Examination papers and Examiners reports 2007

Examiners report 2007

Zone A General remarks
The exam covered a range of questions from the Company law syllabus which enabled students to illustrate their knowledge and understanding of company law. As with last years papers, there was an improvement in the quality of students approach to the essay section. Inevitably there was a pattern of pre-prepared answers to questions. Although I say this every year, it bears repeating that providing answers on the basis of a pre-prepared answer to a topic regardless of the actual question asked will invariably fail to answer the specific question asked and so gain very few marks.

Specific comments on questions

Question 1 (a)This question requires you to demonstrate a good knowledge of corporate theories and apply them to real aspects of company law. In doing so you are asked to address a provocative question, so agreeing or disagreeing with this statement is important. (b)Go through the various theories and give practical examples from your knowledge of company law. (c) In general there are two uses for corporate theory. First it aids our understanding of company law. For example, if we understand concession theory we can better understand the reasons for having an objects clause. (e) Again, if we understand aggregate theory it makes it easier to understand the role of shareholders in a company. (d)Theory also helps us with the design of future company law. So, for example, realist theory has dominated the reform agenda for directors duties and resulted in the current Enlightened Shareholder Value concept in the Companies Act 2006. Question 2 In this question you are again asked to discuss a provocative statement and apply your knowledge of the Combined Code to it. Again, in answering the question you need to address your answer to the statement and agree or disagree. Go through the background to the Code and critique the recommendations of the various corporate governance committees as adopted by the London Stock Exchange. Make the point that it is a comply or explain system, so companies do have a choice about compliance. If they choose not to comply then they can simply explain why.

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Question 3 This provocative question requires you to demonstrate a good knowledge of the company law reform process. In addressing this statement you should go through the reform process and cover the recommendations of the Company Law Review Steering Group and the Companies Act 2006. The main criticism of the reform process is that it concluded that company law should be tailored to the smaller company as such companies are the main consumers of company law. The end result of the reform process is a Companies Act that is not that different from the previous principal 1985 Act. Question 4 This statement requires you to discuss how well minority shareholders are protected by company law. Go through the various possible protections Foss v Harbottle, s.122 and s.459 and give your view on their effectiveness. Discuss the reform process and how it will impact on the effectiveness of minority protection. Question 5 This question requires you to address the issue of ultra vires in the corporate context. The company has a clear objects clause which confers power to manufacture and sell traditionally made ice-cream. Additionally one of the directors and shareholders has a veto on certain transactions which is contained in the articles of association. The objects clause issue is straightforward enough in that the company does not have to power to become a property developer. Such an act is ultra vires at common law and void. However, the statutory saving provisions in s.35 would mean that the architect contract could be enforced against the company. Cornetto and Dip, however, would be in breach of their directors duty to observe any internal restrictions flowing from the memorandum (s.35(3)), and have personal liability for any losses. Easybank would be able to rely on both the common law rule in Turquands case and s.35A, and enforce the loan against the company. Again, Cornetto and Dip would be personally liable for their actions here through breaching their directors duty. As Beatrice is a shareholder she can seek, using the provisions in s.35, an injunction to prevent the company from entering into a contract for a building firm to undertake the conversion work. Question 6 This question requires you to demonstrate your knowledge of directors duties and Wrongful and Fraudulent trading. Consider the liability of Mark, Sarah and Parent for breach of fiduciary duty, breach of duty of skill and care, wrongful and fraudulent trading. In discussing the duty of skill and care point, particular emphasis should be given to Re DJan. Discuss the possibility of Sarah and Parent being shadow directors.

Examination papers and Examiners reports 2007

Question 7 This question requires you to demonstrate your knowledge of veil-lifting issues. In answering this question you need to address the key impact that the principle in Salomon has on the issue: the parent has no liability. However, sometimes the judiciary have intervened and vifted the veil. You will have noted from your reading that from the 1960s until the 1990s there was little consistency in the way the senior judiciary approached difficult cases where veil-lifting was an option. In 1985 the Court of Appeal in Re a Company (1985) could draw on cases such as Wallersteiner to argue that the court can use its power to pierce the corporate veil if it is necessary to achieve justice irrespective of the legal efficacy of the corporate structure under consideration. Equally, four years later the Court of Appeal in National Dock Labour Board could draw on cases such as Woolfson to argue for a strict interpretation of the Salomon principle. In short, there was little consistency or certainty in a very important area of company law. However, since Adams the courts have allowed the veil to be lifted in only three situations single economic entity, mere faade and agent. Go through the relevance of each here. Go into detail on the Creasy and Ord cases, which have strong similarities to the facts of this question. Go on to analyse this set of facts with particular emphasis on Adams and Ord (which overruled Creasy). Question 8 This question requires you to demonstrate an understanding of how the articles of association and shareholders agreements operate. There are two issues here: the enforcement of the articles of association and the ability of shareholders to enforce a shareholders agreement against each other and the company. Dealing with the first, explain the complexities that arise when shareholders wish to enforce the articles (the s.14 problem). Then turn to the specific issues here. The removal of article 156 raises two issues: first the validity of weighted clauses (Bushell), then the ability of Larry to pass a special resolution to remove the clause. As Larry has 80 per cent of the votes at the general meeting, he has the power to do this unless there is something in article 156 which also prohibits its removal. Turn then to consider the shareholders agreement, focusing particularly on applying Russell to the facts here in which case Max should be able to enforce the agreement against Larry but not the company. However, contrast the differing outcomes in Bushell and Russell.