Company law



Woolyback Mines Ltd (“Woolyback”) is a 100% owned subsidiary of Rural Mining PLC (“Rural”), one of a number of Rural’s subsidiaries (together, “the Group”).

Woolyback operates a tin mine in County Durham. It has recently discovered a seam of tin ore near the village of Stanhope, which it plans to exploit (“the Project”). It needs to raise £35 million to finance the Project.

As the Group’s finance facilities are dealt with through Rural, Rural will raise the necessary money. This will either be by way of debt finance or equity finance. The board of Rural is discussing possible further equity finance with its major shareholders, and possible debt finance with Wearside Finance Ltd (“Wearside”).

Rural’s Balance Sheet is set out at Document A. It owns the freehold to all of the land and mines worked by the Group. The shares it owns in its subsidiary companies are recorded at their original cost. The amounts due to creditors, both in the next year and thereafter, are mainly the amounts due to Tyneside Bank PLC, which is owed £30 million. Tyneside Bank PLC has security over the freehold interests in the land and mines. Stocks are principally stocks of tin ore. The remaining items are book debts, cash at the bank and trade creditors.

As part of the Project, Woolyback will enter into a number of “off-take” contracts to supply tin ore (“the Off-take Contracts”), to ensure that there is a buyer for the ore produced. These contracts are set at a market price less 5% for the next ten years. Woolyback hopes that the Off-take Contracts will ensure that it has income of approximately £5 million per annum whilst the new seam is being exploited. This is based on a market price of £18,000 per tonne of tin. A graph showing the tin price over the last ten years is set out in Document B.

You have been requested by the board of Rural to prepare a report about the proposed financing arrangements. Having regard to Documents A and B, and the proposals for the Project, prepare a report which:

  1. (a)  identifies any assets which could be offered as security by Rural or Woolyback for any debt finance raised from Wearside and, in respect of each class of asset, briefly explains the type of security which might be taken over it;
  2. (b)  with appropriate reference to the facts, explains any advantages and disadvantages of raising the funding for the Project by way of equity finance or debt finance.







Assume that it is now two years later. Rural decided to opt for debt finance and took out a loan from Wearside.

The other members of the Group have been very successful, but Woolyback has not. The market price of tin plummeted shortly after the fundraising and implementation of the Project, and Woolyback is now almost insolvent. Both the Wearside and Tyneside loans are secured against its assets.

To make matters worse, a recent collapse at the mine caused one of the tin miners, Iqra Iqbal, to suffer a serious personal injury whilst she was dashing under a seam of rock. A report from the Health and Safety Executive, which examined the mine after Iqra’s injury, states that the policies applied to mine safety were inadequate to protect against the collapse. Iqra’s solicitor has acquired copies of correspondence between Rural and Woolyback relating to the matter, an extract of which is set out in Document C.

Your firm acts for Iqra. Your supervising solicitor has asked you to prepare a brief report addressing:

  •   who might be the potential defendants in relation to Iqra’s personal injury claim (and, where appropriate, who might not); and
  •   if Iqra is successful in obtaining judgment against any of those defendants, what the prospect is of her being able to successfully enforce an award of damages.

You are not required to consider the merits of the claims themselves beyond the nature of the cause of action.









One of the Off-take Contracts was with Eston Smelting Ltd (“Eston”). Prior to entering into this contract, Eston had sought the advice of Metal Market Analysts LLP (“MMA”) about the terms of the contract. Annabel Stannum, a member of MMA, had sent the letter set out at Document D to Hamilton Fletcher, a director of Eston.

It is now clear that the forecasts prepared by Annabel were negligently made. Having followed the advice in the letter, Eston finds itself to be an unsecured creditor of Woolyback, having paid large sums in advance for deliveries of tin ore. Woolyback is not able to deliver the ore; nor does it have the funds to return Eston’s prepayment. Taking account of lost profits, Eston expects to suffer total losses of over £400,000.

One of the barristers in your chambers has been instructed in relation to this matter. They have given you the task of preparing the text of an opinion, addressing who might be potential defendants in relation to any claim brought by Eston in respect of its losses, together with a brief explanation of the nature of the cause of action.

You are asked to consider the case of Williams v Natural Life Health Foods [1998] 1 WLR 830 as part of your opinion.

You are not required to consider the merits of the claims themselves.

























Things have moved on. Both Eston and Iqra have settled their various claims. Rural has decided that it would be damaging to its reputation to allow Woolyback to fail, so plans to refinance it in the hope that the price of tin ore will shortly start to rise back to its recent peaks. None of the existing shareholders wish to contribute any more equity finance, but Wearside is prepared to increase its lending to the Group. The following proposals have been agreed:

  •   Rural will change its name to Tingalore PLC.
  •   Rural will borrow a further £2 million from Wearside. This will be secured by the

existing security.

  •   Rural will issue 1,001,000 fully paid up ordinary shares of £1 each, at a premium of £9 per share, to Urban Equity Ventures LLP (“UEV”) (which is not currently a shareholder), in cash; and
  •   Rural will apply the funds to purchase plant and equipment, and to make a loan to Woolyback to enable it to get back on its feet.

An extract of Rural’s articles of association is set out in Document E.
Your firm acts for Rural. You are a paralegal in the corporate department. You

have been requested by your supervising solicitor to prepare a memorandum:

  1. (a)  listing and explaining the resolutions which would need to be passed by Rural:
    •   at any meetings of the board of directors; and/or
    •   by its shareholders in general meeting,

in order to implement the proposals set out in Part D above;

  1. (b)  identifying and explaining what proportion of Rural’s issued share capital UEV will have as a result of the implementation of these proposals, and what level of control UEV will have as a consequence.






Document A

Balance Sheet of Rural Mining PLC
£,000 £,000
Fixed assets
Freehold property 45,000
Shares in subsidiary companies 5,000
Current Assets
Stocks 8,500
Debtors 6,500
Cash at bank and in hand 2,500
Creditors: amounts falling due within one year (12,500)
Net Current Assets 5,000
Total Assets less Current Liabilities 55,000
Creditors: amount falling due after more than one year (25,000)
Net Assets 30,000
Capital and reserves
Share capital 2,999
Profit and loss account 27,001





















Document B

























Document C

Head Office Directive to Woolyback 2019/14

The board of Rural notes with concern that unnecessary costs are being incurred by Woolyback in relation to the structural timbers in the mine at Stanhope. This has caused the mine to make a loss over the last year by spending money protecting against remote risks.

In future, all matters relating to structural timbers and mine safety must be conducted in accordance with the Group’s Mine Safety Policy, a copy of which is appended hereto [note to candidates: not supplied].

In order to recoup costs, it will be necessary to remove every tenth supporting timber. Please ensure that all employees are instructed to move quickly through these parts of the mine to minimise risk.
















Document D

[Letter from MMA to Eston – extracts]

Dear Hamilton,

Re: proposed off-take contract between Woolyback and Eston

As you know, we have analysed the tin market over the next 15 years. These forecasts show that the market price of tin is highly unlikely to fall below £15,000 per tonne over the next ten years as it has rarely been below that level in the last ten years.

We further note that Woolyback have offered you the opportunity of a 5% discount if you agree to make payment for tin ore six months in advance of delivery. Our due diligence on Woolyback contains a number of detailed projections relating to the tin mine, and we as sure as it is possible to be that there will be no problems with Woolyback meeting its obligations. Accordingly, we strongly advise you to agree to these favourable terms.

I can personally assure you, as the senior analyst here with over 25 years’ experience in the industry, that these projections are the very best and most accurate analysis you will get of the sector.

Yours sincerely,


Annabel Stannum
Senior Tin Analyst
Member, Metal Market Analysts LLP








Document E

  1. Powers of management

The Companies Act 2006 Articles of Association of
Rural Mining PLC (“the Company”) adopted on
th October 2017

The directors are responsible for the management of the Company’s business, for which purpose they may exercise all the powers of the Company.

  1. Share capital

The share capital of the Company is divided into ordinary shares with a nominal value of £1 each.

  1. Allotment of shares

7.1 As the company is a public company, section 550 of the Companies Act 2006 does not apply to it.

7.2 For the purposes of section 551 of the Companies Act 2006, the directors of the Company are generally authorised to allot shares in the capital of the Company up to a maximum amount of £50,000,000, this authority to expire on the fifth anniversary of the date of adoption of these articles of association.

  1. Pre-emption rights

8.1 These articles do not vary or abrogate any of the rights which members otherwise have pursuant to the provisions of Chapter 3 of Part 17 of the Companies Act 2006.

  1. Change of name of Company

10.1 The Company may change its name by ordinary resolution. …

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