THE CATHOLIC UNIVERSITY OF EASTERN AFRICA

A. M. E. C. E. A P.O. Box 62157

00200 Nairobi - KENYA
Telephone: 891601-6
MAIN EXAMINATION Fax: 254-20-891084
E-mail:academics@cuea.edu
MAIN EXAMINATION

JANNUARY-APRIL 2022

DEPARTMENT OF LAW

FACULTY OF LAW

REGULAR PROGRAMME

CLS 227: COMPANY LAW

Date: April 2022 Duration: 2 Hours

INSTRUCTIONS: Answer Question ONE and any other TWO Questions

Q1.
a) Explain the requirements on listed companies to include independent non-
executive directors on their board, and discuss how effective these requirements
have been in improving corporate governance. (15 MARKS)
b) Should directors have to balance the interests of shareholders against the
interests of the company’s other stakeholders? (15 MARKS)

Q2.
Dinghies Ltd makes small yachts. The company has three appointed directors: Kiran,
Ling and Mark. Mark is an expert in designing sailing craft. Nora, who is the
company’s lawyer and is married to Mark, often attends board meetings. In October
2020, Kiran was approached by Edith at a social event. Edith told Kiran that she had
just invented a new type of canoe. She asked Kiran if Dinghies would be interested
in buying all rights to the canoe for kshs1 million. Kiran sent Edith’s designs for the
canoe to Ling, Mark and Nora, and a board meeting of Dinghies was held. Only
Kiran voted in favour of Dinghies purchasing the rights to the canoe. Mark voted
against because he did not think the canoe would sail very well. Nora also spoke
against. She did this, in part, because she did not like Kiran, and partly because
Mark told her to do so. Ling voted against the purchase because she was concerned
that the process for making the canoe would be environmentally harmful, although
she acknowledged that producing the canoe would probably be very profitable. In
November 2020, Kiran had a health scare, and decided to retire as a director of
Dinghies. The other directors arranged for Dinghies to give her kshs 200,000 as a
‘thank you’ for her hard work. By January 2021, Kiran was feeling much better, and
decided to set up her own business making small sailing-craft. In February 2021, she
contacted Edith, and bought her invention from her for kshs 500,000. Sales of the
new canoe, which sails very well, have been hugely successful and very profitable
for Kiran. Discuss.
Q3. Until 2019, Aviation Ltd, which makes aviation fuel, was a wholly owned
subsidiary of Conch plc. In 2019, Conch sold all its shares in Aviation to Burnfast plc.
It was a term of the sale contract between Conch and Burnfast that Conch would not
make or sell aviation fuel for 10 years. In 2021, scientists working for Conch
accidentally invented a new, and much more efficient, type of aviation fuel. Conch
has decided that Standby Ltd, another of its wholly owned subsidiaries, will make
and sell this aviation fuel. Petrol Ltd is another wholly owned subsidiary of Conch.
Delia, a director of Petrol, wrote a report for Conch’s board. The report described a
number of safety issues concerning the design and maintenance of Petrol’s
production facilities, and outlined a number of expensive safety improvements Delia
was intending to introduce. In response, Conch removed her as a director of Petrol.
No safety improvements were made at Petrol. However, Conch did issue detailed
health and safety guidelines to all its subsidiaries, although it takes no steps to
enforce these guidelines. Conch also states on its website that it ‘maintains the
highest safety standards at all the group’s operations’. A large number of Petrol’s
employees have now suffered serious injuries at work.
a) Will Standby or Conch be liable to Burnfast plc under the 2019 sale contract? (10
MARKS)
b) Will Conch be liable in tort for the injuries caused to Petrol’s employees? (10
MARKS)

Q4. ‘Critically discuss the Judgment of Sumption LJ In Prest v Petrodel and the
effect it has on law regarding piercing the veil of Incorporation (20 MARKS)

Q5. Gerald, Jill and Harry form a syndicate. They pool their savings and buy catering
equipment. They run a business from an old school kitchen which Jill bought for
kshs5,000. They supply pies and sandwiches to local hotels. The business is
successful and they decide to form a company. Jill sells the kitchen to the company
for kshs 10,000. Gerald buys three vans for kshs 5,000 each and resells them to the
company for kshs 6,000 each. Harry instructs British Telecom to install a telephone.
He tells them that the company, when formed, will take over the liabilities in respect
of
telephone bills. Harry pays kshs 100 deposit for the installation of the telephone.
The company is incorporated and Harry, Jill and Gerald are named as sole directors.
Harry telephones British Telecom and instructs them to bill the company in future.
They do so but kshs 500 worth of bills remain unpaid.
The company has now failed and a liquidator has been appointed. Advise all parties
as to their rights and liabilities. (20 MARKS)