ACCA F4 flashcards – set 4

See also ACCA F4 Flashcards: Set 1 | Set 2 | Set 3 | Set 4


What is the minimum number of members required in a public company?

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1 is the minimum number of members required in a public company

What happens if I fail properly to plan my answers in the exam?

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My answers will be disjointed and lack professionalism

How much time should I spend planning each answer in the F4 law examination?

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Six and a half minutes to try and think of 10 correct, relevant, markable points

What is meant by “fraudulent trading”?

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“Fraudulent trading” involves establishing a company with the intention of defrauding creditors

What is meant by the expression “wrongful trading”?

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“Wrongful trading” is when directors allow the company to continue trading without there being a realistic prospect that it will be able to avoid an insolvent liquidation in the foreseeable future

“The punishment for money laundering is a prison sentence of up to 14 years and / or a fine”
Is this statement true?

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Yes, the punishment for money laundering is a prison sentence of up to 14 years and / or a fine

There are three offences involved in the criminal offence of Money Laundering.
What are the three offences?

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The three offences in money laundering are:
* laundering
* failure to report
* tipping off

Money laundering is a three step process. What are they?

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* Placement
* Integration
* Layering

If you were given investment advice by a director to “Get out of equities and invest in Government bonds”, would that qualify as passing on unpublished price- sensitive information?

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No, to be an offence, the information needs to be specific and not just general investment advice

Is unpublished price-sensitive information which is greater than 6 months old really price-sensitive?

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No, the information should be less than 6 months old

What constitutes “unpublished price-sensitive information”?

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Unpublished price-sensitive information is information about a company which is not in the public domain but which, when published, is likely to have a material affect on the market price of the company’s securities

If an insider in possession of unpublished price-sensitive information sells shares and avoids a loss but claims that the sale was to raise money to repay a private debt, is he guilty?

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Probably not, if he can persuade the Court that the sale was for reasons other than the avoidance of a loss

“It is an offence for a person who is an “insider” to use inside knowledge about a company and avoid buying shares in the company where they fear the price of the company’s shares will fall.”
Is this statement true?

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No, the offence of insider dealing refers to deals. It does not refer to non-dealing

“Insider dealing is a civil offence and is punishable by a fine”
Is this statement true?

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No, insider dealing is a criminal offence and is punishable by a term in prison and / or fine

To what does the expression “comply or explain” refer within the UK Corporate Governance Code?

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 The expression “comply or explain” refers to public quoted companies which must state within the financial statements that they have complied with the Code or, if not, why not.

To which body of people does a whistle-blower turn in the event that the whistle-blower has concerns over alleged breaches of regulation / internal controls?

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A whistle-blower would refer their concerns over alleged breaches of regulation / internal controls to the Audit Committee

Where a company is in financial difficulties, there may be a way other than liquidation by which a company could be rescued.
What is that process called?

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 A way other than liquidation by which a company could be rescued is called an Administration

Where does the Official Receiver fit into company law on liquidations?

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The Official Receiver will be appointed by the Court as Provisional Liquidator in the event of the Court granting a compulsory liquidation order

In a relatively recent case, the Court granted a compulsory liquidation order on the grounds that the company was a “quasi-partnership”
What was that case?

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The case where the Court determined that the company was a “quasi-partnership” was Ebrahimi v Westbourne Galleries

Re German Date Coffee Company is a case where the Court granted a liquidation order.
Why did the Court make that order?

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The Court made the order on the grounds that it was just and equitable – the sub-stratum of the company no longer existed

Is it possible for the members of a private company to pass a written resolution to place their company into liquidation?

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Yes, provided a majority of 75% vote in favour, a private company can be put into liquidation by passing a written resolution

What is the essential and fundamental difference between a members’ voluntary liquidation and a creditors’ voluntary liquidation?

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In one word, SOLVENCY

If a members’ voluntary liquidation is a voluntary action of the members, a creditors’ voluntary liquidation is a voluntary act of which group of people

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The members! It’s called a creditors’ voluntary liquidation because the creditors are not likely going to be paid their debts in full

There are two types of voluntary liquidation.
What are the two types?

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A members’ voluntary liquidation and a creditors’ voluntary liquidation

In the case of A Large Company plc, how many members represent a quorum at a general meeting?

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 It’s whatever it says in the Articles

“A director who has reached the age of 70 is disqualified from continuing to hold office as a director of a private company”
Is this statement true?

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No, there is no upper age limit applied to directors of private companies

Whose responsibility is it to call / convene a general meeting of the members of a company?

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It is the directors’  responsibility to call / convene a general meeting of the members of a company, but they normally delegate that duty to the company secretary

A special resolution requires how many days’ notice if it is to be validly passed?

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A special resolution requires 14 days’ notice if it is to be validly passed

Is it possible to hold an annual general meeting of a public company with only 2 days’ notice?

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Yes, it is possible to hold an annual general meeting of a public company with only 2 days’ notice provided short notice has been approved by the holders of 100% of the votes

An annual general meeting requires a notice period of how many days?

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 An annual general meeting requires a notice period of 14 days

Where the directors of a company always act upon the advice of their auditor, is it the case that the auditor would be classed as a shadow director?

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No, a person acting in a professional capacity (auditor, legal advisor, banker) shall not be classed as a shadow director

What, by statutory definition, is a “shadow director”?

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A shadow director is defined as “a person in accordance with whose instructions the directors are accustomed to act”

Where a private company chooses to appoint a company secretary, is it possible for the sole director also to be the company secretary?

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No, where a private company chooses to appoint a company secretary, it is not possible for the sole director also to be the company secretary

“In a private company, any resolution may be passed as a written resolution”
Is this statement true?

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No, a resolution to remove a director or an auditor cannot be passed as a written resolution but any other resolution may be.

“It is the members’ right in a general meeting to determine the level of the auditors’ remuneration”
Is this statement true?

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Yes, but it is normal that the members will authorise the board to negotiate the level of the auditors’ remuneration

“Anybody may be appointed as the auditor of a private company”
Is this statement true?

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No, if a private company wishes to have an auditor, that appointee shall be appropriately qualified

A public company must hold an annual general meeting every calendar year.
What other type of general meeting may a public company hold?

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A public company MAY hold general meetings which are not annual general meetings.  These are called “other general meetings”

“Full disclosure of interests in contracts and transactions of a company should be made by directors to a sub-committee of the board at the earliest opportunity”
Is this statement true?

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No, full disclosure of interests in contracts and transactions of a company should be made by directors to the full board.  It is not enough to disclose only to a sub-committee

In company law what is the literal translation of “ultra vires” in the context of directors’ actions

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“Ultra vires” literally translates as “beyond the powers”

“Directors should act with such degree of skill, care and diligence as could reasonably be expected from a person of that age, experience and qualification”
Is this statement true?

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Yes, directors should act with such degree of skill, care and diligence as could reasonably be expected from a person of that age, experience and qualification

Is it true that directors have a statutory duty to avoid a conflict of interest?

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Yes, it is true that directors have a statutory duty to avoid a conflict of interest

In company law, what does the abbreviation CDDA mean?

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In company law, the abbreviation CDDA stands for the Company Directors Disqualification Act

Is it allowable for a director who has recently declared herself to be bankrupt to continue in office as a director of a company?

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No, it is not allowable for a director who has recently declared herself to be bankrupt to continue in office as a director of a company

A public company must hold its first annual general meeting no later than how many months after incorporation

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A public company must hold its first annual general meeting no later than 6 months after its first year end ie a maximum of 18 months after incorporation

At the first annual general meeting of a public company, what proportion of the directors must retire and (may) seek re-election

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 At the first annual general meeting of a public company, all the directors must retire and (may) seek re-election

When a director is proposed to be removed from office, the director has the right to prepare “written **** of *****  *****”
Complete the sentence

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When a director is proposed to be removed from office, the director has the right to prepare “written representations of reasonable length and not defamatory in nature”

“Whenever a company wishes to change auditors, they must pass an ordinary resolution with special notice”
Is this statement true?

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Yes, in every circumstance when a company wishes to change auditors the company must pass an ordinary resolution with special notice

“Special notice is required of an ordinary resolution in the event that a director is to be removed from office”
Is this statement true?

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Yes, special notice is required of an ordinary resolution to remove a director from office

An ordinary resolution requires what size of majority voting in favour?

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A simple majority – ie one more vote in favour than votes against

What sort of resolution is required to be passed by a company in the event that a director should be removed from office?

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An ordinary resolution

“In a company which complies with the UK Corporate Governance Code, it is in compliance when the role of Chair and that of Chief Executive are held by the same person”
Is this statement true?

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No, the UK Corporate Governance Code requires that the roles of Chair and Chief Executive be split between two individuals of comparably equal strength and charisma

How is “corporate governance” defined?

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“Corporate governance” is a system whereby companies are directed and controlled

What are Neds?

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Non-executive directors

There are two statutory capital undistributable reserves.
What are they?

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The Share Premium Account and the Capital Redemption Reserve

“A company may only make distributions out of ***   ***.  ***  *** are calculated as “***  ***  ***” less “***  ***  ***”
Complete the sentences

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A company may only make distributions out of distributable profits. Distributable profits are calculated as “accumulated realised profits” less “accumulated realised losses”

“To provide for the dividend payable on the 6% redeemable preference shares is one of the few allowable uses of the share premium account.”
Is this statement true?

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No, the statement is not true.  Providing the finance for a dividend is NOT an allowable use of the share premium account

“To finance the issue of fully paid bonus shares to existing members” is one of the few allowable uses of the share premium account.
Is this statement true?

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Yes, “to finance the issue of fully paid bonus shares to existing members” is one of the few allowable uses of the share premium account.

“To write off preliminary and formation expenses” is one of the few allowable uses of the share premium account.
Is this statement true?

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Yes, “to write off preliminary and formation expenses”  is one of the few allowable uses of the share premium account.

“The entry to balance the cash received on the event of a bonus issue of shares is to a combination of the share capital account and the share premium account”
Is this statement true?

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No, it is not true!  There is no cash received on the event of a bonus issue!

“In the context of shares in a company, the expressions “face value”, “par value” and “nominal value” mean the same.”
Is this statement true?

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Yes, “face value”, “par value” and “nominal value” do have the same meaning

“In every situation when a public company issues shares for an amount lower than their face value, the company shall first of all get the permission of the Court”
Is this statement true?

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No!  In no situation is a public company allowed to issue shares for an amount less than their face value

In order that a company may reduce its share capital it requires permission within the Articles and a special resolution.  It also needs a third authority.
What is it?

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 In order that a company may reduce its share capital it requires permission within the Articles, a special resolution and also permission of the Court


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