Company Law Exam: Principles of Attribution, Constitutions, Directors' Duties, and Trading Trusts

Question 1: Principles of attribution for companies

NEL has a period of success and moves to larger premises with a new landlord. After a while however NEL starts to experience problems. The cash flow projections for the company are poor, and the outlook for the economy in general and for NEL in particular is grim. Anita and Mr Nguyen have agreed that Anita’s niece Sally is to look after the company finances and accounts. Sally is a positive person and she tells the directors that things are bound to turn around. Mr Nguyen has little knowledge of accounting and decides to listen to Sally. He thinks “what have I got to lose anyway?”

NEL keeps trading but continues to see negative cash flow and mounting debt and it eventually goes into liquidation owing large amounts of money to creditors which amount to far more than the assets of the company. The liquidator investigates and determines that Sally’s accounts for NEL did not meet the minimum requirements of the Companies Act. This is a surprise to Anita and Mr Nguyen.

HEL defaults under the GSA by missing several payments to the Bank. The Bank appoints a receiver, Jessica, immediately to take control. Mr Nguyen believes that HEL can be made profitable again and tells Jessica this. However, Jessica forms the view that HEL is no longer profitable and should be shut down and the assets sold to repay the bank. She contacts the finance company and asks them to send a copy of their signed security agreement with HEL and she is surprised when they don’t send it straight away. After several more requests Jessica starts to suspect that the finance company omitted to obtain a signed security agreement when the loan was advanced.

Question 1:

Explain the principles of attribution for companies and illustrate your answer by discussing which legal person(s) may be liable under the lease, the stationary purchase, the guarantee, and for the negligence of the NEL employee driving the truck.  Also discuss whether it is possible for the criminal behaviour of the driver to be attributed to NEL.

Question 2:

Explain the law relating to constitutions and the ultra vires doctrine of company law that is relevant to the scenario. Giving reasons; discuss whether the contract between BCL and PDL is valid under the Companies Act 1993. Do not discuss directors duties in this question. Note that question 3 is also concerned with BCL.

Question 3:

Assume that the contract between BCL and PDL is valid. Discuss whether Bill and Ioane may or may not be liable to BCL for breach of any directors duties under sections 131, 133-134 and 136-137 of the companies Act with regard to their actions for BCL. Do not discuss whether the contract is valid in this question. Note that question 2 is also concerned with BCL.

Question 4:

Advise Mr Nguyen about any shareholder remedies that may be available to him in regard to Black Knight Limited (BKL) under the Companies Act 1993 and related cases.

Question 5:

Discuss whether Mr Nguyen and/or Anita might be held personally liable under the Companies Act 1993 as directors for the losses suffered by NEL now that it is in liquidation.

Question 6:

Briefly outline to Jessica her role as receiver of HEL including to which person or persons she owes duties. Advise Jessica in respect of who has priority over the espresso maker under the Personal Property Securities Act 1999 including what more information is needed if any.

Question 7:

The question of whether a business relationship is that of partnership or a joint venture or even just a social agreement is important as it will determine amongst other things what the liabilities are of the people involved.

Explain the legal requirements that must be met for a venture between a group of people to be considered a partnership.  Illustrate your propositions with reference to the appropriate statutory sections and cases.

Question 8:

A trading trust may have a limited liability company as its trustee. Explain to Mr Nguyen the nature of a trading trust including the obligations the company owes to the beneficiaries of the trust and the role of the company directors where the company is a trustee.

Question 9:

Explain the circumstances in which persons who are not named as directors can be found to be owe directors' duties to that company.  Include reference to the relevant section(s) of the Companies Act 1993 and illustrate with at least one relevant case.