Corporate & Business Law:
Mock Exam 2:
Question#1:
A
Acceptance
Acceptance of an offer has the effect of making the contract binding. The contract is formed on the basis
of the clear terms of the offer, which survive as such.
Question#2:
C
A limited liability partnership is a corporate body which has a separate legal personality from its
members
A limited liability partnership is a separate legal person as it is an incorporated entity.
Question#3:
B
It needs to be passed by the Privy Council
The bill may be introduced in either House of Parliament and it must go through the same stages in both
before becoming law.
Question#4:
C
Where an assignment has been made either orally or in writing to a new beneficiary with the consent
of the other party
Restrictive covenants which run with the land may be an exception to the rule of privity - Tulk v Moxhay
(1848). Under the Road Traffic Act 1972 a victim of a road accident may sue the insurance company. It is
also possible to assign the benefit of a contract to another but it requires consent and to be in writing,
so the situation allowing for an oral assignment is not an exception.
Question#5:
C
Creation of a liquidation committee
A liquidation committee is a requirement of the creditors' voluntary liquidation not a members'
voluntary liquidation.
Question#6:
B
Two months
According to S.1 Employment Rights Act 1996, a written statement of prescribed particulars must be
provided to the employee by the employer within two months of commencing employment.
Question#7:
A
It can be revoked at any time before acceptance
An offer can be revoked at any point up until an acceptance has been made. Once an offer has been
revoked, it is incapable of acceptance. Revocation must, however, be effective. It must therefore be
actually received by the offeree, but can be communicated by a third party.
Question#8:
C
Preferential debts, floating charges, unsecured creditors, deferred debts
The correct order of payment on liquidation in full is (1) costs (2) preferential debts (3) floating charges
(4) unsecured creditors (5) deferred debts (6) members.
Question#9:
A True
B False
Harold has made a counter-offer - True
Harold has accepted Wesley's offer - False
Here there is no contract. Harold's counter-offer has the effect of ending the original offer made by
Wesley and so it no longer exists. As the original offer no longer exists, there is nothing for Harold to
accept.
Question#10:
B
Warranties
Breach of warranties only entitles the injured party to claim damages, not to repudiate the contract.
Question#11:
B and C
The state normally initiates the action
The burden of proof rests with the prosecution
Criminal law falls within public law; the state prosecutes an accused, and the prosecution must prove its
case beyond reasonable doubt.
Question#12:
C
It is enforceable because City Theatre Ltd gains a practical benefit from the extra consideration
Although UTU Ltd continues with their existing duties, City Theatre Ltd gain the benefit of opening on
time and not having to cancel performances.
Question#13:
A
Damages and repudiation of the contract
Breach of a condition entitles the injured party to claim for damages and repudiate the contract.
Question#14:
C
Following incorporation, the company could enter into a new contract on identical terms via novation
A company cannot ratify a contract which was made by a promoter before it came into existence. The
promoter will be personally liable under s.51(1) Companies Act 2006. The company can take on the
liability by entering a contract under the same terms.
Question#15:
C
To act in the best interests of the board
The Companies Act 2006 contains the duties of directors. There is no statutory duty to act in the best
interests of the board (indeed, doing so may well constitute a breach of their duties).
Question#16:
A and B both are True:
In a limited liability partnership, it is the partnership who is liable for partnership debts - True
In a limited partnership, there must be at least one general partner who is personally liable for the full
amount of partnership debts - True
A limited liability partnership is a separate legal entity and as such it is responsible for its debts.
Every limited partnership must appoint at least one general partner who is personally liable for
partnership debts.
Question#17:
B
Failure by Maria to attend rehearsals was a breach of a warranty which entitles Jason to claim
damages only
This scenario is based on the case of Bettini v Gye (1876). Attendance at rehearsals is a
warranty not a condition; the condition being to dance the series of performances. As Maria
breached a warranty of the contract, Jason is not entitled to discharge the contract but, rather,
is only entitled to claim damages against Maria.
Question#18:
B and C
Wearing a uniform
Receipt of statutory sick pay
Uniform can be an indicator of employment, although is far from persuasive by itself.
Only employees are entitled to benefits such as statuatory payments for sickness and maternity leave.
Question#19:
B
There should be suspicion or reasonable grounds for suspicion
The money laundering legislation dictates that there should be suspicion or reasonable grounds for
suspicion when an individual is considering whether to report suspected money laundering activity.
Question#20:
C
There must be a significant likelihood of public confusion
The tort of passing off is based on the idea that consumers may be misled, confusing one business for
the other. The likelihood must be significant for the action to succeed.
Question#21:
C
Either party may waive their entitlement to notice, or accept a payment in lieu of notice
Legislation provides that either party may waive entitlement to notice, or accept a payment in lieu of
notice.
Question#22:
D
The court will interpret any ambiguity against the person relying on it
Question#23:
A
Appeals from the Crown Court go directly to the Supreme Court
Appeals from the Crown Court go to the Criminal Division of the Court of Appeal or the Divisional Court
of the Queen's Bench Division. Not directly to the Supreme Court.
It deals with indictable offences with a jury
The Crown Court is a criminal court which deals with more serious criminal offences which involve a
jury.
Question#24:
A
A spent conviction
Automatically unfair reasons for dismissal include a spent conviction under the Rehabilitation of
Offenders Act 1974.
Question#25:
B and C
To remove or appoint directors
To call a meeting of members
The administrator may alter the composition of the board as they see fit. They may also call a
meeting of members and creditors.
Question#26:
Specific performance - No
Agreement - Yes
Performance - Yes
Damages - No
A contract is commonly brought to an end when both parties have performed what they have
promised to do under the contract with no problems occurring. A contract could be discharged
by mutual consent (agreement).
Question#27:
C
Case-stated appeals
The function of the Divisional Court of the Queen's Bench is to hear appeals from the magistrates' court
by the way of 'case-stated' appeals. Such appeals are on a matter of law and as such do not require a full
re-hearing.
Question#28:
B
An equity partner in a partnership
In Tiffin v Lester Aldridge (2012) it was held that equity partners cannot be employees; hence
they must be self-employed.
Question#29:
C
GGG Ltd may be guilty of bribing a foreign public official
Bribing a foreign public official is one of the four crimes defined by the Bribery Act 2010. The nationality
of the recipient and the country in which the transaction takes place are irrelevant. The transaction is
not fraudulent unless there is deception involved.
Question#30:
C
Special resolution and consent from the court
For a public limited company, consent of the court is necessary for the reduction of capital. This is not
required for a private company. The Companies Act 2006 requires a special resolution of the members to
sanction the reduction.
Question#31:
A
The performance must have taken place before the promise is made
Consideration is the value brought to the contract by the parties. The courts will not enforce agreements
which centre on illegal acts, nor those which are physically impossible. Generally the courts will not
enforce a contract where there has been a past performance (Re McArdle 1951).
Question#32:
Primary legislation - Make a declaration of incompatibility
Secondary legislation - Strike down the legislation
In the context of primary legislation, the courts may only make a statement of incompatibility with the
European Convention on Human Rights.
In the context of secondary legislation, the courts have the power to strike it down.
Question#33:
B
The date on which the offer of employment was made
The details of the statement of the prescribed particulars are contained in s.1 Employment Rights Act
1996. It must contain the names of the parties to the contract and the date of the commencement of
employment.
Question#34:
The Secretary of State may appoint an auditor to a company if its members fail to do so - True
A private company may remove an auditor from office before the expiry of their appointment by
passing a written resolution - False
Auditors are normally appointed by members passing an ordinary resolution but where the members
fail to appoint an auditor, the Secretary of State has the power to appoint an auditor to the company.
Although a private company may remove an auditor from office before the expiry of the auditor's term
in office, this must be done by way of an ordinary resolution at a general meeting of the company; a
written resolution cannot be used by a private company to remove an auditor.
Question#35:
D
Defendants will not be liable where the chain of events is broken
Novus actus interveniens translates as 'new intervening act' - an intervening act will break the chain of
causation and the defendant cannot be found liable.
Question#36:
B
When a company is a sham to evade liabilities
When a company is established as a sham to evade liabilities, separate personality can be ignored to
prevent the evasion of liabilities.
Question#37:
A company has an implied power to borrow money for whatever purpose it sees fit, including both
business and non-business activities - False
A lender can require the directors to personally guarantee to repay a loan made to the company in the
event of default by the company - True
A company does not have the implied power to borrow money for non-business activities. A lender can
require a personal guarantee from the directors in respect of a loan made to the company, although this
is most likely in a small private company or a newly-formed company which does not yet have a trading
record.
Question#38:
C
The burden of proof is on the claimant
In civil cases the claimant rather than the defendant has to prove their case.
Question#39:
Conduct that is criminal can also be a tort -True
There must be a previous transaction or agreement between the parties – False
A tortious act can also be criminal. There need be no previous transaction or contractual
arrangement/agreement between the parties.
Question#40:
C
Public companies only
The Companies Act 2006 requires public companies to appoint a suitably qualified person as company
secretary.
Question#41:
A and B both False
Decisions in the magistrates' court are binding on itself only – False
Decisions in the Crown Court are binding on the magistrates' court - False
Decisions in the magistrates' court and Crown Court are binding on no-one, not even themselves.
Decisions by the Crown Court are reported more widely, however, and are more authoritative.
Question#42:
B
No, because Duck Ltd is a separate legal entity with all the rights and liabilities which would normally
be attached to a separate legal entity
A parent company and its subsidiary are separate legal entities with separate legal personalities, and
therefore Pigeon Ltd is not liable to pay damages for personal injuries on behalf of its wholly owned
subsidiary, Duck Ltd.
Question#43:
B
It must be adequate but need not be sufficient
The general rule is that consideration must be sufficient but need not be adequate.
Question#44:
The employee must demonstrate to a tribunal that dismissal was not justified - False
The dismissal may be constructive rather than actual dismissal - True
The employee need only show that they are a qualifying employee and have been dismissed - the
burden falls on the employer to show that the dismissal was justified.
Dismissal may be identified as actual dismissal, constructive dismissal or expiry of a fixed-term contract
without renewal.
Question#45:
B
That the company as an entity is regarded by the law as a separate person
The company as an entity is regarded as a separate legal person, which is created by law. It is not the
members, the directors nor any other part which is regarded as a separate person; it is the entity as a
whole.
Question#46:
TASK no 1:
B
The bankers owed SWS plc a duty of care because they knew that SWS plc were relying on the credit
reference
The bankers owed SWS plc a duty of care because they knew that SWS plc were relying on the credit
reference. In a situation where a special relationship exists, ie where one party asks and the other party
knows that their advice will be relied on, then a duty of care arises. This was established in the case of
Hedley Byrne v Heller (1963).
TASK no 2 :
A and B both False
SWS plc will not be able to recover from the auditors the amount it overpaid for DFE Ltd's shares,
because DFE Ltd's accounts were prepared for its shareholders as a body and not for the purposes of
SWS plc's takeover - False
DFE Ltd's auditors owe a duty of care to their client, DFE Ltd, but they do not owe a duty of care to SWS
plc in respect of its takeover bid for their client - False
Based on a case such as ADT Ltd v BDO Binder Hamlyn (1995) in a situation where an auditor is
specifically asked by a prospective bidder whether the accounts of the target company show a true and
fair view of the company's financial position and they confirm that they do, then the auditor owes a duty
of care to the bidding company.
TASK no 3:
C
A duty of care can only arise if a contractual relationship exists between the parties
To establish a duty of care, a claimant must show a relationship of proximity between the
claimant and the defendant. Establishing a relationship of proximity is one of the three tests
which need to be satisfied post Caparo v Dickman (1990). Where the most likely cause of an
accident is negligence, the burden of proof can be reversed such that the defendant must prove
they were not negligent: this describes the operation of the Latin maxim of res ipsa loquitur.
Question#47:
TASK no 1:
C
None
In this scenario George has no authority to bind the firm, as Omar was aware of this in his
previous dealings with the firm as clearly stated in the partnership agreement.
TASK no 2:
B
George is personally liable to pay Omar for the photocopiers
George is personally liable to pay Omar for the photocopiers, as George had no actual authority
to buy them and Omar cannot rely on ostensible authority.
TASK no 3:
All partners can bind the firm and no restriction can be placed on any one partner's authority
- False
A partner is personally liable where, without specific authority, they pledge the firm's credit
for a purpose not connected with the firm's ordinary business - True
The authority of the partners is based on the laws of agency. Agency is a type of contract
whereby the agent and the principal can agree on the level of authority which an agent may
have. So the firm, as principal, can place restrictions on its agents (the partners) in respect of
their level of authority.
Unless a partner has specific authority to do so, if they pledge the firm's credit in a transaction
which is not connected with the ordinary business of the firm, the firm is not bound to that
transaction and it would be the partner personally who would incur liability.
Question#48:
TASK no 1:
Provides a regular income regardless of Goga plc's profitability - Debentures
Allows participation in general meetings - Ordinary shares
Will be repaid first upon liquidation - Debentures
Can be priced at a level below their nominal value - Debentures
As loan capital, Goga plc will need to pay interest on the debentures, providing a regular income to
holders.
As owners of the company, shareholders can take part in its decision making processes.
Debenture holders will be paid first whenever a company is liquidated.
Unlike shares, which cannot be offered at a discount to their nominal value, it is possible to offer
debentures at a discount.
TASK no 2:
B
If the premises were to be sold to a third party, then the third party can never be liable for the debt
A fixed charge attached to the property (in this case the premises) would normally be repaid from the
proceeds of the sale. If it is not, then the purchaser will become liable to the charge.
TASK no 3:
A
Fixed or floating charges made before 3 July 20X8
Normally fixed charges take priority. The effect of the clause is that ABC bank will protect itself from the
subsequent creation of a fixed charge over Goga plc's property. Earlier floating charges will take priority
because of the time at which they were created.
Question#49:
TASK no 1:
A and C
A person expressly appointed as a director is known as a de jure director
A person may be both a director and an employee of the same company
The term 'de jure' describes a person who has been expressly appointed as a director.
A person may have more than one relationship with the company, so it is correct to say that a person
can be both a director and an employee of the company. However, if this is the case, the articles of
association usually make specific provisions for such a situation.
TASK no 2:
Edward is a shadow director of CTF plc - True
Edward is a de facto director of CTF plc - False
The description of Edward as a major shareholder who gives instructions to the board of directors,
which they are accustomed to follow, is describing a shadow director.
Edward is not a de facto director of CTF plc. A de facto director deals openly with the company's
customers and suppliers whereas a shadow director acts, as Edward does, behind the scenes.
TASK no 3:
A and B
He would be entitled to attend and vote at board meetings on Ahmed's behalf
He can only be appointed as Ahmed's alternate if the articles of association allow for such an
appointment
As Ahmed's alternate, David would be entitled to attend board meetings and vote on Ahmed's behalf.
Not every company's articles permit the appointment of an alternate. The articles of association must
specifically permit an alternate to be appointed before Ahmed can appoint David.
Question#50:
TASK no 1:
B
(1) only
In the scenario, Arlene disclosed the information, but did not explicitly encourage Danny to deal.
TASK no 2:
Danny - Yes
Susan - Yes
Danny is Arlene's sister and would almost certainly have been aware of Arlene's position in her
company. Her comment to 'keep the information to himself' offers strong evidence that the disclosure
should not have been acted on.
Although Susan was a bystander the content of the conversation made it clear that this was inside pricesensitive information, so she should not have acted on this.
TASK no 3:
B and C
Belief that the information had been disclosed publicly
The transaction in the shares would have been made without having access to the information
If the recipient of the information believed that it was in the public domain, or was going to make the
transaction regardless of having access to the information, these are valid defences that can be offered
by an individual accused of dealing contrary to the Criminal Justice Act 1993.