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Exam details (completed by BPP)

Final Mock Examination

ACCA PAPER F4

Corporate and Business Law (ENG)

Date received: .........................................................................................

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RESULTS

Question Maximum Score

1 10

2 10

3 104 10

5 10

6 10

7 10

8 10

9 10

10 10

Total 100

Marker's comments (completed by BPP)

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Marker's assessment

Ticks in the left hand boxes indicate a good aspect of your performance.

Tick in the right hand boxes highlight areas you need to work on.

(Note: Boxes may be left empty if the comments are not applicable to your script)

Approach Good Improvement How toperformance needed improve

Questions correctly interpreted

Logical coherent answers

Technical content

Understanding of principles

Principles applied well to specific

problems

Computation

High standard of accuracy

Workings are easy to follow

Appearance/Layout

Text layout is clear and easy to follow

Calculations are easy to follow

Written style

Concise business style

Answering the question set

Careful reading

Review the definitions of

question words

Practise planning and full

written answers

Reading your Study Text

More question practice

required

Check your workings

Layout your workings clearly

Label and cross reference

Neat handwriting

Use plenty of space

Use headings and

subheadings

Use short paragraphs

Neat diagrams and tables

Workings labelled

Short concise sentences

Think before you write

Relevant to

Question

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ACCA

Paper F4

Corporate and Business Law

(ENG)

Final Mock ExaminationQuestion Paper

Time allowed

Reading and Planning

Writing

15 minutes

3 hours

ALL questions are compulsory and MUST be attempted

Instructions:

Please attempt this exam under test conditions and attach the frontsheet complete with your name and addressto your script. The completed package should be sent to BPP Marking Department.

Take a few moments to review the notes on the inside of this page titled, Get into good exam habits now! beforeattempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER

EXAMINATION CONDITIONS

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1

Explain the meaning of delegated legislation, and explain the controls around delegated legislation (10 marks)

2Explain the meaning and effect of the following in respect of exclusion clauses:

(a) Incorporation (4 marks)

(b) Construction (2 marks)

(c) Reasonableness (4 marks)

(Total: 10 marks)

3

Distinguish between Unfair and Wrongful dismissal (10 marks)

4Explain the meaning and effect of the following:

How agency relationships are formed and the authority of agents (10 marks)

5

Describe the seven general duties of Company Directors (10 marks)

6Distinguish between members and creditors voluntary liquidations (10 marks)

7

Describe the potential liability of Company Auditors in Tort, and explain how their liability may be capped(10 marks)

8

Rod is the Managing Director of Rainbow plc, a company that has recently received an attractive takeover bidfrom its main rival Playschool plc. Upon receipt of this news Rod immediately instructed his broker Jane topurchase on his behalf 200,000 Rainbow shares, netting Rod a potential $250,000 profit.

The following day Rod called a board meeting at which he disclosed to the rest of the Board of Rainbow thenews of the takeover offer and it was agreed that a press conference to announce the news would be held thefollowing day.

The Finance Director of Rainbow; Freddie, rang his wife as soon as the board meeting ended telling her Ive gotsome very exciting news about Rainbow to share with you when I get home.

Advise Rod, Jane and Freddie as to their potential liabilities (10 marks)

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Rolf Hart runs a successful art gallery that hosts exhibitions and sales for up-and-coming artists. At the end of arecent exhibition there were four paintings left unsold that Rolf himself had painted which he put them up for saleat $5,000 each. Rolf placed them in the reception area of his gallery with a large sign under each clearly

communicated that they were on offer for sale each at $5,000 each.A local art historian Tony Harris happened to be passing the gallery on Tuesday when he noticed the fourpaintings for sale. Excitedly he noted down the details in his notebook, and when he got home he wrote a letterof acceptance for all four paintings at their offer price. The following day at 12 oclock Tony posted the letter ofacceptance at his local post office using a guaranteed next day delivery service.

Tony was furious when he subsequently received a letter from Rolf informing him that he was unable to acceptTonys offer for the paintings, as they had been sold to a collector late on Wednesday afternoon. Tonyimmediately wrote back to Rolf informing him that he was considering suing him for breach of contract.

Advise Rolf on the likelihood of Tony successfully suing him for breach of contract. (10 marks)

10Knightriders Ltd is a private company owned and directed by its three founders, David, Miles and Kit. David andMiles own 40% of the shares each, with Kit holding the remaining 20%.

Upon incorporation the objects of the company had been restricted, allowing the company only to tradeautomotive parts. However at a recently convened General Meeting David and Miles proposed and voted infavour of the following amendments to the companys Articles of Association:

The articles be changed to trade automotive parts and provide mechanical engineering services

Kit be compelled to sell his shares back to the company at market value

Kit is dismayed at the outcome of the meeting.

Advise Kit as the legality of the amendments and any rights that he may have. (10 marks)

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Student self-assessment

Having completed this paper take a few minutes to consider what you did well and what you found difficult. Usethis as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning

Did you finish too early? Y/N Focus your planning time on generating more ideas.Use models to help develop width to your thinking.

Did you overrun? Y/N Focus on allocating your time better.Practise questions under strict timed conditions.If you get behind leave space and move on.

Did you waffle? Y/N Focus your planning time on developing a logical structure to

your answer.

Layout

Was your answer difficult to follow? Y/N Use headings and subheadings.Use numbering sequences when identifying points.Leave space between each point.

Did you fail to explain each point? Y/N Show why the point identified answers the question set.

Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job easy.

Content

Did you struggle with:

Interpreting the questions? Y/N Learn the meaning of question words (inside front cover).Learn subject jargon (See the Key Terms in your Study Text).Read questions carefully noting all the parts.Practise as many questions as possible.

Understanding the subject? Y/N Review your notes/Text.Work through easier examples first.Contact a tutor for help.

Remembering the notes/Text? Y/N Quiz yourself constantly as you study. You need to develop yourmemory as well as your understanding of a subject.

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ACF4FM08(D)

ACCA

Paper F4

Corporate and Business Law

(ENG)

Final Mock Examination

Marking scheme and Suggested

solutions

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Marking schemeMarks

Define delegated legislation 1Enabling acts 1Privy Council 1Government Departments 1Local authorities 1Professional bodies 1Orders in council 1Statutory instruments 1Bye Laws 1Professional regulations 1Max Marks 7

Control by courts/Ultra vires 1Committee scrutiny 140 Day rule 1HRA 98 1Max Marks 4

Maximum for question 10

Suggested solution

Delegated legislation is the name given to legislation passed by bodies other than Parliament in the UK.Such bodies have received Enabling Acts. Examples of such bodies and the delegated legislation they

can pass include: The Privy Council they can pass emergency laws know as Orders in Council. These powers

are exercised very rarely.

Government Departments they can pass Statutory Instruments

Local authorities can pass Bye Laws

Professional bodies bodies such as the ACCA can pass Professional Regulations allowingthem to govern the affairs of their memberships.

The controls around delegated legislation include:

Control by the courts any piece of delegated legislation can be ruled ultra vires by a court

meaning it is beyond capacity

Committee scrutiny there are standing committees of MPs that review Statutory Instruments

40 day rule Statutory Instruments must be laid before Parliament for 40 days before theybecome law

The Human Rights Act 1998 all delegated legislation must be compliant with this act

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2

Marking schemeMarks

Define exclusion clause 1Incorporated before 1Olley case 1Bound by what you sign 1LEstrange case 1Onerous terms disclosed 1Chapleton case 1Ordinary course of dealings 1Spurling and Hollier cases 1 eachMax marks 4

Clearly worded 1

Contra proferentum 1Hollier case 1Max marks 2

UCTA 77 1Aims of UCTA 77 1Tests of reasonableness 1UTCCR 99 1Standard form contracts 1Same tests as UCTA 77 1Injunctions possible 1Max marks 4


Suggested solution

An exclusion clause is any clause in a contract that aims to reduce or eliminate the liability of one party inthe event of a breach of contract. In order to successfully have such a clause upheld in court it must passthree tests, or layers.

(a) Exclusion clauses must be clearly incorporated into a contract before it is agreed by both partiesfor example in Olley v Marlborough Court.

Where a contract has been signed it is generally deemed that both parties are bound by what they

sign perLEstrange v Graucob.

However where an onerous term is present in the contract this must be highlighted beforeagreement perChapleton v Barry.

Terms may be implied into a contract through the ordinary course of dealings perSpurling vBradshaw, though the courts will need to be satisfied that a sufficient number of transactionshave happened over a number of years perHollier v Rambler Motors.

(b) When constructing a clause it must be sufficiently and clearly worded so as to exclude the breach.Should one party seek to rely on some ambiguity in the clause then they will fail per the ContraProferentum rule as demonstrated in the Hollier v Rambler Motors case.

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(c) Per the Unfair Contract Terms Act 1977 and exclusion clause must be reasonable. That is tosay it must not act unfairly against one party, and in particular to consumers. The Act regulatesamongst others Business to Consumer contracts and seeks to protect consumers from unfairclauses whilst allowing them freedom of contract. In order to determine fairness the Act reliesupon a number ofsubjective tests, and renders certain clauses void.

The Unfair Terms in Consumer Contracts Regulations 1999 applies to standard formconsumer contracts those that contain terms not varied by the consumer. This defines anunfair term as one which causes a significant imbalance between the contracting parties. TheRegulations apply the same tests of reasonableness as UCTA 77, but additionally allowsconsumers to apply for an injunction in order to get an unfair term removed.

3

Marking schemeMarks

Define wrongful dismissal 1Claim for damages 1Dismissal was justified 1Justified reasons 1Duty to mitigate 1Max marks 4

Define unfair dismissal 1Qualification criteria up to 2Automatically unfair reasons 1Fair reasons up to 2Remedies up to 3

Max marks 6Maximum for question 10

Suggested solution

Wrongful dismissal can be defined as dismissal without notice, which leads to a claim for damages.For example someone with a contractual notice period of 3 months who is asked to leave immediatelywithout payment in lieu of notice has a potential claim for wrongful dismissal.

In order to defend such actions the employer will have to prove the dismissal was justified. Reasons forthis may include:

Wilful disobedience

Dishonesty

Incompetence

Drunkenness

Misconduct

When making a claim for wrongful dismissal the claimant must take all reasonable steps to mitigate theirlosses by say seeking alternative employment.

Unfair dismissal occurs when a qualifying employee is dismissed without a fair reason.

In order to qualify usually the claimant has to prove they were:

Continuously employed for at least one year

Dismissed Under normal retirement age

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The one year criterion does not however apply where someone has been dismissed for anautomatically unfair reason such as membership of a trade union or being pregnant.

The claimant has three months to file a claim with the employment tribunal at which the employer willhave to prove they had one or more of the following fair reasons to have dismissed the claimant:

Lack of capability/qualification

Gross misconduct

Statutory prohibition

Redundancy

Other substantial reason

A successful claim for unfair dismissal will lead to one of the following remedies:

Reinstatement getting your old job back

Re-engagement new employment with the old employer

Compensation consisting of the basic, compensatory and punitive awards

4Marking scheme

Marks

Express agreement 1Implied agreement 1Ratification 1Necessity 1Estoppel 1Express authority 1Implied authority 1

Watteau case 1Ostensible/apparent authority 1Freeman case 1


Suggested solution

Agency relationships are formed in the following ways:

By express agreement either in writing or by verbal agreement.

By implied agreement for example it is implied that a partner is a partnership is an agent of the

firm. By ratification retrospective authority may be granted by a principal for the actions of an agent,

however this does not give the agent the same powers in the future.

By necessity in rare situations an agent may appoint themselves to deal with an emergency. Aslong as they act reasonably the principal must indemnify the agent.

By estoppel when an agent acts with ostensible authority the principal may be estopped fromdenying the agents authority to have acted on their behalf.

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Agents may acquire authority in the following ways:

Actual express authority the principal may define the agents powers in writing or verbally.

Actual implied authority where a third party is accustomed to dealing with an agent the agentmay acquire implied authority, such customary authority was highlighted in Watteau v Fenwick.

Ostensible/apparent authority where an agent holds themselves out to have certain powers, andthe purported principal is aware of this and fails to take reasonable action to prevent this theprincipal may be estopped from denying the agents authority to bind in contract perFreeman &Lockyear v Buckhurst Park Properties.

5

Marking schemeMarks

Act within powers 1

Exercise powers for a proper purpose 1Case reference Bamford etc 1Promote the success 1Considerations stakeholders etc 1Independent judgement 1Exercise reasonable skill, care and diligence 1Test (a) 1Test (b) 1Case references City Equitable and Stebbing up to 2Avoid conflicts of interest 1Case reference Regal etc 1Benefits from a third party 1

Interest in a contract 1


Suggested solution

The seven general duties of directors are:

1 To act within powers

The directors must act in accordance with the companys constitution. In doing so they shouldalso observe their duty to exercise their powers for a proper purpose i.e. Bamford v Bamford.

2 To promote the success of the company

All decisions made by the board must be done so with the aim of enhancing shareholder value.However when making such decisions consideration should be given to the long term impact ofthe decision and the impact on a range ofstakeholders such as employees, members and thelocal community.

3 Exercise independent judgement

Directors must not delegate their decision making powers or be swayed by others. They maydelegate their functions to others but must continue to make independent judgements.

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4 Exercise reasonable skill, care and diligence

The directors can be called to show that they have exercised:

(a) 'The general knowledge, skill and experience that may reasonably be expected of aperson carrying out the functions carried out by the director in relation to the company;'

And(b) 'The general knowledge, skill and experience that the director has.'

In essence this creates both an objective test in (a) and a subjective test in (b) consistent with theRe City Equitable Fire and Dorchester Finance v Stebbing cases.

5 Avoid conflicts of interest

The directors must avoid conflicts of personal interest. Where a director is able to profit from acommercial opportunity owing to their executive position it is likely the company will be able torecover any profits made by the directors even when they act in good faith perRegal (Hastings)v Gulliver.

6 Not to accept benefits from a third party

Where a director accepts gifts or bribes from a third party they are likely to be in breach of theirduty to avoid a conflict of interests. However such transactions can be authorised by the membersof the company, though not the board.

7 To declare interests in proposed transactions

Where a director is likely to have a direct or indirect interest in a contract or transaction with thecompany they must disclose this in full to both the members and the board before suchtransactions actually occur.

6 Articles of association

Marking schemeMarks

Company is solvent 1Special resolution 1Statement of solvency 1Three monthly meeting 1Final meeting 1Conversion to creditors procedure 1Criminal offence 1Company insolvent 1

Special resolution 1Members meeting 1Creditors meeting 1Choice of liquidator 1


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Suggested solution

A members voluntary liquidation has the following features:

The members have decided to wind-up a company that is solvent

A special resolution is passed to commence the winding up, this must be delivered to theregistrar within 15 days

The directors must produce a sworn statement of solvency stating that the company is able tomeet its debts as they fall due within the next 12 months.

Within three months of commencement the liquidator must call a general meeting to lay anaccount of his transactions

The liquidator will call a final meeting to lay final accounts when the liquidation is complete

At any point the company is deemed insolvent the process can be converted into a creditors voluntaryliquidation. It is a criminal offence to make a statement of solvency for a company that is insolvent.

A creditors voluntary liquidation has the following features that distinguish it from a members

voluntary liquidation:

The company is found to be insolvent

The members must pass a special resolution

Notice must be given of a meeting of the creditors

A members meeting is held to appoint a liquidator

A creditors meeting is usually held on the same day where the creditors may appoint their ownchoice of liquidator

7

Marking schemeMarks

Duty owed to the company only 1Caparo case 1Restriction of neighbourhood/Donoghue 1Special relationships extend duty 1Hedley Byrne case 1Describe how special relationship is formed 1Non-audit/takeover increases duty of care 1

Morgan Crucible case 1ADT case 1Max marks 7 7

Companies Act allow liability cap 1Member approval needed 1Fair and reasonable caveat 1What courts will consider up to 2Max marks 4


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Suggested solution

The general rule of liability of auditors in tort is defined in the case ofCaparo v Dickman, which restrictedthe duty of care that auditors owed in respect of audit services to the company itself, and not to anyindividual members or potential investors. This represented a restriction of the neighbourhood principledefined in Donoghue v Stevenson.

However a duty of care can be established via the special relationship rule established in the case ofHedley Byrne v Heller. In order to establish these relationships the following must occur:

Auditor would give an opinion acting in a professional capacity

The third party would be expected to be able to rely on that opinion

The third party acts upon the opinion and suffers an economic loss

In such circumstances the third party may recover their losses from the auditor.

Where an auditor is working in a non-audit capacity they are likely to have a higher duty of careimposed upon them. For example when advising a company on issues such as a takeoverthe auditorsmay owe a duty of care to known takeover bidders perMorgan Crucible v Hill Samuel. Full liability in

such cases has been established in cases such asADT v Binder Hamlyn.Provisions under the Companies Act 2006 have made it possible for auditors to agree with their clients acap on their liability. In order to achieve a fixed or proportionate cap on negligence claims the auditorsmust receive approval of the members of the company via an ordinary resolution. This approval mustbe gained each year.

Should an auditor wish to rely upon such a clause they may have to prove to the satisfaction of the courtsthat the limit is fair and reasonable. In ruling on such matters the courts will consider:

The auditors responsibilities

The nature and purpose of the auditors contractual

The professional standards expected of him

8

Marking schemeMarks

Criminal act 1Remedies 1Define insider 1Define inside information up to 2Define dealing up to 2Defences up to 2Max marks 7

Apply and conclude to Rod 1Apply and conclude to Jane 1Apply and conclude to Freddie up to 2Max marks 4


Maximum of 7 marks awarded if NO advice is offered

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Suggested solution

State the issue

Are Rod, Jane or Freddie guilty of insider dealing?

State the Law

Insider dealing is a criminal offence as defined by the Criminal Justice Act 1993. Anyone found guilty willface maximum prison sentence of 7 years and an unlimited fine.

In order to gain a conviction it must be proved that:

1 The person is an insider that is someone who is directly or indirectly in receipt of insideinformation

2 That the person possessed inside information that is defined as price sensitive informationabout specific securities that has not yet been disclosed

3 That the person dealt this is to either buy/sell securities in order to make a gain or avoid a loss,or to encourage someone else to do this, or to disclose to someone who deals themselves

Convictions for insider dealing are relatively rare as the burden of proof is so high and because thefollowing defences are available:

You would have bought/sold anyway

You believed the information was publicly available

You are a market maker acting in good faith

Apply the Law

Rod is an insider. He is the director of a company that has received price sensitive information that heused to make a personal profit of $250,000.

Jane is merely carrying out instructions on behalf of Rod, acting as a market maker. Jane appears to

have no knowledge that she is using inside information.Freddie knows about the takeover offer and is therefore an insider, with inside information. However hehas not yet disclosed anything specific to his wife so has not yet dealt.

Conclude

Rod could be found guilty of insider dealing and faces both a prison sentence and a fine.

Jane is not guilty of anything and therefore has no criminal liability.

Freddie is not currently guilty of insider dealing as he has not dealt. However should he disclose to hiswife and either of them were to act upon this information before it is made public both would be guilty inthe same way as Rod.

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Marking schemeMarks

Define essential elements of contract/agreement 1Need to communicate acceptance 1Postal rule exception 1Adams case 1Conditions of the postal rule up to 2Stating postal rules do not apply 1Rolf free to accept third party offer 1No contract formed between R & T 1No contract = no damages payable 1



Suggested solution

State the issue

Has Tony formed a contract with Rolf, which Rolf has breached?

State the law

In order to form a contract the parties must be in agreement (offer and acceptance).

There is a general need to communicate acceptance of an offer. However the need to communicatecan be avoided by the postal rules perAdams v Lindsell. In such cases agreement is deemed to have

occurred at the moment the letter is posted. For the postal rule to apply the following condition apply: The post is a recognised method of acceptance, reasonably contemplated by both parties

The letter was posted in the usual way, with the correct postage and address

The postal rules have not been excluded i.e. Holwell Securities v Hughes

Apply the law

Rolf has made an offer that can be accepted by anyone.

Tony has attempted to communicate his acceptance of the offer via the post which is unlikely to havebeen contemplated by Rolf. As such the postal rules do not apply.

Rolf is unaware of Tonys offer and has sold the paintings to a third party. As he has no knowledge of the

offer from Tony he is not obliged to communicate any revocation or ending of the offer to Rolf.Conclude

Rolf received an offer from Tony that he could not accept. Rolf was therefore able to decline the offer andis not in breach of contract. As such Tony will not be able to sue for breach of contract as no contractwas formed.

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Marking schemeMarks

Define objects clause 1Special resolution required for alteration 1Bona fide test 1Greenhalgh case 1General rule on member expulsion 1Dafen case 1Defrauding company 1Competing against company 1Weighted voting rights 1Bushell case 1Max marks 7

David and Miles can pass SR 1Change of objects lawful 1Expulsion of Kit not lawful 1Likely remedies for Kit 1Max marks 4



Suggested solution

State the issue

Are the alterations to the Articles lawful, can Kit apply to court to have overruled?

State the law

A companys lawful activities are defined within its articles of association. A companys articles may bealtered by:

Passing a special resolution requiring a 75% vote in favourAND

Proving the alteration is bona fide i.e. benefits the company as a whole perGreenhalgh vArderne Cinemas

However such alterations will not be permitted if they being used by a majority to exploit a minority. The

courts view with considerable suspicion any alterations that seek to either expel members or compelmembers to either acquire more shares or dispose of their shares Dafen Tinplate v Llanelly Steel.Such alterations will only be permitted where it is proved:

Members are defrauding the company

Members are competing against a company

Where members enjoy weighted voting rights perBushell v Faith it may make it impossible to alter thearticles without unanimous agreement of the members.

Apply the law

David and Miles control 80% of the shares and as such are likely to have enough voting tights attached tothese to pass a special resolution.

The alteration of the objects clause appears to be a logical extension of the trading activities of thecompany.

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There does not appear to be any wrongdoing by Kit in respect of either defrauding or competing withKnightriders.

Conclude

It is likely that Kit will be able to apply to the courts to have the second alteration overturned. The courtswill do as they see fit and may either order the company to buy out his minority shareholding or block the

alteration.

Kit is unlikely to be able to overturn the alteration of the objects clause.

41401803-acca-f4-bpp mock

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