Law Case Study

2462 WordsNov 9, 201410 Pages
Facts of Solomon v Solomon Solomon was a leather merchant who converted his business into a Limited Company as Solomon & Co. limited (the ‘company’). The company so formed consisted on Solomon, his wife and five of his children as members. The company purchased the business of Solomon for £39,000; the purchase consideration was paid in terms of £10,000 debentures conferring a charge over the company’s assets, £20,000 in fully paid, £1 share each and the balance in cash. The company in less than one year ran into difficulties and liquidation proceedings commenced. The assets of the company were not even sufficient to discharge the debentures (held entirely by Solomon himself). And nothing was left for unsecured creditors. The liquidator…show more content…
For many years he ran his business as a sole proprietor. By 1892, his sons had become interested in taking part in the business. Salomon decided to incorporate his business as a Limited company, Salomon & Co. Ltd. At the time the legal requirement for incorporation was that at least seven persons subscribe as members of a company i.e. as shareholders. Mr. Salomon himself was managing director. Mr. Salomon owned 20,001 of the company's 20,007 shares - the remaining six were shared individually between the other six shareholders (wife, daughter and four sons). Mr. Salomon sold his business to the new corporation for almost £39,000, of which £10,000 was a debt to him. He was thus simultaneously the company's principal shareholder and its principal creditor. He asked the company to issue a debenture of £10,000 to him. However, a sudden slow down in business occurred and the company could no longer pay interests to Salomon. Even the wife puts money, but the company still cannot pay. Finally, Salomon transfers the debenture to one B, but still the company could not pay. B is here a secured creditor, in relation to the company, as he holds in respect of his a security over property of the company in term of the debenture. B called for a receiver and therefore, sold the easiest part of the company, i.e., the factory to cover his debts. That led to the end of the

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