Paper 2.

2(ENG)
Corporate and
Business Law
(English)

PART 2

TUESDAY 6 JUNE 2006

QUESTION PAPER

Time allowed 3 hours

This paper is divided into two sections

Section A SIX questions ONLY to be answered

Section B TWO questions ONLY to be answered

Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examination

hall

The Association of Chartered Certified Accountants

Section A – SIX questions ONLY to be attempted

1 In relation to the English legal system, explain:

(a) the meaning, scope and effectiveness of delegated legislation; (7 marks)
(b) the powers of the courts to control such delegated legislation. (3 marks)
(10 marks)

2 In relation to contract law, explain the meaning and operation of the doctrine of ‘promissory estoppel’.
(10 marks)

3 Explain the meaning and legal effect of ‘contracts in restraint of trade’ with particular regard to their application
to contracts of employment.
(10 marks)

4 Explain the duties that the members of a partnership owe to one another.
(10 marks)

5 Explain the meaning and consequence of the following terms when found at the end of the names of business
organisations:
(a) LLP; (3 marks)
(b) Ltd; (3 marks)
(c) plc. (4 marks)
(10 marks)

6 In relation to company law, explain the meaning of and distinguish between:

(a) preference shares; and (5 marks)
(b) debentures. (5 marks)
(10 marks)

7 Explain the fiduciary duties owed by directors to their companies.

(10 marks)

8 In the context of company law explain:

(a) the share premium account; (6 marks)
(b) the capital redemption reserve. (4 marks)
(10 marks)

2
Section B – TWO questions ONLY to be attempted

9 Ali runs a business selling computers. Last month he placed an advertisement in the Wednesday edition of his local
paper stating:
‘Once in a lifetime opportunity: a Bell Supreme: £500 cash. This is a serious offer – the Bell Supreme will go to
the first person who accepts it on Saturday – valid for one day only’
When Bob saw the advert he immediately posted a letter of acceptance of Ali’s offer. The letter arrived first thing on
Saturday morning. Ali read it before opening his shop for business, but decided that he was not interested in dealing
with Bob.
Cindy was the first person to arrive at Ali’s premises on Saturday morning. She offered Ali a cheque for £500, but he
refused to accept the cheque and told her she could not have the computer.
Later in the day Den asked Ali if he will keep the offer open until Monday, so he could get to his bank to get the cash
and Ali agreed. As a gesture of his intent Den gave Ali £50 not to sell the computer before he returned on Monday.
However, when later in the day Eva offered him £600 in cash for the computer Ali agreed to sell it to her. Eva said
she would pay and pick up the computer on Monday afternoon.
On Monday morning Den returned to complete his purchase of the computer but Ali refused to give it to him. Den
subsequently went to another computer shop but had to pay £800 for a Bell Supreme. In the afternoon Eva phoned
Ali to say that she no longer wished to buy the computer.

Required:
Explain the above situation with respect to the rules governing the formation of a contract.
In particular consider:
(a) The precise nature of Ali’s advertisement. (5 marks)
(b) Whether Bob has entered into a binding contract with Ali. (4 marks)
(c) Whether Cindy has any right of action against Ali. (4 marks)
(d) Whether Den has any right of action against Ali. (4 marks)
(e) Whether Ali has any right of action against Eva. (3 marks)
(20 marks)

10 Fitz ran a publishing business, which specialised in producing legal textbooks. Gus and Hilda both worked for Fitz as
proof readers and editors for a period of three years. They were both described as self employed and both paid tax as
self employed persons. Fitz provided all of their computer equipment. Gus was required to work solely on the projects
Fitz provided, and he had to attend at his premises every day from 9 am till 5 pm. Hilda on the other hand usually
worked at home and was allowed to work on other projects. Hilda could even arrange for her work for Fitz to be done
by someone else if she was too busy to do it personally. Also Gus received payment when he could not work because
of illness, but Hilda received no such payment.
Last month, Fitz decided to move out of the law textbook market and, instead, to specialise in scientific textbooks. As
a result he told Gus and Hilda that there would be no more work for them.

Required:
Advise Gus and Hilda:
(a) Why it is important to distinguish between contracts of service and contracts for services. (4 marks)
(b) How the courts decide whether someone is self employed or is an employee. (6 marks)
(c) Whether each of them will be considered to be self employed or an employee. (4 marks)
(d) What claim, if any, they can make against Fitz. (6 marks)
(20 marks)

3 [P.T.O.
11 Ina, Jan and Kate formed a private company in 2004 to pursue their interest in medical research. Ina and Jan each
took 100 shares in the company and Kate took 50 shares. The three became directors of the company. The articles
of association of the company were drawn up to state that Kate, a qualified solicitor, was to act as the company’s
lawyer for a period of five years, at an annual salary of £15,000.
In 2005 Ina and Jan discovered that Kate had been working for a rival company and had passed on some secret
research results to that company. As a result Ina and Jan used their voting power in the company to pursue the
following actions:
(a) they removed Kate from the board of directors;
(b) they informed Kate that she was no longer to act as the company’s solicitor with immediate effect and with no
compensation;
(c) they altered the articles of association of the company to include a provision to the effect that anyone found to
be assisting competitors of the company should be required to sell their shares to the other members;
(d) they altered the articles of association to include a provision to the effect that any member of the company could
be required to sell their shares to the other members on the passing of an ordinary resolution to that effect.

Required:
Advise Kate as to the legality of the above actions under company law.
(20 marks)

12 In January the board of directors of Large plc decided to make a take-over bid for Median plc. After the decision is
taken, but before it is announced, the following events occur:
(i) Nic, a director of Large plc, buys shares in Median plc;
(ii) Nic tells his friend Oz about the likelihood of the take-over and Oz buys shares in Median plc;
(iii) Oz in turn passes on the information to his friend Pat, who also buys shares in Median plc;
(iv) at a dinner party Oz, without actually telling him about the take-over proposal, advises his brother Quentin to
buy shares in Median and Quentin does so.
When the take-over bid is finally made public, the stock-market price of shares in Median plc rises significantly and
all the above make significant profits when they immediately sell their holdings.
The take-over bid, however, is referred for investigation on the basis that it might breach monopoly legislation. Before
the report disapproving of the take-over bid on competition grounds is officially announced, the following further
events occur:
(v) Mandarin, a senior civil servant receives a copy of the report, whereupon he sells shares he has in Median plc,
thus avoiding a loss when the shares fall back on the stock exchange following the official release of the report.
(vi) Minion, a minor civil servant, who works for Mandarin, reads a copy of the report lying on Mandarin’s desk. He
needs money to pay off an outstanding tax bill and so he decides to sell some shares in Median plc before their
price falls.

Required:
Consider the legal position of Nic, Oz, Pat, Quentin, Mandarin and Minion, in the light of the law relating to insider
dealing.
(20 marks)

End of Question Paper