Ac 208 Examiner's Report
AC 208 – Examiner’s Report (Semester 1 AY 2010 / 11)
Question 1(a)
Most students are able to identify the issue of breach of duty of care, skill and diligence for
Hannah as she signs all documents including statements of accounts blindly and is nonchalant and clueless about the business. For Joe, many students discussed the issue whether he was entitled to rely on Eva under s157C and concluded that he could not because Eva did not fall within the categories of persons listed in s157C. This is correct. The majority also discussed that Joe was negligent because he always relied on Eva and abdicated his responsibility.
Marks were accordingly awarded to these students. Some even argued that Joe breached the duty to retain discretion- this …show more content…
is not quite correct as the facts did not indicate that Joe has contracted away his right to discretion. About 2/3 of the students were able to identify that
Joe and Eva breached s339(3) for reckless trading. Most students identified Eva to be a de facto or shadow director although only the latter is correct. Overall, this question was well answered. Question 1(b)
Students either know or do not know the issue to this question. Majority identified the issue correctly as lifting of corporate veil, particularly whether the company is an agent of the controllers. A handful wrongly thought that the issue was whether legal proceedings could be instituted in a winding up and was not awarded any marks. Quite a handful of students regurgitated all the exceptions to the corporate veil doctrine without identifying which were the relevant exceptions. These students were just given a pass grade.
Question 1(c)
Almost all the students were able to identify the issue of full disclosure needed for a scheme of arrangement to be approved by the court. Only a minority could state why Wong should be put in a different class of creditors. Wong should be put in a different class because he stood to recover 100% of his debt. Some thought that Wong should be put in a different class because he was a shareholder or that he was owed the majority of the debts. Others thought that secured creditors should be in a different class from unsecured creditors such that United
Bank should be in a different class. But these are all wrong answers and were the reason why some students fared poorly. Some very astute students argued that Wong’s votes should be disregarded because he had special personal interests in the scheme pulling through because he stood to recover everything. These students were awarded extra marks. Overall, students did not fare well for this question and most only got half the question correctly answered.
Question 2(a)
Students fared reasonably well for this question.
Majority of students were able to identify the two key issues raised by the question, i.e. the existence of a pre-incorporation contract and its impact and the implications of having
Klaus’s appointment included in the Company’s Articles of Association, with a significant number addressing only one of these two issues instead of both.
1
A fair number, however, misinterpreted the facts and did not realise that the contract was a pre-incorporation contract. Some did not take Klaus to be a member he was clearly stated to be holding 3% of the shares in the company. Their discussion on the effect of the enforceability of the statutory contract was thus affected.
Question 2(b)
Students fared reasonably well for this question.
Those who fared poorly failed to directly address the question. They did not make reference to the relevant provisions of the Companies Act as instructed in relation to how provisions in
Jack’s contract could be structured so that there would be no need to obtain shareholders’ approval and yet not be void. Instead, a significant number discussed using ‘entrenching provisions’ to entrench rights.
Question 2(c)
Most of the students did well for this question. They were able to identify the issue as whether s 392 Companies Act apply to invalidate the resolution. Some students were unclear about general meetings and board meetings, which meant they discussed provisions in the
Companies Act that regulate general meetings instead of Article 88 in the question which regulate the board meeting in issue. Those who did extremely well were able to discern that the irregularity involved failure to give a request to Jack to vacate his office and discussed whether there was a direct link between the procedural irregularity in question and the injustice suffered.
Question 3(a)
This question was generally well answered. Many students were able to at least identify the issue correctly, that is the issue of whether the transaction was financial assistance and therefore prohibited under s 76(1). Some students were, however, unable to unravel the financial assistance in the transaction as it was indirect financial assistance and in the form of payment of interest arrears which would enable Ronaldo to obtain further credit lines from
Rabo Bank.
In the better answers, there was also some explanation of the issue regarding whether the commercial justification alone would take it out of the purview of the prohibited financial assistance. Students who discussed this issue succinctly especially with reference to the holdings in the cases of Intraco v Multi Pak and Wu Yang gained better marks. A small minority of students indicated, erroneously, that as there was commercial justification for the company doing this, as the company would have the benefit of Ronaldo’s expertise, this would not breach s 76.
2
Students who were able to identify the transaction as prohibited financial assistance were also able to briefly identify the consequences of breaching this provision, found in s 76(5) and s
76(6).
Most students were able to discuss the “whitewash” provisions under sections 76(9A) and
(9B).
The better students would have correctly pointed the differences under each of these provisions for example, the 10% limit in s 76(9A), the fair value requirement and the type of resolutions required in each of the sections. Some students spent too much time describing in detail each of these provisions, which was not necessary.
Question 3(b)
This question was fairly well answered. That said, many students appeared to have answered the question in a hurry as this was probably the last question they had answered in the examination, so it is likely that with better time management, the question would have been better answered. The question itself was fairly straight forward and there would have been no issue of identifying the issue as there was reference in the question to s 163 and s 7. Some students had incorrectly stated that as this was a guarantee by Steely, s 163 was not applicable. Some students had also tried to argue that Steely and Waverly were related companies or in a subsidiary- holding company relationship, which was also incorrect.
The question required students to actually spend some time analyzing the interest of the directors of Steely in Waverly and ascertain if the 20% level had been met, in which case
the transaction would be prohibited. Some students had disregarded the interest of Irene, which should be added to Alan’s interest by virtue of s 163(5). Some students had indicated that
Irene’s interest should be added but failed to identify he relevant provision in support of that contention. The issue of whether Roy’s (Terry’s brother) interest should be added to Terry’s interests, was discussed adequately by students who had been able to identify s 163(5) in the first place and students were generally entitled to come to their own conclusions.
The issue of deemed interest under section 7 was fairly well answered, with a good number of students being able to apply the sections correctly. With regard to deemed interest through
XYZ, some students seemed to not spot the significance of the fact that Alan and Terry had a
“significant interest” in XYZ – some had limited their discussion only to section s 7(4A), although not wrong, students are expected to at least allude to the fact that s7(4) would apply if this significant interest amounted to a ”controlling interest”.
The issues relating to deemed interests through ABC Pte Ltd were fairly well discussed, with most students having been able to identify the issue of whether Alan’s father’s interest of
16% in ABC Pte Ltd should be added to his own if they are viewed as “associates” under s
7(5).
3
While the exact aggregate percentages of directors’ interests in Waverly differed, most students were able to conclude that the directors’ interests exceed 20% and s 163(1) would apply, with the penalty provisions in the sections imposed on directors who authorized the giving of the guarantee.
Question 3(c)
This is a very straightforward question. Most students who were able to identify that the question related to section 226 read with s 328 ( as this is floating charge and the company is not in the process of winding up) went on to perform well in this question. Unfortunately there were some students who erroneously applied s 328 directly.
Some students, although they made reference to s 226 and s 328, failed to identify the liabilities that were relevant in s 226 and applied the priorities listed in s 328 without excluding the IRAS liability, receiver’s fee.
Students who had acknowledged the limits set out in s 328(2) in relation to outstanding salaries and retrenchment benefits were also appropriately rewarded. Students who had performed well tended to indentify the relevant liabilities under s 226 and then applied the priorities set out in 328(1) and also applied the limits in s 328(2) appropriately.
4
Question 1(a)
Most students are able to identify the issue of breach of duty of care, skill and diligence for
Hannah as she signs all documents including statements of accounts blindly and is nonchalant and clueless about the business. For Joe, many students discussed the issue whether he was entitled to rely on Eva under s157C and concluded that he could not because Eva did not fall within the categories of persons listed in s157C. This is correct. The majority also discussed that Joe was negligent because he always relied on Eva and abdicated his responsibility.
Marks were accordingly awarded to these students. Some even argued that Joe breached the duty to retain discretion- this …show more content…
is not quite correct as the facts did not indicate that Joe has contracted away his right to discretion. About 2/3 of the students were able to identify that
Joe and Eva breached s339(3) for reckless trading. Most students identified Eva to be a de facto or shadow director although only the latter is correct. Overall, this question was well answered. Question 1(b)
Students either know or do not know the issue to this question. Majority identified the issue correctly as lifting of corporate veil, particularly whether the company is an agent of the controllers. A handful wrongly thought that the issue was whether legal proceedings could be instituted in a winding up and was not awarded any marks. Quite a handful of students regurgitated all the exceptions to the corporate veil doctrine without identifying which were the relevant exceptions. These students were just given a pass grade.
Question 1(c)
Almost all the students were able to identify the issue of full disclosure needed for a scheme of arrangement to be approved by the court. Only a minority could state why Wong should be put in a different class of creditors. Wong should be put in a different class because he stood to recover 100% of his debt. Some thought that Wong should be put in a different class because he was a shareholder or that he was owed the majority of the debts. Others thought that secured creditors should be in a different class from unsecured creditors such that United
Bank should be in a different class. But these are all wrong answers and were the reason why some students fared poorly. Some very astute students argued that Wong’s votes should be disregarded because he had special personal interests in the scheme pulling through because he stood to recover everything. These students were awarded extra marks. Overall, students did not fare well for this question and most only got half the question correctly answered.
Question 2(a)
Students fared reasonably well for this question.
Majority of students were able to identify the two key issues raised by the question, i.e. the existence of a pre-incorporation contract and its impact and the implications of having
Klaus’s appointment included in the Company’s Articles of Association, with a significant number addressing only one of these two issues instead of both.
1
A fair number, however, misinterpreted the facts and did not realise that the contract was a pre-incorporation contract. Some did not take Klaus to be a member he was clearly stated to be holding 3% of the shares in the company. Their discussion on the effect of the enforceability of the statutory contract was thus affected.
Question 2(b)
Students fared reasonably well for this question.
Those who fared poorly failed to directly address the question. They did not make reference to the relevant provisions of the Companies Act as instructed in relation to how provisions in
Jack’s contract could be structured so that there would be no need to obtain shareholders’ approval and yet not be void. Instead, a significant number discussed using ‘entrenching provisions’ to entrench rights.
Question 2(c)
Most of the students did well for this question. They were able to identify the issue as whether s 392 Companies Act apply to invalidate the resolution. Some students were unclear about general meetings and board meetings, which meant they discussed provisions in the
Companies Act that regulate general meetings instead of Article 88 in the question which regulate the board meeting in issue. Those who did extremely well were able to discern that the irregularity involved failure to give a request to Jack to vacate his office and discussed whether there was a direct link between the procedural irregularity in question and the injustice suffered.
Question 3(a)
This question was generally well answered. Many students were able to at least identify the issue correctly, that is the issue of whether the transaction was financial assistance and therefore prohibited under s 76(1). Some students were, however, unable to unravel the financial assistance in the transaction as it was indirect financial assistance and in the form of payment of interest arrears which would enable Ronaldo to obtain further credit lines from
Rabo Bank.
In the better answers, there was also some explanation of the issue regarding whether the commercial justification alone would take it out of the purview of the prohibited financial assistance. Students who discussed this issue succinctly especially with reference to the holdings in the cases of Intraco v Multi Pak and Wu Yang gained better marks. A small minority of students indicated, erroneously, that as there was commercial justification for the company doing this, as the company would have the benefit of Ronaldo’s expertise, this would not breach s 76.
2
Students who were able to identify the transaction as prohibited financial assistance were also able to briefly identify the consequences of breaching this provision, found in s 76(5) and s
76(6).
Most students were able to discuss the “whitewash” provisions under sections 76(9A) and
(9B).
The better students would have correctly pointed the differences under each of these provisions for example, the 10% limit in s 76(9A), the fair value requirement and the type of resolutions required in each of the sections. Some students spent too much time describing in detail each of these provisions, which was not necessary.
Question 3(b)
This question was fairly well answered. That said, many students appeared to have answered the question in a hurry as this was probably the last question they had answered in the examination, so it is likely that with better time management, the question would have been better answered. The question itself was fairly straight forward and there would have been no issue of identifying the issue as there was reference in the question to s 163 and s 7. Some students had incorrectly stated that as this was a guarantee by Steely, s 163 was not applicable. Some students had also tried to argue that Steely and Waverly were related companies or in a subsidiary- holding company relationship, which was also incorrect.
The question required students to actually spend some time analyzing the interest of the directors of Steely in Waverly and ascertain if the 20% level had been met, in which case
the transaction would be prohibited. Some students had disregarded the interest of Irene, which should be added to Alan’s interest by virtue of s 163(5). Some students had indicated that
Irene’s interest should be added but failed to identify he relevant provision in support of that contention. The issue of whether Roy’s (Terry’s brother) interest should be added to Terry’s interests, was discussed adequately by students who had been able to identify s 163(5) in the first place and students were generally entitled to come to their own conclusions.
The issue of deemed interest under section 7 was fairly well answered, with a good number of students being able to apply the sections correctly. With regard to deemed interest through
XYZ, some students seemed to not spot the significance of the fact that Alan and Terry had a
“significant interest” in XYZ – some had limited their discussion only to section s 7(4A), although not wrong, students are expected to at least allude to the fact that s7(4) would apply if this significant interest amounted to a ”controlling interest”.
The issues relating to deemed interests through ABC Pte Ltd were fairly well discussed, with most students having been able to identify the issue of whether Alan’s father’s interest of
16% in ABC Pte Ltd should be added to his own if they are viewed as “associates” under s
7(5).
3
While the exact aggregate percentages of directors’ interests in Waverly differed, most students were able to conclude that the directors’ interests exceed 20% and s 163(1) would apply, with the penalty provisions in the sections imposed on directors who authorized the giving of the guarantee.
Question 3(c)
This is a very straightforward question. Most students who were able to identify that the question related to section 226 read with s 328 ( as this is floating charge and the company is not in the process of winding up) went on to perform well in this question. Unfortunately there were some students who erroneously applied s 328 directly.
Some students, although they made reference to s 226 and s 328, failed to identify the liabilities that were relevant in s 226 and applied the priorities listed in s 328 without excluding the IRAS liability, receiver’s fee.
Students who had acknowledged the limits set out in s 328(2) in relation to outstanding salaries and retrenchment benefits were also appropriately rewarded. Students who had performed well tended to indentify the relevant liabilities under s 226 and then applied the priorities set out in 328(1) and also applied the limits in s 328(2) appropriately.
4