Remedium being a deep-pocketed pharmaceutical company, has several subsidiaries. Prof. Yersinia Pestis, working at the University of Biological Sciences is an epidemiological consultant. She wishes to develop her line of research for which she needs funds for identifying relevant data on disease transmission and epidemiology. For that, she approached Remedium for the help of funds. Through due diligence conducted, Remedium came to know that Yersinia has intellectual property worth two million euro.
Remedium wants an apt form of funding option with an adequate business structure. Also, any precautions to be taken, if.
The problem being a practical based problem, therefore we shall focus on the appropriate funding arrangement and business structure for Remedium. There are seven categories of funding structure with external parties (Controller and Auditor General, 2010).
A. Conventional purchases
Minor conventional purchases
Major conventional purchases
B. Relational purchases
Minor relational purchases
Major relational purchases
A. Conditional grants
B. Grants with limited conditions
A. Donations and gifts.
Out of these seven, the most appropriate for our given problem is of giving a grant to Yersinia. Grants are those kinds of funding where the payer is there to only fund the payee. A conditional grant is when the payer funds the payee for a particular good or service and does not intend to buy the goods or services. A proviso is imposed in such grants that if failed to complete the task, then funding could be stopped. It can vary from being a small grant to being a huge grant for any major project. The project is divided into slots or stages and the funding is done after the completion of that stage. This way the risk of failure or loss gets minimized and also puts a pressure on the payee to perform and complete the task with their full effort. This requires a team of disciplined worker and staff who can keep a check on the activities of the payee. In case of failure from the payee’s side, then legally the payer is bound to revoke his funding for that particular project.
Section 3 of the Companies Act, 2006 there are four types of company that could be constituted in England. First is, a limited company meaning the liability of the members is limited by its constitution. It could be limited by shares or limited by guarantee. Second being, limited by shares meaning liability of the members is limited by the amount of money that they haven’t paid on shares held by them. The third being, limited by guarantee which means that liability of members is limited to the amount of money invested on the assets of the company. This means at the time of winding up they are liable only to the amount invested and nothing more. Fourth being, an unlimited company which means no limit on the liability of its members.
For Remedium, a company to be limited by guarantee is appropriate since he shall be funding based on the grant so having a liability by guarantee would be safe for them. Even if Yersinia experiment did not work, still they shall not be liable for the whole amount of the loss. Remedium should not invest the whole amount of two million euro in Yersinia’s business. They should divide it into instalments and then invest in her business. This would levy them the liability of the money invested at the first instalment, for example, and rest of it shall be safe if any inconsistency occurs.
While conducting due diligence, Remedium should research on the fact why University of Biological Sciences didn’t want to invest in Yersinia business. Being there faculty for two years, why they didn’t want to invest in a company who has two million-euro intellectual properties. Another thing to be extremely assiduous about is the legal due diligence (Mills, Amos & Brown,
2018). Most of the times it is seen that while investing the payer think only about how much return shall they earn after their investment and are not far-sighted to the fact that their investment shows their interest in the company.
Kleb Siella is operations director of Remedium. On the subsidiary companies, Delphix, his manager attended a trade fair where she negotiated to purchase three autoclave machines from Emilio, one of the partners of the Autoclave Partnership. Delphix was expecting delivery of the machines to which they received a letter from Autoclave that Emilio was there to attend the fair and not take orders. However, if the price agreed could be increased by 20% then they might send the machines.
Trilmenicil, a drug whose patent has recently expired was formed by Delphix. It was when Pharmadist was looking for a manufacturer who could brand and sell through pharmacies. He showed some profit forecasts on which basis Delphix went for it and got a contract. Now since the forecast was not so adequate, hence Delphix has to take the burden of making Trilmenicil which shall cost more than expectations. Also, Phramadist shall be complaining about the administration about the loss that he suffered.
Another subsidiary, Farlung manufactures asthma products. This product called, Deepair has been very famous and successful. Soon the cost of testing the products was reduced of well-established products. Remedium, showing his concern over this instructed his subsidiaries involved in generic production to continue the testing as per the Remedium Group’s Revised Testing Protocols, issued by the Health and Safety Committee of the Remedium Board. Now, several patients have instituted a class action suit against the company because of breathing problems caused by Deepair. The allegations are because of the new protocol, Farlung had started manufacturing the product with impurities and their conditions are a proof of that.
For all, we have to find the potential claimants and defendants.
For our first case, the competent parties to the contract are Delphix and Autoclave partnership. Delphix being a subsidiary company is solely responsible for their acts as under UK law, a parent company and subsidiary company are treated as two separate entities. In AAA & Others v Unilever plc and Unilever Tea Kenya Limited (2018), it was held that parent company cannot be held liable for the transgressions of the subsidiary company. Only when the subsidiary companies impose some threat on the third parties, can then parent company be held liable to have a say. Autoclave partnership owes a duty to fulfil their contract with Delphix since Emilio, a partner to the company promised to deliver the machines as per the negotiations. In Kotak v Kotak [(2017) EWHC 1821] it was held that a partner of a partnership firm can make his other partners liable for his acts. Partners in partnership in England & Wales should have an internal list of do’s and dont’s of what responsibilities the partners are entitled to perform.
For our second issue, the dispute is between Delphix and the Pharmadist. Pharmadist is a party to the issue since he wanted a manufacturer who could brand and sell through pharmacies. He forecasted that the drug made by Delphix would yield huge returns. This was also assented by Marjorie Coslake a member of the Pharmadist. Therefore, being a member of the company, she cannot be held liable personally since the company is separate from the members of its company. Therefore, the case would be Delphix v Pharmadist. In With v O’ Flanagan [(1936) Ch 575], it was held that when during the time of negotiations when a thing is true but over time it becomes untrue, then the other party who made the person believe on the untrue truth, shall be liable to disclose the true events. If not, then that shall be constituted as misrepresentation. Under section 1 of the Misrepresentation act, 1967, it says that if a person has been a victim of misrepresentation of the other party, then he can annul the contract.
For our third issue, a parent company is always treated separately from the subsidiary companies. In AAA & Others v Unilever plc and Unilever Tea Kenya Limited (2018), it was held that only when the conduct of a subsidiary company cause a threat to a third party, then can only he be held liable for the conduct of its subsidiary company. Otherwise, a parent company is distinct from the subsidiary company. In this case, the conduct of Farlung instituted a class-action suit on behalf of its consumers who consumed his drug to cure asthma, so Remedium shall be liable to stand at the defendant side for this suit. The claimants shall be a group of victims who have suffered from the consumption of the drug produced by Farlung.
Remedium and Yersinia formatted a private company Justinian Data Management Ltd (JDM). Remedium wants to expand the business and therefore wants Yersinia to invest more in JDM. Yersinia feels that concentrating her wealth in one company could be too risky. Remedium have made arrangements to convince Yersinia to act on this part, and for that wants to know the procedure of the meetings amongst them and the shareholders. Also, he wants to know how the allotment of shares could be done.
Chapter 3 of the Companies Act, 2006 gives provisions related to the resolution of the meetings. Section 307 states for a private company, a general meeting could be called by the directors within fourteen days of prior notice. For a public company, a prior notice of twenty-one days in case of annual general meetings and otherwise, fourteen days. Section 308 states that this intimidation could be either in hard copy form, electronic form or through the website (as per section 309). Section 310 says that this notice is to be sent to every member and director of the company. Members mean those who have interests in the company meaning they are liable if there is any debt or bankruptcy. Section 311 states the general nature of the things that are to be discussed at the meetings. This section is subject to the articles of association of the company. As per section 318, the minimum quorum required is for any type of company, subject to articles of association, two qualifying persons are sufficient to be present. Qualifying person means a member of the company or a person appointed as a proxy member.
For shareholders, it is divided amongst the percentage of shares they hold in the company. Section 310 says that to conduct a general meeting, shareholders to are to be given notice. Section 284 says that the voting power of shareholders depends upon the percentage of shares the person holds. In addition to that, those with five per cent company’s shareholding, under section 303 they can call for a general meeting if twelve months have expired since the last meet.
This was for JDM.
For Remedium, being a public company, the general meetings of it shall be governed by section 307. In this for the public company has to give prior notice of twenty-one days for conducting the annual general meeting. Otherwise, fourteen days before notice suffices. The rest of the conduction of meetings is the same and universal as for JDM. In addition to this, public companies have to conduct annual general meetings as per section 336-340 within six months given in part 13, chapter 4. Any company who fails to do that, every officer shall be liable for such a default. The person shall be liable for conviction of indictment along with fine.
For allotment of shares of the public company, part 17-chapter 2 section 549-559 lists the duties of the directors to allot the shares. Specifically, for public companies, chapter 4 section 579-580 gives the guidelines that what it comes to allotment of shares, what all things shall not be considered. If the shares allotted are for subscription, then that allotment shall not be valid, unless the subscription made is done fully, or the offer made relates to any event or specified conditions.
AAA & Others v Unilever plc and Unilever Tea Kenya Limited (2018)
Companies Act 2006
Controller and Auditor General, (2010). Types of funding arrangements with external parties. Retrieved from https://oag.parliament.nz/2008/funding-arrangements/part5.htm
Kotak v Kotak [(2017) EWHC 1821]
Mills, A, Amos, E. & Brown, R. (2018). UK: 10 do’s and don’t’s for legal due diligence. Retrieved from https://www.mondaq.com/uk/knowledge-management/662456/10-dos-and-don39ts-for-legal-due-diligence
Misrepresentation act, 1967
With v O’ Flanagan [(1936) Ch 575]
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