hard revision qs

Question 1

Where it can be shown that A owes B a contractual duty of care, it follows that a duty of care is also
owed in tort.
A True
B False
In a claim for negligent misstatement, it will be harder for a sophisticated investor to satisfy the court
that an auditor owes them a duty of care.
C True
D False

Answer 1

B false - this will depend on the factors and the relationship between the parties

C true - generally speaking, sophisticated investors are likely to be considered responsible for their own
actions

Question 2

The court will consider a number of aspects when determining liability for loss or damage caused by
negligence.
Requirements
Will the court consider whether the damage caused was in the contemplation of the parties at the
time of the negligent act or omission?
A Yes
B No
Will the court consider public policy when coming to its decision?
C Yes
D No

Answer 2

B no - the test is whether the damage was reasonably foreseeable at the time, not whether it was actually in the contemplation of the parties involved
the 4 tests are:
1. reasonably forseeable
2. fair, just and reasonable
3. proximity
4. public policy

Question 3

When hearing a case of professional misstatement, the court will consider a number of factors to
determine whether a ‘special relationship’ exists between the parties:
Requirements
Will the court consider the special skill of the defendant?
A Yes
B No
Will the court consider whether the defendant knew or should have known that the claimant would
rely on the advice?
C Yes
D No

Answer 3

A C

Question 4

When determining whether a defendant was in breach of their duty of care, any emergency
circumstances occurring at the time are taken into account.
A True
B False
The standard of care owed by a defendant is increased where the defendant is aware of a special
vulnerability of the claimant.
C True
D False

Answer 4

A - the reasonable man test is applied to the particular situation

C - a higher standard of care is expected where the defendant is aware of the claimant’s special vulnerability : IS AWARE!

Question 5

Minnie is a coach driver who works through an agency called Drivers 4 U Ltd. Hope Tours Ltd
contacted Drivers 4 U Ltd to hire a driver at short notice to drive one of its coaches on a day trip to an
historical site. During the trip, Minnie negligently drives the coach and hits another vehicle.
Requirement
Which of the following statements is correct?
A Minnie only is liable for her negligence.
B Drivers 4 U Ltd only is liable for Minnie’s negligence.
C Hope Tours Ltd only is liable for Minnie’s negligence.
D Drivers 4 U Ltd and Hope Tours Ltd could both be found liable by a court for Minnie’s
negligence.

Answer 5

D - in the case of agency workers, the er and the agency co could both be found liable by a court for the negligent actions of an ee - it depends on the facts! there is not enough evidence here to decide whether only one will be liable

Question 6

rules for changing between co types (limited, unlimited, shares)

Answer 6

private - limited or unlimited; shares or guarantee
plc - limited by shares

can change ONCE between limited + unlimited:
- limited to unlimited :( unanimous consent from all SHs
- unlimited to limited :) special resolution

impossible to change between limited by shares to guarantee + vice versa

Question 7

Josephine was one of two directors (who were also members) of Tone-Up Ltd, a supplier of health
and fitness products. She did the administrative work in relation to setting up the company. She
included a provision in its articles that Tone-Up Ltd would always employ her as its company
secretary on a salary of £12,000 p.a. She also had a separate contract appointing her as company
secretary, but it made no mention of remuneration or termination. After a year, Tone-Up Ltd
appointed John as company secretary and Josephine sued the company for breach of contract
because the articles had been contravened and, she argued, the articles have contractual effect.
Requirements
Can Josephine rely on the articles to compel Tone-Up Ltd to pay her £12,000 p.a. in the absence of a
term in her contract, during her period of office as company secretary?
A Yes
B No
Can Josephine rely on the contractual effect of the articles to seek redress for breach of contract?
C Yes
D No

Answer 7

A - On the basis that the articles can be implied into her contract of employment.

D - No because her claim is not made in her capacity as member (but rather as company secretary) and
the articles bind the company and its members as if each member had contracted to observe its
provisions.

Question 8

Are the following statements true or false?

A company’s articles of association can be altered by the passing of an ordinary resolution unless there is a provision for entrenchment, in which case a special resolution is required.
A True
B False
A company may provide that a provision for entrenchment cannot be repealed.
C True
D False

Answer 8

B - alteration requires special resolution but unanimous agreement or a court order is required to alter a provision for entrenchment

D - nor can it provide that a provision for entrenchment cannot be amended

Question 9

With regard to the statutory books and records of a registered company limited by shares, answer
the following.
Requirements
Is a company required to keep a register of its directors’ residential addresses?
A Yes
B No
Is a company required to keep a register of debenture holders?
C Yes
D No

Answer 9

A - however they must not be made available for public inspection

D - it is not compulsory, but if the Co does keep such a register, it must comply with the legislative provisions as to its’ availability for inspection

Question 10

exemptions from audit

Answer 10

micro and small Co (unless insurance or banking)

dormant Co (unless insurance or banking)

NFP Co subject to public sector audits

subs whose parent Co guarantees their liabilities at the balance sheet date

EXCEPTIONS : if 10% SHs request an audit

Question 11

what Co need to make disclosures re emissions, energy consumption + energy efficiency?

Answer 11

quoted Co
large unquoted Co
large LLPs

Question 12

Micro-entities do not have to file a profit and loss account with the Registrar.
A True
B False
Micro-entities do not have to file notes to the accounts with the Registrar.
C True
D False

Answer 12

B - they have the option to not file a P+L but must file a BS

D - there are 2 compulsory notes for micro-entities which must be included in the accounts if relevant (advances to directors and financial commitments)

Question 13

A company must state its objects in its constitution, because directors can only exercise their powers
in pursuance of those objects.
A True
B False
Directors are agents of the members of the company for the purposes of managing the company’s
business.
C True
D False

Answer 13

B - CA06 changed the previous law to provide that Co have unrestricted objects unless specifically restricted by the articles. Powers of the directors are defined by the Co articles. Normally directors are authorised in general terms to manage the business of the company and to exercise all the powers of the Co - unless restricted by the articles

D - directors are agents of the Co not the members tf not subject to their instruction as to how to act

Question 14

Simon and his fellow directors Mark and Tina each own 100 of the 300 shares in Simple Pies Ltd.
Under the articles of association, where a resolution is proposed to remove a director, that director is
entitled to three votes per share. Mark and Tina vote to remove Simon but when a poll is taken,
Simon defeats the resolution by 300 votes to 200.

Which of the following best describes the legal position?
A Simon has not been removed because the weighted voting rights have been validly given and
validly exercised.
B Simon has been removed because the article giving weighted voting rights contravenes the
Companies Act 2006 which enables a director to be removed on the passing of an ordinary
resolution with special notice.
C Simon has not been validly removed because the articles would effectively mean that a director
could never be removed.
D Simon has been validly removed because voting should not have been conducted by a poll on a
resolution to remove a director.

Answer 14

A - The facts are similar to those in Bushell v Faith where the House of Lords held that since shares may
be issued with such rights as the company determines, there was nothing to stop a company giving
weighted voting rights in this manner.

Question 15

do directors need to be present at board meetings?

Answer 15

no

Question 16

The Com panies Act 2006 provides that a director must avoid a situation in which they have a direct
or indirect interest that conflicts with the interests of the company, unless it is authorised by the
company’s other directors.
Assuming that the articles do not invalidate any purported authorisation by the directors:
Requirements
Can directors authorise such a conflict in a private company?
A Yes
B No
Can directors authorise such a conflict in a public company (in the absence of any express provision
in the articles)?
C Yes
D No

Answer 16

A D - there is a higher bar for plc: they need express authorisation in the Co constitution

Question 17

Farah is a director of In Tunes Ltd, a company selling modern sheet music and a small range of
musical instruments. He is also an FCA with 20 years’ experience as an accountant in private practice.
Nathaniel is also a director. He ran his own retail business for 10 years but does not play much part in
the management of the business of In Tunes Ltd, except that he attends board meetings. He tends to
leave the routine conduct of the business in the hands of Farah and Amy, the finance director.
Requirements
Is Farah’s personal skill and experience as a chartered accountant relevant to the standard of care
that he must demonstrate as a company director?
A Yes
B No
Is Nathaniel acting in breach of his director’s duty to exercise reasonable care, skill and diligence,
since he has not concerned himself with the company’s affairs in between board meetings?
C Yes
D No

Answer 17

A - standard: reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of someone performing their functions as director. However, the actual experience, knowledge and skills is also taken into a account and may result in a higher standard of care being applied.

C - simply attending board meetings and not attending the Co interests in between meetings is unlikely to be sufficient

Question 18

The man aging director of King Kitchens Ltd presents a proposal to the board of directors for the
purchase of the complete inventory of Integral Inspirations Ltd, which is being wound up. Neville,
one of the directors, is also a director of Integral Inspirations Ltd. In view of the possible conflict of
interest, he discloses his interest to the board.
Assuming there is nothing in the company’s articles of association:
Requirements
Does Neville need to obtain the approval of the board?
A Yes
B No

Does Neville need to obtain the approval of members in general meeting?
C Yes
D No

Answer 18

B - disclosure is sufficient unless the constitution provides otherwise

D - disclosure to the board of directors is sufficient unless the constitution provides otherwise

Question 19

From the time when a director vacates office, they cease to be subject to any statutory duties as a
company director.
A True
B False
Where a director enters into a contract with the company, in breach of their duties, the contract is
rendered voidable at the option of the company.
C True
D False

Answer 19

B - in certain circumstances, they may still be subject to the duty to avoid conflicts of interest and the duty not to accept benefits from third parties

C - the contract may be voided at the option of the company

Question 20

Kim, Tamsin and Anna are directors of Teen Tunes Ltd. Kim and Tamsin have recently sold some of
the company’s assets to Top Trumps Ltd, a company in which they are the only directors and
shareholders. They sold the assets, secretly, at less than their market value. Anna was not a party to
the arrangements and is not in breach of any of the duties she owes as director.
Requirement
Which of the following best describes the legal position?
A Kim and Tamsin are jointly and severally liable to make good the loss suffered by Teen Tunes Ltd.
B Kim, Tamsin and Anna are jointly liable to make good the loss suffered by Teen Tunes Ltd.
C Kim, Tamsin and Anna are jointly and severally liable to make good the loss suffered by Teen
Tunes Ltd.
D Anna may avoid the contract between Teen Tunes Ltd and Top Trumps Ltd.

Answer 20

A -Anna is not liable because she is not guilty of any breach of duty. She might be negligent in failing to
spot the transaction. Directors in breach are jointly and severally liable.

Question 21

Giles is the finance director of Super Sports Ltd and is responsible for insuring the business premises.
When he receives an insurance proposal from the company’s usual insurers, he signs and posts it by
way of acceptance without ever reading it.
Requirement
Which of the following statements is incorrect?
A Giles will be liable for negligence.
B The members of the company may ratify Giles’ actions by ordinary resolution.
C Giles’s votes and those of any member connected with him must be disregarded for the
purposes of any ratification.
D Giles will not be liable if there is a provision excluding him from liability for negligence.

Answer 21

D - Any such provision to exclude a director from or to indemnify them against liability for breach of duty
or negligence is void.

Question 22

Drake w as formerly a director of two listed companies. He is now a director of Dark Side Ltd and
actively manages his business in a way that prejudices the company’s main creditor, Sunshine Bank
plc, but favours a small number of smaller lenders with whom he has connections. The financial
status of Dark Side Ltd is rapidly approaching a situation where it may be unable to pay its debts but
it is not yet insolvent.

Can Drake be liable to contribute to the assets of the company by reason of his fraudulent trading?
A Yes
B No
Will the fact that he is a highly experienced businessman be relevant to the standard of care applied,
if he were ever to be sued for wrongful trading?
C Yes
D No

Answer 22

B
Criminal - solvent or insolvent - punishment: crime/fine

Civil - insolvent - compensation - contribute to net assets

C

Question 23

Miles and Elizabeth are both directors of a private company selling organic food. Miles has been
found guilty of a number of breaches of competition law. Elizabeth was also a director and company
secretary of Big Beans Ltd, a company that has just gone into insolvent liquidation. The court is
considering an application for their disqualification.
Requirements
Will Miles face certain disqualification?
A Yes
B No
Will disqualification be automatic for Elizabeth?
C Yes
D No

Answer 23

B - a disqualification order (< 15 yrs) MAY be made in the discretion of the court

D the court would also need to be satisfied that E is unfit to be concerned in the mgmt of a Co in order for disqualification to be mandatory

Question 24

How is authority to allot shares required to be given to the directors of a public limited company?
(1) By ordinary resolution
(2) By special resolution
(3) By the articles of association
A (1) or (3) only
B (2) or (3) only
C (3) only
D (2) only

Answer 24

A

Question 25

Wayfar Ltd is a private company limited by shares and it has only one class of shares (ordinary
shares). Its articles of association give no specific authority for the allotment of shares.
Requirements
Are the directors empowered to allot ordinary shares of the company in the absence of any
members’ resolution?
A Yes
B No
In the event that the directors make a lawful allotment but fail to register it, are they guilty of an
offence?
C Yes
D No

Answer 25

A
ltd w/ 1 class: directors can allot shares unless articles specifically prohibit

ltd > 2 or plc: articles must specifically give authority or ordinary resolution

C - punishable by a fine

Question 25

In relation to the transfer of shares by electronic means:
Requirements
Does the CREST transfer system operate in respect of all shares?
A Yes
B No
Are companies obliged to permit paperless transfers of shares?
C Yes
D No

Answer 25

B - just lsited shares

D no

Question 25

Are the following statements true or false in relation to the exercise of director’s powers?
A director of a company is required to exercise their powers subject to any directions given by
ordinary resolution.
A True
B False
A director of a company can restrict the exercise of their power by agreeing in advance to support
any resolution proposed by the majority shareholder.
C True
D False

Answer 25

B - a director is not an agent of the SH and is not liable to act as instructed by them

D - a director owes a duty to exercise independent jugement. such an agreement would consitute a breach of this duty.

Question 26

When shares in a limited company are redeemed, they are treated as cancelled and the amount of
the company’s issued share capital is diminished by the amount of the redemption payment.
A True
B False
A company must file notice of redemption and a statement of capital with the Registrar of
Companies within one month following a redemption of shares.
C True
D False

Answer 26

B - diminished by nominal value

C - true - a Co must file notice of redemption and a statement of capital with the Registrar of Companies < 1 month following a redemption of shares