Summary
Highlights
Section 122 of the Insolvency Act 1986 outlines grounds for compulsory winding up. Altering the primary business within 12 months is NOT a valid ground. Not having received a trading certificate or suspending/not starting trading for 12 months are valid grounds.
This exam assesses knowledge of the legal framework and specific legal areas related to business, and the ability to recognize scenarios requiring specialist legal advice. ACCA provides various free resources, including study guidance, examiner reports, technical articles, and videos, to support students.
The exam is 2 hours long and divided into two sections. Section A accounts for 70 marks, with 21-mark questions and 25 two-mark questions covering the entire syllabus. Section B has five six-mark multitask questions focusing on analysis and application of learning through problem scenarios.
A case about an employee, Joe, whose contract specified Glasgow as her place of employment, is asked to work 500 miles away in London. She immediately resigns. This is an example of constructive dismissal, where the employer commits a serious breach of contract and the employee leaves as a direct result. Unfair and summary dismissals are ruled out as the employer did not directly action the dismissal.
This section discusses a scenario where an employee injures her eye after failing to close a safety gate and not wearing mandatory safety goggles. The injury was caused by the employee's failure to follow instructions. This is an example of "Valenti non fit injuria," meaning to a willing person, no injury is done, implying the employee consented to the risk. Contributory negligence is discounted because the employer had no apparent liability. Novus actus interveniens and Res ipsa loquitur are also briefly explained as irrelevant options.
Obiter dicta refers to statements made 'by the way' or as an aside in a legal judgment. These are facts or opinions not central to the decision and therefore not binding on future courts. This is contrasted with ratio decidendi, which is the binding legal principle at the heart of a case.
This segment explores who participates in surplus capital when a company is wound up. Debenture holders only reclaim their debt. Preference shareholders typically have a fixed pre-agreed return. Ordinary shareholders are the ones who participate in surplus capital, being the most exposed to risk and having the most opportunity for reward.
Anne getting trapped in a faulty toilet and breaking her leg while trying to climb out is discussed. The key is that while there was negligence (faulty lock), her actions were a contributing factor to her injury, but not so extreme as to imply consent to the injury. Therefore, this is an example of contributory negligence, reducing the defendant's liability without excusing it.
The multiple test, using the mnemonic MICE (Mutuality of intention, Integration, Control, Economic reality), is used by courts to determine if an individual is an employee or self-employed. The control test, integration test, and economic reality test are all part of this. The subordinate test is not, as subordination can exist for both employed and self-employed individuals.
A special resolution requires a 75% or more majority to be passed at a company meeting. This is distinct from an ordinary resolution, which needs more than 50%, even with special notice. Written resolutions can have varying majority requirements but do not occur in company meetings.
An invitation to tender is an invitation to treat, not an offer. When a party submits their terms in response to a tender, this constitutes an offer, as it can be accepted without further discussion. The distinction is crucial in forming binding contracts.
This segment explains the literal rule (ordinary meaning), the Golden Rule (avoiding absurdity, as in R v Allen's bigamy case), and the Mischief Rule. The Mischief Rule requires judges to consider the wrong the legislation intended to prevent, giving them broader interpretive scope.
Consideration is a value exchanged by parties in a contract. It must be 'sufficient' (have some value) but need not be 'adequate' (a reasonable value). The Nestle chocolate wrapper case is cited as an example, where minimal value was sufficient for consideration.
In criminal cases, where the goal is punishment, the standard of proof is 'beyond reasonable doubt'—a very high standard. This differs from civil cases, where the standard is 'balance of probability' (more likely than not) and the goal is compensation.
In a limited liability company, shareholders' contractual relationship is with the company itself, not directly with creditors. If a shareholder owes money for partly paid-up shares, they are liable to the company for that unpaid capital, which the liquidator then distributes to creditors.
The three recognized phases of money laundering are placement (depositing illicit funds into legal schemes), layering (transferring money through various accounts to obscure its origin), and integration (making the money appear to come from a legitimate source).
The Criminal Justice Act 1993 defines specific offenses related to insider dealing: passing on inside information and encouraging someone else to engage in insider dealing. Concealing or failing to report it are general criminal offenses, not specific to this act. Dealing in listed securities while possessing price-sensitive information is also an offense.
Acceptance requires an unequivocal assent to all terms of an offer. A quotation of a price can be accepted. Statements of intent, agreements to future contracts, and the supply of information are generally not specific enough to be considered offers that can be accepted.
This section introduces a scenario where Axel Co. (A) builds machinery for Bold Co. (B), but B breaches the contract. The purpose of damages for breach of contract in civil cases is to compensate the injured party for financial loss and put them in the position they would have been in had the contract been performed. It is not to punish the breaching party.
The duty to mitigate losses lies with the claimant (the party who suffers the breach). This means the injured party must take reasonable steps to minimize their losses, which in turn reduces the damages payable by the breaching party.
In the scenario where Axel Co. sells the machine to a new client for the same amount they would have received from Bold Co. despite the breach, their financial loss is zero. Therefore, any damages awarded would be nominal, acknowledging the breach without significant monetary compensation.
In a partnership, partners are jointly and severally liable for debts. Claire, a sleeping partner, still has full liability, as the law doesn't differentiate based on active involvement.
Dan, who retired from the partnership, remains liable to new customers who reasonably believed he was still a partner, unless he formally declared his withdrawal. His liability for prior debts also continues.
For a long-standing customer like Greg, who was not notified of Dan's retirement, all three partners (Eve, Claire, and Dan) remain liable for the outstanding debt, as Greg reasonably believed Dan was still involved.
This section discusses types of directors using the scenario of J (disqualified) and Kim (accountant running the business on J's instructions). J is a shadow director, as his instructions are followed even without formal appointment. Kim is a de facto director, acting as one without formal appointment.
Non-executive directors attend board meetings but do not have a day-to-day management role. They owe fiduciary duties to the company, just like executive directors, and have voting rights in board meetings. They are not typically employees in a technical sense.
LTD indicates a private limited company. This means shares cannot be offered for sale to the public (e.g., on a stock exchange), but they are still transferable privately. PLC (public limited company) is for companies whose shares are freely transferable on a stock exchange.
Ratio decidendi refers to the legal reason for deciding a case, serving as the binding justification used by courts in applying the law. It's distinct from judicial precedent (the decision of a previous case) and obiter dicta (statements made incidentally).
Cumulative dividend rights typically apply to preference shares. These dividends accrue and are paid when profits are available. They are paid out of retained earnings, not capital, and are not paid in the form of a bonus issue or contingent on a specific profit percentage.
Under the UN Convention on Contracts for the International Sale of Goods (CISG), acceptance takes place when it reaches the offeror within a reasonable time. There's no obligation for the offeror to acknowledge receipt, and the postal rule (acceptance upon posting) does not apply.
A civil law system is primarily based on written codes and legislative frameworks. This contrasts with common law systems, which rely heavily on case law and judicial precedent. Customary law refers to accepted patterns of behavior that form a legal basis.
The fundamental source of Sharia law is the Quran. Other terms like Fiqh (interpretation of the Quran) and Hadith (traditions of Prophet Muhammad) provide guidance and development but are not the primary, unchangeable source.
The UN Commission on International Trade Law facilitates international trade, limiting grounds for courts to refuse enforcement of arbitration agreements. Refusal is permitted if the agreement explicitly states no appeal could be made to a court. Local legal issues or public policy are generally not sufficient grounds for refusal under this article.
In a CIF (Cost, Insurance, Freight) contract, the seller is responsible for costs and liability until goods reach the port of destination, including export licenses and insurance. The buyer's main responsibility listed is to arrange for an import license if required.
To remove a director, an ordinary resolution (more than 50% majority) with special notice (typically 21 days to allow the director to respond) is required. Written resolutions are not permissible for director removal, and a special resolution (75% majority) is not necessary.
An irrevocable offer, under the UN Convention on Contracts for the International Sale of Goods, can never be revoked after it has arrived with the offeree. However, it can be withdrawn as long as the withdrawal occurs before or at the same time the offer reaches the offeree.
The WTO settles disputes between member states, reviews national trade policies, and administers trade agreements. It does NOT get involved with resolving disputes involving individual persons or businesses, only those between member countries.
Revocable, revolving, and standby letters of credit are actual types of letters of credit. An "endorsed letter of credit" is not an actual type; rather, endorsements can be made on existing letters of credit. Letters of credit are bank guarantees for payment, unlike revocable letters which allow unilateral changes.
Under Article 35 of the CISG, goods must be fit for purpose. This includes being adequately packaged and suitable for normal use. However, goods are not required to be fit for an unusual use not known by the seller. If an unusual use is suggested by marketing or a sample, the seller may be held accountable.
A letter of comfort is an assurance that a third party's contract will be met, but it is NOT a legal guarantee. It is normally issued by a parent company when a subsidiary is in financial difficulty to provide meaningful assurance to another party. Banks of financially struggling companies or the struggling company itself are less likely to issue meaningful letters of comfort.
An LLP is a hybrid between a partnership and a limited company. There is no obligation to have an unlimited member (unlike general partnerships), and there's no maximum number of members. However, by definition, an LLP must have a minimum of two members; otherwise, it would be a sole proprietorship or a limited company.
The abbreviation LTD after a business name indicates a private limited company. Limited partnerships use 'LP' and limited liability partnerships use 'LLP'.
Under the UN Convention, a fundamental breach of contract severely undermines the contract. The injured party has the right, but not the obligation, to avoid the contract. This means the contract is avoidable, not automatically void or unenforceable by default.
Section 122 of the UK Insolvency Act 1986 allows for compulsory winding up on A 'just and equitable' basis, which primarily applies to shareholders. This provision acts as a safety net for shareholders when a company fails due to total breakdown in management or the main business object becomes impossible. Creditors can petition for liquidation due to insolvency but not specifically on 'just and equitable' grounds for the company's members.
The scenario details a contract between Axel Co. and Bold Co. for specialized machinery. Bold Co. breaches the contract. Similar to an earlier question, the primary purpose of damages for breach of contract is to compensate for financial loss and restore the innocent party to the position they would have been in had the contract been fulfilled, not to punish the defaulting party.
The duty to mitigate losses rests with the party that has suffered the breach (Axel Co. in this case). This involves taking reasonable actions to minimize losses, which directly reduces the amount of damages recoverable from the breaching party. This duty ensures that the claimant does not deliberately magnify the losses.
Despite Bold Co.'s breach, Axel Co. managed to sell the machinery to a new client for the same amount previously agreed upon. Because Axel Co. has a duty to mitigate losses and has, in fact, incurred no financial loss, the damages they can claim for breach of contract would effectively be zero.
This section examines fraudulent and wrongful trading with a scenario involving two directors, Fran and Graham, in a failing company. Fraudulent trading implies an intent to defraud creditors and can lead to both civil and criminal actions. Wrongful trading, on the other hand, occurs when a director should have known about liquidity problems and is typically a civil offense only.
Fran, by taking a less active role but remaining a director, could be liable for wrongful trading as he should have been aware of the company's struggles. Graham, by falsifying accounts to disguise losses, clearly demonstrates intent, making him liable for fraudulent trading.
A written ordinary resolution, typically used by private companies to avoid physical meetings, requires approval from more than 50% of those actually voting. It's important to note that it's not 50% or fewer, nor is it based on those entitled to vote, but specifically those who cast a vote.
Alternative Dispute Resolution (ADR) offers ways to resolve disagreements outside formal legal channels to save time and cost. Mediation involves an independent party suggesting a solution (not binding). Conciliation involves an independent party helping disputants find their own solution. Arbitration involves parties agreeing to be bound by a third-party's recommendation. Harmonization is not an ADR form; it refers to aligning legal standards across jurisdictions.
Recognized mechanisms for international payment include a letter of credit (a bank guarantee for payment) and a bill of exchange (a promissory note requiring a specified payment). A letter of comfort is an assurance but not a legal guarantee. A bill of lading is merely a receipt for goods during transport.
Under Section 122 of the Insolvency Act 1986, the board of directors, company creditors, and the Secretary of State can petition for the compulsory winding up of a company on grounds of insolvency. However, the members of the company cannot petition on these specific grounds, although they can on 'just and equitable' grounds.