Private M&A Flashcards by Aneal B

Are the heads of terms binding?

The heads of terms will include a combination of binding and non binding clauses.

No, none of the clauses in the heads of terms are binding

Yes, all the clauses in the heads of terms are binding

The heads of terms will include a combination of binding and non binding clauses.

Correct

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What preliminary documentation will the buyer and seller usually enter into in a bilateral sale?

Heads of terms, break fee agreement and confidentiality agreement

Heads of terms, confidentiality agreement and exclusivity agreement

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What type of acquisitions does FSMA apply to?

Business sales because a group of assets is a specified investment

Business sales because a group of assets is a specified activity

Share sales because shares as defined as a specified investment

Correct
Correct

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You are a solicitor in the corporate department of Price Prior. Your client wishes to buy 50% of the shares in a company as an investment. Your client has instructed you to advise her on the acquisition (including on the merits).

Which one of the following statements is correct regarding authorisation under FSMA?

Shares are not a specified investment, therefore FSMA does not apply.

FSMA does apply and you will need to be authorised by the FCA to act for the client on the acquisition.

You will not need to be authorised by the FCA to act for the client because your advice will be excluded from FSMA under Article 70 RAO.

Correct
Correct

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A private limited company would like to sell the entire issued share capital of its wholly owned subsidiary. The Board of the seller have indicated that they wish to advertise in local newspapers and magazines to raise interest from other small local companies who may wish to purchase the shares.

Which of the following statements correctly describes the position?

Unless this advertisement was approved by an ‘authorised person’ it would be prohibited under FSMA.

Although the sale is likely to constitute a ‘regulated activity’, an exemption would be available due to the proportion of shares being sold.

If the proposed sale goes ahead it would be prohibited by FSMA because it would constitute a ‘regulated activity’.

Although the sale is likely to constitute a ‘regulated activity’, an exemption would be available due to the proportion of shares being sold.

Correct

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Who is a ‘processor’?

An identified or identifiable natural person (a living individual) to whom personal data relates.

Someone who processes personal data on behalf of a controller.

Someone who decides the purposes and means of the processing of personal data.

Someone who processes personal data on behalf of a controller.

Correct

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What is the lawful and fair processing principle?

Personal data must be processed lawfully, fairly and in a transparent manner in relation to the data subject

Personal data must be accurate and, where necessary, kept up to date

Personal data must be processed in a manner that ensures appropriate security of the personal data

Personal data must be limited to what is necessary in relation to the purposes for which the data is processed

Personal data must be processed lawfully, fairly and in a transparent manner in relation to the data subject

Correct

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Which of the following statements is correct in respect of the regulatory consents required for a change of control?

If the target is a financial services firm regulated by the Prudential Regulation Authority, consent for the change in control must be obtained from PRA

If the target offers financial services, consent for the change in control must be obtained from the Financial Conduct Authority.

If the target offers financial services, consent for the change in control must be obtained from the Bank of England.

If the target offers financial services, consent for the change in control must be obtained from the Secretary of State.

If the target is a financial services firm regulated by the Prudential Regulation Authority, consent for the change in control must be obtained from PRA

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In what circumstances will shareholder consent be required for an acquisition? Please select the statement that best explains the position

Where there is a provision in the Companies Act 2006, any shareholder’s agreement or the articles of the company.

Where the seller, the buyer or the target is a public company

Where the buyer, the target or the seller is a listed company

Where there is a provision in the Companies Act 2006, any shareholder’s agreement or the articles of the company.

Correct

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A listed company is entering into negotiations to acquire a private limited company. What disclosure obligations does the listed company have?

There is no obligation on a listed company to disclose inside information for reasons of confidentiality until ongoing negotiations are concluded.

There is a general obligation under UK MAR on a listed company to disclose inside information unless such disclosure would affect the ongoing negotiations.

There is a general obligation under the Companies Act 2006 on a listed company to disclose inside information if it may have a significant effect on the company’s share price.

There is a general obligation under UK MAR on a listed company to disclose inside information if the information is not already public knowledge and it may have a significant effect on the company’s share price.

Correct

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What are the procedural requirements for a class 2 transaction?

An explanatory circular (approved by the FCA) must be sent to shareholders.

Prior shareholder approval of the transaction must be obtained by an ordinary resolution.

A Regulatory Information Service must be notified and provided with prescribed details of the transaction.

Correct

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How can common control be acquired in a merger?

Being appointed as a director

Having an ability to exercise material influence

Acquiring any number of shares

Having an ability to exercise material influence

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In what circumstances might a merger be reviewed by the CMA?

If the merged entity has a share of supply in the UK of 20% or more and the transaction increases the overall share.

The value of the turnover in the UK of the target exceeds £70 million.

Correct

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When can a call-in notice be issued?

A call-in notice may be issued at any time while a transaction is in progress or contemplation, or within five years of the ISU becoming aware of a completed transaction.

A call-in notice may be issued at any time while a transaction is in progress or contemplation, or within six months of the ISU becoming aware of a completed transaction, provided this occurs within five years of its completion.

A call-in notice may only be issued after completion of the transaction but within six months of the ISU becoming aware of a completed transaction, provided this occurs within five years of its completion.

correct

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What are the sanctions if a notifiable transaction subject to mandatory clearance is completed without prior approval?

The transaction cannot be avoided; the directors have committed a criminal offence and are potentially subject to civil fines; the acquirer is subject to civil sanctions and potentially criminal liability.

The transaction is automatically void ; the directors have committed a criminal offence and are potentially subject to civil fines; the acquirer is subject to civil sanctions and potentially criminal liability.

The transaction is voidable at the instance of the company; the directors have committed a criminal offence and are potentially subject to civil fines; the acquirer is subject to civil sanctions and potentially criminal liability.

correct

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A public limited company (‘Buyer’) is acquiring the shares in a private limited company (‘Target’). The Buyer is obtaining a loan from Barkers Bank to fund the acquisition. The bank requires security from the Buyer and the Target.

Can the Target and the Buyer grant the security to the bank?

None of the security can be given because the security from the Buyer and the Target will constitute unlawful financial assistance

Only the Buyer can give the security as the security given by the Target will constitute unlawful financial assistance.

The security from the Buyer and the Target will not constitute unlawful financial assistance so it can be given to the bank

Correct

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Which one of the following statement describes one the conditions required to be a person with significant control?

The person otherwise has the right to exercise, or actually exercises, a degree of influence or control over the company;

The person holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;

The person holds, directly or indirectly, at least 50% of the shares in the company. This is calculated by reference to the nominal value of the shares.

The person holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company

Correct

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What is the effect of Business Asset Disposal Relief?

It BADR applies then any gain on the sale of shares is not treated as a chargeable gain and no tax is payable.

It reduces the rate of CGT chargeable on a chargeable gain to 10% for an individual who is a higher or additional rate taxpayer

It reduces the rate of corporation tax chargeable on a chargeable gain to 10% for a company

It reduces the rate of CGT chargeable on a chargeable gain to 10% for an individual who is a higher or additional rate taxpayer

Correct

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A private limited company acquired 10% of the issued share capital in another private limited company seven years ago. Recently it sold half of these shares making a chargeable gain. Will the disposal qualify for SSE?

No, because the disposal related only 5% of the shares in the company

Yes, because the company has owned 10% of the shares for at least 2 years.

Yes, because the company has owned 10% of the shares for 12 months consecutive months in the last 6 years.

No, because for SSE to apply the company must own at least 50% of the shares in the company

Yes, because the company has owned 10% of the shares for 12 months consecutive months in the last 6 years.

Correct

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Why does a buyer in an acquisition need to conduct due diligence?

So the buyer’s solicitors can establish what corporate support it will require from specialist departments within the buyer’s law firm.

So the buyer can decide whether to structure the acquisition as a share sale or an asset sale.

The common law rule ‘caveat emptor’ applies to all acquisitions and therefore the buyer must conduct a thorough investigation of the company or business it is going to purchase.

Correct

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Which of the following statements best explains the lawful and fair processing principle?

Personal data must be processed lawfully, fairly and in a transparent manner. The seller cannot disclose personal data to the buyer

Personal data must be processed lawfully, fairly and in a transparent manner. Individuals must be notified that their data will be used and the purpose for which it will be used.

Personal data must be processed lawfully, fairly and in a transparent manner. This means the seller should anonymise the personal data before disclosing to the buyer.

Personal data must be processed lawfully, fairly and in a transparent manner. The buyer should sign an undertaking ensuring the confidentiality of the information.

Personal data must be processed lawfully, fairly and in a transparent manner. Individuals must be notified that their data will be used and the purpose for which it will be used.

Correct

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In a share sale via auction the seller wishes to provide information and documents to prospective buyers who are based in different geographical locations. The timetable for completion is short and therefore the due diligence exercise must be completed as quickly as possible. What should the seller do?

Set up a virtual data room which can be accessed remotely.

Complete a due diligence questionnaire and post the documents to the prospective buyers.

Set up a physical data room at the offices of the seller’s solicitors.

Set up a virtual data room at the offices of the seller’s solicitors.

Set up a virtual data room which can be accessed remotely.

Correct

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Why might a buyer of the shares in a target company want to check the constitution of the target company as part of its due diligence?

To check that the directors of the buyer have the authority to buy the shares in the target company.

To check that the target company owns all of the assets it says it does.

To check that the target company is validly incorporated.

Correct

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The requirement that data must be processed in a manner that ensures the appropriate security of the personal data is an example of which principle?

The second principle of processing data, the ‘purpose limitation’ principle

The sixth principle of processing data, the ‘integrity and confidentiality’ principle

The third principle of processing data, the ‘data minimisation’ principle

The sixth principle of processing data, the ‘integrity and confidentiality’ principle

Correct

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The parties in a share sale have agreed to issue a privacy notice to the target's employees in order to provide certain fair processing information. What information should be included in the privacy notice? The fact that the parties are in negotiations to acquire the target company. The name of the buyer and details of the transaction The fact that their data will be processed, and the purpose for which their data will be processed.

The fact that their data will be processed, and the purpose for which their data will be processed. Correct

You act for the buyer in a share acquisition, and you would like to establish what registered IP rights are owned by Target in the UK. What should you do? Carry out a search at Companies House Review Target’s statutory books Carry out a search at the UK Intellectual Property Office

Carry out a search at the UK Intellectual Property Office Correct

You are acting for the buyer in a share acquisition. Target has the benefit of a licence to use IP rights granted by a third party. What should you do to ensure Target can continue to use the licensed IP rights after completion? Check the terms of the licence to see if there are any restrictions on assignment. Check the terms of the licence to see if it contains a change of control clause. Check the terms of the licence to see if there are any restrictions on novation Negotiate a new licence between the target and the third party.

Check the terms of the licence to see if it contains a change of control clause. Correct

The marketing director of a company instructs a consultancy firm to create training materials for the company’s employees. Which of the following statements best explains who owns the copyright in the training materials? Copyright in any work created by a consultant on behalf of a company will belong to the company unless the consultancy agreement states otherwise. Copyright in any work created by a consultant for the benefit of the employees of the company, will belong to the employee unless the consultancy agreement states otherwise. Copyright in any work created by a consultant acting on instructions by a director of the company, will belong to the director unless the director’s service contract states otherwise. Copyright in any work created by a consultant will usually belong to the consultant unless otherwise agreed in the consultancy agreement.

Copyright in any work created by a consultant will usually belong to the consultant unless otherwise agreed in the consultancy agreement. Correct

You act for the buyer in relation to a share sale. The target and the seller’s group companies use a registered trade mark in relation to key products. The seller owns the trade mark. The target wants to continue to use the trade mark in relation to a different class of new products after completion. How can this best be achieved? The seller can grant a licence to the buyer to use the trade mark in relation to the new products. The trade mark can be assigned to the target so that it can be used for the different class of new products whilst use by the seller’s group companies is restricted to other classes of goods. The seller can grant a licence to the target to use the trade mark in relation to the new products.

The trade mark can be assigned to the target so that it can be used for the different class of new products whilst use by the seller’s group companies is restricted to other classes of goods. Correct

You act for the buyer in a share sale. The target uses IP rights granted to it by a third party under licence. The licence does not contain a change of control clause. Can the target continue to use the IP rights? The target can continue to use the IP rights provided the licence is novated to the buyer. The target cannot use the IP rights because a change of ownership automatically terminates the licence. The target can continue to use the IP rights provided the licence is assigned to the buyer. The target can continue to use the IP rights after completion because a change in ownership of target does not trigger termination of the licence.

The target can continue to use the IP rights after completion because a change in ownership of target does not trigger termination of the licence. Correct

You act for the buyer in relation to the acquisition of the business and assets of Company A. The buyer is part of a group of companies. Company A uses a logo on all its promotional materials. The buyer would like all of its group companies to use this logo following completion. Your enquiries reveal that the logo is owned by Company A but it has not been registered. Which of the following statements represent the best advice to the buyer? Company A should register the logo as a trade mark as soon as possible at the Intellectual Property Office. Once registered Company A should assign it to the buyer. The buyer should seek an exclusive licence to use the logo from Company A. The buyer should register the logo as a trade mark at the Intellectual Property Office Company A should register the logo as a trade mark before granting an exclusive licence to use the logo to the buyer.

Company A should register the logo as a trade mark as soon as possible at the Intellectual Property Office. Once registered Company A should assign it to the buyer. Correct

Which of the following statements best describes constructive dismissal? Constructive dismissal occurs where the employee was dismissed and the employer did not have a fair reason for the dismissal and the dismissal was not fair in all the circumstances. Constructive dismissal occurs where the employer has dismissed the employee in breach of the terms of their employment contract. Constructive dismissal occurs when the employee leaves their employment in response to a fundamental breach of their employment contract by the employer.

Constructive dismissal occurs when the employee leaves their employment in response to a fundamental breach of their employment contract by the employer. Correct

An employer would like to dismiss an employee. The employee’s employment contract stipulates that they should have 3 months’ notice. The employment contract also includes restrictive covenants, but it does not include a PILON clause. Which of the following statements best describes the position for the employer? The employer must give the employee 3 months’ notice. The restrictive covenants will be enforceable provided they go no further than is reasonably necessary to protect a legitimate interest of the business . If the employer gives the employee less than 3 months’ notice, then this will be a breach of the employment contract. However, the restrictive covenants will be enforceable provided they provided they go no further than is reasonably necessary to protect a legitimate interest of the business. The employer must give the employee 3 months’ notice but the restrictive covenants are likely to be void and unenforceable. The employer can make a payment in lieu of notice to the employee. The restrictive covenants will be enforceable provided they go no further than is reasonably necessary to protect a legitimate interest of the business.

The employer must give the employee 3 months’ notice. The restrictive covenants will be enforceable provided they go no further than is reasonably necessary to protect a legitimate interest of the business . Correct

You act for the buyer in relation to the acquisition of the business and assets of Company A. The buyer intends to change the terms and conditions of employment of the transferred employees to harmonise them with the terms and conditions enjoyed by the buyer’s existing employees. Which of the following statements represents the best advice to the buyer? Any changes to the employment terms of the transferred employees where the principal reason for the change is the transfer, will be void, unless the variation is for an ETO reason and both the buyer and employees consent to the change The buyer can make changes to the terms and conditions of the employment of the transferred provided they all agree to it. The buyer cannot make any changes to the terms and conditions of employment of the transferred employees. Any changes to the employment terms of the transferred employees where the principal reason for the change is the transfer, will be void, unless the variation is for an ETO reason. There is no need to obtain the consent of the employees.

Any changes to the employment terms of the transferred employees where the principal reason for the change is the transfer, will be void, unless the variation is for an ETO reason and both the buyer and employees consent to the change Correct

Your client is acquiring the entire issued share capital of Company B. Should your client carry out due diligence relating to the employees? Yes, because your client will become the new employer of the employees of Company B pursuant to TUPE and therefore will assume all employer related liabilities. No, because there is no change of employer following the acquisition so your client will not assume any liabilities. Yes, because your client will become the new owner of Company B and therefore will indirectly assume any employment related liabilities.

Yes, because your client will become the new owner of Company B and therefore will indirectly assume any employment related liabilities. Correct

Your client is acquiring the business and assets of the manufacturing division of Company C, who will retain the retail division. Your client would like your advice on which employees will transfer to it following completion. Your client can decide which employees it would like to take. All the employees employed in the manufacturing division immediately before the transfer . All the employees of Company C. Only the employees of Company C who want to transfer to your client.

All the employees employed in the manufacturing division immediately before the transfer . correct

You act for the buyer in relation to the purchase of the entire issued share capital shares in Company D. The buyer wants to change the terms and conditions of employment of Company D’s employees to put them on the same terms and conditions as its existing workforce. What advice should you give to the buyer? The buyer will need the consent of the employees to change the terms and conditions of their employment. The buyer does not need the consent of the employees to make changes to the terms and conditions of their employment. The buyer will need the consent of the employees to change the terms and conditions of their employment and the variation must be for an ETO reason. The buyer cannot make any changes to the terms and conditions of employment of the employees.

The buyer will need the consent of the employees to change the terms and conditions of their employment. correct

What type of occupational pension scheme do employers prefer and why? Employers prefer a defined benefit scheme as it is cheaper to fund than other types of pension scheme. Employers prefer a stakeholder pension scheme as it allows employers to make flexible contributions. Employers prefer a defined contribution scheme as they have more certainty because their liability is fixed.

Employers prefer a defined contribution scheme as they have more certainty because their liability is fixed. Correct

Your client is buying the business and assets of Company C who operates a personal pension scheme for its employees. What pension obligations does your client have following completion? Your client can choose to take a transfer of all the rights and liabilities under the personal pension scheme, or it can provide an alternative scheme to its employees. The personal pension scheme remains with Company C. Your client must provide the same pension benefits to the employees TUPE will apply to the transaction with the effect that all the employees' contractual rights and liabilities under the personal pension scheme will transfer to your client. The personal pension scheme remains with Company C. Your client must provide a scheme to the employees, but it is not obliged to match Company C’s scheme.

TUPE will apply to the transaction with the effect that all the employees' contractual rights and liabilities under the personal pension scheme will transfer to your client. Correct

The Target company participates in a group final salary scheme which is in deficit. What does this mean for the Target if it leaves the group? The target may be liable for a proportion of the deficit when it leaves the group. The target will be liable for the whole deficit when it leaves the group. The target can exclude its liability for the deficit in the acquisition agreement. The target will not have any liability for the deficit when it leaves the group.

The target may be liable for a proportion of the deficit when it leaves the group. Correct

What action may the buyer have against its solicitors if they do not properly investigate the title to the property? The buyer has a potential action for negligence/breach of contract against its own solicitors if they do not investigate and report properly The buyer has a potential action for breach of warranty against its own solicitors if they do not investigate and report properly The buyer has a potential action for negligent misstatement against its own solicitors if they do not investigate and report properly

The buyer has a potential action for negligence/breach of contract against its own solicitors if they do not investigate and report properly Correct

Who is liable for the costs of cleaning up contaminated land? The owner who was responsible for the original contamination The owner even if the owner was not responsible for the original contamination.

The owner even if the owner was not responsible for the original contamination. Correct

Which of the following statement best describes a horizontal agreement? A horizontal agreement operates at the same level of the supply chain A horizontal agreement operates at different levels of the supply chain

A horizontal agreement operates at the same level of the supply chain Correct

What is the responsibility of the CMA in reviewing a relevant merger? To assess whether the relevant merger may affect trade within the UK To assess whether a relevant merger could lead to a substantial lessening of competition To assess whether the transaction leading to the relevant merger contains hardcore restrictions

To assess whether a relevant merger could lead to a substantial lessening of competition Correct

Which model of taking goods and services to market might involve a vertical agreement? A licencing agreement Appointing an agent Direct sales to customers A distribution agreement

A distribution agreement Correct

Each of the parties to a vertical agreement has a market share in their own market of more than 30%. The vertical agreement affects trade in the UK and has the effect of restricting trade in the UK. Which of the following statement best describes the legal position? The agreement may be in breach of s. 2 of the Competition Act 1998 and would therefore be void. Provided the vertical agreement does not include "hardcore restrictions" , it will be exempt from the provisions of s. 2 of the Competition Act 1998

The agreement may be in breach of s. 2 of the Competition Act 1998 and would therefore be void. correct

What contractual protections should the buyer seek to protect the know-how of the target? Restrictive covenants Indemnities Warranties Title guarantee

Restrictive covenants Correct

Which of the following statements sets out a key issue that needs to be taken into account when drafting restrictive covenants? The covenants must be reasonable in duration which means less than 2 years. The covenants must be reasonable for the protection of a legitimate interest of the seller The covenants must be reasonable in geographical scope

The covenants must be reasonable in geographical scope correct

A buyer is seeking a warranty that that the target is not involved in any disputes with any of its customers. Should the seller give this warranty? Yes, the seller can give this warranty as it relates to matters within the seller's knowledge No, the seller should not give this warranty as it is too wide and should be amended.

No, the seller should not give this warranty as it is too wide and should be amended. Correct

The buyer is seeking a warranty that all of the target's book debts are recoverable. Should the seller give this warranty? Yes, the seller should give this warranty as this relates to matters within the seller's knowledge No, the seller should not give the warranty as it relates to matters outside the seller's control.

No, the seller should not give the warranty as it relates to matters outside the seller's control. correct

A buyer is seeking a warranty that that none of the target's directors will resign following completion of the acquisition. Should the seller give this warranty? No, the seller cannot give the warranty as worded and it should be qualified by the seller's awareness after making enquiries Yes, the seller can give this warranty as worded provided the seller first makes enquiries of the target's directors

No, the seller cannot give the warranty as worded and it should be qualified by the seller's awareness after making enquiries correct

The case of Infiniteland says that when corporate solicitors negotiate warranties and disclosures in an acquisition transaction they must consider the standard of disclosure and the Buyer's knowledge of a breach of warranty claim. False True

True Correct

Infiniteland suggests that the way the Buyer's knowledge is dealt with, depends on what was agreed in the acquisition agreement. What does constructive knowledge mean? Buyer's own knowledge Knowledge of Buyer's agents Knowledge the Buyer should have

Knowledge the Buyer should have Correct

Which of the following options are correct in clarifying what form the Disclosure Letter takes? The General Disclosures are found in the second part of the Disclosure Letter. As a letter from the Buyer's solicitors to the Seller's solicitors. The Disclosure Letter will make reference to the Disclosure Bundle. The Specific Disclosures are found in the first part of the Disclosure Letter.

The Disclosure Letter will make reference to the Disclosure Bundle. Correct

Which of the following statement explains a de maximis clause? A de maximis clause helps the Seller by setting out the minimum value a claim must have before the Buyer can sue the Seller under the warranties A de maximis clause will always cap liability of the Seller at the amount of consideration received by the Seller under the Acquisition Agreement. A de maximis clause set a time limit on the liability of the Seller under the Acquisition Agreement.

A de maximis clause will always cap liability of the Seller at the amount of consideration received by the Seller under the Acquisition Agreement. Correct

The Buyer should not accept a time limit for claims under the tax warranties that is less than 7 years because HMRC have 7 years from the end of a particular accounting period to make a determination for tax. Is this statement true or false? False True

False Correct

The principle of mitigation is irrelevant when a Buyer is claiming under an indemnity unless the acquisition agreement provides otherwise. False True

True Correct

You are acting for the buyer in relation to a share purchase. The draft tax deed contains the following clause: “The seller agrees to indemnify the target for an amount equal to any tax liability of the target arising in respect of, by reference to or in consequence of any income, profits or gains earned, accrued or received on or before completion.” Why should the buyer not accept this provision as drafted? The buyer will want to ensure that all tax liabilities are left behind with the seller and as such will not want to accept this clause in case it is deemed to have acquired the liabilities through the inclusion of the clause in the Agreement. If the target receives reimbursement for any payment under this clause it may incur an immediate tax liability on the entire payment following the decision in Zim. If the target receives reimbursement for any payment under this clause it will be treated as an adjustment to the consideration following the decision in Zim. If a tax liability arises it will be the seller and not the target which has to pay HMRC and so the buyer would want the reimbursement for this payment to go direct to the buyer.

If the target receives reimbursement for any payment under this clause it may incur an immediate tax liability on the entire payment following the decision in Zim. Correct

What are the tax consequences for the seller where part of the consideration is held in a retention account? The seller will be treated as having received the total amount of the consideration and will be taxed accordingly. The seller will be treated as having received part of the consideration and will be taxed only on the part consideration.

The seller will be treated as having received the total amount of the consideration and will be taxed accordingly. Correct

An acquisition agreement contains an entire agreement clause which expressly excludes liability for fraudulent misrepresentation. Which of the following statements is true. The exclusion is likely to be ineffective. The courts are likely to deem the exclusion unreasonable under UCTA. The exclusion is likely to be effective. Parties are entitled to contractually agree whatever terms they like.

The exclusion is likely to be ineffective. The courts are likely to deem the exclusion unreasonable under UCTA. Correct

A seller has made a representation to a buyer which has induced the buyer to enter into an acquisition agreement. The representation is not repeated in the acquisition agreement. The representation turned out to be untrue. What potential claim(s) is the buyer able to bring? The buyer will potentially be able to bring a claim for either misrepresentation or breach of warranty. The buyer will potentially be able to bring a claim for misrepresentation only.

The buyer will potentially be able to bring a claim for misrepresentation only. Correct

Your firm has been instructed to act for a corporate client in connection with its proposed acquisition of shares in a private limited company (‘Target’). The Target has an issued share capital of 2,000 ordinary shares of £1 each and your client is proposing to buy 1,500 of the ordinary shares in the Target (the ‘Transaction’). Your client has asked for some preliminary advice in relation to the Transaction. Which ONE of the following statements is CORRECT? Your firm will be able to advise the client in connection with any part of the Transaction but only if all its advice is incidental to and complementary to other legal services that it is providing to the client. When providing advice to the client in connection with the Transaction, your firm will not be carrying on an activity of a specified kind under FSMA because the shares that the client is proposing to buy in the Transaction constitute 50% or more of the voting shares in the Target. When providing advice to your client in connection with the Transaction, your firm will not be advising in relation to investments of a specified kind because the shares that the client is proposing to buy in the Transaction constitute 50% or more of the voting shares in the Target. The advice sought by the client in relation to the Transaction relates to investments of a specified kind and advising on the merits of such investments is a regulated activity for the purposes of the Financial Services and Markets Act 2000 (“FSMA”). Your firm will therefore need to ensure that they satisfy the conditions specified by s.327 FSMA.

When providing advice to the client in connection with the Transaction, your firm will not be carrying on an activity of a specified kind under FSMA because the shares that the client is proposing to buy in the Transaction constitute 50% or more of the voting shares in the Target. Correct Correct - advising on this kind of acquisition of shares will be excluded activity under Art. 70 of the RAO

You are acting for a company which is proposing to purchase all of the shares in a private limited company (‘Target’) for £20,000,000 (the ‘Acquisition’). The Target has one wholly-owned subsidiary which is a plc (‘Subsidiary’). The Acquisition will be financed by a loan from a bank. In return for the loan, the bank would like to take security from your client, the Target and the Subsidiary. Which ONE of the following statements is CORRECT advice in connection with the security being requested from the bank? If the Subsidiary provides security to the bank at the time of the Acquisition, it will amount to unlawful financial assistance. If the Target provides security to the bank at the time of the Acquisition, it will amount to unlawful financial assistance. If your client provides security to the bank at the time of the Acquisition, it will amount to unlawful financial assistance. All of the security can be given to the bank as none of the security amounts to unlawful financial assistance.

If the Subsidiary provides security to the bank at the time of the Acquisition, it will amount to unlawful financial assistance. Correct - the Subsidiary is a PLC and therefore cannot give financial assistance in relation to the acquisition of shares in its parent.

You are acting for a corporate client in relation to the acquisition of the entire issued share capital in a private limited company (‘Target’). The Target is recognised as the UK market leader in the manufacture of football goalkeeping gloves. It has a 19% share of the UK market and has an annual turnover of £4 million. Your client has an 8% share of the UK market in the manufacture and sale of football kits (including goalkeeper apparel and gloves) and has an annual turnover of £40 million. Your client also operates in France and Germany. Your client has asked for advice on any competition law issues which may arise from the proposed transaction. Which of the following statements is correct advice in relation to the competition issues which arise on the proposed transaction? The CMA is unlikely to investigate the proposed merger as the joint market share of the Target and your client is 27% which does not exceed the 30% market share threshold. The parties need only be concerned about a possible investigation by the CMA if the CMA is notified of the proposed acquisition before it completes. The proposed acquisition between your client and the buyer will not be subject to review by the CMA as the turnover of the Target does not exceed £50 million. If the proposed share sale is restructured as a business sale, the UK merger control regime would still apply to the acquisition of the business of the Target by your client.

If the proposed share sale is restructured as a business sale, the UK merger control regime would still apply to the acquisition of the business of the Target by your client. Correct. Potentially CMA applies where there is an acquisition of 100% of a company or a business.

A public company is selling all the shares in its wholly owned subsidiary company (‘Target’) to a competitor. The Target has a number of offices in England and Wales with approximately 150 full time and part time staff. The Target offers its employees access to a defined contribution occupational pension scheme or a defined contribution personal pension scheme dependant on their seniority within the company. Which of the following statements correctly explains the position in relation to the pension schemes offered by the Target? Occupational pension schemes are always defined contribution schemes as employers do not want to be responsible for any deficit that might arise from a defined benefit scheme. Employees generally prefer defined contribution pension schemes as it means that the pension that they are entitled to on retirement is certain from the outset of their employment An occupational pension scheme is between an employee and a pension provider whilst a personal pension scheme is between an employee and an employer. Employers generally prefer defined contribution pension schemes as it means that the pension to which the employee is entitled is dependent on the value of the contributions made to the pension at the time of retirement.

Employers generally prefer defined contribution pension schemes as it means that the pension to which the employee is entitled is dependent on the value of the contributions made to the pension at the time of retirement. Correct

Your firm is acting for a corporate client in connection with its purchase of all the shares in a private limited company (‘Target’). The Target participates in a group final salary pension scheme (the ‘Scheme’) for the benefit of its directors, managers and staff. The Target has just received the actuarial report which has revealed that the Scheme is seriously in deficit. Which of the following statements is the correct advice in relation to the deficit? If the transaction is restructured as a business sale, the Target may, be required to pay a proportion of the deficit in the Scheme existing at the date on which the Target leaves the Scheme. If the transaction is structured as a share sale, the Target will leave the group of companies and therefore will have no liability in relation to the deficit. If the transaction is structured as a share sale, the Target may, be required to pay a proportion of the deficit in the Scheme existing at the date on which the Target leaves the Scheme. If the transaction is restructured as a business sale, all rights and liabilities under the Scheme will transfer to your client under TUPE. Therefore your client may be liable in relation to the deficit.

If the transaction is structured as a share sale, the Target may, be required to pay a proportion of the deficit in the Scheme existing at the date on which the Target leaves the Scheme. Correct

Your firm is acting for a corporate client in connection with its purchase of all the shares in a private limited company (‘Target’) from a plc. The Target uses a software under licence from a third-party developer (‘Developer’). Your client is keen to ensure that the Target can continue to use the software following completion. Which of the following statements is the best advice for your client in relation to the Target’s continued use of the software following completion? The licence should be checked for a restriction on assignment. If there is such a restriction, then your client should negotiate with the Developer for a new licence following completion. The licence should be checked for a change of control clause. If there is such a clause, your client should seek confirmation from the Developer that it does not intend to terminate the licence. As this is a share sale the Target will be entitled to continue using the software under licence from the Developer following completion. Your client does not need to take any action. As this is a share sale the licence will automatically terminate on a change of control and your client will have to negotiate with the Developer for a new licence following completion.

The licence should be checked for a change of control clause. If there is such a clause, your client should seek confirmation from the Developer that it does not intend to terminate the licence. Correct

A company is acquiring a private limited company (‘Target’) from a plc (‘Seller’). The Target’s finance director has decided to resign with effect from completion of the acquisition. The finance director’s employment contract has the following clause. ‘The Director undertakes that they will not for the period of two years immediately after termination of their employment, carry on or be engaged in any business which is similar to and competes with the business carried on by the Target at the date of termination.’ Which of the following statements represents the best advice for the buyer in relation to the enforceability of the clause? The clause is unenforceable as it is unreasonable in geographical scope; business scope and duration. The clause is enforceable as it is reasonable for the protection of a legitimate interest of the target. The clause is unenforceable as it the duration of two years is likely to be considered unreasonable. The clause will be enforceable as it is reasonable in geographical scope; business scope and duration.

The clause is unenforceable as it the duration of two years is likely to be considered unreasonable. Correct

A company is acquiring a private limited company (‘Target’) from a plc (‘Seller’). The parties are negotiating the acquisition agreement. The buyer’s solicitors have included the following warranty in the acquisition agreement as follows: ‘None of the employees will resign from their employment following completion’ You are acting for the seller. What is the best advice for the seller in relation to the warranty? The Seller should refuse to give the warranty as it relates to matter outside the Seller’s control. The Seller will have to give the warranty without qualification as the buyer will insist on this. The Seller should qualify the warranty by making it subject to the Seller’s awareness. The Seller should give the warranty but disclose against it.

The Seller should refuse to give the warranty as it relates to matter outside the Seller’s control. Correct. This the best advice for the seller although it is unlikely that the buyer will accept this. incorrect The Seller should qualify the warranty by making it subject to the Seller’s awareness. Incorrect - this is likely to be the negotiated position with the buyer but it is not the nest advice for the seller.

A company is being sold by a corporate seller and two individuals. The two individuals own 10% each of the shares in the Target and the corporate seller owns the remaining 80% of the shares. The buyer’s solicitor has included a provision in the draft acquisition agreement that the warranties are given by all the sellers on a joint and several basis. The individuals would like to minimise their liability for breach of warranty. What is the best advice to the two individuals in respect of their liability for breach of warranty? The individuals should insist that the warranties in the acquisition agreement are given on a several basis only to limit the amounts they will contribute if there is a successful warranty claim. The individuals should enter into an express contribution agreement with the corporate seller setting out the amounts they will contribute if there is a successful warranty claim. The individuals can rely on the provisions of the Civil Liability (Contribution) Act 1978 to determine the amounts they will contribute if there is a successful warranty claim. The individuals should insist that the warranties in the acquisition agreement are given on a joint basis only to limit the amounts they will contribute if there is a successful warranty claim.

The individuals should enter into an express contribution agreement with the corporate seller setting out the amounts they will contribute if there is a successful warranty claim. Correct

Your client has already identified 2 claims against the seller in relation to breaches of warranty for £46,000 and £40,000 and has now, in addition, identified a claim in relation to an indemnity given by the seller to your client for £6,000. What advice should you give to your client about the value of the claims it is able to bring against the seller? Your client is able to bring claims in relation to £11,000. Your client is able to bring claims in relation to £92,000. Your client is able to bring claims in relation to £86,000. Your client is able to bring claims in relation to £17,000.

Your client is able to bring claims in relation to £92,000. Correct. Whilst the other options might sound plausible, they are each incorrect. Your client has met the individual and aggregate thresholds in relation to the breach of warranty claims so is free to pursue those claims under the acquisition agreement. The £6,000 is an indemnity claim. As the definition of ‘Claim’ only covers breach of warranty claims, your client is free to bring the indemnity claims free of de minimis restrictions. incorrect Your client is able to bring claims in relation to £86,000. Incorrect. Always ensure that you review the ‘Claims’ that are covered by a de minimis clause. It might be that the ability to bring certain types of claim are not restricted by the de minimis provisions.

You are acting for a plc (‘Buyer’), which is proposing to purchase all of the shares in private limited company (‘Target’) for £50,000,000 pursuant to a share purchase agreement (the ‘SPA’) to be entered into with the corporate seller (‘Seller’). The draft SPA contains a warranty that there is no pending litigation involving the Target, subject to any fair disclosure made by the Seller. The Buyer has just been informed by one of its suppliers that the Target is likely to be the subject of a large claim for breach of contract (the ‘Litigation’). However, it has not received any disclosure of this from the Seller. Which one of the following statements is the best advice to give to the Buyer in connection with its proposed purchase of the Target? The Buyer could ask for a specific indemnity against liabilities arising as a result of the Litigation, but this would typically be subject to any fair disclosure that the Seller may then make to the Buyer. As long as the Seller does not disclose the Litigation to the Buyer before completion of the deal, the Buyer should always be able to claim full damages arising from the Litigation by making a claim against the Seller for breach of warranty As the Litigation relates to the period prior to the Buyer acquiring the Target, this liability would remain with the Seller. If the SPA contains a buyer’s knowledge provision, the Buyer may be prevented from making a warranty claim against the Seller because it was aware of the Litigation before signing.

Your client should accept the wording but should make disclosures as full as possible to avoid being subject to a breach of warranty claim. Correct. Whilst the other options might sound plausible, they are each incorrect. A seller should always be advised to make disclosures as full as possible in order to avoid a breach of warranty claim. Changing the standard of disclosure from ‘disclosed’ to ‘fairly disclosed’ does make the standard for effective disclosure clear but would benefit the buyer rather than the seller. Case law does not require that disclosures must be ‘fair’ to be effective in all circumstances but instead states that it depends on the wording agreed by the parties in the acquisition agreement.

You are acting for a plc (‘Buyer’), which is proposing to purchase all of the shares in private limited company (‘Target’) for £50,000,000 pursuant to a share purchase agreement (the ‘SPA’) to be entered into with the corporate seller (‘Seller’). The draft SPA contains a warranty that there is no pending litigation involving the Target, subject to any fair disclosure made by the Seller. The Buyer has just been informed by one of its suppliers that the Target is likely to be the subject of a large claim for breach of contract (the ‘Litigation’). However, it has not received any disclosure of this from the Seller. Which one of the following statements is the best advice to give to the Buyer in connection with its proposed purchase of the Target? If the SPA contains a buyer’s knowledge provision, the Buyer may be prevented from making a warranty claim against the Seller because it was aware of the Litigation before signing. As long as the Seller does not disclose the Litigation to the Buyer before completion of the deal, the Buyer should always be able to claim full damages arising from the Litigation by making a claim against the Seller for breach of warranty As the Litigation relates to the period prior to the Buyer acquiring the Target, this liability would remain with the Seller. The Buyer could ask for a specific indemnity against liabilities arising as a result of the Litigation, but this would typically be subject to any fair disclosure that the Seller may then make to the Buyer.

If the SPA contains a buyer’s knowledge provision, the Buyer may be prevented from making a warranty claim against the Seller because it was aware of the Litigation before signing. Correct

The buyer in an acquisition has applied to obtain CMA clearance and has been told the decision is likely to take up to 3 months. The seller is keen to proceed with the acquisition and wants to have a split signing and completion to deal with the delay. The buyer is reluctant to agree to this. What provisions might the seller agree to in the acquisition agreement to persuade the buyer to proceed on this basis? The acquisition agreement should include a provision allowing the buyer to run the business of the target during the period between signing and completion. The seller should offer to repeat any warranties contained in the acquisition agreement on completion of the acquisition. The seller should agree to the buyer delivering an updated disclosure letter on completion of the acquisition.

The seller should offer to repeat any warranties contained in the acquisition agreement on completion of the acquisition. Correct. This might persuade the buyer to proceed to exchange. Note however that a seller would be likely to request that they can provide an updated disclosure letter to the buyer on completion which the buyer would be likely to resist.

How can the buyer influence how the business of the target is conducted in the interim period between signing and completion? The acquisition agreement can include an undertaking from the seller to procure that the target conducts its business in the ordinary course. The acquisition agreement can include prohibitions on the target taking certain actions in the interim period without the buyer's consent. The acquisition agreement can include a right for the buyer to conduct the business of the target in the interim period

The acquisition agreement can include prohibitions on the target taking certain actions in the interim period without the buyer's consent. correct

A buyer and a seller of a company have agreed to proceed with a split signing and completion in order to enable a required shareholder consent to be obtained. Which of the following states when the parties are contractually bound to proceed to completion? On signing On satisfaction of the condition precedent.

On satisfaction of the condition precedent. Correct

What document is required to transfer the target shares to the buyer? Share certificates Stock transfer form(s) The acquisition agreement

Stock transfer form(s) Correct

The seller and buyer in a share purchase agree to proceed by way of split signing and completion as the buyer requires shareholder approval to the transaction. When does the buyer pay the consideration? The buyer pays the consideration on completion The buyer pays the consideration on signing The buyer pays the consideration on satisfaction of the conditions precedent

The buyer pays the consideration on completion Correct

Your client is proposing to buy the business of a private limited company (the ‘Business’). Your client and the seller of the Business (‘Seller’) have agreed that signing and completion will be split. Your client was the sole bidder for the Business and believes that they are in a strong bargaining position. Your client would like to include a provision that states it is able to terminate the agreement if there is a major change to the Business after signing but before completion. What is the best advice to give to your client in relation to the likely response of the Seller to your client’s request? The Seller may agree to the provision as the general commercial risk should remain with the Seller until completion. The Seller may agree to the provision as it would be market practice for the Seller to take responsibility for any material diminution in value of the Business between signing and completion. The Seller may refuse the provision as the general commercial risk should pass to your client on exchange. The Seller may agree to the provision but propose that your client is able to terminate only in specified circumstances.

The Seller may agree to the provision but propose that your client is able to terminate only in specified circumstances. Correct Correct. Whilst the other options might sound plausible, they are each incorrect. General commercial risk should pass to the buyer on exchange but dependant on the bargaining position of the parties, the seller may not refuse a request for a buyer to terminate the agreement in between signing and completion outright. If a buyer is in a strong bargaining position a seller may well allow a buyer to terminate the agreement in between signing and completion but only in specified circumstances.

Your client is proposing to buy the entire issued share capital of a private limited company (‘Target’) from two individuals (the ‘Sellers’). The parties have agreed an acquisition agreement which includes all warranties and indemnities relating to the share purchase. The parties have agreed the following: (i) the transaction will proceed by way of split signing and completion as a result of the share purchase requiring shareholder consent; and (ii) the Sellers will repeat the warranties and unusually be permitted to make additional disclosures on completion. What signed documents should your client expect to receive from the Sellers on signing of the acquisition agreement? A signed acquisition agreement, board minutes approving the share purchase, a shareholder resolution and a disclosure letter from the Sellers. A signed acquisition agreement, a disclosure letter from the Sellers and a tax deed. A signed acquisition agreement and a disclosure letter from the Sellers. No documents.

A signed acquisition agreement and a disclosure letter from the Sellers. Correct. Whilst the other options might sound plausible, they are each incorrect. A signed share purchase agreement will be available at signing as well as a disclosure letter from the Sellers. This is the case even if it has been agreed that the Sellers will also provide a disclosure letter on completion. Board minutes are not required as individuals are not required to produce board minutes. A tax deed is not required as the scenario states that all indemnities and warranties are included in the acquisition agreement.

Your client has signed contracts to sell its business (‘Business’) to a buyer. Pursuant to the terms of the acquisition agreement, completion is conditional on consent from a customer who’s contract with your client states that consent is required in the event of a sale of the Business. The parties are currently negotiating the rights of the buyer in the event that the condition isn’t satisfied by the agreed longstop date. What is the best advice to give to your client in relation to what the buyer is likely or unlikely to request as contractual protection? The buyer is unlikely to request the right to terminate the agreement as it will be concerned that some important provisions within the agreement will be terminated such as the confidentiality clause. The buyer is unlikely to request any contractual rights as they want the ability to proceed to completion, but your client should be prepared for the buyer to ask that the purchase price be revisited. The buyer is unlikely to request a right to terminate the agreement as if a longstop date is reached, the buyer is likely to have expended significant time and costs on the transaction, but your client should be prepared for the buyer to ask that the purchase price be revisited. The buyer is likely to request the right to terminate the agreement in the event that the condition isn’t satisfied by the longstop date despite the significant time and costs expended by the buyer on the transaction.

The buyer is likely to request the right to terminate the agreement in the event that the condition isn’t satisfied by the longstop date despite the significant time and costs expended by the buyer on the transaction. Correct Correct. Whilst the other options might sound plausible, they are each incorrect. A buyer will want various contractual provisions to provide it with some bargaining power even if they are unlikely to actually exercise their rights under those contractual provisions. For example having a contractual right to terminate the agreement may give the buyer more bargaining power to agree a reduced purchase price.

What are the sums owed to a business by third parties known as? Receivables Liabilities Receipts

Receivables

What is the method of transferring intellectual property? Novation Assignment By delivery

Assignment

What are creditors? Customers of the company Persons to whom the company owes money Persons who owe monies to the company

Persons to whom the company owes money

Which of the following is a relevant transfer for the purpose of TUPE? The sale of premises The sale of shares in a company The sale of a business as a going concern

The sale of a business as a going concern Correct

What is the effect of TUPE on a change to the employee's terms and conditions where the principal reason for the variation is the transfer? The change is void subject to certain exceptions The change is valid provided the employee consents to the variation The change is void with no exceptions

The change is void subject to certain exceptions Correct

Which of the following factors is not a factor which will be taken into account to determine whether an employee is 'assigned' to a business? The allocation of the cost for the employee's services. The employee's preference as to where they want to work The amount of time spent working in one part of the business over another

The employee's preference as to where they want to work Correct

When does a balancing charge arise? If an asset which qualifies for capital allowances is sold for more than its tax written down value If an asset which qualifies for capital allowances is sold for less than its tax written down value

If an asset which qualifies for capital allowances is sold for more than its tax written down value correct

What tax will a corporate shareholder pay if it receives a pre-liquidation dividend? Capital gains tax No tax Corporation tax

No tax correct

What tax liability will an individual shareholder have if the selling company is liquidated following completion of the sale of its business? Capital gains tax but business asset disposal relief may apply Income tax but business asset disposal relief may apply No tax will be payable on a liquidation

Capital gains tax but business asset disposal relief may apply correct

Which of the following preliminary documents will be used in both an auction sale and a private treaty sale? Heads of terms Exclusivity agreement Confidentiality agreement

Confidentiality agreement Correct

Which of the following statements best describes the Information memorandum? The IM sets out the terms upon which the bidders are prepared to buy the target company. The IM gives bidders information about the the target company so they have a basis on which to make an indicative bid. The IM sets out the process for the auction and includes a list of questions the bidders are required to answer.

The IM gives bidders information about the the target company so they have a basis on which to make an indicative bid. Correct

In an auction sale which party will prepare the first draft of the acquisition agreement? The bidder's solicitors The seller's solicitors

The seller's solicitors Correct

Your client, a company, is in negotiations to acquire a private limited company (‘Target’). The Target operates its business from two manufacturing sites (‘Properties’) and it employs 120 employees. Your client has not yet decided whether it would prefer the transaction to be structured as a share sale, or as a business sale. Which one of the following statements is the correct advice for your client? If your client buys the share capital of the Target, the employees of the Target will be automatically transferred to your client. If your client buys the share capital of the Target, all of the Target’s properties will be automatically transferred to your client. If your client buys the entire business of the Target, all of the Target’s properties will automatically transfer to your client. If your client buys the entire business of the Target, the employees of the Target will be automatically transferred to your client.

If your client buys the entire business of the Target, the employees of the Target will be automatically transferred to your client. Correct

Your client, a company would like to expand its operations and it is in negotiations with another company (‘Parent’) in relation to the acquisition of its wholly-owned subsidiary (‘Subsidiary’). The Subsidiary owns the leasehold titles of five warehouses. Your client is seeking your advice regarding whether to carry out the acquisition through a purchase of shares in the Subsidiary or through an asset purchase of the business of the Subsidiary. Which one of the following statements is the best advice for your client in relation to structuring the acquisition as a share purchase or an asset purchase? If the acquisition is structured as a share purchase, your client would need to check for non-assignment provisions in the leases to the warehouses. If the acquisition is structured as a share purchase, your client will automatically become the owner of the warehouses. If the acquisition is structured as an asset purchase, any change of control provisions in the leases to the warehouses should not be triggered by the acquisition. If the acquisition is structured as an asset purchase your client can choose to leave outstanding liabilities as obligations of the Parent.

If the acquisition is structured as an asset purchase, any change of control provisions in the leases to the warehouses should not be triggered by the acquisition. Correct

Your client operates a business which is involved in the installation and servicing of domestic and commercial fuel equipment including solar, gas, electric and nuclear. Each fuel type has its own business division. A competitor is looking to acquire the solar installation and service business division (the ‘Division’). As a result, all the employees who work in the Division will transfer to the competitor in accordance with TUPE and a schedule of these employees (the ‘Employees’) has been agreed between your client and the competitor for inclusion in the acquisition agreement. In relation to the impact of TUPE on the parties involved, which ONE of the following statements is CORRECT? There will always be a duty to inform and consult the Employees. Your client will most likely be the party to inform the Employees of the transfer. If the requirements of regulation 13 of TUPE are not adhered to, then your client will be solely liable for the breach. It would be usual for the acquisition agreement to provide that the competitor will indemnify your client for any employees not on the agreed schedule who do transfer.

Your client will most likely be the party to inform the Employees of the transfer. Correct Correct because the informing must be done prior to the transfer itself

You are acting for the seller on the sale of its private limited company subsidiary by way of auction. This is the first time the seller has been involved in an auction sale and it has asked for some advice on the differences between this and the bilateral sale process. The seller’s financial adviser has identified several companies that might be interested in acquiring the subsidiary. Which one of the following statements represents the CORRECT advice for the seller about the difference between a bilateral sale and a sale by auction? In an auction sale a process letter is used instead of the heads of terms used in a bilateral sale. There is a greater risk of the subsidiary’s confidential information being leaked in an auction sale due to the number of bidders involved. The seller will have to accept the highest offer made for the subsidiary in an auction sale. An auction sale is likely to be cheaper for the seller as the potential bidders will be responsible for preparing the first draft of the acquisition documentation.

There is a greater risk of the subsidiary’s confidential information being leaked in an auction sale due to the number of bidders involved. Correct as there is a greater risk of breach of confidentiality in auctions

You are advising your clients who are two individuals, who together own the entire issued share capital of a successful digital marketing company which they are planning to sell via an auction. The Information Memorandum has been prepared by your clients’ financial advisors. Although the transaction is still at an early stage, they have little experience of this type of transaction, and they are very concerned about potential liability that they might suffer as a result of the sale of their shares. Which one of the following statement represents the CORRECT advice for the seller in relation to statements made in the information memorandum? If your clients make a statement to any of the bidders which is incorrect, the successful bidder can bring a claim for fraudulent misrepresentation against them. If your clients make a statement to any of the bidders which is incorrect, this may lead to criminal liability under s.89 Financial Services Act 2012. If your clients make a statement to any of the bidders which they know to be misleading in any material respect, the successful bidder will be able to bring a claim for compensation against them under s.89 Financial Services Act 2012. If your clients make a statement to any of the bidders which they know to be misleading in any material respect, this may lead to criminal liability under s.89 Financial Services Act 2012.

If your clients make a statement to any of the bidders which they know to be misleading in any material respect, this may lead to criminal liability under s.89 Financial Services Act 2012. Correct. S89 FSA 2012 is relevant on a share sale and a breach of this section leads to criminal liability on the part of the sellers

Your client owns a number of companies that publish and distribute books and magazines. Your client is proposing to sell all of the issued share capital of one of its wholly-owned subsidiaries by way of auction. Your client has very little experience of auction sales and has asked for advice on what preliminary documentation will be required. Which one of the following statements represents the correct advice to give to your client in relation to the preliminary documents used in a sale by auction? Confidentiality agreement, process letter, information memorandum and exclusivity agreement Confidentiality agreement, heads of terms, information memorandum and exclusivity agreement Confidentiality agreement, process letter, information memorandum and indicative bids Confidentiality agreement, head of terms, information memorandum and indicative bids

Confidentiality agreement, process letter, information memorandum and indicative bids Correct

What is a 'locked boxed' mechanism? setting the purchase price using the net asset value of the target company setting the purchase price using completion accounts setting the purchase price using accounts that are drawn up prior to completion

setting the purchase price using accounts that are drawn up prior to completion Correct

What is an earn-out? where the consideration is paid partly in cash and partly in shares where part of the consideration is deferred and depends on reaching a milestone such as the profitability of the target where part of the consideration is paid on the completion date and the rest is paid into an escrow account

where part of the consideration is deferred and depends on reaching a milestone such as the profitability of the target Correct

which of the following is not a protection that a seller would seek if it accepts consideration in the form of loan notes? A guarantee from a bank Security over the buyer's assets shares in the buyer if the buyer is a listed company

shares in the buyer if the buyer is a listed company Correct

The seller receives consideration in the form of cash and shares in the buyer. The conditions of substantial shareholding exemption ('SSE') are met. Can the seller apply SSE to reduce its tax liability? The seller will have the benefit of SSE if the conditions are met provided the consideration is paid in cash only The seller will only have the benefit of SSE if the conditions are met provided the consideration is paid in cash and loan notes The seller will have the benefit of SSE if the conditions are met whether the consideration is paid in cash and shares

The seller will have the benefit of SSE if the conditions are met whether the consideration is paid in cash and shares Correct incorrect The seller will only have the benefit of SSE if the conditions are met provided the consideration is paid in cash and loan notes Incorrect - the consideration can be cash, shares or loan notes for SSE to apply.

An individual seller receives cash and shares following the disposal of shares. Is tax deferral available to the seller? Tax deferral is available in relation to both the share consideration and the cash consideration Tax deferral is only available in relation to the share consideration and not the cash consideration Tax deferral is not available where the consideration is part cash and part shares

Tax deferral is only available in relation to the share consideration and not the cash consideration Correct

A seller receives loan notes as consideration on a disposal of shares. What are the tax implications for the seller? The seller does not have to pay tax on any gain The tax on any gain is immediately payable The tax on any gain is deferred

The tax on any gain is deferred Correct

Two individuals own the entire issued share capital of a private limited company (the ‘Target’). The buyer is proposing to acquire the entire issued share capital of the Target. The buyer does not have sufficient funds to pay all the consideration for the Target’s shares in the form of cash on completion and is therefore proposing that part of the consideration is structured as an earn-out on the basis that the two individuals together will receive: - £1 million in cash on completion; and - further payments equal to 15% of the annual profits of the Target for the first full financial year following the completion of the sale, 10% for the second financial year and 5% for the third financial year. Which one of the following statements represents the CORRECT advice to the individuals about the effect of an earn-out? The individuals will be able to benefit from Business Asset Disposal Relief in respect of any earn-out payment they receive. On completion the individuals will only be liable to pay tax on the cash consideration. No tax liability will arise in respect of the earn-out until the earn-out consideration is received. The individuals will be able to benefit from Investors’ Relief in respect of any earn-out payment they receive. The individuals are only likely to be willing to receive consideration by way of an earn-out if they are to be involved in the management of the Target after completion.

The individuals are only likely to be willing to receive consideration by way of an earn-out if they are to be involved in the management of the Target after completion. Correct

You act for a private limited company who is selling the entire issued share capital of its subsidiary, (‘Target’) which has manufactured scaffolding for the building trade since its incorporation. The Target has been a wholly-owned subsidiary of your client for 11 years. The buyer has agreed to pay £1.2million for the shares in Target and your client will make a substantial gain as a result of the sale. Your client has asked for some preliminary advice on how it can reduce its tax burden in relation to the gain it is expected to make. If the Target makes a pre-sale dividend to your client there will be a tax advantage to your client as they will pay no tax on the dividend received and they will consequently pay capital gains tax on a reduced gain If the Target makes a pre-sale dividend to your client there will be a tax advantage to your client as they will pay a lower rate of income tax on the dividend received compared with the rate of capital gain tax they would pay on that same amount if a pre sale dividend wasn’t made If the Target makes a pre-sale dividend to your client there be no tax advantage to your client as they will not pay tax on the gain If the Target makes a pre-sale dividend to your client there will be a tax advantage to your client as they will pay no tax on the dividend received and they will pay corporation tax on a reduced gain

If the Target makes a pre-sale dividend to your client there be no tax advantage to your client as they will not pay tax on the gain Correct. Whilst the other options might sound plausible they are each incorrect. Whilst UK companies do not generally pay tax on dividends that they receive from subsidiaries, based on the scenario your client will benefit from the substantial shareholding exemption in relation to the gain that it makes on the sale of the shares in Target. Therefore on this occasion, there is no tax advantage to the Target making a pre sale dividend to your client. Other reasons why the other options were incorrect were reference to your client paying capital gains tax and/or income tax instead of corporation tax. incorrect If the Target makes a pre-sale dividend to your client there will be a tax advantage to your client as they will pay a lower rate of income tax on the dividend received compared with the rate of capital gain tax they would pay on that same amount if a pre sale dividend wasn’t made Incorrect. UK companies do not pay income tax and capital gains tax. Also consider whether your client is liable for any tax on the gain that it makes based on this fact pattern. If the Target makes a pre-sale dividend to your client there will be a tax advantage to your client as they will pay no tax on the dividend received and they will pay corporation tax on a reduced gain Incorrect. Whilst it is correct to say that a UK company does not generally pay tax on dividends it receives and as a result of a pre sale dividend your client will have received a reduced gain, consider whether based on the facts this would be an advantage to your client: consider whether you client will be liable for tax on the gain that it makes in the first place.

You act for the buyer of a private limited company (‘Target’). The acquisition of Target by your client completed last month. The purchase price agreed in the acquisition agreement was £3,250,000 and was calculated using the net asset value of Target as set out in its latest set of audited accounts. The parties agreed in the acquisition agreement that the purchase price would be adjusted post completion based on completion accounts showing the net asset value of the Target at the date of completion. The acquisition agreement contains the following clause: “The Purchase Price shall be adjusted as follows: a) There shall be added the amount, if any, by which the Net Asset Value is greater than £3,000,000; and b) There shall be deducted the amount, if any, by which the Net Asset Value is less than £3,000,000.” Completion accounts have now been finalised and the Net Asset Value referred to in the clause is £3,150,000. What advice should you give to your client about the adjustment to be made to the Purchase Price? The seller must refund your client £150,000 Your client must pay to the seller £3,400,000 Your client must pay to the seller £150,000 The seller must refund your client £250,000

Your client must pay to the seller £150,000 Correct. Whilst the other options might sound plausible, they are each incorrect. The acquisition agreement stated that the amount by which the net asset value of Target exceeded the agreed figure (in this case £3,000,000) must be paid by the buyer to the seller following finalisation of the completion accounts. The entirety of the purchase price including any adjustments is not paid after the completion accounts have been finalised. The fact that the net asset value of Target based on the completion accounts is less than the agreed purchase price does not necessarily mean that the seller needs to refund any money to the buyer.

Which of the following is an example of an unsuccessful exit? The sale of newco 1 to a trade buyer The flotation of newco 1 on a recognised stock exchange A secondary buy-out A sale of the fund's equity in newco 1 to the management team

A sale of the fund's equity in newco 1 to the management team Correct

What is venture capital? The funding of a business with little or no track record The funding of an existing, more mature business to help it develop The funding of purchases of established businesses where there is still a margin for improvement of performance

The funding of a business with little or no track record Correct

What is the role of the general partner in a limited partnership structure? The GP has limited liability unless they take part in management of the partnership business. The GP has full responsibility for operating the limited partnership. It has unlimited liability for its debts and obligations.

The GP has full responsibility for operating the limited partnership. It has unlimited liability for its debts and obligations. Correct

What document will the Fund rely on in making a decision to invest in newco 1? The business plan The articles of association of newco 1 The investment agreement

The business plan correct

Which document will contain good leaver and bad leaver provisions? The articles of association of newco 1 The acquisition agreement The service agreements

The articles of association of newco 1 correct

What type of shares will the management team subscribe for in newco 1? A combination of ordinary shares and convertible preference shares Ordinary shares Convertible preference shares

Ordinary shares correct

What do the safe harbour provisions provide? The provisions ensure that the management team are fully remunerated for the work they do. Provided certain tests are satisfied, the management team will pay a reduced rate of income tax in relation to their shares. Provided certain tests are satisfied, no income tax charges will arise in relation to the management's shares

Provided certain tests are satisfied, no income tax charges will arise in relation to the management's shares Correct

What is the effect of the transfer pricing rules? The company’s ability to deduct interest payment against taxable profits is restricted The company should ensure they pay full market value for their shares in newco 1.

The company’s ability to deduct interest payment against taxable profits is restricted Correct

Management are permitted to set off the interest they pay on their borrowings against their income tax provided which of the following conditions are met? The target is a close company Newco 1 is a close company The shares are preference shares The shares are convertible shares

Newco 1 is a close company Correct

Each of the companies in a group is automatically liable for the debts and liabilities of the other group companies. Is this statement true or false? False True

False Correct

In what circumstances can parental liability in tort be established? where the parent company has a practice of intervening in the affairs of it subsidiary where the parent has agreed contractually to be liable where the parent has a controlling stake in its subsidiary

where the parent company has a practice of intervening in the affairs of it subsidiary Correct

What parental liability can arise under the Insolvency Act 1986 if a subsidiary becomes insolvent? Misfeasance Transaction defrauding creditors Wrongful trading

Wrongful trading Correct

Company A transfers a property to its shareholder at just over book value (the book value is £1 million). Market value is currently £2 million. How would you determine whether the distribution is lawful or unlawful? Provided Company A has distributable profits, the distribution will be lawful. This is because the transfer is at over book value so the amount of the distribution would be nil. Provided Company A has sufficient distributable profits to cover the amount of the shortfall from market value, the distribution will be lawful. The distribution will be unlawful because the value of the transfer is less than the market value of the property.

Provided Company A has distributable profits, the distribution will be lawful. This is because the transfer is at over book value so the amount of the distribution would be nil. Correct

Company A and Company B are both wholly owned subsidiaries of Company C. The directors of Company A arranged for Company A to transfer an asset at book value to Company B. Company A did not have distributable profits at the time of the transfer. Which of the following statements represent the best advice to the directors of Company A? The directors of Company A have breached their directors’ duties but Company C as the parent company of Company A can pass an ordinary resolution to ratify the unlawful distribution. The distribution was unlawful; the directors of Company A have breached their directors’ duties; and they may be liable to repay to Company A the unlawful amount. The distribution is lawful as the transfer was at book value; the directors have not breached their directors’ duties.

The distribution was unlawful; the directors of Company A have breached their directors’ duties; and they may be liable to repay to Company A the unlawful amount. correct

Which of the following transactions would constitute a distribution under s 829 CA 2006? Company A transfers a property to a sister subsidiary company for market value where the market value of the property exceeds the book value. Company A transfers a property to its shareholder for under the market value where the market value of the property exceeds the book value. Company A transfers a property to its shareholder for market value where the market value of the property exceeds the book value.

Company A transfers a property to its shareholder for under the market value where the market value of the property exceeds the book value. Correct

What if the definition of 'ordinary share capital' for the purposes of group relief? Shares other than shares which grant the shareholder both a right to a fixed dividend and a further right to share in the company's profits Shares which grant the shareholder a right to a fixed dividend and a further right to share in the company's profits Shares other than shares which grant the shareholder a right to a fixed dividend but no other right to share in the company's profits

Shares other than shares which grant the shareholder a right to a fixed dividend but no other right to share in the company's profits Correct

What is the purpose of group relief? Group relief allows trading losses in the parent company to be set off against the profits or gains of its subsidiaries Group relief allows trading losses in one group company to be set off against profits or gains of another group company Group relief allows trading losses and capital in one group company to be set off against profits or gains of another group company

Group relief allows trading losses in one group company to be set off against profits or gains of another group company Correct

What is a consortium company? A consortium company must be owned by two or more other companies who own not less than 5% of the ordinary share capital but not more than 75% of the ordinary share capital A consortium company must be owned by two or more other companies who own not less than 25% of the ordinary share capital but not more than 75% of the ordinary share capital A consortium company must be owned by ta company who owns not less than 5% of the ordinary share capital but not more than 75% of the ordinary share capital

A consortium company must be owned by two or more other companies who own not less than 5% of the ordinary share capital but not more than 75% of the ordinary share capital Correct

What is the beneficial ownership test? Where a company owns at least 51% of the shares in its subsidiaries Where a company owns at least 75% of the shares in its subsidiaries

Where a company owns at least 75% of the shares in its subsidiaries Correct

What are the tax consequences of a transfer of a chargeable asset within a chargeable gains group? The tax liability is deferred until the asset is sold out of the group or the transferor company leaves the group. There will be a charge to corporation tax on any gain that results. The tax liability is deferred until the asset is sold out of the group or the transferee company leaves the group.

The tax liability is deferred until the asset is sold out of the group or the transferee company leaves the group. Correct

In a share sale, which party should be concerned about an SDLT clawback? The buyer The seller

The buyer Correct

You act for a management team of 6 in a proposed management buy out of a private limited company (‘Target’). The management team have secured investment from a private equity investor (‘Fund’) and the buy out will utilise a double newco structure. Each member of the management team will be a director of Newco 1 and in return for their investment will each own ordinary shares representing 4% of Newco 1’s issued share capital with the Fund owning the remainder. One member of the management team (‘Manager’) intends to take out a bank loan to fund her investment. What advice should you give to the Manager about her ability to set off the interest she pays on her bank loan, for income tax purposes? The Manager is unlikely to be able to claim interest relief as the Manager will not hold a material interest in Newco 1. The Manager is likely to be able to claim interest relief. The Manager is unlikely to be able to claim interest relief as Newco 1 will not be a close company at the time the Manager acquires the shares. The Manager is unlikely to be able to claim interest relief as Target, not Newco1, will exist for the purpose of carrying on a commercial trade.

The Manager is likely to be able to claim interest relief. Correct. Whilst the other options might sound plausible, they are each incorrect. Each of the conditions required for the Manager to be able to claim interest relief have been satisfied or the transaction can be structured in such a way to ensure the conditions are satisfied.

You act for the management team in relation to a management buy out of a private limited company which specialises in the manufacturing of electrical components for cars (‘Target’). The structure of the transaction will involve a new company (‘Newco’) being set up to buy the shares in Target. Your client has considered various funding options for the purchase of Target including a bank loan to Newco in relation to which the best interest rate it has been offered is 4.4%. The management team have ultimately decided against the bank loan and have secured financial investment into Newco from a private equity fund (‘Fund’). The Fund have agreed to make their investment into Newco in return for ordinary shares and convertible loan notes with an interest rate of 6.3%. What advice should you give to your client in relation to the tax deductibility of the interest payable by Newco on the convertible loan notes? Your client is likely to be permitted to deduct interest at a rate of 1.9% paid to the Fund on the convertible loan notes from the taxable profits of Target. Newco is likely to be permitted to deduct interest at a rate of 4.4% paid to the Fund on the convertible loan notes from the taxable profits of Target. Newco is likely to be permitted to deduct interest at a rate of 6.3% paid to the Fund on the convertible loan notes from the taxable profits of Target. Newco is unlikely to be permitted to deduct interest paid to the Fund on the convertible loan notes from the taxable profits of Target.

Newco is likely to be permitted to deduct interest at a rate of 4.4% paid to the Fund on the convertible loan notes from the taxable profits of Target. Correct. Whilst the other options might sound plausible, they are each incorrect. The transfer pricing rules mean that if the rate of interest that Newco has agreed to pay on the loan notes held by the Fund is higher than it would have agreed to pay to a third party bank on arms length terms, HMRC may disallow the difference between the two interest rates as a tax deduction.

You act for a private equity investor in relation to a management buy out of a private limited company (‘Target’). The structure of the management buy out will consist of the management team and your client investing into a new company (‘Newco’) which will then acquire the shares in Target. The parties have agreed that ratchet provisions will apply. Before the operation of the ratchet, the management team will collectively own 10% of the entire issued share capital of Target and your client will own the remaining 90%. After the exercise of the ratchet, the management team will own 8% of the entire issued share capital of Target and your client will own the remaining 92%. Your client is currently negotiating the provisions of the investment agreement and wants to ensure that it will have the option to exit by way of a share sale in 3-5 years. What advice should you give to your client to ensure that it will have the option to exit by way of a share sale in 3-5 years? Your client should include drag along provisions that are effective once an offeror has offered to buy 90% of the share capital of Target. Your client should include tag along provisions which will allow your client to force the minority shareholders to sell their shares provided your client accepts an offer from the offeror to buy its shares. Your client should include drag along provisions that are effective once an offeror has offered to buy 92% of the share capital of Target. Neither drag along nor tag along provisions would assist your client in this scenario.

Your client should include drag along provisions that are effective once an offeror has offered to buy 90% of the share capital of Target. Your client should include drag along provisions that are effective once an offeror has offered to buy 90% of the share capital of Target.

You are advising a company on its purchase of the entire issued share capital of a private limited company (‘Target’). The Target is a wholly-owned subsidiary of the seller. As part of your due diligence investigations you discover that in March 2016, the Target acquired premises (the ‘Premises’) from another wholly-owned subsidiary ('Transferor’) of the seller. The Target acquired the Premises for the then book value of £500,000. At the time of the transfer to the Target the market value of the Premises was £700,000. The Transferor originally bought the Premises in 2005 from an unconnected third party for £250,000. Which ONE of the following statements is CORRECT in relation to the transfer of the premises? If the shares in the Target are sold in March 2021, the seller may be liable to pay an exit charge in relation to the Premises. The deemed gain on which the exit charge will be calculated is £250,000. If the shares in the Target are sold in March 2021, your client will be liable to pay an exit charge in relation to the Premises. The deemed gain on which the exit charge will be calculated is £200,000. If the shares in the Target are sold in March 2021, the Target will be liable to pay an exit charge in relation to the Premises. The deemed gain on which the exit charge will be calculated is £450,000. If the shares in the Target are sold in March 2021, the seller may be liable to pay an exit charge in relation to the Premises. The deemed gain on which the exit charge will be calculated is £450,000.

If the shares in the Target are sold in March 2021, the seller may be liable to pay an exit charge in relation to the Premises. The deemed gain on which the exit charge will be calculated is £450,000. Correct Correct. Exit charge is a seller liability and deemed gain calculated by deducting the cost at which the premises were originally acquired from the market value at the time of the last intra-group transfer.

You are advising the seller on the sale of its wholly owned subsidiary (‘Target’). The seller informs you that two years ago the Target acquired a property from another wholly owned subsidiary (‘Transferor’) of the seller. The Target still owns the property. Which of the following statements is correct in relation to the Target leaving the seller’s group? A SDLT claw back charge will arise in the Transferor as the Target is leaving the seller’s group within three years of the transfer of the property; A SDLT claw back charge will arise in the Seller as the Target is leaving the seller’s group within three years of the transfer of the property. A SDLT claw back charge will arise in the Target as it is leaving the seller’s group within three years of the transfer of the property. A SDLT claw back charge will arise in the Buyer as it is acquiring the Target within three years of the transfer of the property.

A SDLT claw back charge will arise in the Target as it is leaving the seller’s group within three years of the transfer of the property. Correct

Your client is proposing to buy the entire issued capital in a private limited company (the ‘Target’). The Target operates from a manufacturing plant (the ‘Plant’). During the due diligence process, your client discovers that two years ago the Target’s sister company transferred the Plant to the Target for £300,000. The sister company’s audited accounts from the time of the transfer shows that the book value of the Plant at the time of transfer was £350,000. What is the best advice to give to your client in relation to the legal consequences of the transfer of the Plant? Your client should not be concerned about the transfer of the Plant because this is a matter for the seller as it received an unlawful distribution. Your client should request a warranty in the share purchase agreement from the seller that the Target has good title to the Plant. Your client should seek an indemnity in the share purchase agreement from the seller as it is unlikely that the Target has good title to the Plant. Your client should not be concerned about the transfer of the Plant if the audited accounts of the sister company show that it had sufficient distributable profits at the time of the transfer.

Your client should not be concerned about the transfer of the Plant if the audited accounts of the sister company show that it had sufficient distributable profits at the time of the transfer. Correct