CPA INTERMEDIATE LEVEL
CS INTERMEDIATE LEVEL
COMPANY LAW
THURSDAY: 22 August 2024. Morning Paper. Time Allowed: 3 hours.
This paper has seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.
QUESTION ONE
(a) With reference to companies, explain the term “body corporate”. (2 marks)
(b) Pizza World Enterprises Ltd., is a small family-owned company operating a chain of restaurants. The company has of late been facing financial difficulties. One reason being that the company’s directors have been using the company’s funds for personal expenses. As a result, the company has not been honouring its obligations to its creditors. The creditors are now contemplating suing the company directors.
Required:
Discuss THREE possibilities of the court lifting the veil of incorporation when the case is brought in a court of competent jurisdiction. (6 marks)
(c) Analyse SIX circumstances under which a company could repudiate pre-incorporation contracts. (12 marks)
(Total: 20 marks)
QUESTION TWO
(a) Highlight THREE characteristics of a company limited by guarantee. (3 marks)
(b) State FIVE legal implications of issuing shares at a discount. (5 marks)
(c) Discuss SIX ways in which a person might acquire membership in a company. (12 marks)
(Total: 20 marks)
QUESTION THREE
(a) Define the term “debentures”. (2 marks)
(b) Distinguish between “convertible debentures” and “non-convertible debentures”. (4 marks)
(c) Amani Limited was scheduled to hold its Annual General Meeting (AGM) on 30 June 2024. The company secretary sent out notice for the meeting on 10 June 2024. On the day of the meeting, only 13 shareholders out of the total 209 shareholders attended the meeting, either in person or by proxy. The company’s articles of association specified that the quorum for an AGM was 20 shareholders. During the meeting, the shareholders present approved the annual financial statements and declared a final dividend.
Required:
Discuss the legal implications of:
(i) The notice period. (2 marks)
(ii) The quorum. (2 marks)
(iii) Resolutions made during the AGM. (2 marks)
(d) Outline EIGHT general meeting agenda items that require a special resolution under the Companies Act.
(8 marks)
(Total: 20 marks)
QUESTION FOUR
(a) Explain FIVE ways in which directors may handle conflict of interest in a company. (5 marks)
(b) Outline FIVE powers of directors under the Companies Act. (5 marks)
(c) With regard to Companies Act, describe FIVE roles of a company secretary in ensuring good corporate governance within a company. (10 marks)
(Total: 20 marks)
QUESTION FIVE
(a) Ben Apollo borrowed Sh.500,000 from Bank of Pesadi and deposited his Simba Supermarket Ltd.’s share certificate with a blank transfer as security. Subsequently, he bought goods from the supermarket on credit. The goods were worth Sh.150,000. The articles of association of Simba Supermarket Ltd., conferred a first and paramount lien on its members’ share for debts due to the supermarket.
Before the supermarket’s lien arose, the bank gave the supermarket notice of Ben Apollo’s share certificate having been lodged with the bank as security for the loan. Ben Apollo is unable to pay for the goods he obtained from Simba Supermarket Ltd. and has also defaulted on the loan. Both Simba Supermarket Ltd. and the Bank of Pesadi now want to exercise their respective liens on the shares.
Required:
Discuss the legal position and advise Simba Supermarket Ltd. as appropriate. (4 marks)
(b) With regard to formation of a company, highlight THREE fiduciary duties of a promoter. (6 marks)
(c) Examine FIVE consequences of non-compliance with audit requirements under company law. (10 marks)
(Total: 20 marks)
QUESTION SIX
(a) Outline FIVE circumstances under which the Registrar of Companies may order an investigation into the affairs of a company. (5 marks)
(b) Summarise SEVEN roles of an administrator in a company that is under administration. (7 marks)
(c) Analyse FOUR reasons for undertaking corporate restructuring. (8 marks)
(Total: 20 marks)
QUESTION SEVEN
(a) (i) In Re Yorkshire Wool Combers Association Ltd., a floating charge is described as one that hovers over the assets of the company.
Required:
Examine THREE characteristics of a floating charge. (6 marks)
(ii) Dee Ltd., registered a charge on its fleet of motor vehicles in favour of Pepeta Bank to secure a loan of Sh.2,000,000. Dee Ltd., has not honoured its loan repayment obligation for the past 14 months and Pepeta Bank considers the loan as defaulted.
Required:
State FOUR options available to Pepeta Bank to recover their money. (4 marks)
(b) With reference to companies, discuss FIVE benefits which could accrue to a company from filing annual returns.
(10 marks)
(Total: 20 marks)
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