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

In Salomon v A Salomon & Co Ltd [1897] AC 22, the House of Lords confirmed that a registered company is a separate legal entity from its members. This principle of separate corporate personality is fundamental to company law.

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

Following Prest v Petrodel Resources [2013] UKSC 34, the Supreme Court (Lord Sumption) held that courts may pierce the veil only where a person deliberately evades an existing legal obligation by interposing a company. Mere impropriety or injustice does not justify piercing.

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

The Companies Act 2006 ss.171-177 codifies seven general duties: (1) act within powers, (2) promote the success of the company, (3) exercise independent judgment, (4) exercise reasonable care, skill and diligence, (5) avoid conflicts of interest, (6) not accept benefits from third parties, (7) declare interests in proposed transactions.

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

Under s.994 CA 2006, a member may petition the court where the company's affairs have been or are being conducted in a manner unfairly prejudicial to their interests. The court has wide powers, including ordering a buyout of the petitioner's shares.

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

The rule in Foss v Harbottle [1843] provides that the proper plaintiff for a wrong done to the company is the company itself. Exceptions allowing derivative claims include fraud on the minority (where the wrongdoers control the company) and acts beyond the company's constitution.

CILEx Level 6 Practice Test

CILEx Level 6 Practice Test

CILEx L6 Company Law