ACC3024

Exam Time Table Code ACC3024

Sections A and B
Silent battery operated calculators which are not capable of
storing text or user written programs are permitted, but their
instruction books are not permitted.

LEVEL 3 EXAMINATION FOR THE DEGREE(S) OF

Bachelor of Science (Accounting)
(Accounting with a Language)
(Economics and Accounting)

LAW OF BUSINESS ORGANISATIONS

Time allowed 3 hours 15 minutes

Saturday, 15th January 2011 9:30 am - 12:30 pm

Examiners: Professor Ciarn hgartaigh
and the Internal examiners

Write on both sides of the answer paper

This paper is worth 100% of the total marks

Answer FOUR questions in total
with at least ONE from Section A and at least ONE from Section B
All questions carry equal marks

ACC3024/JAN2011
SECTION A (Answer at least one question)
Question 1
Norman has recently inherited an 8% shareholding of NuCare Ltd. The board of
directors of NuCare Ltd is made up of members of the family of Michael, the majority
shareholder.
Previously, the company policy was to use profits to pay generous dividends. In view
of potential inheritance tax implications and the fact that Michael, who has just
celebrated his 95th birthday, no longer needs additional income, he has indicated to
the board that in future all profits should be disbursed in the form of directors fees.
This change of policy has alarmed Norman and the few other independent
shareholders in the company who together own 13% of the shares of Nucare Ltd. In
spite of requests to do so, the board refuses to meet the non-family members to
discuss the situation.
Requirement:
Advise Norman and the other minority shareholders.
25 Marks

Question 2
Rudolph and his wife Alisha are owed 200,000 by Eco Ltd. Eco Ltd has refused to
pay the money owed and Rudolph and Alisha have initiated a court action to recover
the monies owed to them.
Bossco Ltd is the parent company of Eco Ltd and has recently completed a risk
assessment study of all its operations. The assessment identified Eco Ltd as being a
high risk financially to Bossco Ltd on the basis of Ecos tax liability and its exposure
to a huge amount of potential litigation, such as that of Rudolph and Alisha. The
report also notes that Bossco Ltd could reduce its financial risk exposure by
removing all the assets from Eco Ltd and closing it down. Bossco Ltd has decided to
follow that advice.
Requirement:
Critically assess this scenario, considering the implications of the separate entity rule
and legal personality.
25 Marks

Page 2 of 4

ACC3024/JAN2011
Question 3
Jack and Jill trade in partnership as high class florists. They are considering
changing their form of business association and trading as a private registered
company limited by shares.
Requirement:
Explain, with relevant legal authority, the legal process they must follow in order to
form such a company and advise them of the advantages of trading as a private
limited company as opposed to a partnership.
25 Marks

Question 4
In late October 2010, Salander plc began a take-over bid for Liberate plc basing its
bid on analysis of the financial statements for the year ended 31 March, 2010, which
had been audited by Careless & Co. The bid valued Liberate at 800m but this was
rejected by Liberate plcs board which produced interim financial statements showing
increased profits for the first six months to 30 September 2010. The interim
statements had been reviewed by the companys auditors, Careless & Co. In early
October 2010, Liberate plc issued a forecast showing a 50 per cent increase in
profits before tax for 2010/11. This document included a letter from Careless & Co
stating that the forecast had been properly compiled in accordance with the
company's stated accounting policies and a letter from Liberates investment bank
expressing the opinion that the forecast had been made after due and careful inquiry.
As a result, Salander increased its bid to 950m which was enough to convince the
board of Liberate to recommend that shareholders accept the deal. The takeover was
completed in mid-December 2010.
In January 2011, after extensive investigation of its acquisition, the directors of
Salander plc realised that they had made a very bad deal. Having been acquired for
950m, Liberate plc was now reckoned to be worth at most about 300m. In late
January 2011, Salander plc began its legal action against Careless & Co (and the
advisers and directors of Liberate plc), alleging breach of a duty of care by negligent
misrepresentations in audited financial statements for the year ended March 31,
2010, in the interim statements published in October 2010, and in the forecast issued
to shareholders in November 2010.
In its claim for 650m plus lost interest, Salander plc asserts that:
Careless & Co owed it a duty of care since reliance on the various documents
was reasonably foreseeable.
The accounting policies adopted in the pre-bid financial statements and the
profit forecast were negligently misleading and had grossly overstated the
profits.
Reliance was placed upon all the reports and a loss was suffered in
consequence.
Requirement:
Assess the strength of the case made against the auditors, identifying any additional
information you would need in assessing the case.
25 Marks
Page 3 of 4

ACC3024/JAN2011
SECTION B (Answer at least one question)
Question 5
Critically evaluate sections 170-177 of the Companies Act 2006 and any relevant
accompanying provisions. Indicate where they effect changes to the long standing
common law and equitable principles on directors duties.
25 Marks

Question 6
Analyse the new law in the Companies Act 2006 on derivative actions and unfairly
prejudicial conduct. What improvements, if any, do you think have been made?
25 Marks

Question 7
In what circumstances will an agent bind a company to a contract made with a third
party? To what extent do these rules differ where the agent acts for a partnership?
25 Marks

Question 8
It was originally thought that a company was unable to commit torts or criminal acts.
To what extent does this reflect the current state of the law and what legal difficulties
are there in imposing liabilities for legal wrongs on a corporate entity? In your answer
you should pay particular attention to the Corporate Manslaughter and Corporate
Homicide Act 2007.
25 Marks

END OF EXAMINATION PAPER

Page 4 of 4