CILEx L6 Company Law

Question 1

What is the 'Salomon principle' in company law?

Accepted Answer

A company is a separate legal entity distinct from its shareholders, with its own rights and liabilities (Salomon v Salomon & Co [1897])

Answer

A company's directors are personally liable for its debts

Answer

A company's shareholders share liability for company debts

Answer

A company cannot contract with its own shareholders

Question 2

When will courts 'pierce the corporate veil' to hold individuals liable for a company's acts?

Accepted Answer

Only in very limited circumstances where the company is used as a device to evade existing legal obligations (Prest v Petrodel Resources [2013])

Answer

Whenever it is just and equitable to do so

Answer

Whenever a company is insolvent

Answer

Whenever directors have acted improperly

Question 3

What are the general duties of directors under the Companies Act 2006?

Accepted Answer

Seven duties under ss.171-177 including acting within powers, promoting the success of the company, exercising independent judgment, reasonable care and skill, avoiding conflicts of interest, not accepting benefits from third parties, and declaring interests in transactions

Answer

Three duties: to act in good faith, with skill, and without conflict

Answer

Five duties derived from the fiduciary law of trusts

Answer

Directors owe duties only to shareholders, not to the company itself

Question 4

What is the 's.994 Companies Act 2006 unfair prejudice petition'?

Accepted Answer

A remedy for a shareholder whose interests as a member have been unfairly prejudiced by the conduct of the company's affairs

Answer

A remedy for a director removed from office without cause

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A remedy for creditors where a company is insolvent

Answer

A remedy for employees unfairly dismissed by a company

Question 5

What is the 'rule in Foss v Harbottle [1843]' and what exceptions exist?

Accepted Answer

Only the company (not individual shareholders) can sue for a wrong done to the company; exceptions include fraud on the minority and acts requiring special majorities

Answer

Any shareholder may sue on behalf of the company at any time

Answer

The rule was abolished by the Companies Act 2006

Answer

Directors can never be sued by shareholders directly

Question 6

What is a 'floating charge' and how does it differ from a fixed charge?

Accepted Answer

A floating charge hovers over a class of assets (e.g., stock in trade) and attaches only on crystallisation; a fixed charge attaches immediately to specific identified assets

Answer

A floating charge is less secure than a fixed charge because it is not registered

Answer

A floating charge only applies to cash; a fixed charge to property

Answer

A floating charge is only available to public companies