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Neil and Stephen are civil engineers who originally operated their respective businesses as sole traders. They decided to combine their expertise and resources. Therefore, Neil and Stephen formed two companies in 2011 – a parent company, Earth Works Ltd, and a wholly-owned subsidiary, Blueprint Solutions Ltd. Both companies were issued with a certificate of incorporation dated 20 June 2011. Most of the assets used by the original sole trading businesses were transferred to Blueprint Solutions Ltd. Earth Works Ltd controlled the overall business operation from premises previously used by Stephen and which he continued to insure in his own name. Blueprint Solutions Ltd was partially financed by a £75,000 loan from Bank of London plc secured by way of a floating charge. Earth Works Ltd’s main source of corporate finance was capital contributed for shares. Neil and Stephen held 100,000 shares each; the shares had a nominal value of £1 and were partly paid for to the extent of £0.75 per share. In addition, Stephen’s cousin, Arad, invested in Earth Works Ltd by taking 10,000, nonvoting preference shares of £2 each in the company. Neil and Stephen were the only directors of both Earth Works Ltd and Blueprint Solutions Ltd. On 3 March 2011, Neil ordered some new business equipment from Jill costing £17,000. He signed the contract with Jill, ‘For, and on behalf of, Blueprint Solutions Ltd (in formation)’. Jill has not yet received payment for this new equipment. In August 2011, Blueprint Solutions Ltd’s premises were destroyed by a fire. Stephen made a claim on his insurance policy but the insurance company refused to indemnify him and this caused Blueprint Solutions Ltd to slide into insolvent liquidation. The liquidator discovered that shortly after the fire, a resolution was passed that authorised the transfer of Blueprint Solutions Ltd’s surviving assets to Earth Works Ltd. The liquidator also discovered that Neil was a director of another company, Engineering Solutions Ltd, which went into liquidation in 2009. Following the liquidation of Engineering Solutions Ltd, Neil was disqualified for a period of three years. Advise the respective parties on the various legal matters raised by this case.
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