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| Alpha Transit Ltd is a company incorporated in Scotland. It was incorporated in January 1990. It has only two shareholders, Carol Copstick and Donna Drinkwater. Carol and Donna are also the directors of the company. The company employs 5 other people. Alpha Transit Ltd operates a delivery company from business premises located in Ecclefechan, Carnoustie, and Larbert (the centre of operations where the company has its registered office). Two delivery vans are based at each building. Three of these vans are now owned outright by Alpha Transit Ltd, the final hire purchase payments being made in January 2004. The remaining vans are being acquired on hire purchase, with final payments due in July 2005.
Alpha Transit Ltd operates two bank accounts: one with Bank of Beta; the other with Verity Bank plc. Both accounts are heavily overdrawn.
The Ecclefechan premises is let by Alpha Transit Ltd from Zamper Ltd on a 10 year lease expiring in 2009. Alpha Transit Ltd have to pay monthly rent of £5,000. The premises contain computer and office equipment supplied on finance leases by Yellow Belly (Office Supplies) Ltd.
The Carnoustie premises is the home of Carol Copstick and her elderly mother Wanda Wentham. The house is co-owned. They have agreed with Alpha Transit Ltd that it can operate from the premises rent-free. Carol and Wanda accept mail for the company at the address. Carol uses one room in her home as an office for the business. This contains various items of computer and office equipment owned by Alpha Transit Ltd.
The Larbert premises is owned by Alpha Transit Ltd. It comprises a large open plan office and double garage. This property is now worth £250,000. The equipment in the offices includes a sophisticated computer acquired from Xenon’s Computers plc. The computer was acquired subject to a price only retention of title clause. £750 of this debt remains outstanding.
Soon after incorporation a floating charge was granted by Alpha Transit Ltd in favour of the Bank of Beta. This floating charge secures all sums due and to become due by Alpha Transit Ltd to Bank of Beta and covers the assets comprised in “the property and undertaking” of the company. The charge contains a negative pledge clause prohibiting the grant of subsequent securities. The charge was signed on 14th April 1990 being registered with Companies House on 2nd May 1990.
In late March 1990 when acquiring the premises in Larbert Alpha Transit Ltd agreed to borrow £100,000 from the Bank of Epsilon. The bank agreed to fund the purchase subject to the grant of a standard security over the Larbert premises. The security was granted on 10th April 1990 securing only the amount of the loan. It was recorded in the General Register of Sasines on 15th April 1990.
The Bank of Epsilon made a further advance to the company in 1998. At this point they sought a further security. Carol agreed to grant a standard security over her home in Carnoustie. Wanda agreed to the grant when the importance of the loan to her daughter became apparent.
In recent years Alpha Transit Ltd has been struggling financially. It has a poor record in debt collection for the excellent delivery service it provides. There are many outstanding invoices due, some dating back to 1998. In 2002 Alpha Transit Ltd believed it had solved this problem when it entered an invoice discounting agreement with Franchise Financiers (Delivery Debts) Ltd. The invoice discounter agreed to pay a regular monthly sum and collect the debts for Alpha Transit Ltd on condition that any outstanding payments then received would be held in trust for Franchise Financiers (Delivery Debts) Ltd.
However, these monthly payments have solved little. Alpha Transit Ltd has been unable to pay many recent debts. Verity Bank plc, concerned by the increasing overdraft, pressed Alpha Transit Ltd to grant the bank a standard security over the Larbert premises and a floating charge over the whole “property and undertaking” of the company in July 2003. Since then Alpha has continued to make payments into the bank account, but with drawings from the account made no impression on the total indebtedness.
They owe outstanding tax payments to the Inland Revenue and Customs and Excise. The Inland Revenue served an arrestment against the Bank of Beta, Verity Bank plc, the Clydesdale Bank and Bank of Scotland in October 2003. Customs and Excise obtained an attachment against each of the delivery vans in early January 2004. The employees (including Carol and Donna) have not been paid for four months. Rent has been unpaid on the Ecclefechan premises for over a year; and when Alpha Transit Ltd last had the Carnoustie vans serviced by Grant’s Garage the company was unable to pay the service and repair bill and the vans have been retained by the garage since then.
It is unsurprising that Alpha Transit Ltd is put into receivership in March 2004, and into liquidation in late April 2004.
The liquidator is concerned as to the state of Alpha Transit Ltd’s assets and asks you to prepare a note of advice. Your note should identify which creditors are to be paid before the general body of unsecured creditors, and why, and whether the priorities of any creditors may be open to challenge by the liquidator or any third party. |
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