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Hogg v Cramphorn
An issue of shares to prevent an unwelcome takeover bid was a breach of directors’ fiduciary duties and whereas it COULD have been ratified by the members in general meeting ( like in Bamford v Bamford ), it wasn’t
What happens if I fail properly to plan my answers in the exam?
My answers will be disjointed and lack professionalism
How much time should I spend planning each answer in the F4 law examination?
Six and a half minutes to try and think of 10 correct, relevant, markable points
What is meant by “fraudulent trading”?
“Fraudulent trading” involves establishing a company with the intention of defrauding creditors
What is meant by the expression “wrongful trading”?
“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?
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?
The three offences in money laundering are:
* laundering
* failure to report
* tipping off
Money laundering is a three step process. What are they?
* 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advice by a director to “Get out of equities and invest in Government bonds”, would that qualify as passing on unpublished price- sensitive information?
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Is unpublished price-sensitive information which is greater than 6 months old really price-sensitive?
No, the information should be less than 6 months old
What constitutes “unpublished price-sensitive information”?
Unpublished price-sensitive information is information about a company which is not in the public domain but which, when published, is likely to have a material affect on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If an insider in possession of unpublished price-sensitive information sells shares and avoids a loss but claims that the sale was to raise money to repay a private debt, is he guilty?
Probably not, if he can persuade the Court that the sale was for reasons other than the avoidance of a loss
“A person who receives inside knowledge about a company from a director and who deals and makes a profit is guilty of the criminal offence of insider dealing”
Is this statement true?
It is true if the person knew (or should have known) that the informer was an insider. If they didn’t know (or suspect) , then the person is not guilty of the offence
“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?
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?
No, insider dealing is a criminal offence and is punishable by a term in prison and / or fine
In an FTSE 350 company, for what period of time are directors appointed before they must seek re-election (if they wish to be re-elected!)?
In an FTSE 350 company, all directors must retire each year and seek re-election (if they wish to be re-elected)
To what does the expression “comply or explain” refer within the UK Corporate Governance Code?
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?
A whistle-blower would refer their concerns over alleged breaches of regulation / internal controls to the Audit Committee
“It is a requirement of the UK Corporate Governance Code that directors should be remunerated in part based on their performance”
Is this statement true?
Yes, it is a requirement of the UK Corporate Governance Code that part of the directors’ remuneration should be performance related
A person who is to be appointed as administrator must hold a specific qualification.
What is that qualification?
A person who is to be appointed as administrator must be a “qualified insolvency practitioner”
A person who is to be appointed as liquidator must hold a specific qualification.
What is that qualification?
A person who is to be appointed as liquidator must be a “qualified insolvency practitioner”
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?
A way other than liquidation by which a company could be rescued is called an Administration
What is a Special Manager?
Special Manager is a person appointed on application to the Court by the Official Receiver to take control of the company’s property during the liquidation process
Where does the Official Receiver fit into company law on liquidations?
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?
The case where the Court determined that the company was a “quasi-partnership” was Ebrahimi v Westbourne Galleries
What was the case when the Court granted a liquidation order on the grounds that there was deadlock on the board?
The case when the Court granted a liquidation order on the grounds that there was deadlock on the board was re Yenidji Tobacco
Re German Date Coffee Company is a case where the Court granted a liquidation order.
Why did the Court make that order?
The Court made the order on the grounds that it was just and equitable – the sub-stratum of the company no longer existed
There are two main grounds under which the Court may grant a liquidation order. What are they?
The Court may grant a liquidation order:
* on the grounds that it would be just and equitable
* on the grounds that the company is unable to pay its debts as they fall due
Which type of liquidation requires the directors to prepare a declaration of solvency?
A members’ voluntary liquidation requires the directors to prepare a declaration of solvency
Is it possible for the members of a private company to pass a written resolution to place their company into liquidation?
Yes, provided a majority of 75% vote in favour, a private company can be put into liquidation by passing a written resolution
What sort of resolution is required to be passed by the members to put their company into liquidation?
A special resolution requiring a 75% majority voting in favour
Is it true that the Court may, on application, direct that a public company be liquidated where the company has failed to obtain a trading certificate within 12 months of incorporation?
Yes, it is true. It’s one of the six grounds for which the Court may make that compulsory liquidation order
What is the essential and fundamental difference between a members’ voluntary liquidation and a creditors’ voluntary liquidation?
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
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?
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?
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?
No, there is no upper age limit applied to directors of private companies
“A director who has reached the age of 70 is disqualified from continuing to hold office as a director of a company”
Is this statement true?
No, a director who has reached the age of 70 may continue to serve as a director of a company but, in the case of a public company, the director must seek re-election every year
“A director who has reached the age of 70 is disqualified from continuing to hold office as a director of a public company”
Is this statement true?
No, but the director must seek re-election every year after attaining the age of 70
Whose responsibility is it to call / convene a general meeting of the members of a company?
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?
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?
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?
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?
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”?
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?
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?
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?
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?
No, if a private company wishes to have an auditor, that appointee shall be appropriately qualified
“Where a private company wishes to appoint a company secretary, that appointee should, by law, be appropriately qualified”
Is this statement true?
No, where a private company wishes to appoint a company secretary, it is not statutorily necessary that that appointee should have any qualifications. It could be your grand-mother!
A public company must hold an annual general meeting every calendar year.
What other type of general meeting may a public company hold?
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?
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
Is it reasonable for a director to claim that she could not be expected to promote the interests of the company?
No, it is a statutory duty of directors to promote the interests of the company
In company law what is the literal translation of “ultra vires” in the context of directors’ actions
“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?
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?
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?
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?
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
Within how many months after incorporation must a private company hold its first annual general meeting?
It is not a statutory requirement that private companies should have an annual general meeting
A public company must hold its first annual general meeting no later than how many months after incorporation
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
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
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”
If a firm of auditors wishes to resign, or not seek re-election, they must deliver to the company’s registered office a “statement of circumstances”
Is this statement true?
No. If a firm of auditors wishes to resign, or not seek re-election, they must deliver to the company’s registered office either a “statement of circumstances” or a “statement of no circumstances”
“Whenever a company wishes to change auditors, they must pass an ordinary resolution with special notice”
Is this statement true?
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 an auditor is to be removed from office during their year of office”
Is this statement true?
Yes, special notice is required of an ordinary resolution to remove an auditor from office during their year of office
“Special notice is required of an ordinary resolution in the event that a director is to be removed from office”
Is this statement true?
Yes, special notice is required of an ordinary resolution to remove a director from office
Special notice is sometimes required for what type of resolution in a company’s general meeting?
An ordinary resolution sometimes requires special notice
An ordinary resolution requires what size of majority voting in favour?
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?
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?
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
In a company which complies with the UK Corporate Governance Code, what is the minimum number of non-executive directors for a large public company?
The minimum number of non-executive directors for a large UK public company complying with the UK Corporate Governance Code is “at least as many non-executives as executive and ideally not less than 3″
How is “corporate governance” defined?
“Corporate governance” is a system whereby companies are directed and controlled
What are Neds?
Non-executive directors
There are two statutory capital undistributable reserves.
What are they?
The Share Premium Account and the Capital Redemption Reserve
“A company may only make distributions out of *** ***. *** *** are calculated as “*** *** ***” less “*** *** ***”
Complete the sentences
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?
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?
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?
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 rights issue of shares is to a combination of the share capital account and the share premium account”
Is this statement true?
Yes, the share capital account will be credited with the nominal value of the new issue and the share premium account with the excess proceeds over nominal value
“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?
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?
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?
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?
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
In order that a company may reduce its share capital it requires permission within the Articles and permission from the Court. It also needs a third authority.
What is it?
In order that a company may reduce its share capital, it requires not only permission within the Articles and permission of the Court. It also requires a special resolution to be passed
In order that a company may reduce its share capital, it requires three authorities. What are they?
In order that a company may reduce its share capital, it requires permission within the Articles, a special resolution and permission of the Court
To be valid, a charge must be registered with the Registrar of Companies within how many days of its creation?
To be valid, a charge must be registered with the Registrar of Companies within 21 days of its creation
“In the event that there are two similar charges on the same asset, the charge which is registered first has priority over the one registered second”
Is this statement true?
No, the statement is not true. The one with priority is the charge which was created first, not necessarily the one which was registered first
“On a liquidation, all debenture holders are paid in priority to the members.”
Is this statement true?
Yes, on a liquidation, all debenture holders are paid in priority to all the members
“On a liquidation, the floating charge debenture holders are paid in priority to all others. Their claim “floats” to the top of those people who are owed by the company”
Is this statement true?
No, on a liquidation, the FIXED charge debenture holders are paid in priority to all others.
“At a general meeting of the company, the debenture holders’ votes are counted before those of the equity shareholders”
Is this statement true?
No, this is not true. At a general meeting of the company, the debenture holders have no votes – they are creditors, not members
A debenture may be secured by way of a floating charge.
What characterises a floating charge as compared with a fixed charge?
A floating charge does not attach to an individual asset but rather to a class of assets including current assets. The borrower is able freely to deal with the assets subject to the charge
A debenture may be secured by way of a fixed charge.
What characterises a fixed charge as compared with a floating charge?
A fixed charge attaches to an individual asset whereby the borrower is not able freely to deal with that asset
For the purposes of the F4 examination, it is important to know the difference between “loan stock” and “debentures”.
Is this statement true?
No, it is NOT necessary to be able to differentiate between loan stock and debentures in the F4 examination
If pre-tax profit is $40,000, post-tax profit is $36,000, and there are 10,000 50 cent 6% preference shares in issue, how much is the preference share dividend for the year?
$300 ie 6% * 10,000 * .50
A preference share has that name because of its preferential entitlements over equity shares.
One preference is that it shall receive its dividend before any equity dividend is paid.
What is the other?
In the event of a liquidation, preference shareholders shall be repaid their capital, in full, before the equity shareholders receive a single cent in repayment of their capital
“Called-up capital and paid-up capital are two ways of saying the same thing”
Is this statement true?
No, called-up capital and paid-up capital are not the same thing
“If a private company wishes to have a company secretary, the person appointed must be appropriately qualified”
Is this statement true?
No, it is not true, no qualifications are necessary for a person to be appointed as a private company secretary
“A public company must have an appropriately qualified company secretary”
Is this statement true?
Yes, a public company must have an appropriately qualified company secretary
What is the minimum number of directors required in a private company?
1 is the minimum number of directors required in a private company
What is the minimum number of directors required in a public company?
2 is the minimum number of directors required in a public company
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