|
Examinations
Semester 2 - 2002
|
Emalus Campus
|
COURSE NAME: Company and Partnership Law 2
COURSE NO: LA 309
TIME ALLOWED: 3 Hours
READING TIME: 10 minutes
NUMBER OF PAGES: 5
NUMBER OF QUESTIONS ON PAPER: 7
NUMBER OF QUESTIONS TO BE ANSWERED: 4
MARK ALLOCATED FOR EACH QUESTION: 15
TOTAL MARKS: 60 marks
MATERIALS PERMITTED IN EXAMINATION ROOM:
Reader LA 309 and /or relevant legislation permitted by
the Examiner.
SPECIAL INSTRUCTIONS
1. All answers are to be
buttressed with regional case laws and/or statutes where relevant.
2. All answers are to focus on
a chosen jurisdiction/s in the South Pacific.
1.
Improvise Engineers is a public company
registered in X country in the South Pacific. It has a paid up capital of
$200000. The 10 directors are also the only shareholders of the company.
Improvise Engineers Limited holds 40 % shares in Capital Technologies and
Infra-Red, both private companies located in Y and Z countries respectively. At
the annual general meeting of Improvise Engineers Limited, the audited group
accounts were presented to the shareholders of the group but the details of 3
months of trading carried out by Infra Red Limited were missing. Expenditures
relating to loans by directors of Improvise Engineers limited were also omitted
from the consolidated group accounts. After
lengthy debates at the annual general meeting, it was discovered by the
directors that the non inclusion of particulars on directors’ loans was due to
an accounting entry error by the auditors. Miss Publican, a potential investor,
had in the meantime purchased some shares in Capital Technologies Limited by
relying on the profit figures stated in the auditors’ report. Two weeks after
the annual general meeting, the directors of Improvise Engineers Limited then petitioned
the Supreme Court to rectify the accounts by including the omissions made in
respect of Improvise Engineers Limited. When the Supreme Court ordered rectification
of the accounts, the shares of Improvise Engineers fell by half of their
nominal value.
Advise
Miss Publican. (15 marks)
2.
Precise Accounting is a firm of 4 chartered and practising accountants. The
firm is an auditor to a number of companies both public and private. The firm also acts as an investment and
business management adviser to the public at large. At the annual general
meeting of Digital Components Limited, Precise Accounting was appointed to
audit the accounts of the company for the coming trading year. The appointment
was made by articles of association of the company but was later confirmed by
majority vote at the annual general meeting. At the end of the trading year,
due to work pressure, Precise Accounting instructed a junior trainee accountant
to perform all audit work on the accounts of Digital Components Limited. In performing
the audit, the junior trainee accountant did not peruse a number of entries in
the debenture register kept at the head office of Digital Components Limited
because the security guard on duty had refused to open the main safe containing
the relevant financial records. As a result this development, Digital
Components Limited could not claim tax relief on its loan repayments for the
year in question. The company therefore had to pay substantial amounts in tax
to the Revenue Department. This consequently led to a huge drop in profits and reduced
dividends to shareholders.
What
will be your advice to Digital Components Limited? (15 marks)
3.
Fragrances Limited, a private company, specializes in the manufacture of exotic
beauty soaps. The company is registered in Z country in the South Pacific. Its
paid up of capital is made of 30 % preference shares, 60 % ordinary shares and
10 % founders’ shares. The ordinary shares carry voting rights but the other
two classes of shares do not. The company has 20 directors who are also the
shareholders in the company and holding varying amounts of shares. The company
by a special resolution duly passed, altered the articles of association of the
company to cancel the 30% preference shares. The preference shareholders were
barred by the managing director from attending the annual general meeting of
the company. The preference shareholders are considering challenging the
decisions of Fragrances Limited.
Advise
the preference shareholders on the most practical way to proceed with any form
of corporate litigation against the decisions of the company. (15 marks)
4.
Forage Ventures is a private limited company that engages in retail sales of
groceries in the South Pacific. The company is a dynamic and expanding business
because of its innovative marketing strategy. The company intends to diversify
into soft drinks manufacturing and is proposing to takeover Liquids Factory
Limited, a major soft drink maker. About 20 % of shareholders in Liquids Factory
Limited are opposed to the takeover bid. Forage Ventures Limited is fully aware
of the huge benefits of taking over Liquids Factory Limited. This would allow
it to tap into the youth age group of the population by introducing a new
generation of “power drink”.
Advise
Forage Ventures Limited on the following:
(a) Why a
takeover bid is obviously a better choice to adopt in this instance. (5 marks)
AND
(b) The legal
requirements to be satisfied in this takeover process. ( 5 marks) AND
(c) The satisfactory
way of handling the dissenting shareholders in Liquids Factory Limited. ( 5
marks)
5.
Invert Energy is a public limited
company registered in Y country in the South Pacific. It specialises in the production
of solar panels. The shares of the company are listed and traded at the Pacific
Stock Exchange located in X country in the region. The government of Y country
has just announced a new rural electrification policy using solar panels. Prior to the announcement of the policy, the
Managing Director being aware that Invert Energy has been selected by the
Government to supply the required solar panels for the electrification project,
asked his friend, the General Manager of Light Installations Limited, a private
company based in Z country, to purchase 1000 of Invert Energy’s ordinary shares. The company’s documents
advertising the sale of the shares listed only preference shares as being up
for sale. The whole transaction relating to the sale of the 1000 ordinary shares
was formalised with the knowledge of the Pacific Stock Exchange. The Registrar
of Companies has asked for your opinion on whether or not insider trading
and/or breach of statutory or common law duties may be established in this
instance. Explain your response. (15
marks)
6.
Biometric Systems is a private company registered in 1996 in X country of the
South Pacific. It is a pioneer in electronic identification techniques. It
started well in business but due to constant disagreements between its three
directors at board meetings, the company has not been able to lodge its
statutory financial returns for the last 3 years. The last annual general
meeting of the company was held in 1998. As at the end of the trading year
2000, the company has not paid government taxes to the tune of $2000. The 20
shareholders of the company have been completely left out of the management of
the company by the directors but were regularly notified of the happenings in
the company by means of notices. The 20 shareholders have now come to the
conclusion that this state of affairs cannot continue and are thinking of
winding up the company.
Advise
the 20 shareholders. (15 marks)
7.
(a) Discuss any four principal methods of dissolving a partnership in any
country of your choice in the South Pacific. (6 marks) AND
(b)
Explain why it may be necessary in practical situations to override each of
these methods by including an appropriate clause in the partnership deed. (9
marks)
END OF PAPER