THIS PAPER IS NOT TO BE REMOVED FROM THE EXAMINATION HALLS

UNIVERSITY OF LONDON LA3021 October

LLB
DIPLOMA IN THE COMMON LAW
BSc DEGREES WITH LAW

Company law

Monday 15 October 2018: 14.30 – 17.45

Candidates will have THREE HOURS AND FIFTEEN MINUTES in which to

answer the questions.

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

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

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

Permitted materials
Students are permitted to bring into the examination room the following
specified document: one copy of Core Statutes on Company Law (Palgrave
Macmillan).

© University of London 2018

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PART A

1. ‘Section 172 of the Companies Act 2006 is no different in substance from

the director’s fiduciary duty of loyalty at common law. It is also confusing
and creates unnecessary uncertainty for directors with regard to their legal
liability risk.’

Discuss.

2. ‘The Companies Act 2006 is highly sensitive to the distinct needs of

small companies, which are exempted from a number of highly onerous
statutory requirements applicable to their larger counterparts.’

Discuss.

3. ‘The principle of “comply or explain” underpinning the enforcement of the

UK Corporate Governance Code is ineffective. Unless the Code’s
provisions are placed on a legally-binding statutory footing, they will be
of no real practical impact.’

Discuss.

4. Critically assess the effectiveness of ONE of the following:

(a) the unfair prejudice remedy under section 994 of the Companies
Act 2006; OR

(b) the right of a company’s members to enforce the articles of

association under section 33 of the Companies Act 2006.

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PART B

5. Ana, Ben and Ceri are the directors of Dull Ltd, a company which
develops spreadsheet software. They each hold 33.3% of the company’s
ordinary share capital, and there are no other classes of share. Ana has
graduate degrees in mathematics and computing science, and is
generally regarded as the technical ‘brains’ of the business. Ben is a
former City trader on whom Ana calls mainly for input on the financial
side of the business. Ceri, a friend of Ana’s from university, takes no
part at all in the running of the business except for attending the
occasional board meeting when she happens to be in town.

In April 2017 Ana was approached by Eliza, who runs a local

accountancy firm. Eliza asked Ana whether she would be willing to
spend one day each week developing a new customised spreadsheet
programme for her firm. Eliza offered to pay Ana a monthly ‘consultancy
fee’ of £10,000. Ana mentioned the details of her meeting with Eliza to
Ben over lunch the following day, and Ben told Ana to ‘go for it’. Ana
accepted Eliza’s offer that same afternoon, and has now been assisting
Eliza for the past year.

Ana, Ben and Ceri have since got bored of developing spreadsheets,
and in April 2018 sold their respective shareholdings in Dull Ltd to Flat
plc, a much larger competitor. Flat plc’s auditors have subsequently
spotted serious irregularities in Dull’s last two sets of annual accounts,
which indicate that Ben has secretly been defrauding Dull of sums of
money amounting to £100,000. Ceri is shocked by this revelation, and
protests that she has nothing to do with the suspected fraud or any of
the other dubious activities of her fellow directors.

Advise Flat plc as to any possible grounds on which Dull might be able
to pursue Ana, Ben and/or Ceri for breach of their directors’ duties.

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6. Haven Ltd is a company which runs a small chain of coffee shops in
London. Haven Ltd has five directors: Isa, Jez, Kate, Lucy and Mel. The
five directors are also the company’s only members, with each holding
20% of its ordinary share capital. Isa, Jez, Kate and Lucy spend most of
their time attending to other interests, leaving Mel to manage the
business alone on a day-to-day basis. The company’s articles of
association contain a special clause under which any borrowings in
excess of £20,000 must be approved in advance by the members in a
General Meeting.

The company has a general policy of holding monthly board meetings in

one of their cafés after closing time, where Mel is expected to give a
short account of her activities over the past month. These meetings are
always poorly attended, and on many occasions Mel has found herself
sitting alone. On occasions when any of the other directors do turn up,
they invariably approve Mel’s decisions on business matters without
question.

Mel recently caused Haven to borrow £50,000 from a local bank in order
to fund the refurbishment of one of the company’s premises. Mel also
entered into an agreement on Haven’s behalf with a firm called
NoWheat, under which Haven undertook to receive regular supplies of
gluten-free cakes from NoWheat in return for 36 monthly payments of
£1,000 due over the course of the next three years.

On finding out about these two transactions, Isa is uncharacteristically

angry. She feels that Mel’s borrowing will destabilise the company’s
finances, and also regards the payments due under the NoWheat
contract as being excessive in comparison to competitors’ prices.
Neither Jez, Kate or Lucy are especially concerned about Mel’s actions,
and would prefer just to let the matter pass.

Advise Mel.

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7. In 2012 Bob established a taxi hire business, using his personal savings
to purchase a small fleet of vehicles. After an initial successful period of
trading, Bob decided in 2014 to incorporate his business. He therefore
formed a company called Hackneys Ltd, becoming its sole shareholder
and director. Bob subsequently transferred ownership of the vehicles to
Hackneys. In return, Bob subscribed for £50,000 of ordinary shares in
the company on a fully-paid-up basis.

In 2015 Carrie was seriously injured as a result of being hit by a car that
was recklessly driven by an employee of Hackneys. Carrie subsequently
commenced a prolonged tort action against Hackneys, claiming that the
company was vicariously liable for the negligence of its employee.

In September 2016, wary of the company’s growing liability risk, Bob

decided that Hackneys should establish ten new wholly-owned
subsidiary companies. Hackneys subsequently transferred ownership of
one of its fleet of cars to each of the subsidiaries in return for a nominal
consideration, and each individual subsidiary was thereafter responsible
for maintaining and operating its single car on an independent basis.

In March 2018 Carrie was finally successful in obtaining an award of

compensation against Hackneys in respect of her injuries and lost
earnings. However, she has been unable to recover any of the funds due
from Hackneys as it has insufficient assets to cover the sum due.

Advise Carrie as to whether she can recover the money owed to her,
either from Bob personally or from the subsidiary companies.

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8. Hammer Ltd is a company which carries on a home improvements
business in Manchester. It has a share capital of £100,000, which is
divided into 100,000 x £1 ordinary shares carrying one vote each. The
company’s four members – Dmitri, Ed, Freya and Gary – each own
£25,000 of ordinary shares in Hammer Ltd. Dmitri is the company’s sole
director. There are no other classes of share in the company.

Hammer’s articles are in the form of the Model Articles for Private
Companies Limited by Shares, with the exception of a special Article
26A, which provides that in the event any of the members wishes to sell
their shares, the remaining member(s) will have a 14-day period in which
they will be exclusively entitled to subscribe for the vendor’s shares in
proportion to their existing holdings in the company.

Dmitri has recently been approached by Ivana, a Russian billionaire who

wishes to purchase a controlling shareholding in Hammer. Ivana has
provisionally undertaken to invest £10 million in expanding Hammer’s
business on a nationwide scale, in the event that she is able to secure
control over the company. The other members have since found out
about the proposal and are all keen on the idea. However, Dmitri is
strongly opposed based on his opinion that a change of control will de-
stabilise the running of the business.

In anticipation of Hammer’s upcoming Annual General Meeting, Ed,

Freya and Gary have proposed three members’ resolutions:

(a) to alter Hammer’s articles in order to remove Article 26A;

(b) to remove Dmitri from his position as director of the

company; and

(c) to appoint Ivana as Dmitri’s replacement on the board of

directors.

Advise Dmitri.

END OF PAPER

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