Acca f4 eng revision mock answers j12

ACCA

Paper F4 (ENG)

Corporate and Business Law

June 2012

Revision Mock – Answers

To gain maximum benefit, do not refer to these answers until you have completed the revision mock questions and submitted them for marking.

ACCA F4 (ENG): CORPORATE AND BUSINESS LAW

2 KAPLAN PUBLISHING

© Kaplan Financial Limited, 2012

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REVIS ION MOCK: ANSWERS

KAPLAN PUBLISHING 3

ANSWER 1

Answer guide and important points

The court structure is a frequently examined area. However, candidates should bear in mind that part (a) is only worth 5 marks and is only on the civil court structure. Tribunals have not yet been examined. Again candidates need to ensure they answer the requirement which in part (b) asks for the structure of tribunals and advantages and disadvantages.

Marks

(a) The most important civil courts are the County Courts, because they deal with the majority of civil cases. They are courts of first instance, which means that they deal with cases when they first come to court. In the majority of cases a single district judge sits by himself. The jurisdiction includes contract, tort, probate and insolvency matters.

The High Court of Justice is also a court of first instance. A single High Court judge sits alone. The High Court is split into three divisions which are:

• The Queen’s Bench Division – deals with contract and tort disputes.

• The Chancery Division – deals with company law, partnerships and copyright law.

• The Family Division deals with all matrimonial matters.

A case will either be heard in the County Court or High Court depending on which track it is assigned to. The small claims track deals with simple claims valued at no more than £5,000. The fast track deals with claims of between £5,000 and £25,000. The multi-track deals with claims of over £25,000 and/or complex claims. The County Court deals with all cases allocated to the small claims track, the majority of fast track and some multi track cases. All other claims are dealt with by the High Court.

Appeals from both the County Court and the High Court generally lie to the Court of Appeal. When hearing an appeal, three Lord Justices of Appeal sit. In addition all three divisions of the High Court have the jurisdiction to hear appeals from the County Court.

Appeals from the Court of Appeal generally lie to the Supreme Court. Usually five Justices of the Supreme Court will hear the appeal.

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(b) The court system is not the only way of settling disputes. There is also the alternative system of tribunals.

There are two types of tribunals. Administrative tribunals are set up by Parliament to deal with specialist disputes. An example is such a tribunal is the employment tribunal. Domestic tribunals are set up by a particular body or club to regulate the conduct of their members. The ACCA has such a tribunal in the form of a Disciplinary and Regulatory Authority.

With regards to an administrative tribunal, each tribunal is staffed by a legally qualified chairman and two other persons selected from a panel. Such a panel sitting in an Employment Tribunal might comprise one person who represents the interests of employers and one who represents the interest of employees.

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4 KAPLAN PUBLISHING

Tribunals have the following advantages:

• the case will usually be heard by someone who has expertise in that area and can form a conclusion in line with accepted practice.

• are much quicker than pursuing the matter through the courts particularly through the High Court.

• are a much cheaper procedure than taking the matter through the courts as there are no court fees or reliance on legal representation

• the proceedings are much less formal and therefore less intimidating.

A disadvantage is that legal aid is not available for a tribunal hearing.

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ANSWER 2


This questions deals with an important area of contract law. For there to be a valid contract there must be acceptance of an offer.

A good answer will cover the following: • Definition of acceptance • Acceptance can be by express words or conduct • The general rule is that acceptance must be communicated • The exception to the general rule is the postal rule • Revocation must be made before acceptance • Revocation must be communicated, can be by a reliable third party

Postal rule is different for revocation in that it must have been received.

Marks

(a) Acceptance

Valid acceptance of a valid offer is one of the essentials of a legally enforceable contract.

An acceptance must be an unqualified agreement that corresponds to the terms of the offer. If a purported acceptance in fact introduces new terms then it is a ‘counter-offer’ and not an acceptance. Thus in Hyde v Wrench (1840), where an offer was made to sell land for £1000 and the claimant made a counter-offer of £950 but later sought to accept the original offer, it was held that the claimant’s counter-offer had terminated the original and so no offer was available for acceptance.

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The acceptance may be by express words or be inferred from conduct. In a unilateral contract as in Carlill v Carbolic Smoke Ball Co (1893), performance of the act required by the offer or advertisement constitutes acceptance. There must be some act on the part of the offeree, however, as mere passive inaction is not capable of constituting acceptance (Felthouse v Bindley (1862)).

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KAPLAN PUBLISHING 5

Acceptance of an offer may only be made by a person authorised to do so, usually the offeree or his authorised agent. Generally speaking, acceptance must be communicated to the offeror before it can be effective, unless the offeror expressly waives the need for communication (as in Carlill’s case). The offeror may stipulate the sole means of communication but if he does not make it absolutely compulsory, then acceptance by another means which is equally expeditious and does not disadvantage the offeror in any way will be sufficient

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There is no need for the offer specifically to state that acceptance must be communicated by post – whether this was in the contemplation of the parties may be deduced from the circumstances, for example, if the offeror was itself made by post as in Household Fire and Carriage Accident Insurance Co v Grant (1879).

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Clearly if it is evident that the parties did not intend the postal rule to apply, then the rule will be excluded. In Holwell Securities v Hughes (1974) it was held that the stipulation for ‘notice in writing’ meant that notice of acceptance actually had to be received by the offeror.

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Maximum 4 Revocation

The offeror may ‘revoke’ (or cancel) the offer at any time prior to acceptance. Once accepted, an offer cannot be revoked. Equally, once an offer has been revoked, it is no longer available for acceptance.

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1

Revocation may be made by an express statement to that effect or may be implied from an act of the offeror indicating that the offer is no longer in force for example sale of the goods to a third party.

1

Since revocation can be made any time before acceptance the offeror can revoke an offer even where he has stipulated that the offer will be held open for acceptance for a period of time unless a separate collateral contract has been entered into.

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Whatever form it takes, it is essential that the revocation is communicated to the offeree in order to be effective. Revocation of an offer may be communicated by the offeror or by any third party who is a sufficiently reliable informant (Dickinson v Dobbs (1876)).

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While a postal acceptance of an offer is usually effective from the time of posting, a postal revocation of an offer does not take effect until received by the offeree i.e. communicated to the offeree. Thus, in Byrne v van Tienhoven (1880) it was held that where a letter of revocation of an offer crosses in the post with a letter of acceptance, a legally binding contract will have been formed from the time the letter of acceptance was posted.

Maximum

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6 KAPLAN PUBLISHING

ANSWER 3


This question relates to company names and then asks about the tort of passing off.

In part (a) candidates should explain the following:

• differences in company name for a private company and a public company

• the index of names

• the need to obtain approval if certain words are used

• the circumstances in which the Secretary of State can force a company to change its name

• a company can change its name by passing a special resolution In part (b) candidates should explain:

• the meaning of the tort of passing off

• use the Buttercup case as an example

• explain the consequences if a company is passing off is proved

Marks

(a) There are a number of rules relating to the names of a company under the Companies Act 2006. Most of these rules exist to protect the general public.

Except for specifically exempted companies, companies are required to indicate if they are operating under limited liability status. To show this the name of the company must end with limited (or Ltd) if it is a private company and public limited company (or plc) if it is a public company. Welsh companies may use the Welsh language equivalent.

Companies Registry maintains an index of company names. The name of the company must not be the same as another in the index of company names or Registrar will refuse to register them.

The name is not allowed to use such words which are deemed illegal or offensive, for example words that could be deemed to incite racial hatred.

If the name uses certain words or expressions as specified under the Company and Business Names Regulations 1981 the company must have the Secretary of State's permission to do so, for example Royal, National, Chartered. This is because such words either suggest certain connections, or a certain standard of service. Approval must also be sought for names which give the impression that the company is linked with government, or local government.

The Secretary of State can force a company to change its name in a number of circumstances:

• If the name is that same as, or too like, another company, the company can be made to change within 12 months of registration

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• at any point if the Secretary of State believes that the name gives such a misleading idea of what the company does that it is likely to cause harm to the public

• The company may also be made to change their name is they supplied misleading information when applying for the name on registration.

If a company wished to change its name it must do so by special resolution. This change will be valid as long as he name continues to comply with the rules above.

Maximum

(b) The tort of 'passing off' happens when one company uses the same name as another company, or one very similar to that of another company, and that causes the public to believe that they are that other company, or that they are linked to the other company. If this causes actual damage to the other company they may bring an action under the tort of 'passing off'.

In the case of Ewing v Buttercup Margarine Co Ltd Ewing, who traded under the name Buttercup Dairy Company sued to stop a newly registered company from using the name Buttercup Margarine Company Ltd on the grounds that the public may think there was a link between his company and the new company. An injunction was granted to prevent the new company from trading under this name as the courts felt that the name Buttercup was so closed associated with Ewing dairy products that it was likely to cause confusion.

If passing off is proved, the court may stop the business from using the name and order that damages be paid to the person whose business has suffered a loss.

Maximum

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7

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3

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ANSWER 4


A very straightforward question on the differences between a private and a public company. An easy one to score marks on.

Marks

Section 4 of the Companies Act 2006 (CA 2006) states that a ‘private company’ is defined as any company that is not a public company. A ‘public company’, on the other hand, is a company whose certificate of incorporation states that it is a public company.

The differences between private and public companies are as follows:

• A private company can commence business as soon as it is incorporated. A public company must first obtain a trading certificate from the Registrar before trading.

• A public company must have a name which ends with plc or public limited company. A private company must end with Ltd or limited.

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• A public company must meet the minimum share capital requirement of £50,000, but there is no minimum for a private company.

• A public company may raise capital by offering its shares to the public, a private company is prohibited from doing so.

• A public company must obtain a trading certificate from the Registrar before commencing trading. A private company can begin trading from the date of incorporation.

• A public company must have a minimum of two directors. A private company only needs one director.

• A public company must have a company secretary who is suitably qualified. A private company is not required to have a company secretary.

• A public company has six months from the end of its accounting reference period in which to produce statutory accounts. The period for a private company is nine months.

• Public companies must lay their accounts and reports before a general meeting annually. Private companies have no such requirement.

• A public company must have its accounts audited. A private company does not need its accounts audited unless its turnover is below £6.5m.

• Public companies must hold an annual general meeting within six months of their financial year end. Private companies are not required to hold annual general meetings.

• Private companies can use written resolutions to vote on company business. Public companies cannot use written resolutions.

Maximum

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10

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ANSWER 5


This question requires an explanation of an annual general meeting and a general meeting in part (a) and the procedures to call a general meeting in part (b). Candidates should ensure they do not answer the requirement of part (b) through their answer to part (a). Marks

(a) In theory, the ultimate control over a company’s business lies with the members in a general meeting.

In order to validate business it is necessary for a quorum to be present. It is generally two persons who can be members or proxies, unless it is a company limited by shares or guarantee with only one member.

Voting is by a show of hands initially unless a poll is demanded.

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Annual general meeting

By virtue of s336 CA06, every public company is required to hold an annual general meeting (AGM) once a year, within the six months following the accounting reference date. (Private companies are no longer required to hold an AGM).

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If a public company fails to hold an AGM then every officer in default may be fined.

S307 states that notice for an AGM is at least 21 days. However, an AGM can be called by shorter notice than 21 days if all the members entitled to attend and vote at the meeting agree to the shorter notice.

Members can force the inclusion of a resolution on the agenda if they hold 5% of the voting rights or 100 members each hold an average of £100 of the paid up share capital: s338 CA06.

The usual business of an AGM includes consideration of the accounts, appointment of the auditors, election of the directors and the declaration of dividends.

General meeting

A general meeting can be held whenever required. At least 14 days’ notice must be given and the person who requisitions the meeting may set the agenda.

For a public company a general meeting can be called by shorter notice if 95% of the members agree, for a private company this is 90% (or such higher percentage up to 95% as stated in the articles).

In the case of a public limited company, a general meeting must be held if a serious loss of capital has occurred: s656 CA06. This is defined as the assets falling to half or less than the nominal value of the called up share capital.

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(b) General meetings may be convened in a number of ways by various people as follows:

(i) The articles usually delegate the power to call a meeting to the board of directors. Directors may call a general meeting whenever they consider it necessary.

(ii) Apart from their usual power, directors of public limited companies are required, under s656 CA 2006, to call a general meeting where there has been a serious loss of capital. This is defined as the assets falling to half or less than the nominal value of the called up share capital.

(iii) The members (shareholders) of the company may call a general meeting. A meeting may be called by those members who hold at least 10% of the paid up voting capital or, in the case of a private company, 5% of the paid up voting capital, if more than 12 months has elapsed since the last general meeting (s303 CA 2006). If the directors then fail to convene a meeting as required within 21 days of the deposit of the requisition, (and to hold it within 28 days of the notice calling the meeting) then the requisitionists may themselves convene a meeting and recover any expenses from the company: s305 CA 2006.

(iv) The resigning auditor of a company may require the directors to convene a general meeting of the members. This power is provided so that, where there is cause for concern, the auditor can explain the reason for his resignation to the members generally and put them on notice: s518 CA 2006.

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(v) The court may order a meeting under s306 CA 2006 where it is impracticable otherwise to call a meeting, for example to break deadlock. The court's power under s306 is extremely wide and any such meeting is to be called, held and conducted in any manner the court thinks fit.

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ANSWER 6


There will always be a question on directors and this question has not come up for some time. Candidates are required to explain the law relating to the appointment and removal of directors.

Marks

(a) Directors must be over 16 and one, at least, must be a natural person. There is now no upper age limit.

The first directors of a company will be those named in the particulars delivered to the Registrar of Companies on incorporation. Subsequent directors will be appointed as provided for by the articles. Most companies adopt model articles which provides for the co-option of new directors by existing ones and for the election of directors by an ordinary resolution in a general meeting.

At the first annual general meeting (AGM) all the directors retire and offer themselves for re-election by ordinary resolution. At each subsequent AGM one-half of directors (those most senior) retire. They can be re-elected.

Directors themselves may fill a casual vacancy, with such an appointee being required to stand at the next election of directors at the next AGM.

The company must notify Companies House within 14 days of new appointments and any changes in particulars. It must also enter the relevant details in the register of directors.

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Maximum 5

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(b) A director can be removed by a number of different ways: by disqualification, by resignation, by not offering himself for re-election, on death, on dissolution of the company or in accordance with provisions of the articles, for example for no longer holding the necessary number of qualification shares.

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S168 CA 2006 provides that a director may be removed from office at any time by ordinary resolution with special notice (28 days). On receipt of the special notice, the company must send a copy to the relevant director who may require written representations to be circulated to the members. He also has a right to address the meeting at which the resolution is considered and voted upon.

S168 cannot be overridden by the articles or by any service agreement although the articles can provide for weighted votes as in Bushell v Faith (1969).

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ANSWER 7


This is a straightforward question asking about the common law duties of employees and employers. Where possible candidates should make references to relevant case law.

Marks

(a) Common law duties of employees

1 Personal service

This means that the employee must not delegate the performance of his job (unless the employer expressly or impliedly gives permission).

2 Reasonable care and skill

The employee must act with reasonable care in performing his duties. The standard of care will depend on the circumstances. An isolated act of negligence will not justify summary dismissal unless it amounts to gross negligence – Lister v Romford Ice.

3 Obedience

The employee has a duty to obey orders – Pepper v Webb – provided the order is both lawful and reasonable. An order is unlawful not only where the carrying out of it would result in a criminal offence but also if it is outside the terms of the contract. What is a reasonable order will depend on the circumstances.

4 Fidelity

This is a good faith duty and encompasses:

• a duty not to profit or benefit from the employment – Sinclair v Neighbour;

• a duty not to compete with the employer;

5 Mutual co-operation

This means that the employee must perform the work in a reasonable manner. This is a wide and flexible duty and can encompass matters such as appropriate dress at work, use of appropriate language at work and 'go-slows' (the latter as in Secretary of State for Employment v ASLEF).

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(b) Common law duties of employers

Like the employee the employer also has implied duties that supplement any expressly agree terms. The common law implied duties are as follows.

1 To pay reasonable remuneration

This duty arises in the absence of express agreement as to the amount.

2 To provide a reasonably safe and healthy workplace

This common law duty is now supplemented by specific statutory duties.

3 To indemnify the employee for properly incurred expenses

This means that the employer must reimburse the employee for any such expenses.

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4 To give reasonable notice of termination of employment

This duty arises in the absence of express agreement as to the length of notice.

5 Mutual co-operation/respect

This means that the employer has a duty to act reasonably and responsibly towards his employees. Thus he would be in breach of contract by for example giving unlawful or unreasonable orders, or by using abusive language.

In addition to the above common law implied terms there may be terms implied in the light of the particular facts. Thus, although there is no common law duty to provide work, the employer might have a duty to provide work, for example if the employee is remunerated on a piece work or commission basis – or if the contract contemplates development of skills – William v Tucker

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ANSWER 8


This scenario question concentrates on an essential element of a contract – intention of the parties. Candidates must explain the presumptions relating to domestic/social agreements and business/commercial agreements. Marks

The law does not enforce all agreements. For an agreement to be binding both parties must intend for it to have legal effect. To decide whether this is the case the courts will apply some presumptions based on the type of arrangement that the agreement covers, though these presumptions are just a starting points and will be set aside if there is clear evidence to the contrary.

Domestic/Social Arrangements

In the case agreements between family members and friends the courts will generally presume that there is no intention to be legally bound. This was seen in the case of Balfour v Balfour where an agreement by a husband to pay his wife maintenance was held to not be legally binding as it was a domestic agreement.

However, a presumption against intention is only a presumption. When there is clear evidence of intention or if the facts and circumstances of the case suggest otherwise the courts will follow this as was seen in Simpkins v Pays. Three women jointly entered a fashion competition in a weekly magazine. Their entries were submitted on the same form and entry fees and postage were pooled. When one party won, they refused to pay out to Ms Simpkins. The courts held that although this was a domestic agreement the business approach that the women took towards their entry indicated that there was intention to create legal relations.

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Business/Commercial Arrangements

In the case of business and commercial agreements the courts will presume that there is intention, unless there is clear evidence otherwise. Thus in the case of Jones v Vernons Pools the fact that the pools coupon stated that it was "binding in honour only" showed that there was no intention to be legally bound.

Jay, Will and Simon

Following the facts in the Simpkins case discussed above it appears that there was intention in this situation due to the mutuality of arrangements shown. This is further evidenced by the signed agreement which appears to indicate a clear intention to be bound.

Maximum

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10

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ANSWER 9


This scenario question required candidates to explain the order in which debts will be repaid in the event of liquidation and then applying those rules explain the order in which these particular debts would be repaid. Marks

In the event of liquidation the liquidator must repay debts in the following order:

• fixed charge holders, a properly registered charge will take priority according to the date of creation.

• expenses of liquidation.

• preferential creditors

– wages or salaries due in the four months preceding the commencement of winding up (maximum £800 per employee)

– all accrued holiday pay.

• floating charge-holders, again a properly registered charge will take priority according to the date of creation.

• unsecured creditors.

• post-liquidation interest.

• declared but unpaid dividends.

• return of capital to members.

• any surplus to be distributed to members.

Applying that order the debts will rank in the following order:

(1) The mortgage of £200,000 secured by a fixed charge.

(2) The loan of £20,000 from Sidland Bank Plc secured by a fixed charge.

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(3) The liquidator’s fee of £7,000.

(4) The wages and salaries of the previous month, though this will be limited to £800 per employee.

(5) The loan of £50,000 from Peter secured by a floating charge.

(6) The loan of £40,000 from Sandra secured by a floating charge.

(7) Trade creditors of £150,000, which rank equally amongst themselves.

(8) Declared dividends of £25,000.

Maximum

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ANSWER 10


This scenario question deals with insider dealing. Candidates should explain the relevant provisions under the Criminal Justice Act 1993 and in particular explain:

• the relevant offences

• who is an insider

• what is inside information

• who is an inside source

This should then be applied to see if either Peter and/or Alan are guilty of insider dealing

Marks

The rules on insider dealing are set out in the Criminal Justice Act 1993.

Under the Act an individual commits an offence if they have information as an insider and:

• they deal in the company’s securities on the basis of that information

• they encourage another person to deal in those securities in relation to that information

• they disclose the information to anyone other than in the proper performance of their employment, office or profession.

An insider is a person who has inside information and he has it from an inside source.

Inside information is information which relates to a particular company, it is specific or precise, it has not been made public and if made public it is likely to have a material effect on the share price.

An inside source is a person who has information from being a director or employee of the company or has access to the information by virtue of his employment, office or profession or the direct or indirect source of his information is a person within either of the previous categories.

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Peter

Peter is an inside source with access to inside information through his position as the company solicitor of ABC Communications. When he passes the information of the takeover to his father-in-law Alan he commits an offence under the Act.

Alan

Alan is an insider because he has inside information from an inside source.

When Alan buys the shares he commits an offence under the Act.

In these circumstances the State will prosecute Peter and Alan and this will be a criminal case heard in the criminal courts. If found guilty they can be sentenced to a maximum of seven years in jail and/or pay an unlimited fine.

Maximum

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Acca f4 eng revision mock answers j12