SQE1 - Solicitors Qualifying Examination Part 1 Business Law and Practice Questions and Answers — Questions and Answers
Question 1: A private limited company has adopted the Model Articles of Association without amendment. The company has three directors. Two of the directors attend a board meeting to vote on a substantial property transaction. One of the attending directors is also a majority shareholder in the company selling the property. What is the legal position regarding the board meeting's quorum?
- The meeting is quorate as two directors are physically present, which satisfies the Model Articles.
- The meeting is not quorate because the interested director cannot be counted for the quorum on this matter. (Correct answer)
- The meeting is quorate, but any resolution passed is voidable at the option of the company.
- The meeting is only quorate if the interested director declares their interest and the other director agrees to proceed.
Correct answer: The meeting is not quorate because the interested director cannot be counted for the quorum on this matter.
Under the Model Articles for private companies (Article 11(2)), the quorum for a directors' meeting is two, unless otherwise fixed. However, Article 14(1) states that a director who has a direct or indirect interest in a proposed transaction with the company is not to be counted in the quorum for that specific resolution. As one of the two attending directors has a conflict of interest, only one director can be counted towards the quorum for this matter, which is insufficient to meet the minimum requirement of two. Therefore, the meeting is not quorate for this specific item of business.
Question 2: Which of the following business decisions requires a special resolution of the members of a private limited company under the Companies Act 2006?
- Appointing a new director to the board.
- Declaring a final dividend for the financial year.
- Changing the company's registered office address.
- Altering the company's articles of association. (Correct answer)
Correct answer: Altering the company's articles of association.
A special resolution, which requires a majority of not less than 75% of the members' votes, is needed for significant constitutional changes. Under section 21 of the Companies Act 2006, a company can only amend its articles of association by passing a special resolution. Appointing a director and declaring a dividend typically require an ordinary resolution, and changing the registered office is a decision for the directors.
Question 3: Three individuals form a general partnership to run a catering business but do not create a written partnership agreement. One partner, without the knowledge of the others, takes out a substantial loan in the business's name from a supplier to fund a personal holiday. The supplier was unaware of the loan's purpose. What is the liability of the other partners for this debt?
- Only the partner who took out the loan is liable as it was for personal use.
- No partners are liable as the loan was not for the benefit of the business.
- All partners are jointly liable for the full amount of the debt. (Correct answer)
- The partners are liable, but only up to the amount of their capital contribution.
Correct answer: All partners are jointly liable for the full amount of the debt.
Under the Partnership Act 1890, each partner is an agent of the firm and the other partners for the purpose of the business of the partnership. Any act done by a partner for carrying on in the usual way business of the kind carried on by the firm binds the firm and its partners. Since borrowing money can be considered within the usual course of business for a catering company, and the supplier was unaware of the improper purpose, the act binds the firm. Section 9 of the Act establishes that every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while they are a partner.
Question 4: A director of a UK public limited company is considering a business opportunity that came to her in her capacity as a director. The company has considered the opportunity but has decided not to pursue it. According to the Companies Act 2006, which duty would be breached if the director pursues this opportunity personally without proper authorisation?
- Duty to exercise independent judgment.
- Duty to exercise reasonable care, skill and diligence.
- Duty to avoid conflicts of interest. (Correct answer)
- Duty to promote the success of the company.
Correct answer: Duty to avoid conflicts of interest.
Section 175 of the Companies Act 2006 imposes a duty on directors to avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This specifically applies to the exploitation of any property, information, or opportunity, regardless of whether the company could take advantage of it. Pursuing the opportunity personally, even after the company has declined it, would be a breach of this duty unless the matter has been authorised by the non-conflicted directors.
Question 5: A UK limited company is facing severe financial distress. Its directors believe the business is fundamentally viable but needs protection from creditor action to allow for a restructuring plan to be implemented. Which insolvency procedure is most appropriate for this objective?
- Compulsory Liquidation
- Members' Voluntary Liquidation
- Administration (Correct answer)
- Company Voluntary Arrangement (CVA)
Correct answer: Administration
Administration is designed to achieve one of several statutory objectives, the primary one being to rescue the company as a going concern. When a company enters administration, a statutory moratorium is put in place, which prevents creditors from taking legal action against the company without the court's or the administrator's consent. This provides the 'breathing space' needed to attempt a rescue or restructuring. Liquidation is a terminal process, and a CVA, while it restructures debt, does not offer the same comprehensive moratorium from the outset.
Question 6: Which of the following statements accurately describes the procedure for passing a written resolution in a private limited company in the UK?
- A written resolution can be used to remove a director before the expiration of their term of office.
- A written resolution is passed when a simple majority of members who have received it signify their agreement.
- A written resolution requires the same percentage of votes to pass as a resolution at a general meeting (simple majority for ordinary, 75% for special). (Correct answer)
- Public limited companies can use the written resolution procedure for routine decisions.
Correct answer: A written resolution requires the same percentage of votes to pass as a resolution at a general meeting (simple majority for ordinary, 75% for special).
Under the Companies Act 2006, a written resolution of a private company is passed if the required majority of eligible members signify their agreement. For an ordinary resolution, this is a simple majority (over 50%) of the total voting rights, and for a special resolution, it is a majority of not less than 75% of the total voting rights. The Companies Act 2006 specifically prohibits the use of a written resolution to remove a director or an auditor before their term has expired (s288(2)). This procedure is only available to private companies, not public ones.
SQE1 - Solicitors Qualifying Examination Part 1 Business Law and Practice Questions and Answers
A private limited company has adopted the Model Articles of Association without amendment.
The company has three directors.
Two of the directors attend a board meeting to vote on a substantial property transaction.
One of the attending directors is also a majority shareholder in the company selling the property.
What is the legal position regarding the board meeting's quorum?