question bank

Question 1

(a) Discuss what type of accounts need to be filed at Companies House, depending on the class (size) of the company?

Answer 1

Micro ent - £632k t/o, £316k total asset, 10 emps

Small comp - £10.2m, £5.1m, 50 emps

Medium - £36m, £18m, 250 emps

Question 2

(b) When do companies need to hold an annual general meeting (AGM)?

Answer 2

Public comps (plcs) within 6 months of accounts y/e
Private not required to have AGM but can choose to have one

Question 3

(c) Discuss Section 288 of the Companies Act 2006 concerning written resolutions.

Answer 3

Only available for private companies
Can be used for all resolutions, ordinary or special, except for removing an auditor before the end of term
Model articles state members have 28 days to vote, but can be altered
Need majority of total voting rights – not just those who voted

Question 4

(d) Discuss the different types of company meetings that a company could have and the notice period that is required to give to shareholders for each of them.

Answer 4

General meeting
AGM
Class meeting
Board meeting

Question 5

what are the notice periods for meetings?

Answer 5

for a general meeting (and AGM of a private company) the notice period is 14 days

for an AGM if a public compnay it is 21 days

for special notice of certain resolutions (e.g to remove a director/ auditor) its 28 days

Question 6

Discuss whether companies are legally bound to comply with the UK Corporate Governance Code?

Answer 6

The Code is not a statute, therefore companies are not legally bound by it. But, if they trade equity shares on the London Stock Exchange (i.e. they have a premium listing), they need to adhere to the Code in order to maintain their premium listing.

Question 7

What are the principles listed in the UK Corporate Governance Code concerning Board Leadership and Company Purpose? 5 things

Answer 7

A – Requires effective and entrepreneurial board, that promotes long term success of company

B – Board should establish company’s purpose, values and strategy

C – Board needs to ensure company has necessary resources

D – Engagement and participation with stakeholders

E – Board must ensure policies and practices align with company values.

Question 8

What is the difference between a fixed and a floating charge?

Answer 8

Fixed charge – loan is secured against one or a set of specific assets.

Floating charge – loan is secured against a group of assets, but the borrower is still free to trade in that asset e.g. a company’s inventory

Question 9

What is an ‘off-the-shelf’ company?

Answer 9

An off-the-shelf company is:

Pre-Registered: A company that has already been incorporated but has never traded.
Ready for Use: It is sold to individuals or businesses wanting a quick start without the need to register a new company.
Customizable: The buyer can change the name, directors, and other details to suit their needs.

Question 10

On what conditions can the Articles of Association of a
company be amended?

Answer 10

The Articles of Association of a company can be amended under the following conditions:

Special Resolution: A special resolution must be passed by the shareholders, requiring at least 75% of the votes cast in favor of the amendment.

Lawful Purpose: The amendment must comply with the Companies Act 2006 and not conflict with other laws.

Good Faith: The change must be made in good faith and in the best interests of the company as a whole, avoiding any unfair prejudice to minority shareholders.

Registration: The amended articles must be filed with Companies House within 15 days of the resolution.

Consistency with the Constitution: The changes must not contradict mandatory provisions of the company’s constitution or the Companies Act.

Question 11

How can a director of a company be removed by its
shareholders?

Answer 11

A director of a company can be removed by its shareholders under Section 168 of the Companies Act 2006 through the following process:

Ordinary Resolution: Shareholders can pass an ordinary resolution at a general meeting to remove a director, requiring a simple majority (more than 50%) of votes in favor.

Special Notice: A special notice of at least 28 days must be given to the company before the resolution is proposed.

Right to Make Representations:

The director being removed has the right to be notified of the resolution.
They are entitled to make written or oral representations to the shareholders at the meeting.

Question 12

What are the conditions that need to be satisfied for
shareholders to successfully pass a resolution at a general meeting
of a company?

Answer 12

To successfully pass a resolution at a general meeting of a company, the following conditions must be satisfied:

Proper Notice of the Meeting:

Shareholders must receive at least 14 clear days’ notice for a general meeting (unless the Articles of Association specify a longer period).
The notice must include the date, time, venue, and nature of the business to be discussed.
Quorum Requirements:

The meeting must have the minimum number of shareholders present (in person or by proxy) as required by the Articles of Association or the Companies Act 2006 (usually two for private companies unless otherwise stated).
Type of Resolution:

The resolution must meet the required threshold:
Ordinary Resolution: Requires a simple majority (more than 50%).
Special Resolution: Requires at least 75% approval.
Voting:

Shareholders must vote either in person, by proxy, or through electronic means (if allowed).
The votes must be properly counted and recorded.
Compliance with Legal and Procedural Rules:

The resolution must be consistent with the company’s Articles of Association and the Companies Act 2006.
Any procedural irregularities could render the resolution invalid.

Question 13

How a company is legally formed (with explicit reference
to the relevant sections of Companies Act 2006)?

Answer 13

How a Company is Legally Formed (Companies Act 2006)
Application for Registration (Section 9):
Submit an application to the Registrar of Companies with required details.

Documents Required (Section 10):

Memorandum of Association.
Articles of Association (if different from model articles).
Statement of Compliance (Section 13):
Declare compliance with the Companies Act 2006.

Registration and Certificate of Incorporation (Section 14):
The Registrar issues a Certificate of Incorporation upon successful registration.

Effect of Registration (Section 16):
The company legally comes into existence as a corporate body.

Question 14

What issues need to be considered when naming a UK
company. What sections of the companies act?

Answer 14

Uniqueness and Non-Identical Names

The name must not be identical to an existing registered company name (Companies Act 2006, Section 66).
Prohibited and Restricted Words

Certain words or expressions are prohibited or require approval (e.g., “Royal,” “Bank”) (Section 53).
Misleading Information

Question 15

The different types of company director that could
exist in a private or public company

Answer 15

Executive Directors

Actively involved in the day-to-day management of the company.
Hold specific roles (e.g., CEO, CFO) and are usually employees of the company.
Non-Executive Directors (NEDs)

Provide independent oversight and strategic guidance.
Not involved in daily operations but attend board meetings and committees.
Shadow Directors

Not formally appointed but whose directions the board is accustomed to follow (Companies Act 2006, Section 251).
De Facto Directors

Act as directors without formal appointment but perform duties typically carried out by a director.
Alternate Directors

Appointed to act temporarily in place of a director, often during their absence.
Nominee Directors

Appointed to represent the interests of a specific shareholder, creditor, or stakeholder.
Independent Directors

Similar to NEDs but must not have any material relationship with the company, ensuring complete impartiality.

Question 16

What is in the IN01 form (9things) and what is in the articles of association (9 things) ?

Answer 16

IN01 Form (Application to Register a Company):

1) Proposed company name
2) Company type (e.g., private limited, public limited, etc.)
3) Registered office address
4) Details of directors (names, addresses, and other personal details)
5) Details of company secretary (if applicable)
6) Statement of capital (share structure, number of shares, and their value)
7) Details of initial shareholders/members
8) Statement of compliance (confirming the requirements of the Companies Act 2006 have been met)
9) Address for service of documents

Articles of Association:

Company’s internal rules governing:
Directors’ powers and responsibilities
Decision-making by shareholders
Issuance and transfer of shares
Dividends and distribution of profits
Meetings and voting procedures
Amendment of the articles
Shareholder rights and obligations
Rules on winding up the company

The IN01 form is for registering the company, while the articles of association govern its ongoing operations.

Question 17

discuss the rights of shareholders at each level of ownership?

Answer 17

5% Ownership:
Call a General Meeting: Request a GM.
Propose a Resolution: Propose resolutions at a GM.
Receive Information: Request annual accounts and documents
circulate awritten statement.

10% Ownership:
Demand an Audit: Require the company to hold an audit.
Propose a Written Resolution: Propose written resolutions.

25% Ownership:
Block Ordinary Resolutions: Block decisions requiring a simple majority.

50% Ownership:
Block Ordinary Resolutions: Block decisions requiring a simple majority.

75% Ownership:
Block Special Resolutions: Block major decisions (e.g., changing articles, mergers).
Approve or Block Audit: Influence audit decisions.

Question 18

Discuss the purpose, nature and procedure of a company
Annual General Meeting (referring to both private and
public companies)?

Answer 18

Purpose of an AGM

Legal Requirement: Public companies must hold an AGM under the Companies Act 2006.
Shareholder Engagement: Shareholders can ask questions and discuss company performance.

Financial Review: Approval of financial statements, dividends, and reports.

Director Elections: Shareholders vote on the appointment or reappointment of directors.

Auditor Approval: Shareholders approve the appointment and remuneration of auditors.

Nature of an AGM
Formal Meeting: Governed by the company’s articles and corporate policies.
Shareholder-Centric: A platform for shareholder involvement in key decisions.
Annual: Held once a year, typically within six months of the financial year-end.

Procedure of an AGM

Notice: Must be sent to shareholders (14 days for private, 21 days for public).

Agenda: Includes financial reports, director elections, and resolutions.

Quorum: Minimum number of members required to conduct business (typically 2).

Chairing: The chairman leads the meeting and ensures smooth proceedings.

Voting: Ordinary resolutions need a simple majority, special resolutions need 75%.

Proxy Voting: Shareholders can vote by proxy if they can’t attend.

Question 19

Using case examples, discuss situations in which a
charge was thought to be fixed, but turned out to be a
floating charge?

Answer 19

Re: Spectrum Plus Ltd (2005)

Background: This case is one of the most significant in distinguishing between fixed and floating charges. The issue arose when the charge over the assets of Spectrum Plus Ltd was initially believed to be a fixed charge on the company’s book debts.

Facts: The charge agreement stated that the company’s book debts were assigned to the lender and that the company was required to pay the proceeds directly into a bank account controlled by the lender. However, the company was still allowed to collect the debts and use the proceeds in the ordinary course of business.
Decision: The House of Lords ruled that the charge was not a fixed charge, as it did not restrict the company’s ability to deal with the book debts in the ordinary course of business. Instead, it was a floating charge. The key point was that the company retained the freedom to deal with the debts until the charge crystallized, meaning it lacked the necessary characteristics of a fixed charge.

Legal Implication: The case clarified that a charge over circulating assets (like book debts) is more likely to be floating unless it explicitly restricts the debtor’s freedom to deal with the assets.

Question 20

What is compulsory liquidation?

Answer 20

compulsory liquidation

A process initiated by a court order, usually following a petition by creditors, shareholders, or the company itself.

Grounds include the company being unable to pay its debts or acting against public interest.

Managed by an official receiver or liquidator appointed by the court.

The company ceases trading, and its assets are sold to pay creditors.

The order is often a last resort when other recovery options fail.

Ends with the company being dissolved.

Question 21

What is voluntary liquidation?

Answer 21

Initiated by the company itself, typically through a resolution passed by its shareholders.
Two types:

Members’ Voluntary Liquidation (MVL): The company is solvent, and shareholders decide to liquidate.

Creditors’ Voluntary Liquidation (CVL): The company is insolvent and cannot pay its debts.

In MVL, a declaration of solvency is filed by directors.

In CVL, creditors have significant control, including appointing the liquidator.

Managed by an appointed liquidator who oversees asset distribution.

Question 22

How are a company’s assets distributed by a liquidator?

Answer 22

Liquidator sells company assets to settle debts.
Distribution follows a statutory order of priority:

1) Secured creditors (fixed charge holders).
2) Preferential creditors (e.g., employee wages, pensions).
3) Secured creditors (floating charge holders).
4) Unsecured creditors (trade creditors, suppliers).
5) Shareholders (if any surplus remains).

Ensures fair treatment of creditors based on legal hierarchy.

Question 23

What is wrongful trading?

Answer 23

Occurs when directors continue trading despite knowing the company is insolvent.

Directors may be held personally liable for company debts incurred during this period.

Focuses on the director’s duty to minimize losses to creditors.

Penalties include financial compensation and disqualification from acting as a director.

Question 24

What is administration in insolvency?

Answer 24

A legal process aimed at rescuing a company in financial distress.
An administrator is appointed to manage the company, usually by the court, creditors, or directors.

Objectives:
Rescue the company as a going concern.

Achieve a better outcome for creditors than liquidation.

Realize assets to repay secured or preferential creditors.

Provides a moratorium, temporarily halting creditor actions.

Question 25

What does Section 31 of the Companies Act 2006 state regarding the objects of a company?

Answer 25

What does Section 31 of the Companies Act 2006 state regarding the objects of a company?
(3 marks)
* Under CA 2006 (s 31), companies are deemed to have “unrestricted objects”, meaning no restrictions of the company to complete legal transactions
* For certain companies (e.g. charities, social enterprises) the members may want to restrict the company’s objects
* These restrictions need to be stated in the Articles of Association

Question 26

Discuss Section 288 of the Companies Act 2006 concerning written resolutions.

Answer 26

A written resolution is a document that allows private companies to pass resolutions without holding a general meeting. Instead, shareholders or directors can propose and pass resolutions in writing

* Only available for private companies
* Can be used for all resolutions, ordinary or special, except for removing an auditor before the end of term
* Model articles state members have 28 days to vote, but can be altered
* Need majority of total voting rights – not just those who voted

Question 27

Discuss Section 386 of the Companies Act 2006 concerning the duty to keep accounting records.

Answer 27

(1)Every company must keep adequate accounting records.

(2)Adequate accounting records means records that are sufficient—

(a)to show and explain the company’s transactions,

(b)to disclose with reasonable accuracy, at any time, the financial position of the company at that time, and

(c)to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act (and, where applicable, of Article 4 of the IAS Regulation).

(3)Accounting records must, in particular, contain—

(a)entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, and

(b)a record of the assets and liabilities of the company.

(4)If the company’s business involves dealing in goods, the accounting records must contain—

(a)statements of stock held by the company at the end of each financial year of the company,

(b)all statements of stocktakings from which any statement of stock as is mentioned in paragraph (a) has been or is to be prepared, and

(c)except in the case of goods sold by way of ordinary retail trade, statements of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified.

Question 28

Under what circumstances can a voluntary liquidation of a company take place?

Answer 28

• Can only take place if the company is solvent i.e. it can satisfy all of its remaining creditors and have assets left over
• A declaration of solvency must be made within a five-week period before the resolution to liquidate is passed
• Under IA 1986, a voluntary winding-up of a company may be achieved through an action by the company’s members
• Special resolution is required

Question 29

According to Section 122 of the Insolvency Act 1986, what are the circumstances in which a company may be wound up in court?

Answer 29

(a)the company has by special resolution resolved that the company be wound up by the court,

(b)being a public company which was registered as such on its original incorporation, the company has not been issued with [F1a trading certificate under section 761 of the Companies Act 2006 (requirement as to minimum share capital)] and more than a year has expired since it was so registered,

(c)it is an old public company, within the meaning of the [F2Schedule 3 to the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009],

(d)the company does not commence its business within a year from its incorporation or suspends its business for a whole year;

(e)F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f)the company is unable to pay its debts,

[F4(fa)at the time at which a moratorium for the company under section 1A comes to an end, no voluntary arrangement approved under Part I has effect in relation to the company]

(g)the court is of the opinion that it is just and equitable that the company should be wound up.

Question 30

Discuss the role of the Official Receiver to a company.

Answer 30

• When appointed, their role is to identify the state of the company’s affairs with regard to its assets, debts and other liabilities
• Under IA 1986, s 131, the Receiver has to be supplied with:
• Particulars of the company’s assets, debts and liabilities
• Names and addresses of company’s creditors
• The securities held by the creditors (& dates given)
• Any further relevant information

Question 31

Discuss the role of a company administrator and the possible options available to them upon appointment as administrator.

Answer 31

• The administrator must be a qualified insolvency practitioner
• The administrator’s primary objective is to prevent the company from being liquidated
• The administrator may decide that the best option for the company is to:
• Sell the business as a “going concern” to another company (q1)
• Negotiate a Company Voluntary Arrangement (CVA)
• Sell the assets as part of a creditors’ voluntary liquidation, pay the creditors then close the company
• Wind down the company if there are no assets to sell

Question 32

Discuss the principles listed in the UK Corporate Governance Code concerning Board Leadership and Company Purpose. 5 things

Answer 32

The mechanics & processes of how a company is controlled and directed
* Sir Adrian Cadbury:
“corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals…the aim is to align as nearly as possible the interests of individuals, corporations and society”
1 – Board Leadership and Company Purpose
2 – Division of Responsibilities
3 – Composition, Succession and Evaluation
4 - Audit, Risk and Internal Control
5 – Remuneration

Board Leadership and Company Purpose
(A)promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

(B)The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.

(C)The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.

(D)In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.

(E)The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern.

Question 33

What do Sections 7–15 of the Companies Act 2006 cover?

Answer 33

Section 7: Application for registration.
Section 8: Memorandum of Association.
Section 9: Articles of Association.
Section 10: Statement of Capital and Initial Shareholdings.
Section 11: Statement of Guarantee (for companies limited by guarantee).
Section 12: Statement of Proposed Officers.
Section 13: Statement of Compliance.
Section 14: Additional documents or information required.
Section 15: Certificate of Incorporation.

“All My Awesome Cats Sing Pretty Cool And Calmly.”

Breakdown:
A = Application for registration (Section 7)
M = Memorandum of Association (Section 8)
A = Articles of Association (Section 9)
C = Capital and Initial Shareholdings (Section 10)
S = Statement of Guarantee (Section 11)
P = Proposed Officers (Section 12)
C = Compliance Statement (Section 13)
A = Additional Documents (Section 14)
C = Certificate of Incorporation (Section 15)

Question 34

Briefly discuss the concept of an entrenchment of a provision in
a company’s Articles of Association.

Answer 34

All members can agree that clause in AoA can be set higher than a special resolution

Question 35

C2. Discuss the rights that an ordinary shareholder of a company has, regardless of their level of shareholding.

Answer 35

Right to attend general company meetings
Vote on resolutions
Receive dividends
Receive copy of annual accounts

Question 36

Discuss Section 386 of Companies House 2006 concerning accounting records.

Answer 36

• Every company must keep adequate accounting records
• By adequate, it means they are sufficient to show and explain the companies transactions and to disclose the financial position of a company at that time (with reasonable accuracy)

Question 37

Briefly discuss the cases Re Sykes (Butchers) Ltd

Answer 37

• A person denied that he was a director of the company
• However, certain actions he undertook could see him described as a de facto director
• These included paying off a bank overdraft whilst promising the funds to other creditors
• Key point: The court said that it was difficult to lay down one decisive test of whether a person is a de facto director. All the relevant facts relating to an involvement in management must be considered.

Question 38

Secretary of State for Trade and Industry v. Tjolle (1998).

Answer 38

• Is the opposite of the Sykes (Butchers) case
• A woman called herself a director, but could not be disqualified as such because she did not form any real part of the company’s governance
• Again, no one decisive test could be taken, all facts had to be considered to determine her status

Tjolle isnt a real name

Question 39

Describe the following term: Compulsory liquidation.

Answer 39

*Liquidation through a court can be made by any of the following petitioning the court (IA 1986, s 124):
*The company, the directors or any creditor
*A contributory e.g. holder of a floating charge
*A liquidator or temporary administrator
*The secretary of state where a public company has not been issued with its trading certificate
*The Official Receiver, where voluntary winding-up is no longer possible

*When faced with the petition, the court has the option to make the winding-up order, or it may refuse
*The court may also appoint a provisional liquidator (who may or may not be the official receiver) where it is likely
that the directors may attempt to remove assets of the company

*IA 1986, s 122 lists the grounds on which an order for compulsory liquidation of a company be made. They are:
*(a) The company has by special resolution resolved that the company be wound up by the court
*(b) The public company has not been issued with a trading certificate and has been registered for over a year
*(c) It is an old public company re: Cons. Prov. Act
*(d) The company does not commence its business within a year from incorporation, or suspends it business for a whole year
*(e) The number of members is reduced below 2 (except for an Ltd)
*(f) The company is unable to pay its debts
*(g) the court is of the opinion that it is just and equitable that the company should be wound up

Question 40

Describe the following term: Voluntary liquidation.

Answer 40

*Under IA 1986, a voluntary winding-up of a company may be achieved through an action by the company’s members
*Special resolution is required
*A liquidator will be appointed at a general meeting
* – it is their role to wind up the company and distribute its assets (IA 1986, s 91)

*Can only take place if the company is solvent i.e. it can satisfy all of its remaining creditors and have assets left over
*A declaration of solvency must be made within a five-week period before the resolution to liquidate is passed
*If the winding-up takes longer than a year, the liquidator will call a general meeting every year

*This document states that:
*The directors have made a full enquiry into the affairs of the company, and…
*Have formed the opinion that the company will be able to pay its debts in full within a period of not more than
12 months from the date on which the winding up or liquidation commences
A director who makes a declaration of solvency without reasonable ground is committing a criminal offence

Question 41

Describe the Order of distribution of company assets by liquidator

Answer 41

Secured creditors with fixed charges
Winding up costs
Preferential creditors (employees etc)
Secured creditors with floating charges
Unsecured creditors
Remaing monies to be distributed to shareholders

Question 42

what is Wrongful trading?

Answer 42

Covered in IA 1986, s214
*Occurs when the directors of a company have continued to trade a company past the point when they:
*“knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation“; and
*they did not take “every step with a view to minimising the potential loss to the company’s creditors“

Question 43

what is Administration?

Answer 43

Administration:
*Introduction by the Insolvency Act 1986 (IA 1986)
*Acts as a method to possibly save a financially unsuccessful company (or LLP) from going into liquidation
*Once a company is in administration, this prevents any legal action against the company from proceeding
*The company, the court or a floating charge holder appoints an administrator
*The administrator must be a qualified insolvency practitioner
*During the administration, all control of the company is handed over to the administrator
*The administrator’s primary objective is to prevent the company from being liquidated
Credit for any other relevant information

Question 44

what is Company voluntary arrangement (CVA)?

Answer 44

Discuss how CVA is method of sustaining company by having creditors agree to schedule of o/s debts
Requires 75% of creditors to agree to agreement

Question 45

Define Corporate Governance and discuss the theories underpinning it.

Answer 45

Corporate Governance (Definition):
Corporate governance refers to the systems and processes by which companies are directed and controlled. It involves the relationship between a company’s management, board of directors, shareholders, and other stakeholders to ensure accountability, transparency, and fairness.

Theories Underpinning Corporate Governance:

Agency Theory:

Focus: Conflict between shareholders (principals) and managers (agents).
Solution: Align interests through incentives and monitoring.
Stakeholder Theory:

Focus: Consider the interests of all stakeholders (not just shareholders).
Solution: Balance the needs of employees, customers, suppliers, etc.
Resource Dependence Theory:

Focus: Boards provide access to essential resources (capital, networks).
Solution: Choose directors who bring valuable resources.
Stewardship Theory:

Focus: Managers are trusted to act in the company’s best interest.
Solution: Empower managers and build trust.

Question 46

discuess Board Leadership and Company Purpose

Answer 46

PRISM: Board Leadership and Company Purpose
P – Promote Success

The board promotes long-term success, generates value for shareholders, and contributes to society.
R – Resources and Risk

The board ensures resources are in place to meet objectives, measures performance, and establishes effective controls to manage risk.
I – Integrity and Culture

The board establishes the company’s purpose, values, and strategy and ensures alignment with its culture. Directors act with integrity, lead by example, and promote the desired culture.
S – Stakeholder Engagement

The board ensures effective engagement with shareholders and stakeholders, encouraging participation.
M – Manage Workforce Policies

The board ensures workforce policies align with the company’s values and support long-term success, providing a safe environment where the workforce can raise concerns.