SQE Business Law and Practice 2 — Questions and Answers
Question 1: Which form is filed at Companies House to notify a change of registered office address?
- AD01 (Correct answer)
- CH01
- AP01
- TM01
Correct answer: AD01
Form AD01 is used to notify Companies House of a change to a company's registered office address.
Question 2: What is the key distinction between a fixed charge and a floating charge?
- A fixed charge attaches to specific assets immediately; a floating charge hovers over a class of changing assets (Correct answer)
- A floating charge has priority over a fixed charge
- A fixed charge applies only to land
- A floating charge cannot be registered at Companies House
Correct answer: A fixed charge attaches to specific assets immediately; a floating charge hovers over a class of changing assets
A fixed charge attaches to identified assets at creation, while a floating charge covers a fluctuating pool of assets until crystallisation.
Question 3: Under the Insolvency Act 1986, what is the order of priority for distributing assets in a company liquidation?
- Fixed charge holders → expenses → preferential creditors → floating charge holders → unsecured creditors → shareholders (Correct answer)
- Unsecured creditors → preferential creditors → floating charge holders → fixed charge holders → shareholders
- Preferential creditors → fixed charge holders → unsecured creditors → shareholders → floating charge holders
- Shareholders → directors → creditors → HMRC
Correct answer: Fixed charge holders → expenses → preferential creditors → floating charge holders → unsecured creditors → shareholders
In a winding up, fixed charge holders are paid first from their security, then liquidation expenses, then preferential creditors, then the prescribed part/floating charge holders, then unsecured creditors, and finally shareholders.
Question 4: What is 'wrongful trading' under the Insolvency Act 1986?
- Continuing to trade when a director knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation (Correct answer)
- Trading whilst insolvent as a matter of balance sheet
- Fraudulently removing assets before liquidation
- Preferring one creditor over another
Correct answer: Continuing to trade when a director knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation
Section 214 IA 1986 makes directors personally liable if they continued trading after knowing (or ought to have known) insolvent liquidation was inevitable.
Question 5: Which Companies Act 2006 duty requires directors to promote the success of the company for the benefit of its members?
- Section 172 (Correct answer)
- Section 174
- Section 175
- Section 177
Correct answer: Section 172
Section 172 CA 2006 imposes a duty on directors to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
Question 6: What is the definition of a 'small company' under the Companies Act 2006 (as at SQE syllabus date)?
- Turnover ≤ £10.2m, balance sheet ≤ £5.1m, employees ≤ 50 (Correct answer)
- Turnover ≤ £6.5m, balance sheet ≤ £3.26m, employees ≤ 50
- Turnover ≤ £25m, balance sheet ≤ £12.5m, employees ≤ 250
- Turnover ≤ £1m, balance sheet ≤ £500k, employees ≤ 10
Correct answer: Turnover ≤ £10.2m, balance sheet ≤ £5.1m, employees ≤ 50
A company qualifies as small if it meets at least two of the three criteria: turnover ≤ £10.2m, balance sheet total ≤ £5.1m, and no more than 50 employees.
SQE Business Law and Practice 2
Which form is filed at Companies House to notify a change of registered office address?