June 2022 Exam

Question 1

How can a company reduce its share capital? Explain your answer.

Answer 1

(1) A company may only reduce its share capital in a manner permitted by the Companies Act 2006.

The CA 2006 provides two methods for the reduction of capital:

• (1) Special resolution, (1) followed by court confirmation
• (1) Special resolution, (1) followed by solvency statement

Question 2

Explain the difference between de jure, de facto and shadow directors.

Answer 2

(1) A de jure director is a person who has been validly appointed as a director in accordance with the articles and Companies Act 2006.

(1) A de facto director has not been validly appointed (1) but acts as a director nonetheless.

(1) A shadow director is “a person in accordance with whose directions or instructions the directors are accustomed to act” (s.251(1) CA 2006).

Question 3

Describe the process for removal of a director under s. 168 Companies Act 2006.

Answer 3

Section 168(1) allows the company to remove a director(s) by passing an ordinary resolution at a meeting. The process is as follows:

(1) The resolution must be passed at a meeting (written resolution procedure cannot be used, nor can the unanimous assent procedure). (Max 1 mark for providing an example.)

(1) Special notice of 28 days is required.

(1) A copy of the resolution must be sent to the director whose removal is sought. (1) The director has the right to protest, so may address the meeting (1) and circulate written representations.

(1) An ordinary resolution is required.

Question 4

Explain the key legal duties of a company’s statutory auditor.

Answer 4

(1) The auditor must carry out such investigations as will enable them to form an opinion as to:

(1) Whether adequate accounting records have been kept by the company.

(1) Whether the company’s individual accounts agree with the accounting records and returns.

(1) (In quoted companies) whether the auditable part of the directors’ remuneration report agrees with the accounting records and returns.

(1) The auditor must prepare a report stating their opinion in respect of the above.

Question 5

Explain the distinction between a shareholder and a member of a company.

Answer 5

(1) A person becomes a shareholder when they acquire shares in a company.

A company’s members are defined in s. 112 of the CA 2006:

• (1) When a company is first incorporated, the subscribers to the memorandum are deemed to have agreed to become members; and
• (1) Every other person who agrees to become a member (1) and whose name is entered in the register of members.

(1) Thus it is possible to be a shareholder without being a member, and vice versa. For example, a company with no share capital will have members, but no shareholders.