Problem: You are approached by three clients, Misha, Tanya and Irving, who are partners in an IT business that produces software for appliances and for machinery used in factories. They sell software, both on its own and also ready-loaded onto hardware appliances, so their sales include both software and hardware. The business has become successful, so they have been considering whether they should incorporate, but they don't know much about it
a) A year later, Misha and Tanya come to see you again. They are now the only directors of the company, as Irving was bought out. The company is going badly. One of the company's major corporate customers has gone into liquidation and left unpaid bills of over $1 million owing to the company. The company has suppliers' invoices for parts and hardware due at the end of the month, and as a result of the customer's default, there will be insufficient cash to pay the suppliers. Misha has an idea that the company will be able to trade out of its difficulties if it orders a large quantity of computers on credit terms and sells them rapidly at bargain prices to generate fast cash. You need to advise Misha and Tanya on:-
i. their exposure to personal liability in this situation;
ii. a solution that would allow the company to trade out of its difficulties without the directors incurring personal liability