cases the process involves the appointment of a liquidator to assume control of the company from its directors. He collects the assets, pays debts, and distributes any surplus to company members in accordance with their rights.

Source: A Dictionary of Law. Ed. Elizabeth A. Martin. Oxford University Press, 2006. Oxford Reference Online. Oxford University Press. 21 December 2007 www.oxfordreference.com