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LLB EXAMINATION
for External Students

PARTS I AND II EXAMINATIONS (Scheme A)

THIRD AND FOURTH YEAR EXAMINATIONS (Scheme B)
GRADUATE ENTRY LEVEL II (Route A)
GRADUATE ENTRY THIRD YEAR (Route B)

BSc DEGREES
for External Students

MANAGEMENT WITH LAW, LAW WITH MANAGEMENT, ACCOUNTING

WITH LAW AND LAW WITH ACCOUNTING FOR STUDENTS IN THE
EXTERNAL PROGRAMME

Company Law

Monday 2 June 2008: 2.30 – 5.45 pm

Candidate will have fifteen minutes during which they may read the paper and make
rough notes ONLY in their answer books. They then have the remaining THREE
HOURS in which to answer the questions.

Candidates should answer FOUR of the following EIGHT questions, including at

least ONE from Part A and at least TWO from Part B.

Candidates should answer all parts of a question unless otherwise stated.

© University of London 2008

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PART A

1. ‘The reform of directors’ duties which has culminated in the new section 172
of the Companies Act 2006 represents a clear and welcome acknowledgement
that the interests of a company’s shareholders cannot be allowed to triumph
over the interests of other stakeholders in the company.’

Discuss.

2. Does UK company law serve the needs of both public and private companies?

3. ‘It is so clear that non-executive directors make such an essential contribution

to good corporate governance that the law should be changed to require all
listed companies to have a majority of such directors on their boards.’

Discuss.

4. ‘The articles and the memorandum form a contract between the company and
its members.’

Discuss.

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PART B

5. Alan is a director of Easyways Plc, and owns 10% of the company’s shares.
The company hopes to secure a large contract from Partyco Plc. If it does, it
will need some new machinery. Alan and his wife, Belinda, own all the shares
of Toolit Ltd, a company that sells such machinery. Toolit offers to sell
Easyways the machinery it will need for £200,000. Easyways’ board
considers this offer. Alan speaks strongly in favour of it and the board agrees
to purchase the machinery from Toolit.

When Charles, a minority shareholder in Easyways, subsequently discovers

this, he objects strongly. He claims the price paid to Toolit was too high. In
response, the board of Easyways calls a shareholders’ meeting, which
approves the purchase from Toolit and also agrees to ‘ratify any breach of
duty by the directors’. Alan votes in favour of both resolutions. Easyways has
now learnt that it has failed to get the contract from Partyco Plc, and no longer
needs the machinery bought from Toolit. Easyways has been advised that the
resale value of the machinery is only £120,000.

Advise Charles whether the company would have any recourse against Toolit,
Alan or Belinda in respect of the contract with Toolit.

6. Flowers Ltd was incorporated in 1986. Its objects clause provides that the
business of the company shall be the manufacture of plastic household
furniture. Additionally the articles provide that the company may exceed a
borrowing limit of £60,000 only if the Board of directors unanimously agree
the transaction.

Although never formally appointed Managing Director, Barney, to the

knowledge and with the full agreement of his co-directors, Ronda and
Camilla, carries out the day-to-day management of Flowers Ltd. Barney,
acting on behalf of Flowers Ltd, agreed that the company would manufacture
and supply 5,000 plastic penguins for the Surfboard District Council
beachfront. The company borrowed £70,000 from Y Bank plc to purchase the
machinery to carry out this agreement. Barney and Ronda held a meeting to
agree the loan and did not invite Camilla, who did not know anything of the
loan. Owing to serious mismanagement the company incurred considerable
losses and with only 1,000 penguins completed was found to be irretrievably
insolvent and put into compulsory liquidation.

Advise the liquidator as to the validity of the transactions engaged in by the

company and the bank.

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7. Brian is owed £150,000 by Quark Ltd. Quark has refused to pay the money owed
giving no reason and so Brian has initiated a court action to recover the it.
Random Ltd is the parent company of Quark and has recently been advised by its
tax adviser that it could reduce its tax liability for the year 2007/2008 by
removing all the assets from Quark and closing it down. Random has decided to
follow the advice of its tax adviser leaving nothing in reserve to defend the court
action or pay any money owed.

Discuss the implications of this decision for Brian.

8. Geof and his friend Alvin set up a partnership many years ago which specialized
in selling household products. After years of success they converted the
partnership to a company in order to allow Geof’s son Fred to become involved
in the business. Geof, Alvin and Fred each holds an equal amount of shares in
the company. Over time Geof and Fred have become tired of Alvin holding the
company back with his risk averse approach and they remove him from the
board. Alvin is extremely unhappy about this and subsequently discovers that
Geof and Fred have been transferring assets out of the company into another
company in which they have an interest.

Advise Alvin.

END OF PAPER

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