NORTHUMBRIAUNIVERSITY
SCHOOL OF LAW
LL.B(Hons)/LL.B (Hons) Barristers Exempting
COMPANY LAW – LA0752
RESIT
Time allowed:
30thAugust 20063 hours
InstructionsEight questions set.
Answer FOUR questions.
The paper is in two Parts.
Answer at least ONE question from each Part.
THIS IS A CLOSED BOOK EXAMINATION
PART A
Answer at least ONE question from this Part.
1.The Limited Liability Partnership now provides a realistic alternative form of business organisation for those wishing to run their business with limited liability.
Critically assess this statement.
2.Since its introduction more than 20 years ago the unfairly prejudicial conduct remedy under s.459, Companies Act 1985 has revolutionised the protection available for minority shareholders.
Critically assess this statement.
3.The phrase ‘in the interests of the company’ is open to various interpretations but in the context of directors’ duties it is quite clear that it requires directors to give priority to the interests of shareholders.
Critically assess this statement.
4.At long last, with the latest reform proposals, the extent of corporate responsibility for deaths at work and amongst the travelling public will be clarified and the present uncertainties removed.
Critically assess this view.
PART B
Answer at least ONE question from this Part.
5.In 2002 Ali joined the board of directors of Periscope plc, a company which had developed a machine for examining the condition of gas and oil pipelines. Ali’s particular responsibilities included product development and technical advice. By the beginning of 2004 Ali felt that the company needed a more dynamic product development policy. He considered that the company had the technological capacity to extend the uses to which its machine could be put beyond its traditional industries. The rest of the board took a more cautious approach but nevertheless encouraged Ali to investigate potential new business opportunities for the company.
Before long Ali heard about two potential new areas, surveying railway track and water supply pipes, where Periscope’s machine might have a part to play. When he raised these possibilities the board reviewed the technical and development advice given by Ali and decided that the company did not have the resources for both ventures at the same time. It thus rejected the opportunity with respect to water supply pipes. Not long afterwards Ali was approached by two business acquaintances, Hassan and Rajid, who outlined to him a scheme to bid for water supply pipe contracts with several water companies. Their proposal was to use a machine similar to that of Periscope but developed by a Far Eastern manufacturer. Ali also discussed with Hassan and Rajid other uses for the technology that he had been unable to persuade the board of Periscope to consider. Attracted by the enthusiasm shown by Hassan and Rajid, Ali decided to resign from Periscope and to join the other two in setting up a company, Omniscope Ltd, which then successfully tendered for the water contracts. Nine months on this business had proved very profitable and Omniscope was approached by various new customers keen to utilise its expertise. Meanwhile Periscope had suffered a decline in business when, for technical reasons which ought to have been identified by Ali, its railway track contract proved to be a costly mistake.
Advise the board of Periscope plc about the above events.
6.Squash Ltd is a fruit and drink distributor. Its board of directors consists of Rob, the sales and distribution director, Pete who has responsibility for finances and human resources and Tom, the chief executive, who oversees production. Under the company’s articles of association the approval of the board of directors is required for any contract made on behalf of the company where the value of the contract exceeds £25,000. In the case of contracts worth more than £50,000 the approval of the general meeting must be obtained by a special resolution.
Six months ago Rob agreed a transport delivery contract with Miles Ltd to the value of £60,000. At the same time Tom successfully negotiated the purchase of a juice extracting machine from Fibre Ltd at a cost of £48,000. At the end of every production run Squash Ltd throws away extracted juice that is fit to drink but which does not meet the standards set by supermarkets. Recently Pete agreed that Squash Ltd would send its surplus production on a weekly basis to a local charity which provides meals and drinks to a shelter for the homeless. Squash Ltd make no charge for the drink delivered to the charity.
Advise the board of directors of the validity of the above transactions.
7.The articles of association of Hitesh Ltd include the following clauses:
(a)That so long as Ali holds 50 shares in the capital of the company, he shall have the right to nominate two directors onto the company’s board of directors.
(There is also a separate contract to this effect between Ali and the company.)
(b)That Farooq be appointed as the company’s accountant for life.
(c)That every member who intends to sell his shares in the company shall inform the directors who will take the said shares equally between them at a fair price.
Hitesh Ltd now wishes to alter its articles so that all directors shall be elected at the annual general meeting. It also wishes to appoint Govan as accountant in place of Farooq. Farooq is a member of the company. Bandali, another member of the company, wishes to sell his shares and has informed the directors of this but they have refused to buy the shares.
Advise Ali, who still owns 50 shares in the company, Farooq and Bandali as to their respective rights. (Do NOT take into account any rights the parties may have under s.459).
8.On 6 June Swings and Slides Ltd, manufacturers and retailers of playground equipment, created a floating charge over all its assets in respect of a loan of £60,000 made to the company by Green, one of the company’s directors.
On 24 June, the company borrowed £55,000 from Roundabout Finance plc, secured by a fixed charge on the company’s factory premises.
On 20 July the company paid £20,000 to Walker Bank plc in order to reduce its overdraft, which the directors have personally guaranteed. The payment was made with the intention of keeping on good terms with the bank in the hope of future banking facilities.
On the same day the directors also ordered £3,000 worth of tyres from Rubber Ltd in order to re-equip its fleet of lorries although the company’s accountant had warned the directors that she was worried about the company’s financial situation.
On 6 August a petition for the compulsory winding up of the company was presented.
It now turns out that a consignment of steel tubing in the company’s warehouse was supplied by Tubular Ltd under a contract which reserved title in the tubing until full payment was made. Payment has not been made for the tubing some of which has been incorporated into equipment. In addition the company has outstanding wage bills.
Advise the liquidator of the company as to the legal position in respect of the matters outlined above.
Page 1 of 4