Law E-Question Bank debriefs

Ch1 - Contract Formation

 illegality is not the only case where the law would look to intervene on a contract, it may
also seek t imply terms to protect a weaker party, eg per the Unfair Contract Terms Act
 if an untrue statement is made pre-contract to induce the party to enter the contract and he
enters the contract relying on this misconception then the contract is voidable, items can be
returned and money recovered provided there is no legal bar
 void - goods can be recovered from a third party; voidable - generally not but with
exceptions
 not all contracts for the sale of goods must be in writing to be legally binding but some
exceptions eg a guarantee which must also be signed by the guarantor and a consumer
credit agreement governed by the Consumer Credit Act
 agreements to transfer land should be written, unenforceable if not
 in questions where there are several pricing offers depending on whatever permutations
there is still an offer, as the price is sufficiently clear to be accepted
 smokeball case is an exception to the general rule that a newspaper ad cannot constitute a
valid offer and also evidence that an offer can be made to the world at large
 exhibiting goods is an invitation to treat not an offer, even if a price is shown, the offer is
made when the consumer responds to the invitation to treat - so in a marketstall example
the invitation to treat is displaying the vegetables and the offer is made when the customer
selects one of the products
 an offer is made for x pounds and the response is that only x plus more will be acceptable -
the response is a counter offer as the original offer has been terminated with the response
and the reply constitutes a counter offer that the other party may accept or reject
 likewise the other way where the price is x and someone offers to pay x - y, the initial
response is also a counter offer. If the person then sells his product in the meantime there is
no breach as the original offer has been terminated and he did not accept the counter offer
 lapse of time - where not specified this is a reasonable amount so use the case given - eg a
newborn puppy would not have 9 months as a reasonable timeframe
 postal rule only applies to acceptance not revocation, revocation need not be made in
exactly the same way as the original offer to be valid
 acceptance cannot be implied - some positive action must be take to convey acceptance
 when written notice is required by a certain deadline, postal rule of acceptance being valid
when posted is not effective, look out for the offer lapsing before the acceptance is
communicated
 acceptance may be made by conduct - 'impliedly waive' - smokeball example again
 if the prescribed method of communication is specifically required, acceptance has to
comply to be effective - replying by another method is done at own risk if it turns out to be
disadvantageous
 there can be no acceptance in the case where a person does not know about the offer - eg
for a reward for help with a crime - no agreement where the person accepting an offer is not
aware of it
 payments described as ex gratia - court will treat the situation as giving rise to legal
relations, as per Edwards v Skyways Ltd 1964 on similar facts
 considerations must be sufficient - have some identifiable value - but does not need to be
adequate
 performance of an existing duty can be a valid consideration - eg in a case where a contract
is made and then an extra amount is offered to complete on time, person would be entitled
to claim the extra amount. QB example has the builder working first for a woman and then
getting the additional amount from her mother which he may do
 payment of a lesser sum earlier than the due date is seemed a sufficient valid consideration
 an offer to pay cash instead of by cheque as per original request does not support the
waiving of a debt - not a valid consideration
 privity of contract - a person may have enforceable rights and obligations under a contract
only if he is a party to it
 Contract (Rights of Third Parties) Act allows a third party to take advantage of exclusion
clauses and enforce positive rights but the act does not apply to employment contracts
 contract may be entered into electronically, e-signature is now equivalent to a written one
as of Electronic Communications Act 2000
 in all circumstances what constitutes the terms of any contract is a question of fats, eg no
considering on the basis of a draft contract
 parties arguing that their own standard terms apply to a contract between them - known as
'battle of the forms'; may be in this case that neither party's Ts and Cs apply and again the
outcome will be based on questioning the facts in all circumstances
Ch 2 - Termination of Contract

 there is no liability for breach of contract where there is a lawful excuse, such as the contract
is discharged by frustration
 if a party substantially performs contractual obligations, the contract is not sufficiently
discharged; the other party may seek to redress the part which did not match the obligations
 where there is substantial performance the performer is entitled to the contract price less a
reasonable deduction for the obligations not performed
 look out for trick examples such as there being a fire which would lead you to think of a
discharge by frustration but the key is whether the original contract has been rendered
impossible - so for a travel company that does not accommodate a party in a hotel because
the first choice burns down, it remains possible to carry out the contract so no discharge of
frustration
 as a general rule where a contract is discharged by frustration any deposit should be repaid
 where a contract is discharged by frustration express provisions in the contract prevail over
the provisions of the Law Reform (Frustrated Contract) Act 1943 which is designed for use
where there are no express provisions
 if a party has received some sort of valuable benefit other than money under a contract
before it is frustrated, they may be required to pay a sum in this respect to the other party
 a party may only choose either to treat a contract as discharged and sue for damages or to
affirm the contract where the breach committed is very serious
 where an anticipatory breach occurs ie the person indicates they have no intention of
performing the contract, the other party may incur costs himself in performing the contract
and take action against the party in breach
 where someone pulls out of a contract prior to the event the contract may not be
discharged and the contractor remains liable to the party withdrawing for any contractual
obligations arising on his part prior to the termination
 loss of earnings will be recoverable as damages, as will any unusual/special elements
provided the damaged party has told the other party - in the question bank this type is
highlighted by the late delivery van example where the injured party was not able to store
the lobster for the food company as a result of not having the delivery van on time - can
recover this because he had made it known to the other party; in the same example the
distress caused by letting down his normal customers is deemed too remote to be recovered
in damages
 damages are usually only recoverable for financial loss but in exceptional circumstances a
claim for mental distress or similar may be put in where this is the main consequence of the
breach
 the burden of proof in a damages case is on the defendant to show that the claimant did not
take reasonable steps to mitigate his loss
 in the event of a breach of contract for a sale of property damages are normally regarded
inadequate and specific performance is the normal remedy awarded by the courts; the
damages awarded will be the difference between the contract and market value of the
property rather than what the original contract's value was going to be
 in general terms an exclusion clause will be incorporated an unsigned contract, even where
the other party has not read the clause, where the party seeking to rely on it has given
 reasonable notice of its existence, provided there is no misleading explanation of its effect;
exclusion clause will also be incorporated into a signed document which the other party has
not read
 courts will interpret any ambiguity in an exclusion clause in favour of the party not seeking
to rely on it
 certain contracts are excluded from the Unfair Contracts Act such as insurance contracts
 exclusion clauses for defective goods may be reasonably incorporated into contract between
companies; if the other contracting party were a consumer the exemption clause would be
void not subject to reasonableness
 if in a damages claim the defendant can how the claimant caused the loss, the 'chain of
causation' is broken and the defendant will not be liable
 general rule that damages should not put the claimant in a better position than would be the
case had the contract been performed holds including cases based on wasted expenditure;
reliance damages only awarded where the claimant's expected profits are likely to exceed
expenditure
Ch 3 - Agency

 when an agent enters into a contract for a principal he then effectively drop out of the
picture so cannot sue or be sued on the contract
 when an agent enters into a contract with a third party, the principal must have full
contractual capacity to be liable on the contract
 agents may be appointed orally or in writing
 when a partner retires the partnership should notify creditors and suppliers and produce a
new letterhead without the retired partner's name. Agency by estoppel arises due to the
principal's representations/acquiescence, not the actions of any agents
 where there is no prior relationship the law is highly unlikely to allow a person to be bound
by the act of a stranger so no agency of necessity arises unless there is a prior relationship
and, once this is satisfied, there must also be a need for one party to contact the other and
then being no practical way of making contact for agency of necessity to be the case
 in order to ratify a contract the principal must have legal capacity at the time of the contract
being made and of the purported ratification
 the principal may ratify even where the agent had no authority to enter the contract,
ratification here establishes an agency relationship where none existed
 if a sole trader enters a contract then incorporates later and changes trading names the
company cannot ratify the contract entered into by the individual as the company did not
exist when the contract was made. If the other party then fails to perform his obligations
then the Companies Act 2006 provides that the person making a contract on behalf of a
company not yet formed is liable in the contract o it would be the individual that could sue
and not the company
 relationship between principal and agent is a fiduciary one
 agent does not just owe duties to the principal to the extent that have been negotiated in
the contract between them, duties may also be implied by common law or statute
 agent has the right to exercise a lien over property owned by the principal and in agent
possession, pending payment of any sums owed by the principal
 contracts of agency permit limited delegation and such a provision would prevail over the
general rule that an agent does not delegate
 examples like a 16 year old being sent out to buy wine for his principal - not bound to
comply as the instruction is illegal; however otherwise an agent must not disobey
instructions unless unlawful or unreasonable, believing an instruction to be against the
better interests of the principal is not a permissible reason to disobey
 an agent may not claim expenses incurred whilst acting outside his authority - eg if he sold a
boat without authority he could not claim expenses incurred advertising the boat for sale
 in appointing an agent to sell a product without discussing any other terms, the principal is
also giving implied incidental authority to advertise; however if the principal has specified a
minimum sale value the agent's authority is restricted and he must get the principal's
instructions before accepting a lesser amount
 usual authority arises by virtue of the office the agent holds
 an agent's ostensible authority may exceed his actual authority
 acquiescence in a partnership has the effect of representing to third parties that the other
person in the partnership has the relevant authority - ostensible/apparent authority - so in
 the example where one partner does not object to the other's giving extra legal advice she is
liable if a client then sues the partnership for some negligent advice even if the other
partner argues that only the legal advisor should be liable - the law partner had ostensible
authority to bind the firm because of the other one's acquiescence
 reasonable advertising is seen as incidental to an appointment to sell goods therefore the
principal is liable to pay the advertising expense incurred by the agent
 estoppel arises only where representation is made by the principal, not by the agent, and
then relied upon by the third party
 if a principal represents to a third party that an agent has an authority to act and then
revokes the agent's authority the liability continues in respect of a third party who continues
to rely on the representation, unaware of the agent authority having ended
 if an agent enters a contract with a third party but the third party believes the agent is acting
on their own account, in the event of a breach the third party may sue either the agent or
the principal. The principal may sue the third party in the event of a breach and takes
precedence over the agent who is also entitled to sue
 where someone claims to be acting on another's behalf and it turns out this is not the case
contracts cannot be enforced as there is no actual agency relationship so no liability; the
person lied to about the agency relationship may sue the purported agent for damages in
the tort of deceit
Ch 4 - Negligence

 liability extends only to damage and loss not considered too remote so will not be true to
say someone in breach of duty of care will be liable in negligence to compensate for all loss
and damage suffered
 negligence is part of the law of tort not the other way round
 claimant does not need to prove that he took all reasonable steps to mitigate his loss
 damage being in contemplation of the parties at the time of the negligent act or omission is
not one of the test applied in establishing duty of care; rather the test is whether the
damage was reasonably foreseeable
 trainees will be judged against the standard of a reasonable qualified professional in the
field, not of a reasonable trainee
 will be judged against knowledge and standards at the time and general practice - ie
hindsight has no effect nor a subsequent change in practice, say between the act and the
court case
 if someone makes a negligent misstatement on which another party reasonable relies,
personal injury, pure financial loss, loss of earnings and damage to property are all
recoverable
 when seeking to establish a 'special relationship' and thus a duty of care, the person giving
the advice's skills, the reliance of the other person on the advice, whether or not the advisor
knew or should have known the other would rely on the advice will all be taken into account
but not whether the loss suffered was reasonably foreseeable
 whether the loss suffered was reasonably foreseeable would be relevant in assessing
damages
 in an attempted action against accountants for negligently prepared accounts, the action will
fail on grounds of causation if it can be shown that the proposed takeover was to secure
director expertise - JEB Fasteners v Marks Bloom
 accountants owe a duty of are to the whole body of shareholders but not in respect of their
considerations of investing further or selling - Capara v Dickman
 where accounts have been prepared for assisting a takeover and not just for audit ie the
bidder is known to the accountants to be highly likely to rely on the accounts - then the
bidder can sue the accountants in the tort of negligence - Galoo v Bright Grahame Murray
 an exclusion clause that seeks to avoid liability for negligent misstatement causing financial
loss other than in respect of audited accounts will not likely be void, rather it will be subject
to reasonability test under the Unfair Contract Act
 provided the requirements for imposition of liability are satisfied, both individuals and
companies may be liable
 a company can agree to limit auditors' liability for negligence in line with the companie act
2006; the company may also indemnify the auditor against costs incurred in defending
proceedings in which the auditor is successful in his defence
 for the defence of volenti to apply and the defendant to not be liable the claimant must
have effectively waived his right to redress for a breach of duty of care, more than just
knowledge of and consent to the risk of injury is required
 exclusion clauses may be effective to exclude or restrict liability in tort as well as in contract
 where it is calculated that someone is a certain percentage to blame for their losses, this
percentage will be deducted from the total damage caused in line with the Law Reform
(Contributory Neegligence ) Act 1945
 where injuries more serious than foreseeable are suffered, the claimant can still recover
damages for all injuries suffered, provided the type of injury is foreseeable - ie the extent
does no matter; again provided the type of injury is foreseeable it does not matter if the
manner in which they did was not
 vicarious liability applies only where the person is an employee and where they are acting in
the course of their employment; in the q bank a coach driver taking a detour and then
causing an accident is still deemed to be in the course of employment so bear in mind
Ch 5 - Consequences of Incorporation

 on incorporation the new company is a separate legal person, with unlimited liability for its
own debts. Provided the new company's shares are fully paid up and there is no further
liability then even if the company becomes insolvent the founder will not be liable to
indemnify against the company debts
 corporate veil may be lifted in groups of companies where a subsidiary can be said to be
acting as an agent of its holding company; however group companies are not generally
regarded as a single entity so will not lead to lifting of the veil
 a director who is also a shareholder can be held liable for the debts of a private limited
company, for example where a director is guilty of fraudulent or wrongful trading; such
statutory provisions may be described as instances of the corporate veil being lifted
 only a public company needs a trading certificate and a private company is not required to
hold AGMs
 minimum share capital applicable to a new public company is £50,000 with no minimum
applicable to a private company
 a private company must file its accounts and reports within 9 months of the relevant
accounting period, 6 months for public companies
 statement as to whether the liability of the members is to be limited and if so whether by
shares or guarantee is given in the application, not required in memorandum of association
 in preparing a statement of capital and initial shareholding, stating whether rights of
preemption apply is not needed
 failure to obtain a trading certificate within 12 months of incorporation may result in a
compulsory winding up
 if a new company is set up to continue someone's business a contract cannot be ratified by
the new company if it was exchanged before incorporation since the entity entering into the
contract did not exist; the contract may subsequently be enforced without approval of the
members of the incorporated company as the contract is between the individual and the
third party
 use of words like international in a company name is not prohibited by law but is likely to be
turned down and not receive approval from the secretary of state
 provisions for entrenchment may be altered by a court order or by unanimous agreement of
company members
 record of written resolutions and minutes of general meetings may be kept at any place
specified in the regulations prescribed by sec of state, does not need to be at the company's
registered offices but must be available for inspection. Must be kept for 10 years
 company is not required to keep a register of debenture holders
 not all of the company register may be inspected, including register of directors' residential
addresses and contents of charges
 all companies need to file a directors' report but directors' remuneration reports are
required only by quoted companies
 directors' report requires a description of the principal activities of the company, approval
and signature on behalf of the board of directors and a statement that the auditor is aware
of the relevant audit information but not an auditor's statement that the report is consistent
with annual accounts as this is included in the auditor's report
 2 of these 3 must be satisfied to qualify as an SME - turnover < or = 6.5mn, BS < or = 3.26mn,
employees < or = 50
 a private company does not need a company secretary and the auditor of a private company
is deemed reappointed unless the company decides otherwise
Ch 6 - Ownership and Management

 de facto director takes on the same powers as a formally accepted one

 defective appointment of a director does not affect the validity of his actions - outright the
case, nothing about remaining valid but director being liable to indemnify the company
against loss
 outright majority may remove a director
 removal of a director from office does not lawfully terminate any service contract
 members are not usually required to approve director borrowing but the articles may set a
maximum borrowing limit above which directors must seek member approval
 example of a personal guarantee of indebtedness by a majority stakeholder in two
companies where he is aware in the second case of there being no benefit in giving it -
breach of director duty to exercise powers only for the purpose for which they were
conferred - the guarantee provides no benefit to the company; the second company cannot
enforce the second guarantee as it was entered into for improper purpose and could not be
enforced in the event of liquidation
 lack of experience is irrelevant in determining breaches of duty - standard is that of a
reasonably diligent person with the expected level of general knowledge, skill and
experience
 wrongful trading only applies where a company is wound up
 a director can be guilty of fraudulent trading even where the company of which he is a
director carries on; criminal liability may arise or civil liability on winding up
 disqualification of directors is at the discretion of the court if there is a conviction for
wrongful trading, bankruptcy leads to automatic disqualification
 disqualification is also mandatory where a director of multiple companies is judged unfit to
manage, court taking into account conduct as director in each of the companies
 company approval is not required for service contracts less than 2 years long, sale of assets
less than 10% of total asset value, minor payments of £200 or less; but a proposed pay out
of £50,000 on retirement of a director would need approval
 a director must regard relevant interests of creditors, members and employees in his duty to
promote the success of the company, per Companies Act 2006
 minority holder with 5% holding may bring a claim for unfair prejudice, sell shares without
director permission, petition the court to wind up on grounds that this would be just and
equitable but not requisition a general meeting which requires holding of at least 10% paid
up capital and voting rights
 any member may apply to the court under s994 of the CA on grounds of unfair prejudice
towards members generally; but not a director who is not also a shareholder, nor a creditor
 court has wide discretion in the area of unfair prejudice, areas where awards may be given
include an order for the company to purchase shareholder's shares at a fair price, order for
majority shareholder to purchase them at a fair price, or an order requiring the company to
change its articles
 at least 90% stake is required to agree to a shorter notice period for general meetings than
the normal 14 days
 public companies must hold a general meeting within 6 months of its accounting reference
date
 to reduce notice from 21 days for an AGM, member agreement must be unanimous
 ordinary resolution requires an outright majority to be passed - so watch out for the trap of
'at least 50%', special resolution requires 75% or more so 75% is enough in this case
 a written resolution cannot be used to remove a director or auditor
 in respect of a change of name, 75% is required for a written resolution
 only quoted and therefore not all public companies must publish the results of polls at
general meetings on a website
 loans to directors and payments for loss of office require shareholder approval and
shareholders may also alter the balance of power by amending company articles
 individual directors can bind the company by individual acts, whether they stem from
express, implied or ostensible authority
 example where it is agreed that a partner has a budget of £500 and then spends £750 - this
still comes within the implied usual authority so would be binding and the partnership would
not be able to back out of paying
 a disqualification undertaking may be accepted by the Secretary of State instead of
proceeding with a disqualification order if he considers this course expedient in the public
interest
 guidance from the OFT suggests that a director may be disqualified where it can be shown
that he should have been aware of a breach of competition law even if he was not aware of
it in actuality
Ch 7 - Company Finance

 where company constitution does not specify a distinction between shares, it is assumed
that all are ordinary shares
 class rights - right enjoyed by a class/category of shares not enjoyed by other shares in the
company
 in the absence of express provisions preference shareholders are not entitled to receive
unpaid preference dividends when a company is wound up or to participate in any additional
dividend over and above the rate specified in relation to their shares
 in the absence of express provisions class rights are varied by a special resolution of the
relevant class or written consent from at least 75% in nominal value of issued shares of that
class
 where an application is made to the court to have a variation of class rights cancelled, the
court can only confirm or cancel, not alter the terms
 equity share capital - issued share capital excluding any part of it that, neither as respects
dividends nor as respects capital, carries any right to participate beyond a specified amount
in a distribution
 amount of a company's loan capital is the amount of money the company has borrowed
 authority conferred on a director to allot shares must state the maximum number of shares
to be allotted and have an expiry of 5 years after authority is conferred; authority can be
altered by ordinary resolutions even if this constitutes alteration of articles which would
normally require a special resolution
 proposal to offer shares to existing members in according to their statutory rights of pre-
emption - offer of shares may be offered within 21 days, after which unaccepted shares may
be allotted on the same or less favourable terms to non-members
 private companies may exclude statutory pre-emption rights by making an express provision
in their articles, but public companies may not
 directors of a private company with one class of shares may be authorised by a special
resolution of the company's members to allot shares as if the statutory rights of pre-emption
did not apply - such authority may also be given in company articles
 shares must be paid for in money or money's worth including goodwill or know how so non-
cash payment of sufficient value is acceptable, as is payment in goods or property
 a share premium account may not be used to pay dividends, write off expenses incurred in
company formation or write off expenses in connection with an issue of debentures. Ma y be
used to pay up new shares allotted as fully paid bonus shares
 a private company must give notice of its refusal to register a requested transfer of its shares
within 2 months, along with reasons for the refusal
 a company may increase share capital by allotting more shares in accordance with the
Companies Act - no court order required
 the general rule is that a company does not reduce share capital but there are many
exceptions per S641 of the CA; special resolution is required, in a private company
supported by a directors' solvency statement
 where a special resolution is passed in support of redemption of shares must not be paid
sooner than 5 weeks after the resolution but no later than 7 weeks after resolution
 company purchasing its own shares - where made on a recognised investment exchange,
company must pass a resolution specifying the minimum and maximum price that may be
paid in respect of a specified maximum number of shares; where made through an off
market purchase the company must pass a special resolution approving the relevant
contract
 directors receive loans in breach of financial assistance rules - both criminal and civil
sanctions may apply so could be fine, civil liability or imprisonment
 if a company wishes to dispose with/deal with a floating charge then no consent is required
from the appropriate chargeholder, but consent is required for a fixed charge
 a floating charge will crystallise in the event f liquidation, cessation of business, appointment
of a receiver, or the occurrence of an event specified in the original charge
 no special words are required for a charge to be floating, it can be construed as the company
wishes; if both parties agree that a charge shall be a floating charge and describe it as such it
may nevertheless be a fixed charge - labels are not conclusive, whether a charge is fixed or
floating depends on circumstances
 certificate of registration issued by the Registrar, once a charge is registered, is proof
positive that registration requirements have been satisfied
 failure to register a charge is an offence but punishable by fine only
Ch 8 - Insolvency Law

 a company, directors, secured creditors with a fixed charge and a secured creditor with a
floating charge may apply to the court for the appointment of an administrator
 secured creditors with a fixed charge may not appoint an administrator out of court, the
other three in the first bullet point may
 once appointed the administrator is obliged to hold a creditors' meeting within 10 weeks; no
meeting is necessary where the administrator considers there insufficient property to make
a distribution to unsecured creditors over and above 'ring fenced asset distribution' set out
in the Insolvency Act 1986 and at least 10% creditors do not require one
 administrator is obliged to submit aims to the company registrar, company creditors and the
members
 an administrator may call a meeting of members and make payments to secured creditors -
generally speaking he has at least equivalent powers to a director
 administrator may sell goods subject to a floating charge without the consent of the chargee
or the court; for a good subject to a fixed charge court approval must be obtained
 a Law of Property Act receiver may be appointed by a secured creditor with either a fixed or
a floating charge or an unsecured creditor
 if members approve a proposed company voluntary arrangement and the creditors oppose
it, the creditors' resolution prevails, although a member may apply to the courts to challenge
an approval of a CVA
 if proposed CVA is approved by requisite majority of members and creditors, a creditor may
challenge the approval if he can show his interests have been unfairly prejudiced or on
grounds of material irregularity
 only an ordinary resolution is required for a members' voluntary winding up where this is no
provision regarding dissolution of the company; usually a special is used but an ordinary may
be sufficient in this case
 a declaration of solvency must be prepared by directors and submitted to the companies
registrar - member majority cannot make one
 creditors' voluntary liquidation is initiated by members - in spite of the name so look out for
this
 where members of a company resolve to wind up voluntarily but no declaration of solvency
is made, the liquidation proceeds as a creditors' voluntary winding up, even if the company
then proceeds to pay debts in full
 creditors' appointments as liquidator trumps members' appointment. If the members'
choice had already taken up office pending the creditors' meeting which overrides the
original choice then he would not be entitled to exercise all liquidator powers in that in
between period; powers would be restricted to taking control of company property,
disposing of goods that may otherwise diminish in value and do anything necessary to
protect company assets
 where a company fails to obtain a trading certificate within 12 months of incorporation the
Dept for Business Innovation and Skills may petition the court for a compulsory winding up.
Can do the same where it considers it to be in the public interest and just and equitable to
do so - such a petition would be presented following a conclusion to this effect in a report by
the department
 where the court orders a compulsory winding up, a creditor's existing court action against
that company will not continue unless the creditor obtains leave of court; the winding up
order also means that the creditor's floating charge over stock will crystallise
 preference given to a connected person (eg a director) within 2 years of liquidation can be
treated as void by the liquidator; in the case of an unconnected person this reduces to 6
months
 distribution of company assets in a compulsory liquidation, order of priority - liquidator fee,
employee wages within 4 months, dividends declared but unpaid
 once an IVA is approved a creditor can still petition for bankruptcy if the debtor does not
comply with the terms; where a nominee submits the proposed IVA rather than the
individual himself this person must be a licensed insolvency practitioner
 under an IVA a person can continue their trade and accept appointment as director of a
limited company
 a creditor owed more than £750 and having served a statutory demand on the company
more than 21 days ago may petition for bankruptcy; as may a creditor owed less than this
who obtained a judgment order from the court but then recovered only a proportion of this
when he came to enforce upon it
 bankrupts may not act as a company director, nor as an insolvency practitioner; they are
permitted by statute to act as chartered accountants but the ICAEW has rules to prevent this
 bankruptcy costs are first priority of payment, followed by employee remuneration,
unsecured loans last
 bankruptcy is discharged after one year though if the bankrupt is to blame for his insolvency
he may be subject to a bankruptcy restriction order for between 2 and 15 years
Ch 9 - Partnership

 a partnership can be established for just a single transaction, let alone a single venture;
provided the aim is to make a profit, making a loss does not prevent it from being a
partnership, company can be contained in a partnership's name without rendering it a
company
 where there is no formal partnership agreement and no express provision in respect of
losses, losses are shared in the ratios in which the partners take profits
 without a formal partnership agreement, unanimous agreement of all partners is required to
introduce a new partner; conversely for ordinary management decisions can be made by a
majority of partners
 the firm is bound by partner's acts in the course of business, unless he has no authority and
the third party knows that or does not believe him to be a partner - so in the example here a
partner does exceed the maximum cost for a paper order but he used the partnership's
letterhead so the paper company can enforce the contract against him
 ordinary partnerships are not body corporate with a separate legal personality from
partners; neither can an ordinary partnership create a floating charge over its business
assets
 if a partnership incorporates as a private limited company they no longer jointly own all the
business assets which pass to company ownership though their liability for the debts of the
company would be limited. In the case of liquidation, liability would be limited to amount
outstanding on their shares and the whole of the outstanding share premium
 there is no need to register a partnership under the 1890 Partnership Act and they will not
be required to provide annual audited accounts
 an LLP's name must end with LLP per the LLP Act 2000. There is no need for an LLP to file a
copy of their partnership agreement with the Company Registrar when they register their
LLP
 in the incorporation document of an LLP, the location of registered office, address of
registered office, addresses of all members are all required but not the profit sharing ratio
between members
 every change in membership in an LLP needs to be passed to the company registrar within
14 days
 a member of an LLP exceeding his budgetary, using his own letterhead, who makes out the
payment in his own name and arranges to pick up the goods himself - here when the
partnership refuses to pay they are not bound
 LLPs may be put into administration
 where it can be shown a member knew his LLP would become insolvent a withdrawal made
by him within 2 years prior to winding up may be reclaimed
Ch 10 - Criminal Law

 attempting to endear oneself to management is not a qualifying disclosure and the

disclosure has not been made in good faith
 disclosure outside the workplace will be protected by the Public Interest Disclosure Act if it is
reasonable in all circumstances and not made for personal gain, likewise hearsay and
suspicion are never sufficient; the workers also needs to satisfy another qualifying criteria in
order to receive protection, including reasonable belief that he would be victimised had the
matter been raised internally, matter had already been raised internally and reasonable
belief that a cover up was likely but not the fact that the matter was of a serious criminal
nature
 compensation in a whistleblowing case can include an amount for injury to feelings
 employee dismissed as a result of making a protected disclosure is entitled to claim for
automatically unfair dismissal under Employment Rights Act
 fraud can be committed by false representation, abuse of position but where a director
knew the company was bound to be insolvent but did not minimise loss to creditors, fraud
has not been committed. This is wrongful trading

penalties

Fraudulent trading Unlimited fine and up to 10 yrs

Director fraudulent trading
Insider dealing
Tipping off
Failure to adhere to money laundering regs
Failure to prevent bribery
15 yr disqualification
Unlimited fine and up to 7 yrs
Unlimited fine and up to 2 yrs
Unlimited fine and up to 2yrs
Fine - no imprisonment as committed by
companies not individuals

 fraudulent trading can be committed by anyone knowingly party to fraudulent trading and
with the intent to defraud. In the example case the director who plays little part other than
attending occasional board meetings is not guilty of fraudulent trading as he has not shown
dishonesty, but has shown serious neglect
 encouraging another in relation in insider information is an offence, as is disclosure of inside
information other than in proper performance of employment
 bribery occurs irrespective of whether the party being bribed accepts the offer
 acceptance of bribe also comes under the umbrella of bribery
 bribing foreign officials, including judges, still constitutes an offence under the Bribery Act
 accountants always have a duty to report any suspicion of money laundering or face criminal
liability under Proceeds of Crime Act - duty to report applies where they are acting as
insolvency practitioners and where the alleged offence is committed by a third party and not
his client
 under the proceeds of crime act it is a defence against charges of money laundering to show
a reasonable excuse for not making a report - eg receiving anonymous threats of violence if
he reported
 for tipping off charge to be enforced there must be knowledge or at least suspicion that any
disclosures would prejudice the investigation
 legal duty to make a report under money laundering legislation overrides client
confidentiality as a general rule
 privileged circumstance under POCA may arise where the professional advisor is acting in
connection with litigious and non-litigious matters
Ch 11 - Employment and Data Protection Law

 independent contractor - contract for service; employee - contract of service

 only an employee may claim wrongful dismissal
 labels in the contract referring to 'the employer' and 'the employee' are relevant but not
critical in determining whether a contract is one of employment; critical elements include
employee needing to perform duties himself unless ill, provision for the employee to
exercise control over the employee, employer required to provide work and employee
required to perform it
 contractor may delegate work if he is unwilling, not just if unable through illness etc
 an as and when obligation in terms of when a person is required to work will override other
elements like wearing a uniform that are suggestive of an employee - as and when shows no
mutual obligation therefore that person will not be an employee
 independent contractors may need to register for VAT - employees will not as their
employer has
 HMRC treating someone as self-employed does not necessarily make them self-employed
for the purpose of employment law, a tribunal will look at parties' mutual intentions to
determine genuine self-employment. Court also regards nature of the claim in reaching its
conclusion
 employer is only obliged to provide a written statement of prescribed particulars within 2
months of commencement if there is not already a written contract
 mobility clause - provision in an employment contract where an employee may be required
to work at a different location from where they normally work. Use subject to overriding
duty of trust implied on employer, needs to be reasonably used etc
 written statement of prescribed particulars must include names of employee and employer,
whether any service with a previous employer forms part of a continuous employment and a
brief job description; notice period need not be included and can appear in a separate
document
 provided instructions of an employer are lawful and reasonable, the employee is bound to
comply even where they are not in the employer's best interest
 employer is bound to indemnify employees against expense incurred in the course of his
employment if there is no such provision in the contract - an implied duty
 not obliged to provide a reference though if he does provide he must exercise reasonable
care and skill to ensure accuracy and fairness
 common law duty of employers to protect employee against reasonably foreseeable risks to
health and safety - provide a safe system of work, provide competent fellow employees,
provide safe equipment; but not to protect an employee's personal property whilst engaged
in performing his contractual duties
 in extreme cases breaches of health and safety legislation can lead to imprisonment of up to
2 years and an unlimited fine
 employment of more than one month but less than 2 years - minimum statutory notice = 1
week
 minimum statutory notice period overrides a lesser period set out in a contract
 in a claim for unfair dismissal, the award may be increased by 25% if the employer has
behaved unreasonably and decreased by the same percentage if found that the employee
has acted unreasonably
 right not to be unfairly dismissed arises after 2 years of continuous service with an existing
or associated employer, both part and full time workers
 claims for unfair dismissal must be submitted to an employment tribunal within 3 months of
the expiry of the notice
 employee cannot claim unfair dismissal where contract of employment is frustrated
 employer is not obliged to provide a written statement of reasons for a dismissal unless the
employee requests one within 14 days
 generally speaking those working outside of GB are excluded from the Employment Rights
Act's protection, judge decides on a case by case basis determined by strength of connection
to GB
 dismissal of employees on the grounds of involvement in TU activities - automatically unfair
 where an employee is dismissed having taken steps or proposed to take steps to protect
himself or others in imminent danger, then it is automatically unfair
 an employee not being qualified to do the job he is employed to do is a potentially fair
means of dismissal under the ERA
 re-engagement - employee given new employment on terms comparable with old or
otherwise suitable
 reinstatement - employee allowed to return to same job with no breach of continuity
 tribunal may reduce basic award for unfair dismissal where the employee has unreasonably
refused reinstatement, where the employee has received a redundancy payment, where it is
just and equitable in regard to employee conduct; however where the loss suffered is less
than the nominal award the tribunal may not reduce the amount as it is an arbitrary figure
and made regardless of the amount of loss
 it is possible, though rare, to claim for both wrongful and unfair dismissal
 normal duty to mitigate loss applies where a person is seeking remedy for breaches of
contractual terms
 dismissal where someone's job has been taken over by a computer system operated by a
colleague counts as a reason of redundancy; need to work for 2 years and be an employee
not a contractor before statutory redundancy can be claimed
 there is no statutory right to demand an offer of employment when a company relocates its
business and makes all the workers redundant
 a registered company can be a data controller but only individuals can be data subjects
 act applies only to data about individuals so the fact a person's corporate employer is on the
verge of insolvency would not constitute personal data; info about a person's timekeeping,
opinions on capability and intention to promote them within a timeframe would be
 paper files as well as electronic are within the scope of the DPA
 non compliance can lead to imprisonment though this is extremely rare
 personal data itself is not recorded on public register of the Information Commissioner - the
purpose of the data, types of data and a list of subjects are all included
 data being held not longer than necessary is a principle of the DPA but there is no concept of
an agreement between parties on this so look out for that in the options
 payroll records are exempt from the DPA so subject's right of access do not apply
 subjects may request that no decision that materially affects him should be based solely on
automatic processes - eg turned down on a mortgage on basis of an automatic credit score
checker
 exam scripts and confidential references are exempt from the DPA