Commercial, Corporate and Insolvency Law
What the exam tests
Expect questions on company forms, incorporation, governance, shareholder rights, directors' duties, and the insolvency process with creditor ranking.
Business organisations
- Forms include the sole proprietor, general partnership, limited partnership, limited liability company and joint stock company.
- Legal personality arises on registration with the business registration agency; before registration the promoters may be personally liable.
- In a limited liability company, quotas are transferable with pre-emption rights of other shareholders and formalities in the statute; a joint stock company issues shares.
- Directors owe duties of care and loyalty, must avoid conflicts, and may distribute profits only from distributable profit with capital maintained.
- Shareholders are liable only up to their contribution; personal liability arises through abuse, guarantees or unlawful distributions.
Insolvency
Proceedings open on illiquidity or over-indebtedness, on the debtor's or a creditor's petition. Opening triggers a stay of individual enforcement. An administrator establishes the estate, avoids undervalue and preference transactions, and ranks creditors: secured claims from collateral, then costs of proceedings, employee claims and taxes as ranked by law, then unsecured creditors. Reorganisation is preferred where it preserves value.
Worked example
A director keeps paying himself after the company becomes unable to pay debts. The payments are avoided as preferences, the director is personally liable for the loss, and failure to file for insolvency supports liability for delay.
Traps that cost marks
- Confusing limited liability of shareholders with immunity of directors.
- Ignoring pre-emption and registration for quota transfers.
- Forgetting the automatic stay once insolvency opens.
- Distributing dividends from capital rather than profit.