Law

Question 1

Types of director.(8)

Answer 1

De facto-Anyone who acts as one although not validly appointed//A person who becomes liable as a director due to conduct
De Jure-A person who has been appointed following the correct procedure
Shadow-A person in accordance with whose directions and instructions the directors of a company are accustomed to act//not shadow if only act on advice given in a professional capacity
Alternate-may be an alternative director or an outsider appointed to attend board meetings and vote-may require approval from the board
Executive-likely a full-time employee involved in management and usually with a specific role
Executive
-NEDs-usually part time bringing outside expertise and exerting control over execs
-Managing director MD the board usually delegates day to day ops
-chairman-usually a non exec responsible for procedure being followed in meetings

Note companies require at least 1 director whilst publicly held require 2.

Question 2

What is the procedure of removal for directors?(6)

Answer 2

-Special notice 28 days is required of the resolution. -The company must forward a copy of the resolution to the director concerned
-Notice of the meeting goes to the director and all members entitled to attend and vote
The director in question can require the company to circulate written reps to members
-At the meeting the director can read out reps if there was no time prior circulation The director must be allowed to attend the meeting and speak and an ordinary resolution is required to removed

Note a removal may breach service contracts and powers may be limited by the directors ability to potentially vote against removal similarly some require certain directors classes to be present at meeting for removal so if one were not tp attend this could also prevent removal

Question 3

Restriction on directors powers.(4)

Answer 3

general statutory-the companies act 2006 states that directors must only use their powers for the purpose for which they are conferred otherwise would be a breach of duties
specific statutory-certain decisions for which shareholder approval is required through ordinary or specific resolution eg reduction of share capital
restrictions in the articles-powers may be restricted by company’s articles eg amount they can borrow
restriction of powers made by the members-members have two options if unhappy:director removal //alter articles through special resolution

Question 4

Directors cannot bind the company without being permitted authority, this can be obtain by…(3)

Answer 4

Express-expressly given all decisions taken are bindings
Implied-authority flow from a person’s position eg MD has implied authority to bind the company
Apparent/Ostensible-arises when a director is held out as having the authority to bind a company, if a third party acts in good faith on representation the company is ‘estopped’ from denying its truth

Question 5

What are the general duties of directors.(7)

Answer 5

Numbers all relate to CA 2006.

s.171-to act within powers
s.172-to promote the success of the company
s.173-to exercise independent judgement
s.174-to exercise reasonable care and diligence
s.175-to avoid conflicts of interest
s.176-not to accept benefits from third parties
s.177-to declare an interest in a proposed transaction or arrangement

Question 6

Wrongful v fraudulent trading- definitions.(2)

Answer 6

-Fraudulent trading is when company business is carried on with intent to defraud creditors and others for fraudulent purposes-may be criminal or civil and can involve a single transaction
-Meanwhile wrongful trading essentially during wind-up deemed a director knew there was no reasonable prospect that the company could avoid insolvent liquidation and ought to have took sufficient steps to minimise potential loss to creditors but didnt s.214 insolvency act 1986

Question 7

Wrongful v fraudulent trading-liability.(2)

Answer 7

Any persons knowingly party to the carrying on of business is liable-FT
Directors and shadow directors-WT

Question 8

Wrongful v fraudulent trading-consequences.(2)

Answer 8

Must contribute to companies assets on a winding up. Up to 15 years disqualification under CDDA86. Fine or/and imprisonment for up to 10 years CA06-FT
Contribute to companies assets and up to 15 years disqualification CDDA86

Question 9

Grounds for disqualification under company directors disqualification act (CDDA86).(5)

Answer 9

-consistent CA breaches eg failure to file returns-3 convictions for default in 5 years is evidence-max 5 year disqualification OR breach of competition law max 15 years
-conviction of a serious offence in connection with the management of a company (may 15 years)
-Fraudulent or wrongful trading max 15 years
-Secretary of State investigation finds director unfit max 15 years or feels it is in public interest
-Liquidators reports deems director unfit max 15 min 2 years

NOTE: Breach of disqualification is a criminal offence which could lead to fine or imprisonment whilst the disqualified director (or any who act on their instructions) is personally liable for the debts of the company while so acting

Question 10

Member rights.(3)

Answer 10

-sent a copy of annual accounts and reports
-require directors to call a GM
-appoint a proxy to exercise their rights

Question 11

Approval of directors’ actions.(5)

Answer 11

-service contracts-If the company wishes to grant a contract to a director for a period of more than 2 years, that contract must be approved by the members. If it is not, the courts will imply a term into the contract allowing the company to terminate the contract by giving reasonable notice

-substantial property transactions-If a director buys from, or sells to, the company an asset of a substantial value, the transaction must be approved by the members. If not, the transaction is voidable by the company and the director in question may have to repay to the company any gain he has made or any loss the company has suffered. A substantial value is either:
more than £100,000, OR
more than £5,000 AND more than 10% of the company’s assets.

-loans to directors-If the company plans to make a loan to a director, or give a guarantee for a loan to a third party on behalf of a director, they must first provide a document to the members setting out the details and gain those members’ approval. Failure to do so allows the company to treat the transaction as voidable and also can mean the director in question must repay the company any gain he has made or any loss the company has suffered. Similar rules apply for loans made to someone connected to a director.
-loans to directors-exceptions-A loan to / guarantee for a loan to a director does not have to be approved by members if:
the loan is to be used to meet expenses incurred on company business or defending the company in legal / regulatory actions
the loan is for a minor amount the loan is made between two group companies/the company’s usual business is lending money and the loan was made on comparable terms to those it would be made to a member of the public.

-payments for loss of offices-Any ex-gratia (i.e. not in the director’s contract) payments made to a director on loss of office / retirement should be approved by the members. To allow them to do this, they should be provided with a memorandum setting out the details of the payment.
If approval is not given, the payment is treated as if it were on trust for the company, and the company can claim it back. The director who authorised the payment can also be made to repay the company for any losses it has suffered.

Question 12

Minority protection rights.(4)

Answer 12

-Any member can apply to court to prohibit a payment out of capital of a private company-can prevent registration of a ltd company as an unltd company
-those with 5% or greater can force inclusion of a resolution agenda of the AGM and require directors to call a GM
-those with greater or equal to 15% can apply to court to cancel variation of class rights
-greater than 25% can defeat a special resolution to alter name articles and reduce share capital or wind up.

Question 13

what does foss v harbottle show?

Answer 13

it is for the company itself to bring proceedings where a wrong has been done to the company not shareholders,

Question 14

How does the CA06 protect minority shareholders.(3)

Answer 14

Derivative actions-allows action on behalf of the company can only be permissible by court through good faith and best interest of the company cannot be if company has already approved a thing
-unfairly prejudicial conduct-company is being unfairly ran and must be effected member individually not company-court is allowed to see what they see fit eg order of specific performance or injunction
-just and equitable winding up-ask order to end of life of company needs to prove its fair and no other option (last resort)

Question 15

Meetings of members

Answer 15

AGM-annual and requirement of public not private, can be fined for not and all members need 21 day notice inc its an AGM, can only be reduced if all entitled agree to less AGM has no set agenda but auditor director appts etc requisition resolution may mean topic of discussion if members hold 5% voting rights or 100 members averaging £100 of paid up share cap
general meetings-called when needs but public required if endure serious loss of capital (net assets fallen to less than half called up share capital) 14 day notice and no set agenda requisitioning party decides
class meetings-only involve members of particular class of shares eg want to change rights 14 day notice required to that class and decision to be valid quorom must be at least 2 members who hold 2/3s

Question 16

Within how many months from its year end must a public company hold their annual general meeting?

Answer 16

A public company must hold its AGM within 6 months of its year end. There is no requirement for private companies to hold one.

Question 17

Calling meetings.(2)

Answer 17

When the directors receive a request, they must call a meeting within 21 days and the meeting must take place within 28 days of the notice.

Special notice requires 28 days. This is needed for removal of a director and an auditor. The notice must include the text of any special resolutions. 14 days notice is needed for a general meeting unless 90% of those holding shares agrees to less.

Question 18

3 types of resolution.(3)

Answer 18

-special-A special resolution requires 75% of those attending the meeting to vote in order to pass the decision. Special resolutions are used when either the law says they must be used or the articles of the company says they must be used. Copies of special resolutions should be filed with the Registrar within 15 days.
-ordinary-Ordinary resolutions require more than 50% of those attending the meeting to vote in order to approve. They are the default type of legislation so they are used when the law / articles do not state that a special resolution is needed. They do not usually have to be filed with the Registrar unless the law specifically says they do.
-written-These can only be used by private companies, public companies must take their decision in meetings. These decisions are passed when enough people have signed, either electronically or on paper. For it to be passed, the majority must have approved it within 28 days. The same majority is needed as if the decision was taken in meetings, eg: 75% if it is a decision that requires special notice. Written resolutions cannot be used for removal of a director or auditor.

Question 19

Single member companies.(3)

Answer 19

Under the Companies Act it is possible to set up a company with just one member. In this case there is no need for notice of meetings to be given, or minutes of a meeting to be taken.

However, records must be kept in writing of any decisions made by that member which would usually require a resolution in a general meeting.

These records must be kept for ten years.

Question 20

Single member companies.(3)

Answer 20

Under the Companies Act it is possible to set up a company with just one member. In this case there is no need for notice of meetings to be given, or minutes of a meeting to be taken.

However, records must be kept in writing of any decisions made by that member which would usually require a resolution in a general meeting.

These records must be kept for ten years.

Question 21

If a director wished to buy from the company a building which of the following values would require shareholder approval?

A. Property value £50,000, company total assets £600,000
B. Property value £6,000, company total assets £50,000
C. Property value £120,000, company total assets £5,000,000

Answer 21

Substantial property transactions must be approved. These either exceed £100,000 or exceed £5,000 and 10% of the company’s assets.

Available Answers
B and C (1 Mark)

Question 22

Special issues of shares.(3)

Answer 22

preemption rights-rights of first refusal CA06 states existing share holders are given first refusal if company wants new shares and requires 21 days but company can apply to go against of these
rights issue-if premption rights not applicable have right to buy more shares usually at less than market value but NEVER less than nominal value
bonus issue-free shares in proportion to existing shares coming from share prem so no liability on shareholders

Question 23

The nominal value of the share represents what people are willing to pay for it. True or false?

Answer 23

The market value of the share represents what people are willing to pay for it…FALSE

Question 24

The called up capital of the company is the amount of the nominal value the shareholders have been requested to pay in. True or false?

Answer 24

True!

Question 25

How variance in procedure effects class rights.(1)

Answer 25

If special procedure must be followed if not 75% in class majority written consent or special resolution is required.

Question 26

Minority protection concerning variation of class rights as provided in s.633 CA06.(2)

Answer 26

If holders of greater or equal to 15% of class of shares object they may apply to courts within 21 days of variation and must prove it is unfairly prejudicial : If variation changes the right themselves the court will cancel whilst if the variation merely affects value enjoyment or power derived from rights the court will alow.

Question 27

Allotment of shares requires authority, list 3 ways this can be obtained and what the authority must state.(2)

Answer 27

ordinary resolution, implied authority (for directors of a company with only one class of shares) or the articles of association must state max number of shares to be allotted and expiry date of authority eg max 5 years

Question 28

Issue at discount v prem.(2)

Answer 28

Can't offer discount on nominal and if this occurs issue is still valid but shareholder still liable to pay this discount plus interest//debentures may be issued at discount if no immediate right to convert shares Can offer prem hence prem account this may only be used for writing of expenses dividends in issue of those shares and issuing bonus shares.

Question 29

Share allotment v share issue.(2)

Answer 29

When a person has been given the unconditional right to be included within the company’s register of members in respect of some shares, those shares are said to have been allotted. Then the person to whom shares are allotted receives a letter of allotment or share certificates as evidence of his ownership of the shares, then the shares are said to be issued.Once the share owner’s name is entered on the register of members, he or she is a member of the company.

Question 30

When must action be brought against a company for not following preemption rights procedures?

Answer 30

This is the on demand icon. The image is a circle containing a book.Pre-emption rights Select each item to learn more. What are pre-emption rights? How long do shareholders have to accept? What if this process isn’t followed? The sale of shares is still valid but the shareholders who missed out on their rights can sue the company or the directors for any losses suffered. Such an action must be brought within 2 years.

Question 31

When must action be brought against a company for not following preemption rights procedures?

Answer 31

The sale of shares is still valid but the shareholders who missed out on their rights can sue the company or the directors for any losses suffered. Such an action must be brought within 2 years.

Question 32

When do preemption rights not apply?

Answer 32

The rights do not apply to: bonus issues sales other than for cash shares issued through an employee share scheme. A private company can exclude the pre-emption rights in the articles.

Question 33

Additonal rules for paying public company shares.(5)

Answer 33

-Subscribers to the memorandum (first shareholders) must pay cash for their subscription shares -Payment for shares must not be in the form of work or services -Shares cannot be allotted until at least one-quarter of their nominal value and the whole of any premium have been paid up -Non-cash consideration must be received within five years -Non-cash consideration must be independently valued and reported on by a person qualified to be the company’s auditor

Question 34

Disclosure and transparency rules.(1)

Answer 34

The Disclosure and Transparency Rules state that a shareholder must notify the issuer if their shareholding reaches 3% of the shares, then for each additional 1% increase thereafter. This notification must be made within two trading days.

Question 35

Alteration of share capital

Answer 35

A company may decide to reduce its share capital. However, there are other methods of alteration of capital such as: -increase it by allotting more shares -subdivide it into shares of smaller nominal amounts than current shares, or consolidate and divide its shares into shares of a larger nominal amount than its current shares. If shares are to be subdivided or consolidated, the proportion of the unpaid and paid amounts of the shares must remain the same. Share capital can change if shares are re-denominated from one currency to another. This may result in a reduction in capital, to round off nominal values in the new currency. This change requires a special resolution, and it must not exceed 10% of the nominal value of the reduced share capital.

Question 36

Reduction in share capital.(1)

Answer 36

Must be by special resolution Private companies but also inc a solvency statement whilst public require court approval

Question 37

A company cannot acquire its own shares and if does so shares would be void, what are two exceptions to this?(2)

Answer 37

-redemption of shares A company can issue redeemable shares (shares that include a term for the company to buy them back). The redemption (or buy-back) of these would be valid as long as certain conditions are met. -purchase of own shares If the company buys back shares that were not issued as redeemable it would fall under this scenario. For such a repurchase to be valid the company must follow the correct procedure.

Question 38

Permissible capital payment (PCP).(2)

Answer 38

PRIVATE COMPANIES ONLY UNLESS EXCEPTIONS FOR PUBLIC Make up deficit directors must provide statement of solvency supported by company auditors and available for members to review who give special resolution and must be passed within one week of solvency statement an d public noticement must be made so court has 5 weeks to cancel and payment 5-7weeks and copies and updated statement of capital filed with registrar.

Question 39

In general financial assistance cannot be provided to a third party by a company in order for them to buy shares...what are exceptions to this?(3)

Answer 39

Permitted reasons only with caveat for public that it cannot decrease net assets Permitted reasons include: employee share scheme or to employee to purchase fully paid shares if the primary reason for assistance is not to buy shares company makes a loan but is a money lending business thus lending is made of usual terms of business.

Question 40

What isnt deemed financial assistance?(4)

Answer 40

Payment of a dividend or provision of bonus shares to an existing shareholder. Post liquidation payments to a shareholder. Reduction of capital as permitted by the Act. Repurchase / redemption of shares as discussed previously.

Question 41

What is a debenture?(1)

Answer 41

If a company takes out loans from other institutions, the document which records the terms of the loan, such as when capital and interest repayments have to be made is called a debenture. The debenture itself is the document stating that the company owes money, and giving the terms of the debt. Although some loans are unsecured, most are secured by the lender obtaining a charge over the company’s assets. Debentures can be issued and held in much the same way as shares

Question 42

Fixed charges vs floating charges .(3)

Answer 42

Fixed are specific against certain assets eg mortgage loan against house, issue is once charge is given company no longer has ability to sell without consent, they are also higher priority so paid first to floating Floating over class of assets both present and future eg over stock of business this doesn't prohibit trade hence value of charge can change until crystallisation Crystallising event prevents selling these events include liquidation, cessation of trade or any others named in loan terms. Not only fixed charges can be offered through partnership

Question 43

Major disadvantage of floating charges.(1)

Answer 43

If a floating charge was created on an existing debt within 12 months of the company being placed into liquidation the charge may be automatically void. This means the loan will be treated as unsecured. if at the time the loan was created the company was unable to pay its debts referred to as giving a preference

Question 44

Creditors who take precedence over floating charges.(5)

Answer 44

-fixed charge holders -reservation of title clauses -unsecured creditors have some ringfenced (enterprise act 2000) -judgement creditor-if a judgement creditor or landlord seizes goods and sells them, then they may retain the proceeds if they receive these before the chargee can appoint a receiver. -preferential debts eg salaries or holiday pay owed

Question 45

Jose purchased 1,000 shares in A Plc. The shares had a nominal value of £2. These shares are 40% paid up, and the company has called up another 10%. What is Jose’s maximum liability if the company was to go into liquidation today?

Answer 45

A shareholder’s liability is limited to the unpaid amount on their share capital, i.e. £1.20 per share. Available Answers £1,200 (1 Mark)

Question 46

Lakeside Ltd proposes to offer shares to existing members in accordance with their statutory rights of pre-emption under the Companies Act 2006. What is the time period during which the offer of shares may be accepted?

Answer 46

Shares that are not accepted within this time period may be allotted on the same (or less favourable) terms to non-members. Available Answers 21 days (1 Mark)

Question 47

Timeline of adminstrator appointment.(4)

Answer 47

Acts within best interests of creditors Within 7 days notify to registrar of companies of appointment and can request list of companies owns or owes which will need providing by directors within 11 days Within 8 weeks needs to submit plan which needs submitted to registrar company and creditors and must obtain creditor support if not they can be dismissed, also needs to invite creditor committee formation -typically ends after one year but can be sooner or extended if required but subject to court approval or majority creditor

Question 48

Sheila’s Meals Ltd is a chain of fast food shops which has been experiencing financial difficulties. Rather than go into liquidation, its financial advisers have recommended administration. Who can appoint the administrator? Sheila, the executive director of the company. A court, following a petition from employees. Faisal, who holds a qualifying floating charge over the business. Employees of the company themselves.

Answer 48

Sheila and Faisal can appoint an administrator themselves, by filing a Notice of Appointment with the court. This does not require a court hearing. The court could appoint an administrator if petitioned to do so by a creditor or director of the company or the company itself, but not by employees. Employees have no rights unless their salaries remain unpaid and they become creditors.

Question 49

Receivership types.(3)

Answer 49

A receiver is appointed by a creditor of the company with a charge over the company’s assets. They have the right to sell the assets and make payments to the charge holders. Admin receivers typically appointed by floating charge holders fixed charge receivers-over land typically called LPA -duties are to collect rent and or sell the property Powers and duties basically identical to administrators inc to borrow, commence and take legal proceedings, appoint advisers and pay off company debts ***Though duties are primarily to person who appointed them

Question 50

What is a company voluntary agreement (CVA)?(3)

Answer 50

A CVA is an arrangement between a company and its creditors. As in administration, a company subject to a CVA may continue trading. A company can enter into a CVA whether it is insolvent or not. The company reaches an arrangement with its creditors as to when the debts are going to be paid, and in what proportion. Contains 5 steps: nominee appointment by company, administrator or liquidator, proposal, approval, challenging within 28 days of approval on grounds of material irregularity or unfair prejudice moratorium of 28 days can also be provided

Question 51

Compulsory liquidation.(3)

Answer 51

-Court passes order on grounds -no training certificate if public -unable to meet its debts -just and equitable winding up (last resort) test is at least 750 debt written notice failure after 3 weeks -Petitioners DBEIS eg trading or jus and equitable, creditor if unable to pay its debts need to show reasoamab le steps, member for just and equitable and have to have been a member for last 6/18 months Employees redundant-can be remeployeed to help with liquidation but would only be temp, trade ceases unless required eg to finish goods, debt claims halted and floating charges crystallise.

Question 52

Subsequent procedures in liquidation.(3)

Answer 52

official receiver calls meeting of members who appoint liquidator In addition to the realisation of assets, it’s also the job of the liquidator to investigate what went wrong and to look into the company’s business dealings (including the directors’ conduct). The liquidator has a legal responsibility to report any evidence of misconduct that may be uncovered. if 10% reject proposal then alternate such as virtual meeting is held meeting sells assets and distributes proceeds and court passes order to wind up

Question 53

Avoid the charge

Answer 53

-Floating charges -Unregistered charges (must happen within 21 days of creation -Transactions at an undervalue -Giving a preference:The liquidator can treat the preference as invalid if: the transaction had the aim of putting that creditor in a better position it was entered into in the 6 months before liquidation (this is increased to 2 years if the creditor is connected with the company).

Question 54

In which of the following types of liquidation could the company still be solvent? A. Creditors voluntary liquidation B. Members voluntary liquidation C. Compulsory liquidation

Answer 54

In a members voluntary liquidation the company is still able to pay its debts as they fall due. A company which is still solvent can have a compulsory liquidation. Available Answers B and C (1 Mark)

Question 55

Idris is a director of Rehtul Ltd. The company has not been holding board meetings for the last 12 months and no profit forecasts have been performed. Rehtul Ltd have not gone into liquidation. It has become clear that if board meetings had been held and forecasts prepared, the directors would have identified that the company was going to go into liquidation 9 months before the trade actually ceased, and as such they should have stopped ordering goods on credit at that time. Has Idris committed fraudulent trading when he and the other directors allowed goods to be ordered that the company could not pay for?

Answer 55

No Although the creditors losses have been made bigger by the company not stopping trading as early as it should have done, this was not done intentionally by Idris and the other directors, and as such fraudulent trading cannot be proved.

Question 56

Sally owns a coffee shop which she employs Lyndsey to run. She has started putting the proceeds of her illegal activity through the coffee shop. This has greatly inflated the business profits. Which of the following offences is Lyndsey likely to be guilty of? A. Money laundering B. Failure to report

Answer 56

Feedback: She cannot be guilty of failure to report as she does not work in a regulated sector. She is involved in the disguising of criminal property which could constitute money laundering. Available Answers A only (1 Mark)

Question 57

Implied duties of employees.(6)

Answer 57

-Duty of obedience (reasonable) -Duty to give honest and faithful service -Duty to exercise reasonable care and skill -Duty to not misuse confidential information -Duty to give personal service -Duty of mutual cooperation

Question 58

Implied duties of employers.(6)

Answer 58

-Duty of mutual cooperation -Pay reasonable remuneration (typically express) -Indemnify employee (cover their expenses, liability) -Duty to take reasonable care for health and safety for employees -reasonable notice of termination (typically express) No duty to provide you with work exceptions may conflict with other duties , or provide a reference-has to be truthful if you do and no opinions

Question 59

Implied terms by statute.(4)

Answer 59

-Equal pay -Health and safety -Discrimination -Parental or child (under 18 years) bereavement

Question 60

Who is typically excluded from unfair dismissal claims?(3)

Answer 60

Excluded employees Although this right is specifically given to employees by law, there are certain employees who are excluded from being able to claim it. This includes: -employees engaged to work outside Great Britain -workers who at the time of their dismissal were involved in an unofficial strike or some other unofficial legal action. -typically those without 2 years of continuous service cannot claim

Question 61

What is constructive dismissal?

Answer 61

Constructive dismissal arises when the employment contract is terminated by the employee, but they only do so because of the employer’s actions.

Question 62

What needs proving to prove unfair dismissal?(2)

Answer 62

The employee must prove that they were dismissed and that they had two years’ service. If they prove that, the courts will presume the dismissal was for an unfair reason unless the employer can prove otherwise.

Question 63

Actions not constituting dismissal.(3)

Answer 63

Resignation (unless constructive dismissal) Mutual agreement frustration of contract

Question 64

Automatically unfair reasons for dismissal (no 2 year service requirement).(7)

Answer 64

-whistleblowing eg -highlighting health and safety -exercising m/paternity rights -trade union joining -statutory rights -redundancy-if unfair reason for choosing -spent conviction -protect oneself/others

Question 65

Fair reasons for dismissal.(5)

Answer 65

-capabilities should be given ability to improve -conduct (gross misconduct) -redundancy (fair selection) -statutory restriction eg incorrect visa -other substantial reason

Question 66

Remedies for unfair dismissal claim.(3)

Answer 66

reinstatement re-engagement compensation: This is made up of three elements: The basic award is the minimum the employee will receive. This is a set amount based on the employee’s age, salary and years of service. The compensatory award is added to the basic award to compensate the employee for losses or expenses they have incurred due to losing their job. The employee is under a duty to mitigate these losses. The additional award is made if the employer has ignored an order for reinstatement or re-engagement, or if the employee has been dismissed due to discrimination or for an automatically unfair reason.

Question 67

Wrongful dismissal.(1)

Answer 67

Wrongful dismissal This is where the employee is dismissed in a way that is in breach of their employment contract. As a civil action, they will usually bring a case in either the County or High Court, depending on the value of losses. Damages are the most likely remedy.

Question 68

Protection of intellectual property (IP).(5)

Answer 68

Copyrights Patents Trademarks Design right registered design

Question 69

Offences relating to IP.(4)

Answer 69

-unauthorised use of trademark -making or dealing copyrighted material -unauthorised copying of registered designs -fraud by false representations.

Question 70

Edward has been working for Claire for six and a half years. His contract provides for his employment to be terminated on the giving of one month's notice. Claire hands him written notice terminating his employment 'one month from now'. Has sufficient notice been given?

Answer 70

No. Edward is entitled to not less than six weeks' notice. (1 Mark)

Question 71

In the absence of court approval, which of the following is NOT a power of an administrator?

Answer 71

The sale of an asset subject to a fixed charge requires court approval. Available Answers Sell assets subject to a fixed charge. (1 Mark)

Question 72

Is the following an example of insider dealing?(1) Bert works for B Ltd. He learns that B Ltd has won a new highly profitable contract. He persuades an existing shareholder to sell him his shares at a low price before the information is disclosed.

Answer 72

No Insider Dealing only applies to shares regulated on a regulated market such as the stock exchange. As B Ltd is a private company, the shares cannot be quoted.

Question 73

Which of the following would be classified as a substantial property transaction under s190 CA 2006? Sale of an asset for £90,000 from a company with assets of £1.2m. Sale of an asset for £4,000 from a company with assets of £20,000. Sale of an asset for £6,000 from a company with assets of £50,000. Sale of an asset for £10,000 from a company with assets of £120,000.

Answer 73

The value of the asset must exceed £5,000 and exceed 10% of the company’s asset value. Alternatively, it is substantial if the value exceeds £100,000. Available Answers Sale of an asset for £6,000 from a company with assets of £50,000. (1 Mark)

Question 74

Which of the following statements regarding companies is incorrect? A company limited by shares benefits from limited liability. All public companies must have a suitable qualified company secretary. All public companies must have at least 2 directors. Company directors do not need to hold any qualifications.

Answer 74

Feedback: The members of the company benefit from limited liability. The liability of the company itself is unlimited. Available Answers A company limited by shares benefits from limited liability. (1 Mark)

Question 75

Which of the following statements regarding companies is incorrect? A private company can be created with no immediate injection of share capital. The accounts of all public companies must be audited by an independent auditor. A public company can be created with an immediate injection of at least £12,500 paid for share capital. All public companies must make some of their shares available to the public.

Answer 75

Feedback: Public companies can make their shares available to the public, but this is not obligatory. Public companies must have issued share capital of at least £50,000, but only 25% of the nominal value has to be paid up immediately. This means £12,500 needs to be paid in advance. There is no requirement to pay up any of the share capital of a private company. A PLC requires an auditor unless the PLC is dormant. Available Answers All public companies must make some of their shares available to the public. (1 Mark)

Question 76

Who can enforce rights given in the articles of association? A. The company B. The employees of the company C. The shareholders of the company A only A and B A and C All of the above

Answer 76

Feedback: The articles of a company act as a binding contract between the company and its shareholders. Under the rules of privity of contract no other parties can enforce them. Available Answers A and C (1 Mark)

Question 77

If the partnership agreement makes no alternative provision what majority vote is required to introduce new partners into a general partnership?

Answer 77

In the absence of any provision in the partnership agreement unanimous consent is required. Available Answers 100% (1 Mark)

Question 78

In 2013, Arthur bought a painting from a reputable art gallery. He paid £2m believing the painting to be an original work by John Constable. No written documentation was ever prepared for the sale. Arthur has just discovered that the painting is the work of an unknown artist and is worth only £150. Which one of the following statements about the purchase of the painting is true? As there was no written documentation, the contract was unenforceable and Arthur can recover his money from the gallery. As the painting was worth much less than £2m the gallery did not supply adequate consideration. The original contract is therefore void. The art gallery should have taken all possible steps to verify Arthur’s assumption that the painting was by Constable. The original contract is voidable by Arthur. The sale of the painting to Arthur was a valid contract. Arthur is stuck with an expensive fake.

Answer 78

Feedback: This is a simple contract. There is no requirement for it to be in writing. Consideration must be sufficient but it need not be adequate. The fact that the painting was not worth £2m is irrelevant. The seller owes no specific duty to the buyer. The principle of caveat emptor (buyer beware) means Arthur must protect himself. Available Answers The sale of the painting to Arthur was a valid contract. Arthur is stuck with an expensive fake. (1 Mark)

Question 79

Having gained a place at Manchester University, Brian moved into rented accommodation in Fallowfield agreeing to pay £650 per month for the accommodation. He decided that the décor was old and shabby, so he spent £100 on paint and 6 hours of his own time repainting the house. The landlord later visited and was pleased to see the improvement to the property. The landlord offered Brian £80 towards the cost of the paint, which Brian gratefully accepted. The landlord has now changed his mind and is refusing to pay Brian. Which of the following statements is correct? The offer and acceptance gives a binding contract. Brian is entitled to £80 from his landlord. The landlord’s offer gives retrospective authority to the work carried out. Brian can claim the full cost of the paint from the landlord At the time the landlord promises to pay Brian £80, Brian is promising nothing in future to the landlord. There is a failure of consideration, so Brian can claim nothing. As the property was not worth £650 per month, Brian is entitled to deduct the cost of the paint and an allowance for the cost of his labour from future rental payments.

Answer 79

Feedback: Contracts require consideration from both parties. Consideration can involve action at the time of the promise or at some time in the future. As Brian has already decorated before the landlord promises to pay him. Brian’s actions are past consideration which cannot lead to a contract (Re McArdle). Available Answers At the time the landlord promises to pay Brian £80, Brian is promising nothing in future to the landlord. There is a failure of consideration, so Brian can claim nothing. (1 Mark)

Question 80

Clarisse is selling her car. In the past few months it has become increasingly unreliable and expensive to maintain. She researches a guide price for the car online and discovers a recommended price of £4,500. She advertises the car for £5,800 and eventually accepts an offer of £5,650, which the buyer pays by cheque. She does not mention the unreliability issues to the buyer. The next day, the car breaks down and the buyer stops the cheque. Which of the following statements is true? As the cheque did not clear, the buyer did not supply consideration. The contract is therefore void. As she has advertised the car well above the recommended price, Clarisse owed a duty of care to the buyer. As she did not disclose the reliability problems, the contract is voidable by the buyer. The contract is valid. Clarisse can sue the buyer for £5,650. The contract is valid, but Clarisse can only recover £4,500 as this is a reasonable price for the car.

Answer 80

Feedback: Once the offer is accepted and the promise to pay is made, we have all the requirements for a binding contract. There is no requirement for the seller to disclose information. Clarisse can sue for the agreed contract price. Available Answers The contract is valid. Clarisse can sue the buyer for £5,650. (1 Mark)

Question 81

Raj writes to Leonard offering to buy his law textbooks on 1 June 20X5. The letter is received on 5 June 20X5 and Leonard immediately writes back accepting. Raj receives this letter on 9 June 20X5. In the meantime Raj has decided he doesn’t need Leonard’s textbooks and sent a letter revoking his offer on 4 June 20X5 which is received on 7 June 20X5. Is there a contract between Raj and Leonard? Yes, as the acceptance was made on 5 June, and revocation was after on 7 June. No, as the revocation was made on 4 June before acceptance on 5 June. No, as the revocation was made on 7 June before acceptance on 9 June. Yes, as post is not a reasonable method of revocation.

Answer 81

Feedback: Revocation is only made when received on 7 June. Acceptance is made when posted on 5th June. Available Answers Yes, as the acceptance was made on 5 June, and revocation was after on 7 June. (1 Mark)

Question 82

Which of the following types of consideration would be valid? i. Executed ii. Executory iii. Inadequate

Answer 82

Feedback: Good consideration can either be executed or executory. Good consideration must be sufficient but it need not be adequate. Available Answers i, ii and iii (1 Mark)

Question 83

What is the normal standard of proof placed upon the prosecution in a criminal case? Balance of probabilities Beyond every reasonable doubt Beyond any doubt Beyond reasonable doubt

Answer 83

Feedback: Balance of probabilities is the standard of proof in civil cases. Available Answers Beyond reasonable doubt (1 Mark)

Question 84

If a contract formed under the UN Convention on Contracts for the International Sale of Goods does not specify a time period for delivery, when should delivery take place? As soon as possible after the contract is formed. Within a reasonable time after the contract is formed. Within 30 days of the formation of the contract. None of the above.

Answer 84

Feedback: Under the UNCISG, delivery should be made within a reasonable time after the contract is formed. Available Answers Within a reasonable time after the contract is formed. (1 Mark)

Question 85

Which of the following documents does a company limited by shares not have to submit on registration? Statement of proposed officers Articles of association Application Statement of compliance

Answer 85

Feedback: A company may choose to send in their own articles of association but there is no requirement for them to do so. If they do not the model articles will apply. Available Answers Articles of association (1 Mark)

Question 86

Which of the following statements in relation to the company secretary is correct? A company secretary of a private or public company is not required to be properly qualified. A private company must appoint a company secretary. A company secretary must be a director of the company. A company secretary is an officer of the company.

Answer 86

Feedback: A company secretary of a public company must be qualified, but there is no such requirement for a private company. Private companies may choose to have a company secretary but are not obliged to do so. The company secretary may or may not be a director. Available Answers A company secretary is an officer of the company. (1 Mark)

Question 87

To what extent is a member of a company limited by guarantee personally liable for the company’s debts?

Answer 87

Feedback: An individual guarantor is only liable for the amount identified, not the full company indebtedness. It is only in the event of a winding-up that the guarantor will be required to make a payment. Available Answers His personal liability is limited to the amount identified in the statement of guarantee upon a winding up. (1 Mark)

Question 88

The Memorandum of Association of a company must be signed by:

Answer 88

Feedback: It is the subscribers alone who are required to sign the Memorandum of Association Available Answers The subscribers only. (1 Mark)

Question 89

Naseem owns a coach and Oliver has a business offering sightseeing tours. Naseem agrees with Oliver an arrangement whereby all of Oliver’s tours will use Naseem’s coach. Naseem will meet the expenses of the coach and Oliver will meet the other expenses. Revenue is to be split 30:70 between the two. While on a tour Penny suffers food poisoning due to food provided by Oliver. Who can she sue?

Answer 89

Feedback: There is no partnership arrangement here as there is no joint business activity. Naseem is running a coach business and Oliver a tour business. Available Answers Oliver only (1 Mark)

Question 90

Which of the following must be included in the incorporation form of an LLP? A. The name of the LLP B. The address of its registered office C. The names and addresses of the members of the LLP

Answer 90

Feedback: All three need to be included as well as the location of the registered office and the names of the designated members. Available Answers A, B and C (1 Mark)

Question 91

Are the following statements true or false? A limited liability partnership (LLP) may be put into administration. Where it can be shown that a member knew that his LLP would become insolvent, a withdrawal made by him within the 20 months prior to the making of a winding up order can be claimed back.

Answer 91

True x2.

Question 92

Which of the following is not a way an agency relationship can arise?

Answer 92

Feedback: Agency can also be created by express or implied consent. Available Answers Agency by indemnity (1 Mark)

Question 93

Mark is the manager of a sports shop PI Sports. He is specifically told not to buy swimwear by the owner of the shop, Sam. Mark enters into a contract to buy swimwear from Michelle which he signs on behalf of PI Sports. Is Sam bound by the contract?

Answer 93

Feedback: As was seen in the case of Watteau v Fenwick an agent’s implied authority can exceed their actual authority. Buying swimwear would be seen to be within the usual authority of a manager of a sports shop. Available Answers Yes because he is acting within his implied authority. (1 Mark)

Question 94

Lemar enters into a contract to buy some antiques from Paola. He is acting on behalf of Bertie but does not disclose this to Paola at the time of the contract. If Paola finds out later about the existence of Bertie who is liable on the contract? A. Lemar B. Bertie C. Paola

Answer 94

Feedback: If the principal is undisclosed at the time of the contract but the third party becomes aware of their existence later they may sue either the principal or the third party. Available Answers All three (1 Mark)

Question 95

For the past 20 years, William has acted as an agent for Mohammed. Following a recent incident when William sold Mohammed's boat without his authority, they decided to part company. When his appointment is terminated, William claims that he should be paid in respect of the following: I. Expenses that he has had to meet during the course of his agency. II. Expenses that Mohammed should actually have paid himself but William has paid for him. III. Expenses incurred in advertising Mohammed's boat for sale. IV. Remuneration that he is due for the past three months.

Answer 95

Feedback: William cannot claim for expenses incurred whilst acting outside his authority. Available Answers I, II and IV only (1 Mark)

Question 96

Which of the following is not an essential element of the tort of negligence? The existence of a duty of care. Breach of the duty of care. A contractual relationship between the parties. Loss caused by the breach.

Answer 96

Feedback: The three essential elements of the tort of negligence are duty of care (option one), breach of duty (option two) and resultant loss (option four). Available Answers A contractual relationship between the parties. (1 Mark)

Question 97

While taking driving lessons John drove negligently and injured his instructor. John’s duty of care in this case will be: The same as that owed by every driver. That of any qualified driver. Assessed on the basis of John’s specific experience and skill. That which might be expected of a similarly inexperienced driver.

Answer 97

Feedback: The standard of car is that of any reasonable driver. If John professes to have a particular skill (as in here by driving) he is judged as any reasonable person with that skill. The level of skill is not important. Available Answers The same as that owed by every driver. (1 Mark)

Question 98

Paul has a contract to sell his car to Richard for £6,000. Richard changes his mind and tells Paul he is not interested. Paul then manages to sell the car to Seema for £5,500. What damages is he likely to be entitled to?

Answer 98

Feedback: The damages are calculated as his loss of bargain. He is £500 worse off due to the breach. Available Answers £500 (1 Mark)

Question 99

Michael orders a taxi from Hull to Manchester with Nicola. They agree a contract for this with a quoted price of £120. Due to flooding parts of the motorway are closed and the journey will take three hours longer than expected. Nicola refuses to fulfill the contract as she states it is now impossible for her to do this within the quoted price. What is the contractual position? Nicola can claim the extra costs incurred due to the longer journey. The contract has been frustrated. Michael can sue for breach of contract. It would be inequitable for Michael to be able to enforce this contract.

Answer 99

Feedback: The contract is not frustrated just because performance is more difficult. Available Answers Michael can sue for breach of contract. (1 Mark)

Question 100

Which of the following contracts would be classed as void by the courts? A. A contract made by someone of unsound mind B. An illegal contract C. A contract made by someone under duress

Answer 100

Feedback: If a contract is made by someone with lack of capacity or lack of free will that contract is voidable at the option of the injured party. Available Answers B only (1 Mark)

Question 101

Angie displays a painting in her window on 1.9.X2 with the sign “For sale £500 or nearest offer”. Beryl posts a letter on 2.9.X2 stating she will pay £500. Angie receives it on 4.9.X2. When is there a contract between Beryl and Angie?

Answer 101

Feedback: For a contract to exist there must be offer and acceptance. Angie’s sign is an invitation to treat. Beryl has made an offer which Angie has not yet accepted. Available Answers There isnt one (1 Mark)