Business Law

Frequently wrong things

When is a case allocated to a multi-track?

When the case is complex or the trial is expected to last more than 1 day.

When is a case allocated to a fast track?

When a case is worth up to 25,000 and is expected to last a day

Can courts strike down legislation that breaches the Human Rights Act 1998?

✅ Secondary legislation (delegated legislation): Yes

❌ Primary legislation (Acts of Parliament): No

Courts can:

• Strike down incompatible secondary legislation.

• Only make a declaration of incompatibility for primary legislation.

How must courts interpret legislation under the Human Rights Act 1998?

Courts must interpret legislation, so far as possible, in a way that is compatible with the European Convention on Human Rights (ECHR).

What is the term used if there is no contract and the goods should be returned (even from a third party)

Void

What is the term used where the contract can be set aside by the “injured” party/

Voidable

Is a letter of revocation effective when it is posted?

False, the postal rule only applies to acceptances, not to revocation.

Does the postal rule apply, ie is the acceptance effective as soon as it is posted?

No, when the acceptance is to be made ‘by notice in writing’, this means notice is required to be received by the offerror.

Family, social and domestic agreements are presumed not to create legal relations. How can this presumption be rebutted?

The presumption is rebutted because their is a written agreement and rent is payable.

True or Falase: For a contract to be valid, there must be written evidence of the principal terms of the contract.

False - not all contracts need to be in writing or evidenced in writing to be valid.

What 3 contracts must be in the form of a deed?

1. Contract for the transfer of land or property
2. Contract for a lease over three years
3. Contract for the regular payment of a donation to charity

True or False: Damages for breach of contract are primarily intended to restore the injured party to the position they were in when the contract was made.

False - contractual damages aim to put the innocent party in the position they would have been in had the contract been properly performed

True or False: A claimant must take every possible opportunity to mitigate their losses following a breach of contract.

A claimant is only required to take reasonable steps to mitigate their loss.

What are liquidated damages

A pre estimate of potential damages written into the contract only effective if it is a genuine attempt to pre-estimate the likely loss

What are the 3 types of injuctions?

Mandatory injuction - Directs the defendant to take positive steps to undo something already done
Prohibitory injuction - Requires the defendant to observe a negative promise in the contract
An asset-freezing injuction - Assets may be frozen

An innocent party treats a contract as discharged following a breach. Which of the following is NOT a consequence of doing so?

A. The innocent party must notify the other party of their decision.
B. The innocent party can reclaim money already paid for defective performance.
C. The innocent party remains liable for contractual obligations that were due before termination.
D. The innocent party may not claim damages from the other party.

D. The innocent party may not claim damages from the other party.

Why?
This is the exception because an innocent party can still claim damages after treating the contract as discharged.

True or False: An auditor responsible for an auditor's report containing materially false or misleading information commits an offence under the Companies Act 2006 that is punishable by a fine and/or imprisonment.

False

Rule:
An auditor who knowingly or recklessly causes a materially misleading, false, or deceptive audit report to be issued commits an offence.

However, the penalty is a fine only, not imprisonment.

True or False: A Limited Liability Partnership (LLP) is taxed in the same way as a registered company.

False

Rule:
Although an LLP is a separate legal entity, it is generally tax transparent.

The members (partners) are taxed individually on their share of the LLP's profits, rather than the LLP paying corporation tax like a company.

True or False: If a public limited company (PLC) fails to obtain a trading certificate, a member-director may be personally liable as a result. This is an example of a statute lifting the corporate veil.

True

Rule:
A company normally has a separate legal personality, meaning its members and directors are not personally liable for the company's debts.

However, in certain circumstances, statute can lift (or pierce) the corporate veil and impose personal liability on individuals behind the company.

The Companies (Miscellaneous Reporting) Regulations 2018 require companies to make disclosures in several areas. Which of the following is NOT required?

A. Corporate governance
B. Director remuneration
C. Compliance with money laundering regulations
D. Stakeholder engagement

C. Compliance with money laundering regulations

True or False: A company can change its name by special resolution for any reason at any time.

True

Rule:
A company may change its name:

• By special resolution of the members; or

• By another method provided for in its articles of association.

True or False: A registered company can be ordered to change its name by the Registrar of Companies.

False

Rule:
The Registrar of Companies cannot order a company to change its name.

However, in certain circumstances, a change of name may be ordered by:

• The Secretary of State, or

• The Company Names Adjudicator.

Under s.994 Companies Act 2006, all of the following may constitute unfairly prejudicial conduct except one. Which is the exception?

A. Directors recommend that shareholders accept a takeover bid from a company wholly owned by the directors.
B. The majority removes the minority from the board of a quasi-partnership company because the minority alleges unlawful conduct.
C. Majority shareholders (who are also directors) award themselves excessive bonuses while reducing dividends to shareholders.
D. A parent company refuses to pay the debts of its subsidiary, causing the subsidiary to become insolvent.

D. A parent company refuses to pay the debts of its subsidiary, causing the subsidiary to become insolvent.

Why?
This is not typically an example of unfairly prejudicial conduct under s.994 CA 2006.

Examples of Unfairly Prejudicial Conduct:

• Conflicts of interest by directors that disadvantage shareholders.

• Excluding minority members from management in a quasi-partnership company.

• Excessive director remuneration that unfairly benefits directors at the expense of shareholders.

Key Point:
A parent company and its subsidiary are separate legal entities. The parent generally has no obligation to pay the subsidiary's debts, so failure to do so does not, by itself, amount to unfair prejudice.

In a private company, what minimum percentage of the nominal value of voting shares must agree to short notice of a general meeting (less than 14 days), where the articles of association do not specify otherwise?

✅ 90%

Rule:
A private company can hold a general meeting on short notice if members holding at least 90% of the nominal value of shares carrying voting rights agree.

Key Point:
The company's articles of association may require a higher threshold, up to 95%.

Which two statements about unfairly prejudicial conduct under s.994 Companies Act 2006 are correct?

A. The company must be a public company.
B. There must be unfairly prejudicial conduct affecting shareholders generally or some of them.
C. The conduct must involve a breach of company law.
D. The conduct does not have to be ongoing at the time of the action.

B and D

Rule:
A member may petition under s.994 CA 2006 where the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or some of its members.

Why the others are wrong:

• ❌ A: The remedy is available to both private and public companies.

• ❌ C: The conduct does not need to involve a breach of company law. Conduct can be unfairly prejudicial even if technically lawful.

Key Points:

• Unfair prejudice can affect all shareholders or just a minority.

• The conduct can be past or present; it does not need to be continuing when the claim is brought.

Can a shareholder force a company to pay a dividend simply because they hold either ordinary or preference shares?

No

Neither ordinary shareholders nor preference shareholders can compel a company to pay a dividend.

• Ordinary shares: dividends are only paid if declared.

• Preference shares: usually have priority to dividends, but still cannot demand payment.

Key Rule:
A preference share gives priority, not a guaranteed right to paymen

How can the directors of a PLC obtain authority to allot new shares?

Authority can be granted by:

• An ordinary resolution of the shareholders; or

• The company's articles of association.

A special resolution is not required.

Key Rule:
Directors of a PLC cannot allot shares unless authorised by the shareholders or the articles.

When do shareholders have a statutory right of pre-emption when new shares are issued?

When equity securities are allotted for cash.
Not when:

• Bonus shares are issued

• Equity securities are allotted for non-cash consideration

• Shares are allotted under an employee share scheme

Key Rule:
Statutory pre-emption rights protect shareholders from dilution only on cash issues of equity securities.

What are two permitted uses of a company's share premium account?

A share premium account can be used to:

1. Pay expenses or commissions incurred on the issue of shares

2. Issue fully paid bonus shares to existing shareholders
   It cannot be used to:

   • Repay loans

   • Return capital to shareholders

   • Pay taxes

When is a company carrying out a placing required to publish a prospectus?

A prospectus is generally required when the placing will raise more than 10% of the company's existing equity share capital.

In which methods of raising share capital does a company use an issuing house as an intermediary?

IPO (Initial Public Offering)
Offer for Sale

An administrator needs information from a company's officers and employees after being appointed. What are the key time limits that apply?

✅ 7 days – The administrator must make the request for statements within 7 days of appointment.

✅ 11 days – Officers and employees must comply with the request within 11 days.

Memory Aid:
🔑 7 to ask, 11 to answer

A company has entered administration following an application by a floating charge holder.

1. Can the members pass a resolution for the voluntary winding up of the company during administration?

2. Can a fixed charge holder enforce its security without the consent of the administrator or the court?

1. No.
While a company is in administration, no resolution or court order can be made to wind up the company.

2. No.
A fixed charge holder cannot enforce its security during administration without obtaining the consent of the administrator or permission of the court.

What are two key limitations of a Company Voluntary Arrangement (CVA)?

A CVA does not bind secured or preferential creditors unless they agree.
A CVA typically lasts between 3 and 5 years, not 6 to 12 months.

Key Points:

• A CVA is generally binding on unsecured creditors once approved.

• Secured creditors and preferential creditors retain their rights unless they consent to be bound.

• CVAs are usually a medium-term rescue tool, lasting several years.