Part 1 Past Papers

LAW FUNDAMENTALS

Please note that the format of the Law Fundamentals exam paper changed in 2018 to reflect the updated syllabus. The format of the paper is as follows:

Duration: 2hrs (Previously 3hrs)

FORMAT:

Question 1 is a compulsory company law question worth 40 marks. Question 2–4 are all worth 30 marks and students are required to complete 2 of these 3 questions.

Summer 2015

QUESTION 1

Ted is the owner and director of a company, Crowley Computers Ltd. He comes to your office and tells you that he has been very busy this year developing software and completely forgot to keep proper books of account. Ted also tells you that he has forgotten to file the annual return for Crowley Computers Ltd.

REQUIREMENTS

(i) Advise Ted of the potential personal liability which he may be exposed to as a result of his failure to keep proper books of account. Marks will be awarded for references to case law and statute.

(9 marks)

(ii) Advise Ted of Crowley Computers Ltd’s legal obligation to file an annual return and explain five potential consequences of Crowley Computers Ltd failing to file its annual return on time. Marks will be awarded for references to statute.

(8 marks)

(iii) Advise Ted of what form must be used to file an annual return and what documents are generally required to be filed with the annual return.

(3 marks)

Total 20 Marks

QUESTION 2

Ned tells you that he entered into a lease of a business premises in 2012 for a term of four years. In order to save costs, Ned didn’t engage a solicitor at the time and simply signed whatever was presented to him by the landlord. Ned has asked if you would have a quick look at the terms of the lease.

REQUIREMENTS

(i) With the exception of covenants in relation to the payment of money by either party, identify and briefly explain four other covenants which you would expect to be included in Ned’s lease.

(4 marks)

(ii) Upon reviewing the lease, you note that it includes an annual “upwards only” rent review clause. What can you tell Ned about this clause?

(3 marks)

(iii) Ned’s landlord has told him that at the end of the four-year term, the lease will not be renewed. Ned is annoyed as this will cause considerable disruption to his business. Ned’s friend Barney tells him that he thinks Ned should have a “Part IV tenancy” which would give him an automatic right to renew the lease. Advise Ned if Barney’s advice is correct and whether Ned will have an automatic right to renew the lease. Marks will be awarded for references to statute.

(5 marks)

(iv) After you finish your review of the lease, you are uncertain as to whether it is in fact a licence which was entered into as opposed to a lease. Explain the distinction between a licence and a lease to Ned and list up to six contractual terms which may lead you to conclude it is a licence as opposed to a lease. Marks will be awarded for references to case law.

(8 marks)

Total 20 Marks

QUESTION 3

Don is a director and sole shareholder of Amazing Advertising Ltd which has recently become insolvent and has gone into liquidation. Don tells you that he has received a letter from the liquidator informing Don that the liquidator is bringing a case against Don to restrict Don from acting as a director of any company. Don is confused as he has always got along well with the liquidator and so is surprised that the liquidator is taking such a case against him.

REQUIREMENTS

(i) Advise Don as to why the liquidator is initiating restriction proceedings against Don. Marks will be awarded for references to statute.

(4 marks)

(ii) Explain the implications of a restriction order being obtained against Don.

(4 marks)

(iii) Explain what defence is available to Don to prevent a restriction order being made against Don. In your answer you should include reference to what factors a court my take into account when making a determination.

(5 marks)

(iv) Don later tells you that the liquidator is bringing disqualification proceedings against Roger, who was the second director of Amazing Advertising Ltd. Explain to Don how a disqualification order differs from a restriction order and set out what criteria a court will have regard to in deciding whether or not a disqualification order should be made against Roger. Marks will be awarded for references to statute.

(7 marks)

Total 20 Marks

QUESTION 4

(a) Julian, Mary and Tommy are all equal shareholders in Brilliant Books Ltd. Julian tells you that the memorandum and articles of association of Brilliant Books Ltd urgently needs updating. Julian is aware that this will require the passing of a special resolution but he tells you that the three shareholders are finding it difficult to find a time when they are all free to formally meet and pass the necessary resolution. Advise Julian of the options available for adopting the changes to the memorandum and articles of association by distinguishing between a written resolution and a special resolution. In your answer you should also list four examples of when a special resolution is required under the Companies Acts, other than in the case of a special resolution to amend memorandum and articles of association. Marks will be awarded for references to statute.

(10 marks)

(b) Explain the “Preliminary Ruling” jurisdiction of the European Court of Justice. Marks will be awarded for references to statute.

(10 marks)

Total 20 Marks

QUESTION 5

Bill has offered to purchase a gardening business from Bernard. Bernard operates the business as a sole trader and currently employs 10 employees.

REQUIREMENTS

(i) Bill has received an initial draft of the business sale agreement from Bernard for him to consider and he notes that it is headed “subject to contract/contract denied”. Bill has asked you to explain this term to him.

(3 marks)

(ii) In contract law, what is meant by the “officious bystander” test?

(3 marks)

(iii) Bill tells you that he does not intend on keeping any of the employees when he takes over the gardening business as he wants to replace them with new staff. Identify two key pieces of employment legislation which Bill should be aware of in this regard and briefly explain why they are relevant for the purposes of this specific transaction. Marks will be awarded for references to statute.

(7 marks)

(iv) After the sale of the gardening business is complete, Bill tells you that he plans on expanding the range of products on offer in the gardening business. In particular, Bill plans on importing exotic and rare plants from other countries within the European Union, so that he can then sell those plants in Ireland. Bill is concerned that there may be quotas and import taxes which will have an impact on the profits he will make. Advise Bill of the relevant law in relation to the movement of goods within the European Union. Marks will be awarded for references to statute.

(7 marks)

Total 20 Marks

QUESTION 6

(a) Ross tells you that he plans on buying Coffee Beans Ltd from James. James has told Ross that Coffee Beans Ltd has an authorised share capital of €1,000,000 divided into 1,000,000 ordinary shares of €1 each and an issued share capital of just €100, all of which is fully paid up. Ross is unsure of what this means and in unclear as to why he is being asked to pay €50,000 to purchase Coffee Beans Ltd when the issued shares are only worth €100. Write a note to Ross explaining the situation including, in particular, the difference between authorised, issued and paid up share capital.

(4 marks)

(b) Explain what a “pre-emption right” is and briefly identify the circumstances in which it can arise. Marks will be awarded for references to statute.

(6 marks)

(c) Identify and briefly explain four presumptions which a court will have regard to when interpreting legislation.

(10 marks)

Total 20 Marks

SOLUTION 1

(i) As an officer of Crowley Computers Ltd, Ted should be aware that the Companies Act 1990 provides that directors who fail to take all reasonable steps to secure compliance with the requirements relating to proper books of account can be guilty of a criminal offence and may also have significant personal liability attached to them in certain circumstances.

Section 204 of the Companies Act 1990 provides for personal liability of officers of the company where proper books of account have not been kept. However, the fact that a company has failed to keep proper books of account does not automatically mean that the directors of that company will be held personally liable. The legislation provides that in order for personal liability to attach to Ted, Crowley Computers Ltd must be (1) in the course of winding up; and (2) unable to pay all of its debts.

Personal liability for directors arising from a failure to keep proper books of account was discussed in the case of Mehigan -v- Duignan. In that case a company went into liquidation and upon taking over the company the liquidator discovered that there were deficiencies in the books and records which had been maintained by the directors of that company. These deficiencies had resulted in substantial uncertainty as to the assets and liabilities of the company which impeded the orderly winding up of the company. In that case, the Judge held that the losses incurred by the company were reasonably foreseeable as a consequence of the directors failure to keep proper books of accounts and accordingly the director was held to be personally liable to the company for a portion of its losses.

In addition, Ted should be aware that section 202(10) of the Companies Act 1990 provides that both a company and any director who fails to take all reasonable steps to secure compliance with the requirements relating to proper books of account may be guilty of a criminal offence and can be fined up to €1,905 and/or up to six months imprisonment (in the case of a summary conviction), or fined up to €12,697 and/or up to five years imprisonment (in the case of a conviction on indictment). However, Ted will only be sentenced to imprisonment if the offence was committed wilfully.

Where a criminal charge is sought against Ted, it is a defence available to him under Section 202(10) to establish that he had reasonable ground for believing and did in fact believe that a competent and reliable person was charged with the duty of keeping the proper books of account. In this matter we are unware as to whether or not Ted had appointed a book keeper or accountant to look after to books of account for Crowley Computers Ltd.

(ii) Section 125 of the Companies Act 1963 (as amended by Section 59 of the Company Law Enforcement Act 2001) provides that every company whether trading or not is required to file an annual return each year with the Companies Registration Office.

The purpose of this annual return is to provide certain information in relation to the affairs of the company which may be relevant to the public.

As Crowley Computers Ltd has failed to file its annual return with the CRO it may lead to any of the following:

(I) Ted (and every other officer of Crowley Computers Ltd who is in default) shall be guilty of an offence under the Companies Acts.

(II) Late filing of an annual return attracts a penalty fine and consistent late filing may attract an on the spot fine and/or summary prosecution of the company and/or any officer in default.

(III) A delayed filing penalty of €100 becomes due in respect of an annual return on the day after its filing deadline. This penalty increases by €3 per day up to a maximum of €1,200 per annual return.

(IV) Where a company consistently fails to file an annual return the registrar of companies may take steps to have the company struck off the registrar and the company dissolved.

(V) In the case of a small and medium size company who claim an exemption from the requirement to have its accounts audited, that company not only loses the entitlement to claim such audit exemption for that year but also for the following year.

(iii) Ted must use a Form B1 when filing the annual return with the Companies Registration Office. With the exception of companies availing of the audit exemption the documents which are generally required to be attached to an annual return are:

1. A copy of the balance sheet.

2. A copy of the profit and loss statement.

3. A copy of the director’s report.

4. A copy of the auditor’s report.

SOLUTION 2

(i) With the exception of covenants in relation to the payment of money by either party, it would be standard for a lease to contain the following covenants:

1. A covenant creating obligations on the lessor and/or tenant in respect of insuring the property.

2. A covenant in relation to repairs which have to be made to the premises. In the case of a lease for a commercial premises this is usually a full repairing and insuring covenant on the part of the tenant.

3. In commercial leases it is not uncommon to find that the tenant is obliged to paint and redecorate the premises periodically throughout the term of the lease.

4. A commercial lease will generally contain a covenant by the tenant that he will not without the prior written consent of the landlord use the premises except for the agreed or permitted use.

5. A covenant from the tenant not to erect new building or structures on the premises and not to make any additions without the lessors consent.

6. A covenant from the tenant not to assign, sublet or part with or share possession, use or occupation of the entire premise without the prior written consent of the landlord.

7. The landlord to covenant that he shall allow the lessee to have quite enjoyment of the premises.

8. A covenant from the landlord confirming that the tenant shall have access to the premises.

(ii) I would advise Ned that an upwards only rent review clause generally provides that the rent payable pursuant to a lease should not fall below what was payable immediately before the rent review date. In Ned’s case, this would mean that the rent payable by him in each year will not be less than what was paid in the preceding year. Such a clause was abolished in 2009 and as such the clause will be unenforceable in relation to Ned’s lease (due to the fact that Ned’s lease was entered into in 2012).

(iii) Barney’s advice to Ned is incorrect. A Part IV tenancy applies only to residential premises and arises pursuant to the Residential Tenancies Act 2004. A Part IV tenancy provides that where a tenant is in occupation of a residential premises for six months they shall be entitled to a new tenancy. As Ned has a lease of a commercial premises this will not apply.

However, Ned should be aware that where a tenant continuously occupies a business premises for five years and uses it for business purposes, at the expiry of a five year period is in entitled to a new lease for up to twenty years. This is provided for under the Landlord and Tenant (amendment) Act 1994.

(iv) The difference between a lease and licence is that a lease is a contract which creates an estate or interest in the land itself, the rights in respect of which are exercisable against all the world. A licence is only a contract and merely gives rights or permissions to the licensee vis a vis the licensor.

In deciding whether or not the contract entered into by Ned is a lease or a licence, it is important to note that the title given to the contract is not a determining factor, and so simply because Ned and the landlord have called the document a “lease” it does not make it so. In the case of Gatien Motor Company Limited against Continental Oil Company of Ireland Limited (1979) IR406, the Judge summarised the test to be applied as follows:

To find whether it was intended to create a relationship with the landlord and tenant, one must look at the transaction as a whole and at any indications that are to be found in the terms of the contract between the two parties.

Terms which would be indicative that a document is a licence would include the following:

(i) Possession for part only of each day or for specific days each week.

(ii) An obligation on the occupier not to impede the owner or his agents in the exercise of this rights and possessions and control of the premises.

(iii) A right for the owner to install additional occupiers.

(iv) An obligation on the occupier to share with occupiers installed by the owner.

(v) An obligation on the occupier not to cause nuisance to other occupiers.

(vi) A reference to the licence being personal to the licensee.

(vii) An obligation on the occupier to pay a daily rate for the premises.

(viii) A requirement that visitors are to leave by a certain time.

(ix) No notice period required of the occupier.

SOLUTION 3

(i) The requirement for a liquidator to bring restriction proceedings against a director is found in Section 150 of the Companies Act 1990. Under company law, a liquidator is required to bring restriction proceedings against a director of an insolvent company unless he is relieved from doing so by the Office of the Director of Corporate Enforcement. It would appear therefore that in this case the ODCE has not relieved the liquidator of his obligations to bring restriction proceedings against Don. In deciding whether or not to relieve a liquidator of bringing such proceedings the ODCE will have regard to the Section 56 report which is filed by the liquidator following his appointment as liquidator of the relevant company.

(ii) Where Don is restricted from being a director this means that he is prevented from being involved in the formation or promotion of any company unless it is adequately capitalised and shall restrict Don from being appointed or acting in any way as a director or company secretary of any company unless the paid up capital requirements are met. In the case of a private company the capital requirement is €63,486.90 in paid up share capital and in the case of a public company it must have a paid up share capital of €317,434.51. The restriction order shall be for a period of up to 5 years. It should be noted that this would include a restriction on Don acting as a shadow director of any company for the duration of the restriction order.

(iii) A restriction order shall not be made against Don unless he can establish the statutory defences found in Section 150 of the Companies Act 1990. These are:

1. That he has acted honestly and responsibly in relation to the conduct and the affairs of the company; and

2. That there is no other just and equitable reason for imposing the restriction.

The question of whether a director has acted responsibly will be judged on an objective standard. In considering whether to restrict a director the court may have regard to:

(I) Whether the company continue to trade when the director knew or ought to have known that it was insolvent.

(II) The company’s track record in the preservation of books and accounts and compliance with the Companies Acts.

(III) The accuracy or reliability of the statement of affairs sworn by the director.

(IV) The lifestyle maintained by the director, if it was funded by the company.

(iv) Disqualification of directors is dealt with at Section 160 of the Companies Act 1990.

A disqualification will ordinarily prohibit a person from being appointed or acting as an auditor, director or other officer, receiver or examiner or from being in any way whether directly or indirectly concerned or taking part in a promotion, formation or management of any company or registered society.

A disqualification order will continue to apply notwithstanding the fact that a company meets the paid up share capital requirements which are relevant for the purposes of a restriction order.

There is no minimum or maximum period for which a disqualification order can be made.

Under Section 160, the onus is on the liquidator to prove that the director has committed the conduct justifying a disqualification order. The court may make the order where it is satisfied:

1. The person has been guilty of any fraud in relation to the company.

2. The person has been guilty of a breach of duty.

3. The person has been made liable for reckless trading.

4. The conduct of the person makes him unfit to be concerned in the management of a company.

5. In consequence of an inspectors report, the conduct of the person makes him unfit to be concerned in the management of a company.

6. A person has been consistently in default in relation to any provisions of the Companies Acts relating to the filing or delivery of documents to the Companies Registration Office.

SOLUTION 4

(a) For a special resolution, a 75% voting majority is required. Where a special resolution is proposed it requires 21 clear days’ notice of the holding of the meeting at which the special resolution is to be proposed.

Special resolutions are used to conduct any special business at a general meeting of the shareholders of a company. A special resolution is necessary where the Companies Acts require it or where the Articles of Association of a relevant company specify it to be necessary. Under the Companies Act a special resolution is required for various reasons, including the following:

(i) To change the name of a company.

(ii) To reduce the share capital.

(iii) To wind up a company.

(iv) To permit the giving of financial assistance.

A special resolution differs from a written resolution in that a special resolution is proposed and passed (or not) at a duly convened general meeting of the shareholders of a company. Where the Articles of Association provide, it is possible to have a written resolution passed without the need to convene the general meeting and as such the written resolution procedure is often used where there is a small number of shareholders in a company as it dispenses with the need to convene a formal meeting of the shareholders. The written resolution mechanism may be particularly useful for a company such as Brilliant Books Ltd where there is a small number of shareholders and the resolution has to be passed urgently.

In the case of a written resolution however it requires all shareholders or members of the company to sign it to confirm they are consenting to the passing of that resolution.

A written resolution will not be effective until the last signatory has signed.

A written resolution can be used for the passing of ordinary and special resolutions.

Written resolutions are permitted (where it is provided for in a company’s M&A) pursuant to Section 141(8) of the Companies Act 1963.

Where not all members agree to the written resolution procedure a members meeting must be called where the members will be asked to vote on the resolution.

(b) Article 267 TFEU permits national courts to refer questions relating to EU Law to the ECJ.

In a preliminary ruling application to the ECJ, there is a written stage and usually an oral stage which takes place in open court.

Generally a referral is made to the ECJ to interpret a point of EU Law or to interpret the meaning or intention of a particular part of a directive. Referral can also be made to the ECJ on the interpretation or validity of secondary legislation/acts of the community institutions.

In Ireland a referral to the ECJ can be made by the District, Circuit, High or Supreme Courts and the appeal commissioners.

It is up to each referring courts to decide whether or not to make a preliminary ruling reference to the ECJ.

The only court that is bound to make a reference is the Supreme Court if there is a question of European Law that requires answering. However even the Supreme Court can refuse to make a reference if the ECJ has previously opined on the same point of law or the matter is so clear that no reasonable doubt exists as to the correct application of the law.

The referral takes the form of a question or a serious of questions that are addressed to the court.

After reviewing written submissions, the advocate-general assigned to the case will deliver a non-legally binding opinion to the ECJ. The ECJ will then issue a judgement in relation to the questions put to it however it may not necessarily follow the advice of the advocate general.

Upon delivering judgement the ECJ will refer the matter back to the referring court in the member state concerned to apply the law to the case before it.

It is important to note that the preliminary ruling procedure is not an appeal. Instead, it simply allows an Irish court to refer specific questions of European Law to the ECJ for clarification.

The interpretation of the ECJ in relation to the directive or its decision in any referral proceeding is binding and final on the member state to which it is addressed.

The courts findings now set a precedent which must be adhered to by each member state whether or not it was party to the specific case.

SOLUTION 5

(i) It is possible to respond to an offer without accepting or rejecting it either by a request for more information or by marking the response “subject to contract/contract denied”.

In this case it means that Bernard is agreeable to the terms of the offer but is not agreeable to be legally bound until a formal (usually written) contract is entered into.

(ii) The officious bystander test is used to give a business efficacy to a contract.

The test is, if an officious bystander had intervened to remind the parties that in formulating the contract they had failed to mention a particular point which both parties would have included, the parties would have replied to the officious bystander that “of course it is included”.

(iii) Two pieces of employment legislation which Bill should be aware of are:

1. European Communities (Protection of Employee Rights on Transfer of Undertaking) Regulations 2003.

This piece of legislation is designed to protect employees if the business in which they are employed changes hands. It applies to the transfer of an “undertaking”. Based on the information we have in this question it would appear that the gardening business being sold by Bernard would classify as an “undertaking” and as such these regulations would apply.

The effect of these regulations is that all existing employees will move with the business to Bill by operation of law. As such, Bill will not have an option as to whether he wants to “take” the employees as part of the business transfer or not. Bill will not be able to contract out of this obligation. Employees have the legal right to transfer with the business to Bill and to maintain their existing terms and conditions of employment and with all of their existing employment rights and liabilities intact. Effectively, Bill will step into the shoes of Bernard and it will be as if Bill had entered into each of the employment contract with the relevant employees.

2. Bill should also be aware of the Unfair Dismissals Acts 1977 to 2007. In the event that Bill does decide to dismiss the existing employees it is possible that they may bring a claim against Bill where the employees feel they have been unfairly dismissed from their jobs.

(iv) It is one of the principal features of EU law that there should be free movement of goods within the common market. The free movement of goods forms one of the “four fundamental freedoms” which are fundamental to the common EU market and form part of the substantive law of the EU.

Article 34 of TFEU provides that quantitative restrictions on imports and all measures have an equivalent effect shall be prohibited between member states. This means that no member state can impose any restrictions on the quantity being imported from another member state and also may not seek to achieve the same result using “measures have an equivalent effect”. Bill should not therefore be affected by any quotas applying to his importation of exotic and rare plants from other EU countries.

However, in the event of those plants creating any threat to public health or the environment, it may be open for a member state to restrict the free movement of goods.

Article 30 TFEU provides that customs duties on imports and exports and charges of equivalent effect shall be prohibited between member states. Bill’s profits therefore should not be affected by any customs duties so long as the plants which he is importing are being imported from other EU member states. A customs duty is regarded as being a fiscal barrier to the free movement of goods.

Article 30 must be read in conjunction with Article 110 TFEU which suggests that some sort of internal taxation may be applied in certain circumstances provided certain conditions are met. The ECJ has consistently held however that the purpose of Article 110 as a whole is to ensure free movement of goods between member states under normal conditions of competition by eliminating all forms of protection which might result in the application of discriminatory internal taxation against products from other member states.

In determining whether any charges are permitted in respect of Bill’s importation of rare and exotic plants, it is important to assess whether it is a customs duty (which is governed under Article 30 and which is prohibited) or an Article 110 charge which may be permitted in certain circumstances. In deciding which Article applies it is necessary to examine the specific circumstances to see whether the tax applied forms part of a system of general taxation whereby it is applied to categories of products in accordance with the same objective criteria for both domestic and imported products at the same stage as the production and marketing and irrespective of the origin of the products.

SOLUTION 6

(i) A company’s authorised share capital is the nominal amount of share capital with which the company proposes to be registered. In the case of Coffee Beans Ltd the authorised share capital is €1 million divided into 1 million ordinary shares of €1 each.

This means that the nominal or par value of each share is €1. In almost all cases a company will not issue or allot its entire authorised share capital. In the case of Coffee Beans Ltd the issued share capital is 100 shares of €1 each. This means that 100 shares have been allotted or issued to shareholders of the company. As the shares are fully paid up this means that the entire €100 (plus any premium payable on those shares) has been paid by shareholders on the allotted shares.

Notwithstanding the fact that only 100 shares have been allotted to shareholders, it is important to note that this reflects only the nominal of par value of the issued share capital. This should not be mixed up with the market value of the shares (in this case €50,000) which is indicative of the price or value which a willing purchaser will pay for those shares.

(ii) A pre-emption right is a right of first refusal to purchase shares.

The reason for having pre-emption rights in a private company is to ensure that the balance of power of the company is kept within the control of a certain number of people.

Pre-emption rights normally arise in two situations:

1. In respect of shares which are to be transferred – in order for a pre-emption to arise in these circumstances it must form some part of an agreement between the shareholders (e.g. in a shareholders agreement or it must be included in the articles of association of the relevant company).

2. In respect of shares which are actually to be allotted for the first time – Section 23 of the Companies Act 1983 gives members of all companies a right of pre-emption on the allotment of new shares in a company. It obliges a company, when making a new issues of shares, to give an existing shareholder a right of first refusal in respect of shares in the new issue equal in proportion to his/her existing shareholding (subject to anything contained in a shareholders’ agreement). It is possible however for shareholders in a private company to dis-apply this section.

Where pre-emption rights apply, it will generally mean that where a transfer or allotment of shares takes place existing shareholders must be offered those shares on a pro rata basis in accordance with their existing shareholdings (subject to anything contained in a shareholders’ agreement).

(iii) In interpreting Statutes a court may be guided by certain presumptions:

1. Presumption of constitutionality – this means where a court is faced with two reasonable interpretations of a particular piece of legislation, one of which would result in the statute baring a constitutional meaning and the other which would render the statue unconstitutional the former must be adapted.

2. Presumption against retrospective effect – Article 15.5 of the Constitution prohibits the Oireachtas from declaring Acts to be infringements of the law which were not so at the date of their commission. This therefore prohibits retrospective penal legislation. The philosophy underlying this presumption is that it is inherently unjust to declare (after the event) Acts to be unlawful which where lawful at the time of their commission.

3. Presumption against extra-territorial effect – it is presumed that the operation of an Act is intended to be confined to the territory of the State, unless a contrary intention is evident.

4. Presumption against unclear changes in the law – the effect of this presumption is that a change in the law must be achieved clearly, either by express terms of by clear implications. In the event of ambiguity, a court should decline to interpret the provisions as changing the law. Hence there is a rebuttable presumption that the TCA does not alter the pre-existing law (but merely consolidates it all into one statute).

5. Presumption against strict liability – there is a presumption against offences being interpreted as being of strict liability unless the intention of the Oireachtas in this respect is clear and unambiguous.

Examiner’s Report

Overall the standard of answers was lower than expected. Some students appeared to have left large sections of the syllabus out when studying for the exam. Instead of reading and addressing the question being asked, some students wrote down everything they knew about a particular topic, whether or not it was relevant to the scenario presented.

My comments on the standard of answering on a question by question basis are as follows:

Question 1

This question was poorly answered. Some students appeared to lack any knowledge of a company’s compliance obligations which are comprehensively set out in the manual. Instead, many students focused on the separate legal personality of Crowley Computers Ltd. which, while relevant to a certain extent, did not fully address the question being asked.

Question 2

This question was relatively well answered with many students achieving good marks at parts (i) and (iv). At part (ii), most students were able to explain what an upwards only rent review clause is, however some failed to identity that such clauses are no longer permitted. At part (iii), many students were able to identify that there is a distinction between the automatic right of renewal of a residential lease as opposed to a commercial lease, however few were able to explain the distinction in any great detail. Students also missed out on marks for including legislative references with their answer.

Question 3

This was the most avoided question on the paper which was disappointing as it suggested that students had not studied restriction or disqualification orders against directors, despite such orders being topical and very common in practice over the last number of years. Of the students that did attempt the question, there seemed to be a general awareness of the distinction between a restriction and a disqualification order however at part (i) there was a poor awareness of a liquidator’s obligation to initiate restriction proceedings unless the liquidator is relieved from doing so by the ODCE.

Question 4

This was the second least attempted question on the paper which was perhaps not surprising as it required knowledge of two separate and unrelated sections of the syllabus in order to get top marks. It showed that if students leave out large sections of the syllabus when studying for the exam, it can have a significant impact on their choice of questions in the exam.

At part (a), there was a good awareness of the circumstances which would require a special resolution, and the requirements to convene a meeting and pass a special resolution. Some students failed to identify that a written resolution must be permitted under the company’s articles of association. Some students also failed to point out that a written resolution would be the best choice for Julian, Mary and Tommy as it can be passed immediately (without the need to convene a meeting with 21 days’ notice) and so would address the “urgency” requirement which was set out in the question.

Part (b) was very poorly answered with a large number of students unable to present more than a short paragraph of text when answering the question. Students should note that this would be insufficient to merit the 10 marks being awarded for this part. Again, had students taken time to read this chapter of the manual, they would have received marks for basic information about the “Preliminary Ruling” jurisdiction of the ECJ.

Question 5

This was the most attempted question with students generally scoring particularly well at parts (i) and (iii). At part (iv), many students, while showing an awareness of the free movement of goods, failed to achieve high marks which was indicative of students failing to study that chapter of the manual in any great detail.

Question 6

Part (a) was generally well answered with many students achieving full marks for this part.

Part (b) was very poorly answered with only a handful of students displaying any knowledge whatsoever of what pre-emption rights are. The majority of students who attempted this question obtained zero marks for this part.

Many students appeared to either misread part (c), or perhaps had no awareness of what was being asked. The question asked students to discuss the presumptions a court will have regard to when interpreting legislation. These presumptions are clearly set out in the manual. Instead, students used this question as an opportunity to display their knowledge of the rules of interpretation which did not directly address the question posed.

  Q1 Q2 Q3 Q4 Q5
Highest 17.5 19.5 16.5 13 18
Lowest 1 1 1.5 1 1
Average 7 11 8 7 8.5

Autumn 2015

QUESTION 1

Harvey Smyth, the owner of Apples Ltd, has met with you in relation to a contractual dispute with Mike Byrne, the owner of Oranges Ltd, arising from a commercial contract entered into between the two parties 18 months ago. Harvey alleges he is entitled to damages in the amount of €3million from Mike and tells you he needs the case to be resolved as quickly as possible. Harvey also tells you he has read about an almost identical case which was recently heard by a court in New Zealand. Harvey suggests the New Zealand case should be used to support his claim.

REQUIREMENTS

(i) Advise Harvey as to the most appropriate court for him to bring his claim to. In your answer, you should explain three specific features of that particular court which would contribute to the matter being determined in a timely manner.

(11 marks)

(ii) To what extent can the case in New Zealand be used to support Harvey’s claim?

(3 marks)

(iii) In addition to damages, identify and briefly explain to Harvey three other remedies which can be sought for breach of contract.

(6 marks)

Total 20 Marks

QUESTION 2

Great Garlic SARL is a company incorporated in France. Louis, CEO of Great Garlic SARL, has called you to explain that Great Garlic SARL is considering opening a branch in Ireland. Louis has asked you to advise on the following:

REQUIREMENTS

(i) The term “branch” lacks precise statutory definition under Irish law. What is meant by “branch” under Irish tax rules? Your answer should include the matters referred to in European case law.

(4 marks)

(ii) Set out the initial registration requirements which Great Garlic SARL need to comply with in relation to the branch. Your answer should include details of the documents required for the purposes of registration.

(4 marks)

(iii) Set out the ongoing compliance requirements which Great Garlic SARL will need to comply with if it decides to operate a branch in Ireland.

(4 marks)

(iv) Outline when there may be a concession to the requirement for a branch in Ireland to submit a directors’ report to the Companies Registration Office (CRO).

(2 marks)

(v) Louis tells you that Great Garlic SARL intends on hiring employees in Ireland under contracts of employment to be governed by Irish law. Louis is aware of the express terms which should be included in each contract of employment. Explain three ways in which terms can be implied into a contract of employment in Ireland.

(6 marks)

Total 20 Marks

QUESTION 3

Two friends, Rachel and Mona, have told you that they are sick of paying expensive rents in Dublin and have decided to join their savings together to buy a house. After taking professional advice, they have decided to purchase the property as tenants in common. They have seen a house they like and have made an offer to the auctioneer looking after the sale.

REQUIREMENTS

(i) Explain the concept of “tenants in common” and distinguish it from joint tenancy. Explain why it may be appropriate for Rachel and Mona to acquire the house as tenants in common.

(8 marks)

(ii) Before Rachel and Mona have heard back from the auctioneer, they have changed their mind as they have seen another house that they prefer. Advise Rachel and Mona of the four ways in which an offer can be terminated by them or the seller before the offer becomes binding on them.

(4 marks)

(iii) Rachel and Mona’s offer for the second house has been accepted and they have signed binding contracts. Rachel and Mona tell you that it is a townhouse located in a large housing development and their solicitor has told them that it is a “leasehold folio”. Explain to Rachel and Mona what is meant by the term “leasehold folio” and outline to them what they will be able to see from looking at the folio.

(6 marks)

(iv) In the context of a leasehold, explain what is meant by “reversionary interest”.

(2 marks)

Total 20 Marks

QUESTION 4

You met yesterday with Tony who is a director and sole shareholder of Italian Imports Ltd. He told you that over the last number of years he hasn’t kept on top of his bookkeeping. Despite this, Italian Imports Ltd has continued to trade, albeit at a slight loss.

Tony told you that he recalls receiving a few letters from the Companies Registration Office (CRO) 11 months ago stating that Italian Imports Ltd was going to be struck off the register of companies, but that he simply shredded the letters and didn’t reply. Tony cannot remember why Italian Imports Ltd was going to be struck off.

REQUIREMENTS

(i) Suggest the two most likely reasons for Italian Imports Ltd being struck off.

(2 marks)

(ii) Advise Tony of three consequences of a company being struck off the register of companies and explain how these consequences will have an impact on Tony in this case.

(5 marks)

(iii) Advise Tony of what he should do in order to have Italian Imports Ltd restored to the register of companies.

(4 marks)

(iv) How would your advice to Tony be different if Italian Imports Ltd had been struck off the register of companies two years ago?

(7 marks)

(v) Outline when a company can avail of the voluntary strike-off procedure as opposed to having to enter into liquidation in order to dissolve that company.

(2 marks)

Total 20 Marks

QUESTION 5

Jesse works for Crystal Car Wash Ltd which is currently 100% owned by Jesse’s boss, Walter. Jesse tells you that Walter has offered to allot 10 ordinary shares of €1 each in the share capital of Crystal Car Wash Ltd to Jesse as a reward to Jesse for his many years of dedicated service. Jesse is not sure if he should accept the allotment of the shares as he does not want to end up being held personally liable for any losses which Crystal Car Wash Ltd may incur and doesn’t want the responsibility of having to manage the affairs of Crystal Car Wash Ltd.

REQUIREMENTS

Explain to Jesse whether or not his concerns are well founded by making specific reference to:

(i) What a share is, including the definition of a share and what it entitles the holder to claim ownership of;

(5 marks)

(ii) The legal relationship which exists between a company and its shareholders including a reference to the document which sets out the contractual rights between a company and its shareholders;

(4 marks)

(iii) The legal relationship which exists between shareholders and other shareholders including references to where the specific details of this relationship may be found;

(3 marks)

(iv) The rights, entitlements and duties which attach to a share; and

(4 marks)

(v) The likelihood of Jesse being made personally liable for the losses of Crystal Car Wash Ltd.

(4 marks)

Marks will be awarded for references to case law and statute.

Total 20 Marks

QUESTION 6

(a) Jack is a director of CTU Security Ltd. Jack’s wife Chloe has recently inherited commercial premises from her deceased father. Jack tells you that CTU Security Ltd would like to purchase the commercial premises from Chloe at market value so that CTU Security Ltd can use it as its headquarters. Advise Jack how Section 29 of the Companies Act 1990 will apply to the purchase of the commercial premises from Chloe and explain the implications of a company failing to adhere to the requirements of that section where it is required to do so.

(5 marks)

(b) Enda is a 25% shareholder of Expensive Liquids Ltd. Over the last 18 months Enda has received very little information from the directors of Expensive Liquids Ltd as to how the company is performing. No Annual General Meeting (AGM) has been convened in the last 18 months. Enda has tried calling the directors of Expensive Liquids Ltd to ask them to convene a meeting of the shareholders of Expensive Liquids Ltd as Enda wants to propose a few resolutions for the shareholders to vote on. The directors of Expensive Liquids Ltd have not returned Enda’s calls. Explain to Enda what steps he should take in order to formally request the directors to convene a meeting of the shareholders and advise Enda further of what steps he himself can take to convene an Extraordinary General Meeting (EGM) if the directors continue to refuse to comply with his request. Your answer should also make reference to what action the directors should be advised to take upon receiving a formal request to convene an EGM from Enda.

(8 marks)

(c) Paul has recently consented to a Disqualification Order being made against him in accordance with Section 160 of the Companies Act 1990. Paul tells you that even though the order has been made, he intends starting a new company and that he will simply appoint his wife Linda and daughter Stella as directors of the new company as they will sign off on anything Paul asks them to. In order to avoid any liability attaching to Linda and Stella, Paul says he will appoint them as “non-executive directors”. Advise Paul as to whether this is an advisable course of action and give reasons for your answer. Your answer should include reference to the implications of the Disqualification Order against Paul in the context of the scenario presented and the significance of the proposed titles for Linda and Stella.

(7 marks)

Total 20 Marks

SOLUTION 1

(i)

The most appropriate Court for Harvey to take his case is the Commercial Court which is a division of the High Court. The Commercial Court and was established in 2004 with the aim of bringing about a just and expeditious determination of commercial disputes with a minimum claim of €1million. Harvey’s claim will therefore exceed this threshold.

The rules of the Commercial Court are designed to force litigating parties to agree as many issues as possible before the matter comes to trial. This means that the trial hearing will focus only on the relevant issues that remain in dispute. It does so via the following mechanisms:

1. Initials direction hearing – at which the court has power to make very wide ranging directions to facilitate the advancement of the proceedings such as ordering discovery or allowing inspection of documents and fixing the manner and timeframes within which any further pleadings must be delivered.

2. Case management - which involves a conference or series of conferences between the parties which are chaired by the Judge assigned to the case to ensure that the proceedings are progressed in a manner which is just, expeditious and likely to minimise costs. At the case management conference the Judge fixes a timetable for the completion of preparation for trial and makes orders to facilitate this timeframe.

3. Pre-trial conference - this is held before any commercial proceedings can be listed for hearing. This is where the Judge establishes what steps remain to be taken to prepare the case for trial. Only when the Judge is satisfied that the proceedings are ready to proceed to trial is a date set.

4. Alternative dispute resolution – at any time during the Commercial Court process the Judge has power to send any issues to mediation, conciliation or arbitration.

(ii)

An Irish court is not required to follow the decisions of a foreign court. However those decisions can be of persuasive authority and may be followed at the option of the Courts.

Decisions of other common law countries are frequently cited and adopted by Irish Courts particularly where there is no Irish authority covering the issue in question.

In this matter Harvey has referenced a decision of a Court in New Zealand which is a common law jurisdiction. As such it may be cited to support Harvey’s claim however Harvey should be aware that the Irish Court is under no obligation to make the same determination as the New Zealand Court did in that case.

(iii)

Other than damages, the following remedies may be sought for a breach of contract:

1. Specific performance, in which a Court makes an order requiring a party to perform a specific act, which is usually stated in the contract. However not all contracts may be enforced. Specific performance is a discretionary remedy. It may not be granted against the party who has been a victim of innocent misrepresentation. Generally this remedy will not be granted where damages are an adequate remedy.

2. An injunction is an order of the Court directing a party to the proceedings to do, or to refrain from doing a specific act. The Courts may restrain a party by injunction from committing a breach of contract. It is granted in cases in which monetary compensation affords an inadequate remedy.

3. Rescission – the right to rescind is one in which a party to a transaction may sometimes have to set that transaction aside and be restored to his or her former position. The purpose of rescission is to release the parties from the contract. Rescission can be claimed in a case of mistake, fraudulent misrepresentation, undue influence, and unconscionable bargain.

4. Rectification – where parties to a contract agree verbally on terms and that agreement is then reduced into writing which either does not contain those agreed verbal terms or contains different terms to those agreed the Court may rectify the written document to conform with the terms verbally agreed. A mistake made by both parties, or merely known to one, is a ground for rectification.

SOLUTION 2

(i)

The term “branch” lacks precise statutory definition under Irish law. However, under Irish tax rules, a “branch” is defined as any “factorship, agency, receivership, branch or management”. This definition is difficult to apply due to the limited judicial or administrative guidance which exists as to meaning of the term “branch or agency”. There has been some European case law which support the view that a branch is a place of business which has the appearance of permanency, such as an extension of the parent body, has a management and is materially equipped to negotiate business with third parties without resource to the parent company, the head office of which is abroad.

(ii)

The registration requirements in relation to a branch are set out in the EC (Branch Disclosures) Regulations 1993. These regulations provide that a branch must be registered within one month of the establishment of that branch in Ireland. The company must deliver the relevant Companies Registration Office (“CRO”) form to the CRO along with the following documents:

1. Certified copy Memorandum & Articles of Association or the charter or other similar Constitutional document of the company.

2. A copy of the Certificate of Incorporation of the company.

3. A copy of any name changes of the company.

4. Copies of the latest accounting documents.

5. A certified English translation of documents not in English or Irish.

6. The relevant filing fee (€60).

(iii)

All companies operating a branch in Ireland are required to file the following in the CRO (together with CRO form F7) on an ongoing basis:

1. The accounts of the company for the period, including if it has one or more subsidiary any consolidated accounts of the group.

2. Any annual report of the directors for the period.

3. The reports of the auditors on the company accounts.

4. Any report of the auditors on the director report.

5. A director’s report may also be required where the director’s report is not required under the law of the state of incorporation of the company.

6. If a company commences to trade in Ireland under a name other than its corporate name, the business must be registered under the Regulations of Business Names Act 1963 with the CRO

(iv)

A director’s report may also be required where the director’s report is not required under the law of the state of incorporation of the company. There may be concessions available where a foreign company would not have to have the accounts audited in its own state according to its own legislation, or where there are no requirements or different requirements as regards accounts in their own country.

(v)

Implied terms in an employment contract can arise in three main ways. Firstly terms implied by statute and common law - this would include, for example, the right not to be discriminated against, the right not to be unfairly dismissed and the right to a safe workplace.

Secondly, terms mainly implied by custom or practice i.e., they may be implied because they have been done consistently over a period of time. As a general rule, for a term to be implied in this way the term must be so common in a relevant trade or area or so obvious that is must be taken to have been implied as being agreed even though it was not expressed or must be necessary to give business efficacy to the contract.

Finally, terms can be implied by virtue of collective agreements. This arises where employees are unionised and have a collective agreement in place with the employer concerned. Where this is the case, the terms of the collective agreements will generally form part of the employees’ contracts of employment.

SOLUTION 3

(i)

There are two main types of co-ownership:

1. Joint tenancy

2. Tenancy in common

Both joint tenancies and tenancies in common can apply to both freehold and leasehold interests. Where co-owners own a piece of property as tenants in common, as is the case with Rachel and Monica, each person owns a definitive share in the property. For example where two people own a property as tenants in common each owning 50% of the property both parties will be entitled to one half of that property.

While each tenant in common is entitled to sell their share of the property independent of the other party, in order to sell the entire property all tenants in common must be party to the instrument of transfer.

The principal of survivorship does not apply to tenancies in common. This is one of the key differences between tenancies in common and joint tenancies. This means (in the case of tenancy in common) if one of the owners dies, his share of the property will pass in accordance with the terms of his will and laws of succession. In the case of a joint tenancy where one of the owners dies the other automatically becomes the sole owner, this is referred to as the right of survivorship. This would be the case even if a will had been made leaving the deceased owner’s share to someone other than the co-owner. A co-owner does not have the power to give their shares in a property to anyone other than the other co-owner(s) in the case of the joint tenancy. The advantage of A joint tenancy is that on the death of one the ownership of the entire property is vested automatically in the other.

Given that Rachel and Monica are just friends, it is likely they will not want the principal of survivorship to apply to the purchase of this house. Instead, it may be more appropriate for Rachel and Monica to acquire the property as tenants in common so that each person can deal with their share of the property as they see fit.

(ii)

An offer can be terminated in four ways:

1. Rejection – express rejection is where an offeree simply refuses the offer; he cannot subsequently change his mind and accept the offer.

2. Lapse of time – an offer lapses if it is not accepted within the period of time stated by the offeror. If a precise period of time is not stipulated the acceptance must be within a reasonable time which depends on the circumstances of the case.

3. Death – an offer terminates on death of the party or destruction of the thing in question.

4. Revocation– the offeror is free to revoke the offer at any time before the offeree accepts it. Revocation is only effective once it is communicated to the offeree. This is the most likely option here for Monica and Rachel and I would advise them to contact the auctioneer to let him know that they are revoking their offer.

(iii)

I understand that the property here is a leasehold folio. As it is a folio it means the property is registered in the Property Registration Authority (as opposed to being unregistered property which would be registered in the Registry of Deeds).

A folio is a document which describes the property registered and refers to a plan on the registry maps.

It also lists the name and address of the registered owner and include reference of any burdens affecting that particular property (such as a right of way or any charges entered into in favour of a bank).

As the property is a leasehold interest this means that it has been carved out of a freehold or longer leasehold interest. A leasehold interest is a more limited estate than a freehold interest. It gives the tenant the right to occupy and use the land for a specified period of time which is set out in the lease in return for a periodic payment by the tenant.

(iv)

When a lease is granted the lessor retains what is known as the reversionary interest. This is the right to have the property revert back to him or her at the end of the lease period. For example, if Sarah owns an office block and she leases it to a company for a term of 4 years, at the end of that 4 year period Sarah will be entitled to get the office block back. This is known as the reversionary interest.

SOLUTION 4

(i)

There are a number of circumstances in which the CRO can cause a company to be struck off the registrar. The most common examples are:

1. Failure to file an annual return to the CRO or;

2. Where the CRO receives notice in writing from Revenue that the company has failed to deliver a statement which it is required to deliver under the Taxes Consolidation Act. This is known as Revenue strike off.

(ii)

Where a company is struck off the registrar it has serious implications for a company. These consequences include:

1. The company will cease to exist as a legal entity with effect from the date on which it was struck off the register;

2. All assets of the company become the property of the State on the dissolution of the company (i.e. upon it being struck off the Registrar of Companies);

3. The protection of limited liability is lost with effect from the date of dissolution; and

4. There can also be consequence for directors of such companies in that a disqualification order may be made against them on the application of the ODCE.

In a case such as Italian Imports Ltd, we are told that Tony has continued to trade after the company was struck off the register of companies. As the business which was formally carried on through the company continued, Tony was in effect trading in his personal capacity and as such will have personal unlimited liability for any debts of the business contracted post dissolution. This is because the protection of limited liability was lost as and from the date on which the company was struck off. In addition, Tony should be aware that he is opening himself up to a possible disqualification order being made against him which will have implications on Tony’s ability to become involved, in any way, whether directly or indirectly, with the promotion, formation or management of any company for so long as the order is in place.

(iii)

As Italian Imports Ltd has been struck off for less than 12 months, it is possible for Tony to have the company restored by way of administrative action only (i.e. without the need to make a court application).

In order to have Italian Imports Ltd restored to the Registrar of Companies Tony should file a Form H1 with the CRO together with the relevant filing fee of €300 and file all outstanding annual returns together with the accounts for each financial year.

In the case of a Revenue strike off, written confirmation from Revenue that all outstanding statements required have been delivered to Revenue is also a requirement for the restoration to take place.

(iv)

If it was the case that Italian Imports Ltd had been struck off the register 2 years ago it would be necessary for Tony to make a High Court application seeking a judicial order for the company to be restored to the register.

In this case we know that the company was not struck off voluntarily and as such in order to restore the company to the register the company will also be required to obtain a letter of no objection from the Chief State Solicitors (on behalf of the Minster for Finance) stating that there is no objection to the restoration of the company to the register. Tony will also be required to obtain a letter of no objection from Revenue and a letter of no objection from the CRO to an application to restore the company to the register being made. Upon presentation of all the necessary documents to the High Court a restoration order may be granted by the Judge.

A copy of that order must then be filed in the CRO.

The name of the company cannot be restored to the register unless the order is lodged in a timely fashion with the Companies Registration Office (i.e. within 3 months of the date on which the order was handed down by the Court).

(v)

A company can only avail of the voluntary strike off procedure where (1) it has ceased to trade or has never traded; and (2) where it has no assets or liabilities.

SOLUTION 5

(i)

Jesse’s specific concerns are not necessarily well founded for a number of reasons. Firstly it is important that Jesse understands what exactly a “share” is under Irish company law. A share is defined in the Companies Act 1963 as “a share in the share capital of a company”.

The definition of a share was elaborated on in the case of Borlands Trustee v Steel Brothers & Company Limited (1901)1CH279. In that case the Judge held that “a share is the interest of a shareholder measured by a sum of money for the purpose of liability in the first case and of interest in the second, but also consisting of a serious of mutual covenants entered into by all of the shareholder inter se in accordance with the [Companies Acts]”.

It is important to note that ownership of a share gives the holder a direct ownership interest in the company itself, not the underlying assets of that company.

A share in a company is also viewed as an interest in the nature of personal property. Section 79 of the Companies Act 1963 states that a share in a company shall be personal estate, transferrable in a manner provided in the articles of the company, and shall not be of the nature of real estate.

(ii)

The exact extent of an individual shareholders interest in a company however, including any forms of managerial or controlling interest, is generally determined by the contractual rights between the company and the individual shareholder under the companies Memorandum & Articles of Association, and also by the Companies Acts.

The rule set out in the case of Foss v Harbottle (1843) 2 Hare 461 regarding the legal relationship between a company and its shareholders is one of the most established principals of company law. The rule in this case has two limbs:

(1) Where a company has been wronged, the company, and not its shareholders is the proper person to institute proceedings.

(2) An individual shareholder or shareholders may not bring proceedings to overturn a decision of the company where that decision is one which a majority of the member may confirm (subject to exceptions).

(iii)

If Jesse accepts the allotment of shares, he will hold rights against, and obligations towards, the company itself and also against the other shareholders, as a result of his shareholding in the company. These rights and obligations arise under the Memorandum and Articles of Association of the company, forming a statutory contract between the shareholder and the company, and also between fellow shareholders. The statutory contract is created by Section 25 of the Companies Act 1963 and the shareholders and the company are automatically bound to such a contract.

The legal relationship between the shareholders (and between a company and its shareholders) may also be controlled by a shareholders agreement, which is an agreement entered into to supplement the company’s constitutional documents and intended to govern in greater detail the rights and obligations of the respective parties thereto, whether generally or in particular circumstances.

(iv)

As a shareholder of the company Jesse will have various entitlements arising under the Companies Acts. There are a number of remedies that a shareholder of a company may have against a company itself if the shareholder feels the company is acting in a way that is either oppressive or detrimental to the shareholders’ interests. The primary remedy used to seek relief is under Section 205 of the 1963 Act.

The holding of a share in a company confers a number of rights on the shareholder in relation to the company. These include for example, the right to receive the dividend, to attend and vote at general meetings, to receive all relevant information and notices regarding the company, to seek relief against the company, and to certain rights personal to that shareholder. These rights may be amended or altered in the company’s Articles of Association.

Jesse should be aware however that there are certain duties owed by a shareholder towards a company. These include the duty to pay all money due to the company in respect of the price of the shares allotted, the duty to account to the company for any dividend received in contravention of the rules governing profits available for distribution, and the duty to answer personally for the companies liability in certain limited circumstances where statute or common law require.

(v)

Jesse should be aware however that it is a fundamental principal of Irish company law that a company, once incorporated, has a separate legal personality from its shareholders. This is also known as the “veil of incorporation” and was set out in the leading case of Salomon v Salomon & Company.

As Crystal Carwash Ltd has been incorporated, it has the benefit of limited liability. What this means for Jesse is that his liability for the debts and wrongs of the company is limited to the amount that he has agreed to pay for the share which he owns in the company. We are told that Jesse is being allotted 10 ordinary shares of €1 each in the share capital of Crystal Carwash Ltd, and as such Jesse’s only liability will be to pay the nominal value on those share i.e. €10. The Companies Acts set out certain instances in which limited liability may be lost, and the shareholder and/or directors of a company may become personally liable for the company’s debts without limitation as to amounts. However, these instances are exceptions to the general rule which remains that the shareholders liability is limited to the amount (if any) unpaid on their shares. Once Jesse’s shares are fully paid up, broadly speaking, he will have no further liability for the company’s debts.

SOLUTION 6

(a)

Jack should be aware that the Companies Acts supplement the common law fiduciary duties of directors by imposing limits on transactions undertaken between companies and their directors (or persons connected with a director). As a consequence, certain transactions in favour of directors (or persons connected with a director) are either prohibited entirely or require shareholder consent. The property transaction which is taking place now between Chloe and CTU Security Ltd is such a transaction which requires shareholder approval. This transaction would fall within the provisions of Section 29 of the Companies Act 1990 which requires shareholder consent where the value of the asset being bought by a company from a director or a connected person exceeds the specified amounts. These specified amounts are €63,487 or 10% of the relevant assets of the company – it is assumed that the value of the commercial premises will exceed these thresholds in this case.

Whilst we are not aware that Chloe is a director of CTU Security Ltd the transaction will still fall within the prohibition in Section 29 and she will be deemed to be a connected party to Jack who is a director of CTU Security Ltd.

Breach of Section 29 can in certain cases lead to directors being made personally liable for the debts of a company. A director can also be potentially liable to account for any gain made. In addition, any contract which is entered into which is in breach of section 29 is voidable at the instance of the company.

(b)

Whilst in the normal course, it is generally the directors of a company who convene an EGM, the ability to convene a EGM is not solely at the behest of directors. Members of a company who together hold not less than 10% of the paid up share capital with voting rights in that company can request the directors of a company to hold an EGM. This is provided for in Section 132 of the Companies Act 1963. In this case, we are aware that Enda is a 25% shareholder of Expensive Liquids Ltd and as such he will be able to make such a request to the directors of the company. In order to make the request, Enda should send in a signed requisition to the company’s registered office stating the purpose of the EGM. Once this is done the directors must convene an EGM within 21 days of the date of requisition and the meeting must be held within a period of 2 months.

The members requisition must state the objects of the meeting. I note that Enda states that he has a few resolutions to propose to the other shareholders of Expensive Liquids Ltd. In this regard he should be careful in preparing the objects of the meeting because once prepared no other business (other than what is stated in the requisition) may be introduced by members at the meeting. If the directors fail to convene the meeting within the stated deadline the members representing more than 50% of the total voting rights of the company may themselves convene a meeting, but the meeting cannot be held after the expiration of 3 months of the date of the making of the requisition.

Whilst Enda can therefore request the directors to convene an EGM in a formal capacity, he will require the consent of one or more additional shareholders so that he exceeds the 50% threshold stated above.

(c)

I would advise Paul that this is not an appropriate course of action for two reasons:

1. Under the provisions of the Companies Act 1990 which deals with the restriction and disqualification of directors, it provides that where any person acts under the directions of a disqualified person knowing he is disqualified from acting as a director he can be held personally liable for the debts of the company incurred during the period whilst he so acted. In appointing Linda and Stella as directors of the new company which Paul is proposing to incorporate, he is therefore putting Linda and Stella at risk of being held personally liable for any debts that that company may incur.

2. I note that Paul has suggested that he will simply appoint Stella and Linda as “non-executive directors” of the new company. In doing so Paul anticipates that this will absolve Linda and Stella of any potential liability. However this is not the case. Paul should be aware that although the labels “executive” and “non-executive” are used for convenience to distinguish between directors who are employed by the company and directors who are not, the law does not generally recognise any distinction between executive and non-executive. The common law and statutory duties owed by a non-executive director are no less than those owed by any other director of a company. The law does not impute a lesser responsibility to non-executive directors to discharge their duties.

Indeed Paul should be aware that once the disqualification order is made against him, he will (for the duration of that disqualification order which can be set by the Court) be prohibited from either acting as an auditor, director or other officer, receiver or examiner of any company or being in any way, whether directly or indirectly, concerned or taking part in the promotion, formation or management of any company or registered society. As such Paul should be aware to the extent that he does propose incorporating a new company after the disqualification order has been made he will be in breach of that Order and the Companies Acts. In addition, based on the situation which Paul has described, it would appear that he would in fact be a shadow director of the new company as Linda and Stella will be acting in accordance with Paul’s instructions and as such Paul will be in breach of the disqualification order which was been made against him.

Examiner’s Report

Overall the standard of answers was good. It is clear, however, that some students are still leaving large sections of the syllabus out when studying and are relying on certain topics coming up in order to compensate for questions on areas they have not studied in great detail. In doing so, students tend to suffer when attempting to answer questions dealing with seemingly unrelated chapters in the manual.

My comments on the standard of answering on a question by question basis are as follows:

Question 1

The answers given for this question were mixed. While most students were able to point towards the Commercial Court as being the appropriate forum for Harvey to bring his case to, very few students were able to identify the specific features of the Commercial Court which (arguably) made it the most appropriate venue in this case. As a result, some students failed to score highly at part (i) of this question. Parts (ii) and (iii) of this question were generally well answered.

Question 2

While most students who attempted this question may have a general practical awareness of what a “branch” is, few were able to put their understanding into words to merit high marks for this question. Students needed to list the ongoing compliance requirements. The answers to part (iv) were generally quite good with many students earning top marks at that part.

Question 3

The answers to this question were good with most students who attempted it achieving high marks overall. Students showed a good understanding of the distinction between tenants in common and join tenancy.

Question 4

This was the most answered question on the paper with every student attempting at least some part of this question. Most students who attempted this question achieved high marks. Students generally showed an excellent understanding of company strike-off and the mechanisms used to restore a company to the register.

Question 5

This was the second most attempted question with all but two students providing an answer to at least part of the question. The answers were mixed with most students showing some understanding of what a “share” is and what it generally entitles a shareholder to. However some continued to use it as an opportunity to write down everything they knew which they thought would be in any way relevant, instead of specifically addressing the questions asked at each part. Only students who had studied the area in depth were awarded with a pass mark for this question. Some students also ignored the marks being awarded for references to case law.

Question 6

This was the least attempted question on the paper with only half of all students making any attempt to answer it. This shows that students are avoiding questions which mix sections of the manual suggesting that they have studied only selected chapters. This should not be encouraged as it limits question selection during the exam.

Part (a) was very poorly answered with very few students indicating any awareness of the implications of section 29 of the Companies Act 1990 even though it can, and does, arise in practice.

The answers to part (b) were mixed with many students failing to elaborate on the specific procedure which Enda should follow in order to have the EGM convened.

The answers to part (c) were generally quite good with most students showing an awareness of the implications of the disqualification order against Paul.

  Q1 Q2 Q3 Q4 Q5 Q6
Highest 12 17 18.5 19 15 15
Lowest 2 3.5 4 3 2 2
Average 7 11 13 13 10 9

Summer 2016

QUESTION 1

Martin owns 100% of the issued shares in Cuddly Bears Ltd. Martin has entered into discussions with Jack to transfer the entirety of his shareholding in Cuddly Bears Ltd to Jack for a price of €100,000.

REQUIREMENTS

(i) Advise and explain in detail to Martin, the three requirements necessary for there to be a valid contract between Martin and Jack for the transfer of the shares. In your answer, you should make reference to the exceptions which apply to the general rules applicable to the formation of a contract.

(15 marks)

(ii) Briefly outline the procedures for transferring the shares from Martin to Jack making reference to the documents which must be executed and the legal formalities which must be followed.

(5 marks)

Total 20 Marks

QUESTION 2

Your friend Lilah has just told you that she has agreed to become a non-executive director of the company for which she works. Lilah is aware that in becoming a director, she will owe certain fiduciary duties to the company and has asked you to explain more about this.

REQUIREMENT

Advise Lilah of the five categories of fiduciary duties owed to the company by her in her capacity as a director.

Marks will be awarded for references to case law which is relevant in the context of any three of the five categories of fiduciary duties.

Total 20 Marks

QUESTION 3

Anne operates a small bakery at a local farmers market at weekends. The manager of a large shopping centre has approached her and offered her the chance to operate from one of the kiosks in the entrance lobby of the shopping centre. Anne has asked to see the terms on which she will be required to operate from the kiosk and the manager has forwarded her a document simply entitled “Agreement”. Anne is unsure as to whether the “Agreement” is in fact a lease or a licence.

REQUIREMENTS

(i) Advise Anne as to whether you anticipate the “Agreement” being a lease or a licence and explain the significance of distinguishing between a lease and a licence.

(5 marks)

(ii) Advise Anne of five clauses which she might check for in the “Agreement” and whether such clauses are indicative of the “Agreement” being a lease or a licence.

(5 marks)

(iii) Anne later approaches you and tells you that she would like to incorporate a company to carry on the bakery business. Prepare a bullet point step plan to guide Anne through the incorporation process taking into account the registration process, dealing with the Companies Registration Office and the issuing of shares.

(5 marks)

(iv) Before Anne begins trading from the kiosk, the shopping centre is completely destroyed by a fire. Explain to Anne whether there is any mechanism under contract law which would apply to discharge the parties from their obligations under the contract entered into between them and advise if this is likely to apply in Anne’s case.

Marks will be awarded for references to case law.

(5 marks)

Total 20 Marks

QUESTION 4

Sam is a 25% shareholder of Auto Repairs Ltd. The other shareholders are Sam’s siblings who gave him money to get the business started five years ago, but are not involved in the operation of the company.

Sam and his wife Sinead both act as directors of Auto Repairs Ltd. Sam is also the company secretary. Sinead has no active role in the management of the business.

Sam is concerned that, even though Sinead doesn’t play any part in the operation of the business, she still has a number of obligations and responsibilities arising from her position as director. Sam is keen to relieve her of these obligations and responsibilities but does not know anyone else who would be willing to replace her as director.

REQUIREMENTS

(i) Explain to Sam what option may be available to him under the Companies Act 2014 which would allow him to continue on in business while allowing Sinead to resign as a director and provide guidance as to what steps he should follow to make such changes in accordance with the provisions of the Companies Act 2014.

In your answer, you should also advise Sam as to whether allowing Sinead to resign as a director will have any implications on Sam continuing to act as company secretary for the company and how he will be able to deal with any issues in this regard under the Companies Act 2014.

(12 marks)

(ii) Sam tells you that it has been a very difficult few years trading and that he is of the view that the company is unable to pay its bills. Sam is reluctant to inform the other shareholders of this fact as he doesn’t want to disappoint them but is concerned about the creditors of Auto Repairs Ltd. Advise Sam to whom, as a director, he owes a duty in this particular scenario and describe how best he can demonstrate that he has complied with this duty as a director and how he can manage the relationship with the other shareholders of Auto Repairs Ltd.

(8 marks)

Total 20 Marks

QUESTION 5

(a) Susan and her son Chris (who is aged 17) are both resident in Mexico. They are directors and equal shareholders in a Mexican registered company which supplies electronics to all South American countries. For commercial reasons, Susan and Chris are looking at incorporating an Irish holding company where they will both act as directors.

REQUIREMENT

Advise Susan and Chris as to whether, in the circumstances outlined above, they will be permitted to act as directors of the new Irish company. Your answer should outline what conditions need to be satisfied in order to permit a non-Irish resident individual to become a director of an Irish company, where there are no Irish resident individual directors.

(6 marks)

(b) (i) Outline what “Judicial Review” is, making specific reference to the orders a court may make as a result of a successful Judicial Review application.

(8 marks)

(ii) Briefly outline how Judicial Review may be of relevance to a taxpayer to challenge decisions of the Appeal Commissioners.

(6 marks)

Total 20 Marks

QUESTION 6

Tom is a director and sole shareholder of Crane Imports Ltd, a company engaged in the import and retail of cranes in Ireland. The company has recently gone into liquidation despite Tom investing all of his own savings to try and keep the company solvent.

The liquidator, in reviewing the historic books and records of the company, has come to the conclusion that Tom has persistently been in breach of his obligations under the Companies Act 2014. He has concluded that Tom has been engaged in reckless and fraudulent trading. A search has also shown that back in 2009, an order was made against Tom in Canada preventing him from acting as a director of a company in that jurisdiction.

Tom is currently in the process of incorporating a new company, Tractors Imports Ltd, where he will act as director.

REQUIREMENTS

(i) Advise Tom of what possible application may be brought by the liquidator of Crane Imports Ltd and how such an application will have an impact on Tom being able to act as director of Tractors Imports Ltd. In your answer, you should also indicate what a court will have regard to in considering such an application by the liquidator.

(7 marks)

(ii) Tom does not intend defending any action which may be brought by the liquidator, and nor does he have the money to do so. Advise Tom of the new mechanism introduced by the Companies Act 2014 which would reduce the costs incurred by him in this regard.

(2 marks)

(iii) After investing all of his savings into Crane Imports Ltd, Tom has found himself in considerable personal debt of approximately €50,000 and is also unable to pay the mortgage on his home. Identify and give a short outline to Tom of the three debt resolution mechanisms introduced under the Personal Insolvency Act 2012 and explain in detail which one of those three mechanisms may be the most appropriate for Tom in the circumstances.

(11 marks)

Total 20 Marks

SOLUTION 1

(i) There are 3 features to every valid contract:

1. The Agreement - this has 2 components:

i. The Offer – this is a proposal to give or do something which, when accepted constitutes an agreement. An offer must be distinguished from an invitation to treat which is a contract law term that means an invitations to others to make offers (e.g. the placing of goods in a shop window)

ii. Acceptance – Any words or actions signifying the offeree’s consent to the terms proposed by the offeror constitutes acceptance. The general rule is that acceptance must be communicated to the offeror. Therefore, if B verbally agrees to accept A’s offer and for some reason A does not hear it, there has been no acceptance. There are, however, exceptions to this general rule which are as follows:

a) Where performance constitutes acceptance if the offeror, either by express words or by implication, stipulates that the other party’s performance of the terms of the offer will be sufficient acceptance, no communication will be necessary.

b) Where acceptance is made by post the postal rule is that, unless the parties agree otherwise, once a letter of acceptance is posted, acceptance is complete even if the letter is lost in the post and never reaches the offeror, once it has been properly addressed and stamped.

c) Subject to contract /contract denied- it is possible to respond to an offer without accepting or rejecting it, either by a request for more information or by acceptance subject to contract. This type of acceptance means that the offeree is agreeable to the terms of the offer but is not agreeable to be legally bound until a formal (usually written) contract is entered into.

2. Intention to create Legal Relations

The intention to create legal relations is an essential element of the contract. The courts ignore the mental intent of the parties and look to the express terms of their contract or the conduct of the parties to decide whether a reasonable man would say there was intention to create legal relations.

Any express statement by the parties of their intention not to make a binding contract is conclusive. Where there is no express statement as is the case in the majority of contracts, the courts apply two presumptions. The courts make various presumptions depending on the relationship between the parties; in a social and family arrangement the presumption is that there is no intention to create legal relations and in commercial and business arrangements there is a presumption to create legal relations.

3. Consideration

Consideration means something of value is given by one party to the other. It is the ‘price of the promise’. Consideration must be real or sufficient in some value, however trivial, must be place on it. While consideration must be real it need not in the eyes of the law be adequate.

Consideration must move from the promise. This means that a party can only enforce a promise if that party had provided the consideration.

Consideration must not be past i.e., if one party performed some service prior to the other making the promise, that service cannot support the promise, it constitutes past consideration.

(ii) There are a number of procedures involved in transferring shares in a private limited company, which extend beyond the simple completion of a stock transfer form.

1. A stock transfer form must be completed by the transferor, transferring the shares to the transferee.

2. The transfer must be approved by the board.

3. If the consideration for the transfer is less than or equal to €1,000 it is not necessary for the stock transfer form to be stamped by Revenue, if greater then it must be stamped electronically.

4. If stamping is required it should be stamped electronically within 30 days of the date of the transfer to avoid incurring interest on stamp duty due

5. The register of members and transfers should be updated upon receipt of the stamped stock transfer form (provided stamping is necessary).

6. The transferor’s share certificate should be cancelled and the transferee should be issued with a share certificate.

SOLUTION 2

The fiduciary duties owed by a director to a company might be conveniently divided into five categories:

(1) Duty to act in good faith and in the best interests of the company;

(2) Duty to use the powers for the proper purpose;

(3) Duty not to fetter his discretion;

(4) Duty not to be in a position whereby there is a conflict of interest; and

(5) Liability to account to the company for benefits.

These fiduciary duties are now also statutorily prescribed by virtue of section 228 CA 2014. The fact that Lilah is being appointed as a Non-Executive director has no relevance for the purposes of company law and she will continue to have the same level of fiduciary duties as any “executive” director.

(1) Duty to act in good faith and in the best interests of the company;

A director owes a fiduciary duty to act in good faith (bona fide) in what he or she considers is in the interests of his/her company. The duty to act bona fide in the best interests of the company has been interpreted by the courts to mean a duty to act in the best interests of the members of the company taken as a whole.

In general, the law does not recognise any distinction between executive and non-executive directors, and will not impute a “lesser” responsibility on non-executives to discharge their fiduciary duties.

As long as directors proceed prudently and are careful to record the reasons behind their decisions, and can show that these decisions were made in the interest of the company and not for any other purpose, it will be difficult for someone to demonstrate successfully that a director has breached his fiduciary duty to act in the best interests of the company.

In the case of Re W&M Roith Ltd the controlling shareholder of the company wanted to provide for his widow without bequeathing her his shares, so he entered into a service agreement with the company whereby his wife, on his death, would be entitled to receive an annuity for life.

The agreement was subsequently challenged and the court held it was not binding on the company. The director’s main object was to provide for his wife on his death. The arrangement was dearly not in the best interest of the company.

(2) Duty to use the powers for the proper purpose

The directors must exercise their powers for the purpose for which they were given to them and not for some other purpose. The powers of the director are set out in the company’s constitution and CA 2014. It is for the courts to interpret the relevant provisions in order to determine the purpose for which the power was conferred.

In the case of Howard Smith -v- Ampol Petrolem it was held that directors could not use the power they had to issue extra shares to create a false majority in order to facilitate a take-over bid. The “non-director” shareholders held 55% of the issued shares and wished to block the take-over bid. Although the directors honestly believed that it was in the company’s best interest that the bid should be successful, and accordingly issued extra shares so that the “non-director” shareholders would have less than 50%, this was held to be an improper purpose and consequently the allotment was void.

(3) Duty not to fetter discretion

The directors must be free to exercise their discretion at all times in the best interests of the company. This means that the directors should not enter into covenants as to how they will vote in the future. For example, in the case of Russell -v- Northern Bank, the directors of a company caused the company to become party to a shareholders’ agreement which included (amongst other things) a covenant by the company (and its board) not to issue shares in the future without the consent of certain shareholders. The court found that this amounted to an unlawful fettering by the directors of the company of their power to issue shares, and accordingly held the clause to be unenforceable as against the company.

If the directors can demonstrate that they have exercised their discretion in what they considered to be in the best interest of the company, this may allow them to bind themselves under a transaction to do whatever was required to carry out the transaction at a later stage.

(4) Duty not to be in a position whereby there is a conflict of interest

This is perhaps the most important and most litigated aspect of directors’ duties. The directors must not put themselves into a position whereby there is a conflict between their duties as a director and their own personal interests.

In the case of Canadian Aero Services Ltd v O’Malley the directors of a company had been engaged on behalf of the company in negotiating for a large aerial survey and mapping contract with the government of Guyana. Instead of securing the contract for their company they resigned and obtained it for a new company which they formed for that purpose. It was held that both the new company and the executives were liable in damages to the plaintiff company.

(5) Liability to account to the company for benefits

If a director gains some advantage from his position as a director he may be required to account for this benefit to the company. Because of the fiduciary relationship which exists between the director and the company, the law will impose a constructive trust on such benefits at the option of the members/ shareholders.

In the case of Regal (Hastings) Ltd v Gulliver it was held that where directors during the course of their management of the company avail of their opportunities and special knowledge and as a result obtain a profit, they must account to the company for that profit, even though there was nothing improper in what they did and the company did not suffer as a result.

SOLUTION 3

(i) In most cases, concessions operate as licences as opposed to leases and so I would expect the “Agreement” to be a form of licence. The distinction is important a licence and a lease is important as, firstly, if a third-party unlawfully takes possession of the premises a lessee has the right to expel that person and be put back into possession. In similar circumstances a licensee only has a right to ask the licensor to remove the trespasser and, in lieu of this, for damages. Because a lessee, in addition to having contractual rights against the lessor, also has rights over the land, any person who acquires the land or an interest in it usually acquires it subject to the lessee’s rights. In contrast, the holder of a licence does not have rights that would affect a subsequent purchaser.

(ii) Terms which would indicate that a document is a lease would include the following:

a. The right of the occupier to exclusive possession of the property

b. An authorisation to enter upon, use and enjoy the premises

c. A fixed term

d. An obligation on the occupier to repair the premises

e. An obligation not to “waste” the property, meaning that the reversion is not to be damaged or prejudiced

f. An obligation on the occupier not to alter the premises

g. An obligation to allow the owner “at all reasonable times to enter the premises to inspect them and for all other reasonable purposes”

h. An obligation on the occupier to “deliver up” the premises at the end of the agreement period

i. An obligation on the occupier to insure the premises

j. A covenant on the part of the owner to afford the occupier “quiet enjoyment” of the premises

k. The owner’s right to re-enter and determine the agreement

l. A prohibition on sub-letting

m. An obligation on the occupier to pay for services, such as gas and electricity.

Terms which would indicate that a document is a licence would include the following

a. Possession for part only of each day or for specific days each week

b. An obligation on the occupier not to impede the owner or his agents in the exercise of his rights of possession and control of the premises

c. A right for the owner to install additional occupiers

d. An obligation on the occupier to share with other occupiers installed by the owner

e. Ill An obligation on the occupier not to cause nuisance to the other occupiers

f. A reference to the licence being personal to the licensee

g. An obligation on the occupier to pay a daily rate for the premises

h. A requirement that visitors are to leave by a certain time

i. No notice period required of the occupier.

(iii) Step plan for forming a company

1.

Prepare the companies Constitution in format required by CA 2014

2.

Complete Form Al (seek relevant details from client regarding name, directors, company secretary, PPS numbers, fees)

3.

Consider if bond is required (non-resident director - See Chapter 20)

4.

Check proposed name with CRO

5.

Lodge necessary documents with CRO (as set out above)

6.

Obtain certificate of incorporation from CRO

7.

Define particulars of new company to Revenue Commissioners (as defined under Section 882(1) Taxes Consolidation Act 1997)

8.

Order company seal

9.

Prepare Registrar of Members

10.

Issue share certificates to members

(iv) The doctrine of frustration will excuse parties from performance of a contract in certain situations, where, for example, the subject matter of the contract has been destroyed. The case of Taylor v Caldwell involved a contract for the leasing of a concert hall for a number of concerts. Before the dates for the first concert, the hall was destroyed by fire and the organiser of the concert sued the owner of the hall for failure to let him have the use of the hall as agreed. It was held that destruction of the subject matter rendered the contract impossible to perform and the court discharged the contract. This would most likely apply in Anne’s case also.

SOLUTION 4

(i) Under Companies Act 2014, Sam will be able to convert Auto Repairs Ltd into an LTD. If we were to do so, it would possible for the company to continue with only one director. However, where the company has only one director, it must have a separate person or entity act as company secretary and so Sam will not be permitted to fulfil both of these roles and so he will need to resign as company secretary and appoint someone in his place if he wishes to continue to act as a director. Under the provisions of the Companies Act 2014, Sam will be permitted to appoint a limited company to replace him as company secretary for Auto Repairs Limited.

CA 2014 allows for an 18 month transition period whereby all existing companies can convert into LTDs. If no action is taken by a company during the transition period, the company will automatically convert into an LTD at the end of the transition period.

General Steps applicable to converting:

1. A special resolution must be passed by the members of the company, which shall:

a. Alter the converting company’s constitutional documents so that they state that the company is the type it wishes to register as

b. Make such other alterations as are necessary to bring the converting company in substance and in form into conformity with the requirements of CA 2014 with respect to the constitution of the resultant company - the two document constitution must be replaced with a single constitutional document.

c. Make any other alterations to the converting company’s constitutional document(s) as are required

2. An application, in the prescribed form, must be signed by a director or secretary and delivered to the Companies Registrar with the following documents:

a. A copy of the special resolution outlined above; and

b. A Statement of Compliance by a director or secretary of the converting company that the requirements of Part 20 CA 2014 as to re-registration as another type of company has been complied with by the converting company

(ii) Sam has alluded to the fact that the company is insolvent given that it is unable to pay its bills. If it is the case that Auto Repairs Ltd. is in fact insolvent (i.e. unable to pay all of its debts as they fall due) or is threatened with becoming insolvent, Sam will owe fiduciary duties to the creditors of the company. This was definitively established by the Supreme Court in the case of Re Frederick Inns Limited.

Frequently, in insolvency situations, directors have no alternative but to recommend to the shareholders that the company be placed in liquidation so that the remaining assets can be realised for the benefit of the creditors. Sam must whether this is in fact be the best course of action to take when updating and informing his fellow shareholders of the current position. Equally however there will be circumstances in which better value and a more favourable outcome can be achieved by an attempt to rescue the company. The critical issue for Sam in these circumstances is to demonstrate that, on an objective analysis, he has made himself aware of the duty owed to the creditors of Auto Repairs Ltd. and discharged his functions in good faith on that basis. Demonstration of good faith requires that a number of common sense measures be taken, such as:

frequent board meetings of the directors of Auto Repairs Ltd should be held to assess the situation;

it should be ensured that key financial and trading information is available;

financial and legal advice should be taken; and

all key advices and decisions taken by Sam should be documented.

SOLUTION 5

(a) Section 137(1) CA 2014 imposes a requirement that at least one of the directors of an Irish company must be a resident of the EEA. An exemption from this requirement is allowed where the Registrar of Companies certifies that the company “has a real and continuous link with one or more economic activities being carried out in the State’:

Alternatively, if the company has no EEA resident director (and the “real and continuous” link exemption does not apply), a bond must be taken out. The company will enter into a bond or a sum of €25,000, the purpose of which is to ensure that the company will complete its CRO/ Revenue filings and as security for the payment of any fines.

In any event, for so long as Chris is a minor he is not permitted to be director of a company. This is provided in Companies Act 2014.

As Chris and Susan’s company does not appear to have any real and continuous link to Ireland, it would appear that they will need to take out the bond should they want to be directors of the Irish company.

(b) (i)

Judicial review is a process whereby a decision, either an act or an omission, by a public body, tribunal or inferior court can be challenged before the courts. If the applicant is successful, the court may issue an order including in a tax context:-

Certiorari, quashing the relevant decision, etc;

Mandamus, directing a body or tribunal to carry out one of its lawful duties;

Prohibition, preventing a body or tribunal from exercising its powers, permanently or only allowing it to do so subject to meeting prescribed conditions;

Declaration, setting out the legal position of the parties, which is not legally binding but is always respected by the public body;

Injunction, preventing a course of action on the part of the public body;

damages

An appeal against a decision of the High Court may be made to the Supreme Court.

A judicial review should be considered a supervisory function of the courts and thus the High Court is concerned with how a decision is reached and not with the correctness of the decision. The whole area of judicial review is a highly complex area and a constantly evolving area of the law.

(ii)

Judicial review may be applicable for a taxpayer where the taxpayer believes:-

Revenue has exceeded its statutory power, i.e. it has acted ultra vires;

Revenue has exercised a discretion or decision after taking into account irrelevant matters or after disregarding relevant matters;

Revenue has exercised a discretion or decision which no reasonable body could have arrived at which would include a course of action which was arbitrary or unduly burdensome and oppressive;

Revenue has failed to fulfil a legitimate expectation which it had raised; or

The Appeal Commissioner or court has erred in law so that it has exceeded its jurisdiction or the error is on the face of the record.

It is important for any taxpayer to act quickly where they believe there is a legitimate case for Judicial Review as there is a very strict time limit of 3 months in which to bring the claim, commencing on the date of the decision which is being complained of.

In the context of tax, judicial review proceedings could be used to ensure that Revenue Commissioners don’t breach their role in the care and management of the Irish Tax system, for example in the procedures followed by the Revenue Commissioners in the assessment, collection and recovery of tax. Given the limitations of the appeal process, judicial review is an alternative option for a taxpayer where they feel the manner in which a decision was made was inappropriate, however given the costs involved in judicial review proceedings this can make it an inappropriate option for some taxpayers.

SOLUTION 6

(i) Based on the fact that Tom has been guilty of fraudulent and reckless trading, and the fact that he has been disqualified in another jurisdiction, it will appear that the liquidator may seek to bring an application against Tom to disqualify him from acting as a director. Where a disqualification order is made against a person, he or she is precluded from being appointed or acting as a director or other officer, statutory auditor, receiver, liquidator or examiner or being in any way, whether directly or indirectly, concerned or taking part in the promotion, formation or management of any company.

It is up to the court to determine the period of disqualification and there is no set minimum or maximum. Periods of 10 to 15 years are not uncommon.

While we are unclear of the specific facts of the fraudulent trading which Tom engaged in, section 839 CA 2014 provides that a director will automatically be disqualified if he or she is convicted on indictment of an offence under CA 2014 in relation to the company or any offence involving fraud or dishonesty.

In deciding whether or not to disqualify Tom as a director, the court will do so if it is satisfied that:

the person while acting as a promoter, officer, auditor, receiver, liquidator or examiner has been guilty of any fraud in relation to the company;

such person has been guilty of a breach of duty;

the conduct of the person while acting as promoter, officer, auditor, receiver, liquidator or examiner makes him unfit to be concerned in the management of a company;

in consequence of an inspector’s report, the conduct of any person makes him unfit to be concerned in the management of a company

a person has been persistently in default in relation to any provision of the Companies Acts relating to the filing or delivery of documents to the CRO

that the person is disqualified under the law of another state (whether pursuant to an order of a judge or a tribunal or otherwise) from being appointed or acting as a director or secretary of a body corporate or an undertaking, and it would have been proper to make a disqualification order against the person otherwise under this section if his or her conduct or the circumstances otherwise affecting him or her that gave rise to the foreign disqualification had occurred or arisen in the State

that the person has been guilty of 2 or more offences in relation to accounting records.

(ii) Chapter 5, part 14 CA 2014 contains a new feature which permits restrictions and disqualifications to be made by way of an undertakings procedure. The ODCE can send a notice to the company officer in question requesting that they take the restriction/ disqualification as an undertaking without recourse to the court. This process will reduce unnecessary use of resources in making court applications and reduce the costs involved in restriction and disqualification procedures.

(iii) Under the 2012 Act, three new debt resolution mechanisms were introduced for people who could afford to pay their personal and mortgage debts. The Insolvency Service of Ireland oversees these debt resolution processes. These new debt resolution mechanisms offer difference solutions to people in different situations. One important issue is whether the individuals’ debts are secured or not. A secured debt is a loan on which property or goods are available as security against non-payment. Mortgages are the most common secured loans. In general, debts such as bank loans and credit card debt are unsecured, but if they are rolled up into the mortgage, they become secured loans.

The new debt resolution mechanisms introduced under the 2012 Act are:

1. A Debt Relief Notice (DRN) which allows for the write-off of debt (generally unsecured and in some cases secured) up to €20,000, subject to a 3-year supervision period;

2. A Debt Settlement Arrangement (DSA) for the agreed settlement of unsecured debt, with no limit involved, normally over 5 years;

3. A Personal Insolvency Arrangement (PIA) for the agreed settlement of secured debt up to €3 million (though this cap can be increased) and unsecured debt, with no limit involved, normally over 6 years.

An individual can be involved in only one of the new mechanisms (DRN, DSA or PIA) or in the bankruptcy process at any one time. The individual must not deliberately stop paying (or underpay) his/her creditors while these procedures are being set up as this may cause the application to be ineligible.

The individual must complete a Prescribed Financial Statement, giving full and honest information about his financial circumstances. The individual must sign a Statutory Declaration to this effect. The individual must act in good faith and co-operate fully with the process. The individual must give his written consent to the accessing of certain personal data held by banks and other financial institutions so that his financial situation can be verified. Government Departments and agencies will have the power to release certain information also.

If the individual uses any of these new mechanisms, his name and details will be published on a register that will be accessible to the public. The success or failure of the process will also be recorded.

Option 3 above would appear to be the most appropriate for Tom given the level of his personal debt and the fact that some of his debt is secured (by way of mortgage). A PIA will run over a period of 6 years, with a possible agreed extension to 7 years. It works in the following ways:

1. You must apply through a Personal Insolvency Practitioner (PIP)

2. You must be able to make some repayments to your creditors in return for a discount of your debts; and

3. It will be a voluntary arrangement and will have to get the support of creditors - secured and unsecured - representing at least 65% of your total debt.

In addition, over 50% of secured creditors and 50% of unsecured creditors must vote in favour. When the agreed period ends, and if the PIA has operated successfully, the individual is discharged from the unsecured debts that it covered but the secured debt will only be discharged to the extent specified in the PIA.

Examiner’s Report

Overall the standard of answers was good with several students obtaining very high marks. It is clear however that students are continuing to be selective in their studying with many performing extremely well in one or two questions which helps compensate for other questions where they have clearly not studied the topic in as much detail. Students should always be encouraged to study a broader range of topics so that they can answer questions which have requirements dealing with seemingly unrelated chapters in the manual.

Comments on the standard of answering on a question by question basis are as follows:

Question 1

This question was attempted by almost all students and was generally well answered. Most students showed a good understanding of the rules applicable to the formation of a contract. However, some students did not fully appreciate the practicalities surrounding the actual transfer of shares which prevented them from getting the top marks.

Question 2

This question was generally answered well by most students who attempted it. A small minority got confused between fiduciary duties and other statutory duties which cost them marks.

Question 3

This was the most popular choice of question and most students who attempted it scored very highly. Students dealt very well with the mix of topics being examined.

Question 4

This was the least popular choice of question on the paper. While many of the students who attempted the question indicated an extremely high level understanding of the changes brought about in the new Companies Act as regards the conversion of companies, few were able to stipulate the specific requirements to carry out such a conversion. As a result, very few students scored highly in this question.

Question 5

Part (a) of this question was generally very well answered however few students noted the significance of Chris’ age and the implications of that on his ability to be appointed a director here.

The answers to Part (b) were very poor with many students showing a lack of understanding as to what Judicial Review is. This topic is covered in two chapters in the manual and the answers received would suggest many students are did not study these chapters.

Question 6

The answers to this question were of a relatively high standard with many students achieving a very high mark. Students showed a good understanding of the debt resolution mechanisms available however some failed to properly go into much further detail in relation to the mechanism that was appropriate for Tom. Part (ii) of the question was the poorest answered with only a handful of students identifying the change introduced in the Companies Act 2014.

Q1

Q2

Q3

Q4

Q5

Q6

Highest

19

19

19

16

19

20

Lowest

3

1

3

2

2

1

Average

11

11

14

9

9

14

Autumn 2016

QUESTION 1

Denise recently graduated from university with a degree in advertising and works as a receptionist in an advertising agency. She has noticed that her employer has recently started recruiting for a number of trainee advertising executives and Denise is interested in applying for that job. Denise likes the fact that the job comes with a structured training programme and will allow her to advance her career. When she mentions it to her employer, he tells her that she shouldn’t bother applying as she has a husband and a young family to look after and she wouldn’t have enough time to devote to the position.

REQUIREMENTS

(i) Advise Denise of any possible employment law claim she may have against her employer in light of the comments made by her employer.

(6 marks)

(ii) Denise eventually gets the job however her employer refuses to give her a new contract of employment, instead stating that there is no need as everything was discussed at the interview. Advise Denise if her employer is correct in this assertion.

(3 marks)

(iii) Denise’s employer eventually agrees to provide a statement of her terms of employment in writing. List six items that should be included in this statement.

(3 marks)

(iv) After a change of management in the company, Denise is eventually furnished with a formal written contract of employment. Denise is curious as to whether the contract contains all of the terms governing her employment. Advise Denise of three other documents or places where additional express contractual terms may be found.

(3 marks)

(v) Advise Denise of three ways in which terms may be implied into her contract of employment.

(3 marks)

(vi) Denise later becomes pregnant and after informing her employer of this fact she is immediately fired by her employer who suggests she won’t be able to do her job properly if she is pregnant. What can you tell Denise about this dismissal?

(2 marks)

Total 20 Marks

QUESTION 2

Jack has recently purchased the entire issued share capital of Cuddly Bears Ltd from Martin.

As part of Jack’s due diligence which he carried out prior to executing the contract for the purchase of the shares, Martin told Jack that the company sold 10,000 cuddly bears each week. References to this were also included in the contract for the sale of the shares.

It transpires that this figure was greatly exaggerated in an attempt to entice Jack to buy the shares. Jack is not happy about this and is wondering what he can do.

REQUIREMENTS

(i) In light of the fact that Martin has made misleading statements to Jack, explain the grounds on which Jack is likely to seek to have the contract declared invalid. In your answer you should make reference to whether Martin was under any obligation to make accurate disclosures and reference the types of disclosures that can be made.

(5 marks)

(ii) Identify and explain the two most likely remedies which may be available to Jack in the event that Martin is found to be in breach of the contract.

(6 marks)

(iii) Contrast the remedies, outlined in (ii) above, with three other remedies which may be available in the event of a breach of contract being found to arise in different circumstances.

(9 marks)

Total 20 Marks

QUESTION 3

(a) There are two types of private limited companies with share capital introduced under the Companies Act 2014. Identify these two types of companies and outline the key features of each type of company (noting similarities and differences).

(13 marks)

(b) Briefly outline five main functions of the Office of the Director of Corporate Enforcement. In your answer you should make specific reference to the role of the Office of the Director of Corporate Enforcement in the restriction and disqualification of directors and its interaction with liquidators and receivers.

(7 marks)

Total 20 Marks

QUESTION 4

Seán has been asked by his friend Conor to be a director of Circus Electronics Ltd. Conor is the sole shareholder of Circus Electronics Ltd. Seán currently works full time in Circus Electronics Ltd in a senior management position. Seán is reluctant to become a director as he has heard stories of directors being brought to court where the company goes into liquidation. Conor suggests that to get over this concern, Seán could be appointed as a non-executive director only and that Conor will act as the executive director.

REQUIREMENTS

(i) Advise Seán of the distinction between executive and non-executive directors and advise him if his appointment as non-executive director will help absolve him of any responsibility if Circus Electronics Ltd goes into liquidation.

(7 marks)

(ii) Explain the distinction between a “shadow director” and a “de facto director”.

(3 marks)

(iii) Seán explains that as he works in a senior management role, he agrees new business on a regular basis and has signed onerous contracts on behalf of the company, even though he has not formally been appointed as director. Explain Seán’s authority to bind Circus Electronics Ltd to agreements with third parties having specific reference to the distinction between actual authority and ostensible authority. In your answer, you should also set out the facts which must be established for ostensible authority to be proven.

(7 marks)

(iv) Explain the rule set down in Royal British Bank v Turquand.

(3 marks)

Total 20 Marks

QUESTION 5

A few years ago, John’s father told him that John and his wife would inherit the family farm when John’s father dies. In reliance of this, John has spent a considerable amount of money upgrading the farm and renovating the farmhouse that is located on the farm. Once John’s father passed away, it transpired that the farm had in fact been left to John’s sister.

REQUIREMENTS

(i) Identify and explain what equitable remedy John may look towards in order to claim an ownership right in the farm.

(5 marks)

(ii) Identify three examples of when a person can have an equitable interest in property as opposed to a legal interest in property and explain why this distinction generally tends to be important for tax purposes.

(5 marks)

(iii) John comes to you some time later to say that he has formed a private limited company with some other local farmers. The company has been set up to sell beef to a supermarket chain. John is not familiar with the mechanics of running a company, but has heard that there are certain restricted activities where the Summary Approval Procedure must be complied with. Give John two examples of when the Summary Approval Procedure is compulsory.

(2 marks)

(iv) Prepare a note for John setting out the requirements of the Summary Approval Procedure and the limitations of the Summary Approval Procedure in circumstances where all shareholders are not in agreement.

(8 marks)

Total 20 Marks

QUESTION 6

(a) Identify and briefly outline the five common law rules which have been developed by the courts to assist with the interpretation of legislation.

(12 marks)

(b) Billy and Bob run a very successful electronics company which makes parts for mobile phones. Billy and Bob want to increase the issued share capital of the company as a way of generating additional working capital for the company.

REQUIREMENTS

Advise Billy and Bob how they might go about doing this by making specific reference to:

(i) Rights issue of shares

(3 marks)

(ii) Bonus Issue of shares

(2 marks)

(iii) Issue of shares for non-cash consideration making reference to whether any filings are required in the Companies Registration Office in this case.

(3 marks)

Total 20 Marks

SOLUTION 1

(i) The Employment Equality Acts would appear to apply in this case. Those Acts provide remedies to employees who feel that they have been discriminated against. The Acts prohibit discrimination on nine grounds which include:

1. Gender

2. Marital Status

3. Family Status

All of which arguably apply to the comments Denise’s boss has made to her. Even though Denise is not actually in the position of trainee advertising executive, the Acts prohibit discrimination in relation to the following, which would apply in Denise’s case:

Access to employment;

Training or experience

Promotion

(ii) The terms of a contract of employment may be oral, written or implied or a mixture of all three. There is no requirement per se that the contract itself be in writing for a contract to exist. However, the Terms of Employment (Information) Act 1994 sets out certain information, which must be given to an employee in writing regarding his or her contract of employment.

(iii) The information required under the Terms of Employment (Information) Act 1994 includes:

Names of the employer and employee;

Address of the employer;

Place of work;

Nature of the work;

Rate of remuneration;

Hours of work;

Annual leave;

Sick leave;

Period of notice.

(iv) The express contractual terms may not be contained solely in the employment contract but may be in a number of different documents. The express terms may be found in

the job advertisement

a written statement of main terms and conditions

instructions or announcements made by the employer on a notice board at work

an office manual or staff handbook

(v) Implied terms in an employment contract are those, which are not specifically agreed between the employer and employee. Implied terms are:

a. Terms implied by Statute and common law

Examples of terms that are implied by statute include the right not to be discriminated against, the right not to be unfairly dismissed, the right to redundancy payments and the right to a safe workplace. Common law has equally developed to imply certain terms into the contract of employment.

b. Terms implied by custom or practice

Some terms and conditions may become implied because they have been done consistently over a period of time. The courts have developed guidelines as to the circumstances in which they may be prepared to imply such terms into a contract of employment. The courts will not lightly imply a term. As a general rule for a term to be implied into a contract, the term must be so common in the relevant trade or area or so obvious that it must be taken to have been impliedly agreed even though it was not expressed or must be necessary to give business efficacy to the contract (i.e. would not work without it)

c. Terms implied by virtue of Collective Agreements

If employees are unionised and have a collective agreement in place with the employer concerned, that collective agreement will usually form part of an employee’s contract of employment.

Variable marks awarded to students who identified that terms could be implied as a result of the officious bystander test or terms that may be implied by acceptance.

(vi) Under the terms of the Maternity Protection Acts 1994 and 2004, a dismissal will automatically be unfair if connected with pregnancy. Denise should therefore be aware that she is entitled to make a claim against her employer as a result of her employer’s actions in dismissing Denise due to the fact she is pregnant

SOLUTION 2

(i) As a general rule, a party to a contract is under no duty to disclose all, or any, known facts regarding the subject matter to the other party. Parties must protect their own interests. The rule of caveat emptor applies – let the buyer beware. However, where one party makes a positive false statement, which deceives the other, this is a misrepresentation and may render the contract voidable at the option of the party misled. For a statement to be effective as a misrepresentation, the party complaining must have relied on it– as Jack appears to have done here.

There are 2 types of misrepresentation:

1. Innocent misrepresentation – this is where a party makes a misrepresentation, believing it to be true;

2. Fraudulent misrepresentation – which appears to apply in this case is where an untrue statement is made knowingly or without belief in its truth, or made carelessly without regard to whether it is true or false.

(ii) The two most likely remedies which Jack would opt for are:

1. Rescission– this is where a transaction is sent aside and the parties are restored to their former position. The purpose of this remedy is to release the parties from the contract. A party rescinding a contract must be restored to the position prior to the contract. Therefore, property must be returned, possession given up and accounts taken of profits or deterioration. Damages are not recoverable, because the purpose of damages as a remedy is to place the party recovering them in the position he or she would have been in, had the contract been performed.

2. Damages– This is an awarded of money as compensation for loss or injury. The idea is to restore the party who has suffered loss to the same position he would have been in, had the contract been performed. The measure of damages deals with the monetary assessment of the compensation sought. The court will decide how much to award in respect of the breach and its relevant consequences.

Three other remedies available for breach of contract and which would not appear to be applicable in this case are:

3. Rectification - Where parties to a contract agree on a set of terms and that agreement is reduced into written form, which either does not contain those agreed verbal terms’ or contains different terms to those agreed, the court may rectify the written document to conform to the terms verbally agreed. A mistake made by both parties, or merely known to one, is a ground for rectification.

4. Specific Performance– This is an order which requires a party to perform a specific act, usually what is stated in a contract. But not all contracts may be enforced. Specific performance is a discretionary remedy. Generally, this remedy will not be granted where the damages are an adequate remedy.

5. Injunction– this is an order of the court directing a party to do, or refrain from doing a specific act. The courts may restrain a party by injunction from committing a breach of contract. It is granted in cases in which monetary compensation affords an inadequate remedy.

SOLUTION 3

(a) The two types of private limited companies with share capital which have been introduced under Companies Act 2014 are (i) Company Limited by Shares (LTD); and (ii) Designated Activity Company (DAC).

Company Limited by Shares (“CLS”)

Designated Activity Company (“DAC”)

The liability of the members in a CLS to contribute to the assets of the company is limited to the amount (if any) unpaid on their shares

As is the case with the CLS, the liability of the members of the DAC is limited to the amount (if any) unpaid on their share

A CLS can have between 1 and 149 members.

A DAC can also have between 1 and 149 members.

A CLS has a single document constitution i.e., there is no separate memorandum and articles of association

A DAC will have a two document constitution, consisting of a memorandum and articles of association

In a CLS, the doctrine of ultra vires does not apply and the company does not have an objects clause

Ultra vires continues to apply in the case of a DAC, albeit with different consequences in the event of a breach. The constitution of a DAC contains an objects clause which restricts the activities that can be undertaken by the DAC

A CLS may have just one director, but in that case, it must have a separate company secretary

A DAC requires not less than two directors

A CLS can adopt written procedures instead of holding an annual general meeting (AGM)

A DAC must convene an AGM unless it is a single member company, in which case the requirement can be dispensed with

The company name of a CLS must end in “Limited” or “LTD”

The name of a DAC must end in “Designated Activity Company”, or “DAC”

(b) Section 949 of the Companies Act 2014 provides that the functions of the ODCE include

1. encouraging compliance with CA 2014

2. investigating instances of suspected offences under CA 2014, and suspected non-compliance with CA 2014 or with the duties and obligations to which companies and their officers are subject under CA 2014

3. enforcement of CA 2014 by the prosecution of offences by way of summary proceedings.

4. enforcement of CA 2014 by at his or her discretion, to refer cases to the Director of Public Prosecutions where the ODCE has reasonable grounds for believing that an indictable offence under CA 2014 has been committed

5. performing such other functions in respect of any matters to which CA 2014 relates as the Minister for Jobs, Enterprise and Innovation considers appropriate and may by order confer on the ODCE, or as provided for by CA 2014 or any other statute.

The ODCE also exercises, in so far as he or she considers it necessary or appropriate, a supervisory role over the activity of liquidators and receivers in the discharge of their functions under CA 2014. Since 2001, in every instance where a company goes into liquidation, the liquidator is obliged to make a report to the ODCE on the conduct of the directors. In this report the liquidator will recommend whether he believes the directors should be subject to restricted or disqualified. However, it is the decision of the ODCE which is determinative in deciding whether restriction or disqualification proceedings should be initialed by the liquidator and the liquidator is bound to comply with the decision of the ODCE in this regard.

SOLUTION 4

(i) A director is officer of the company. A director is therefore an office holder, but he may also be an employee of the company, in which case his employment will be protected by modern labour legislation. Mere office-holders are generally not entitled to this protection.

Directors who are employed by the company to act as such on a full-time basis are known as “executive directors”. In contrast those directors who are not employed by the company to act on a full-time basis are known as “non-executive directors”.

Executive director is a label applied to a director who is employed by the company.

He/she sits on the board of directors and is part of the executive management team. A non-executive director, by contrast, whilst sitting on the board of directors, is not a part of the executive management team. He/she will not be involved in the day-to-day management of the company but rather will take part in the larger issues of strategy only.

It is important to note that although the labels “executive” and “non-executive” are used for convenience to distinguish between directors who are employed by the company and directors who are not, the law does not generally recognise any distinction between executive and non­executive directors. The common law and statutory duties owed by a non-executive director are no less than those owed by an executive, and the law will not impute a “lesser” responsibility to non-executives to discharge those duties. It should be noted however that an executive director will, in addition to his duties as a director, also owe further fiduciary duties to the company as his employer as a result of the employment relationship.

(ii) A de facto director is someone who claims and purports to be a director, and acts as a director, but is not validly appointed as such. A shadow director is someone who claims not to be a director, but is the person in accordance with whose directions or instructions the directors of the company are accustomed to act.

(iii) Actual authority can be expressed or implied an example of an agent having express actual authority to conclude a contract on behalf of a company would be where the directors of the company have expressly resolved to invest such authority in the agent (and there may be a board minute to record this).

Actual and ostensible authority was distinguished by Henchy J in the Supreme Court in Kett v Shannon &English where he said:

Actual authority exists when it is based on an actual agreement between the principal and the agent. Ostensible authority, on the other hand, derives not from any consensual arrangement between the principal and the agent, but is founded on a representation made by the principal to the third party which is intended to convey, and does convey, to the third party that the arrangement entered into under the apparent authority of the agent will be binding on the principle.”

For the doctrine of ostensible authority to apply one must prove:

1. That a representation was made to the third party that the agent had authority to enter, on behalf of the company, into a contract of the kind sought to be enforced.

2. That such representation was made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract relates.

3. That the third party was induced by such representation to enter into the contract i.e. that he in fact relied upon it.

4. That under its Memorandum or Articles of Association the company was not deprived of the capacity to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.

(iv) This rule is also known as the Indoor Management Rule. The rule provides that while persons dealing with a company are assumed to have read the public documents of the company (i.e. the Memorandum and Articles) and to have ascertained that the proposed transaction is not inconsistent therewith, they are not required to do more: they need not enquire into the regularity of internal proceedings - the indoor management - of the company and may assume that all is being done regularly.

It follows from this rule that the company cannot avoid a contract simply because the company’s internal procedures have not been complied with. The rule does not apply where the outsider is aware of the irregularity, and only applies to outsiders in their dealing with the company, i.e. it cannot be used by members of the company inter se (between themselves).

SOLUTION 5

(i) The equitable remedy which John should look towards in this instance is proprietary estoppel. Estoppel in its broadest sense is a term referring to a rule which precludes a person from denying the truth of some statement made by him of the existence of facts whether existing or not which he has by words or conduct led another to believe in. If a person by representation induces another to change his position on the faith of it, he cannot afterwards deny the truth of his representation

A proprietary estoppel (i.e. arise in relation to rights to use the land of the owner) may arise if:

1. one party represents that he or she is transferring an interest in land to another, but what is done has no legal effect; or

2. merely promises at some time in the future to transfer land or an interest in land to another; and

3. knows that the other party will spend money or otherwise act to his or her detriment in reliance on the supposed or promised transfer.

In Dillwyn v Llwellyn a father promised a house to his son who took possession and spent a large sum of money improving the property. The father never actually transferred the house to the son. When his father died, the son claimed to be the equitable owner and the court ordered the testamentary trustees to convey the land to him. This appears to be similar to John’s case.

(ii) Examples of equitable interests include the following:

1. Interest of beneficiary under a trust

2. A purchaser’s interest in property once contracts to convey land have been entered into

3. Interest in a person who contributes to the purchase of a property

4. Interests in an equitable mortgage

For tax purposes, it is important to be aware that the legal and equitable ownership can be split. Where the legal and equitable ownership is split it is the equitable/beneficial owner, and not the legal owner, who derives the benefit from the transaction. It is the benefit which is derived from a transaction which normally attracts CGT and income tax.

(iii) The restricted activities are:

providing financial assistance for the acquisition of the company’s own shares,

a reduction in company capital,

a variation of company capital on re-organisations,

prohibition on pre-acquisition profits or losses being treated in holding company’s financial statements as profits available for distribution,

providing loans to directors and connected persons,

domestic mergers,

a member’s voluntary winding up.

(iv) The Summary Approval Procedure requires the following:

1. A directors meeting is held and a written declaration is made (by a majority of the directors) in relation to the proposed restricted activity. The content of the declaration depends on the specific restricted activity, however it should include confirmation that a full inquiry has been made into the affairs of the company and that the company is able to pay its debts and liabilities as they fall due for a period of 12 months after the restricted activity is carried out.

2. Within 30 days of the director’s declaration made, and not more than 12 months prior to the commencement of the restricted activity, a special resolution is passed, (or in the case of a domestic merger, a unanimous resolution), authorising the restricted activity.

3. A copy declaration must be delivered to the Companies Registrar not later than 21 days after the date on which the restricted activity is commenced. A copy of the special resolution must be delivered to the Registrar of Companies within 15 days of the date on which it is passed.

4. Unless more than 90% of members of each class of issued shares vote in favour of the special resolution the company must wait 30 days from the passing of the special resolution before proceeding to carry on the restricted activity. This delay is intended to enable an application to court to be made and if an application is made the moratorium extends until the application has been disposed of or withdrawn. Members holding not less than 10% of the issued shares may make the application (excluding for this purpose any member who voted for the resolution).

SOLUTION 6

(a) The common law rules developed by the courts are:

1. The literal rule - The first rule of interpretation requires that a literal construction must be applied to the statute. If there is nothing to modify, alter or qualify the language which the statute contains, it must be construed in the ordinary and natural meaning of the words and sentences.

2. The Schematic or Purposive Approach - Where the application of the literal rule leads to an ‘absurdity’, or where the literal rule is of no assistance because an ambiguity in wording leads to more than one possible interpretation, the courts have recourse to alternative approaches. In particular, in these instances the courts tend to invoke the scheme and purpose of the statute. When this approach is used a court examines the general purpose and scheme of the statute and may look at the long title to the Act, its subject matter, the Dail debates and the pre-existing law it was designed to alter. Once the statutory purpose is identified the provision in question is interpreted in the manner which is consistent with it.

3. The Statute must be read as a whole - General words that follow two or more particular words in an Act must be confined to a meaning of the same kind as the particular words. This is known as the ejusdem generis rule. For example, in the expression ‘’dogs, cats and other animals”, the general words are to be interpreted in the light of their preceding specific items and thus “other animals” will be interpreted as falling into the same genus, and sharing the same characteristics, as dogs and cats -it would be construed to mean domestic animals of some type.

4. Penal provisions are construed narrowly - Penal provisions are, in the event of ambiguity, to be construed in favour of the individual (i.e. The individual who is to be subject to the penal provisions). Hence, as a general proposition, tax statutes are interpreted narrowly, which may be of benefit to the taxpayer. However, where the Oireachtas has enacted anti-avoidance legislation and used wide language, the courts tend to give effect to that language and construe the legislation more widely

5. Judicial Precedent of interpretation - It is important to note that the doctrine of precedent applies to the interpretation of statutes. The decision of one court as to the correct interpretation of a provision of a statute may therefore be binding on another court. A court will also be bound by the decisions of any court of a higher jurisdiction.

(b)

(i) A rights issue is an allotment of shares for consideration to the members of the company pro rata to their existing shareholdings. The advantage of using this type of share issue is to keep control of the company within the same group of members and it is usually a cheaper way of raising new capital on behalf of the company than seeking external investment. The company will usually encourage their members to avail of the rights issue by inviting subscriptions for the new shares at a favourable rate. If the members do not wish to subscribe for additional shares under a rights issue they may sometimes be entitled to sell their rights to other persons who would thereby obtain the value of an opportunity to acquire shares at a price below market value but above nominal value.

(ii) A bonus issue of shares is an allotment of new shares to members of the company without requiring them to invest new capital in the company. In this instance therefore, it would not generate any additional funds for the company and so Billy and Bob should disregard this option.

(iii) Billy and Bob may decide to issue shares for non-cash consideration. For example, goods and services will constitute good consideration for shares provided the company is prepared to accept them as payment. While in this case it would not generate any additional working capital, Billy and Bob may be able to off-set the expenditure on certain goods and services by allotting shares to those suppliers if those suppliers were prepared to accept the shares as payment. Where shares are issued for a consideration other than cash, the company must, within one month of allotment, deliver certain documents to the CRO.

Examiner’s Report

The standard of answers was mixed. Students are reminded that they should not be excluding any chapters from their studies as to do so will severely limit their ability to be selective in what questions to attempt.

Comments on the standard of answering on a question by question basis are as follows:

Question 1

This question was attempted by all students. While many students obtained a pass mark in this question, only a small minority obtained marks at the higher end.

Question 2

This question was generally answered well by most students who made an educated attempt at it. While a small handful of students had a curious view as to what would be the most likely remedies available for Jack, for the most part, any student who had clearly studied contractual remedies in any level of detail performed well in this question.

Question 3

Part (a) of this question was very well answered by most students with many obtaining full marks for this part of the question. Many students did not have a good awareness of the functions of the ODCE.

Question 4

The standard of answers for this question was poor. Company directors is an area that is covered at length in the manual and is often examined.

Question 5

The answers to this question only served to reiterate that, where students are selective in the chapters that they study, it will have a detrimental impact on their ability to score top marks in any questions which deals with a mixture of topics. In this question, some students displayed a detailed knowledge of the Summary Approval Procedure while others showed an awareness of equitable interests in property. Very few students, however, displayed a detailed knowledge of both.

Question 6

This was the least popular question on the paper. Part (a) covered topics in the earlier chapters in the manual.

Q1

Q2

Q3

Q4

Q5

Q6

Highest

16

20

20

19

18

15

Lowest

5

1

3

4

3

1

Average

10

9

14

10

8

6

Summer 2017

QUESTION 1

(a) Jamie is launching a new business, Sharp Toys Ltd, distributing toys which he has imported from Asia. Jamie has read a few reports of children receiving minor injuries as a direct result of using these toys in other countries. Jamie decides that, in order to protect his business, he will include an exclusion clause in all of the company’s contracts absolving Sharp Toys Ltd of any liability in the event of any of his customers being injured.

REQUIREMENTS

(i) Advise Jamie of the circumstances in which exclusion clauses are permitted in Ireland.

(6 marks)

(ii) Advise Jamie of the three ways in which an exclusion clause can be incorporated into a contract.

(4 marks)

(b) Sometime later, Jamie visits you again and tells you that the business has not been successful and that, instead of going down the expensive liquidation route, he would like to make a voluntary application to have Sharp Toys Ltd struck off the Register of Companies.

REQUIREMENT

Explain to Jamie the criteria which must be met in order to successfully make a voluntary strike-off application and outline the steps which will be required if the voluntary strike-off procedure is followed.

(10 marks)

Total 20 Marks

QUESTION 2

(i) Explain the difference between EU Regulations and EU Directives. In your answer, you should explain the concept of “direct effect” and explain the circumstances in which EU Directives and EU Regulations will each have direct effect.

Marks will be awarded for references to case law.

(10 marks)

(ii) Explain the following concepts in the context of EU law interacting with national laws:

(I) Supremacy

(2 marks)

(II) Indirect Effect

(2 marks)

(III) Principle of Effectiveness

(1 mark)

(IV) Principle of Equivalence

(1 mark)

(iii) European law is often said to be interpreted by adopting a “schematic” or “purposive approach”. Explain briefly what is meant by these terms including by way of contrast with the primary rule of interpretation seen in Ireland.

(4 marks)

Total 20 Marks

QUESTION 3

John, Paul, George and Mary each own 250,000 shares in Delicious Breads Ltd. Each share has a nominal value of €1.00 each. Only George and Mary are directors of Delicious Breads Ltd, each being engaged under formal fixed-term employment contracts. The shareholders are keen to declare a dividend. The share capital account of the company, being the nominal and share premium accounts, exceeds the retained profits of the company and unfortunately therefore the company does not have sufficient profits available for distribution. The shareholders have queried whether there is any way to reduce the company’s share capital in order to overcome this difficulty.

REQUIREMENTS

(i) Explain briefly to the shareholders the implications and purpose of company’s capital maintenance obligations and list the two ways in which Delicious Breads Ltd will be able to reduce its share capital in accordance with the Companies Act 2014.

(4 marks)

(ii) Would the application of capital maintenance obligations outlined in your answer to part (i) above be different if:

(I) Delicious Breads Ltd had no trade creditors?

(1 mark)

(II) Delicious Breads Ltd was a PLC?

(2 marks)

(III) Delicious Breads Ltd was an unlimited company?

(1 mark)

(iii) Some time later, John, Paul and George approach you to say that they are not happy with Mary’s performance recently and wish to remove her as a director of Delicious Breads Ltd.

Briefly outline what statutory procedure is available to John, Paul and George as shareholders of the company to remove Mary as a director of Delicious Breads Ltd. In your answer, you should also briefly advise John, Paul and George of the impact removing Mary as a director will have on her current employment rights and what additional rights, if any, she may have as an employee.

(6 marks)

(iv) Save for any procedures outlined by you at part (iii) above, and assuming there are no provisions to the contrary included in the constitution of Delicious Breads Ltd or any applicable shareholders’ agreement, list six events when any of the directors of Delicious Breads Ltd will be deemed to have automatically vacated office in accordance with the Companies Act 2014.

(6 marks)

Total 20 Marks

QUESTION 4

Two friends, Sean and Pat, have decided to go into business together by way of a partnership in order to acquire investment properties across Dublin.

REQUIREMENTS

(i) Advise Sean and Pat as to whether they should purchase the properties as tenants in common or as joint tenants. In your answer, you should identify the similarities and differences in these two types of property ownership.

(8 marks)

(ii) One of the properties which Sean and Pat plan on purchasing has a number of easements attached. Briefly explain what an easement is, giving common examples of when they may arise.

(2 marks)

(iii) Another property which Sean and Pat plan on purchasing has a “Profit á Prendre” attached. Explain the meaning of this term to Sean and Pat.

(2 marks)

(iv) Sean and Pat tell you that part of the reason they have decided to do business through a partnership as opposed to a limited liability company is because they wish to avoid the administrative burdens associated with a limited company. In particular, Sean and Pat have heard that Companies Act 2014 provides that there are a number of restricted activities which must be approved by way of Summary Approval Procedure before a company can proceed with the proposed activity.

Explain how the Summary Approval Procedure operates under the Companies Act 2014 in order to permit certain restricted activities that would otherwise be prohibited. In your answer, you should also give two examples of such restricted activities.

(8 marks)

Total 20 Marks

QUESTION 5

Jane has recently inherited a number of valuable pieces of art from her Grandfather who died unexpectedly. As Jane is currently only 15 years old the artwork will be held in trust for Jane by her father, Sam, until Jane reaches the age of 18.

REQUIREMENTS

(i) Explain the nature of the interest held by each of Jane and Sam in the artwork.

(2 marks)

(ii) A third party, Frank, makes an offer to purchase the artwork. Frank has made it a condition of the contract acquiring the artwork that only Jane executes the contract as Frank is aware that Jane was named as beneficiary under her Grandfather’s will.

Explain the extent to which Jane, who is still a minor, will have capacity to enter into a binding contract to sell the artwork.

(6 marks)

(iii) The sale of the artwork does not proceed and instead, shortly after Jane’s eighteenth birthday Sam convinces Jane that, because Sam had taken Jane to Disneyland the previous summer, Jane should transfer the artwork to Sam. Sam prepares a written agreement which Jane signed after her eighteenth birthday.

Advise Jane whether this written agreement constitutes a valid contract. In your answer, you should make reference to each of the elements of a valid contract and state whether each element is present in this particular case.

(12 marks)

Total 20 Marks

QUESTION 6

(a) Harry was the sole shareholder and director of Fab Fishtanks Ltd, a company which specialised in the installation of large scale fishtanks in office buildings. Unfortunately, Fab Fishtanks Ltd was not successful and the company entered liquidation earlier this year. Harry has recently received a letter from the liquidator of Fab Fishtanks Ltd stating that the liquidator will be making an application to the High Court to have Harry restricted from acting as director of a company in accordance with the provisions of the Companies Act 2014. Harry is unsure whether he should waste time and money defending the liquidator’s application.

REQUIREMENTS

(i) If Harry does decide to contest the restriction application, explain what Harry must prove to the High Court to avoid a restriction order being made.

(3 marks)

(ii) If Harry decides not to contest the restriction application, advise Harry of what new option is available to him under the Companies Act 2014 to avoid having to spend money engaging a solicitor to appear on his behalf in court at the hearing of the restriction application.

(2 marks)

(iii) In the end, a restriction order is made and, after the order is made, Harry then decides to start a new company called Incredible Ice Sculptures Ltd which will specialise in the installation of ice sculptures at parties. Harry is certain the business will make a lot of money and convinces his friend Jack to act as director. Jack is aware of the restriction order made against Harry. Harry will be engaged by Incredible Ice Sculptures Ltd as an employee under a lucrative employment contract. It is agreed that Jack’s only real role will be to do exactly what Harry says in relation to the operation of Incredible Ice Sculptures Ltd.

Advise Harry and Jack of the possible implications for both of them if this proposal is implemented.

(5 marks)

(b) Separately, Harry’s sister Sarah comes to you and tells you that she has recently been asked to become a director of a successful electronics company called Futureproof Devices Ltd. Sarah has worked for Futureproof Devices Ltd for a number of years and is happy to accept the position. She understands that once she is appointed as a director she will owe certain fiduciary duties to Futureproof Devices Ltd but is unsure as to what these are.

REQUIREMENT

Briefly explain to Sarah the five categories of fiduciary duties which she will owe to Futureproof Devices Ltd. In your answer, there is no requirement to make specific reference to case law.

(10 marks)

Total 20 Marks

SOLUTION 1

(a)

(i) An exemption or exclusion clause is one which limits or excludes the liability of a party to a contract. Both the courts and legislation have tried to limit the operation of these clauses and therefore have imposed certain restrictions on the use of exclusion clauses.

Under the Sale of Goods Act 1893 and the Sale of Goods and Supply of Services Act 1980, exclusion clauses will not allow sellers contract out of their obligations under the Act and are rendered ineffective and unenforceable unless the clause is regarded as “fair and reasonable”. Moreover, the EC (Unfair Terms in Consumer Contracts) Regulations 1995 prohibit terms in consumer contracts that are regarded as “unfair” (as defined in the legislation).

The courts will generally try to protect consumers from exclusion clauses which are either unduly broad or of which they did not have sufficient notice. The courts have held that exclusion clauses cannot be relied on to escape liability where there is a fundamental breach of the contract itself.

In addition, the courts have traditionally held that exclusion clauses only operate if they are actually part of the contract.

(ii) Incorporation of exclusion clauses into a contract may occur by:

1. Signing the contract – If the clause is written on a document which has been signed by all parties, then it is part of the contract. If a document has not been signed, any exclusion clause which it contains will only be incorporated if the party relying on the clause can show that he took reasonable steps to bring it to the attention of the other party before the contract was entered into.

2. Notice – the general rule is that an exclusion clause will have been incorporated into the contract if the person relying on it took reasonable steps to draw it to the other parties’ attention. The notice must have been given to the other party prior to the entering into the contract.

3. Previous course of dealings – Terms (including exclusion clauses) may be incorporated into a contract if the course of dealing between the parties were “regular and consistent”, however, the courts have indicated that equality of bargaining power between the parties may be taken into account.

(b) The voluntary strike-off procedure (under section 731 of the Companies Act 2014) is available in circumstances where a director of a company makes a formal request to the CRO to strike the name of his company off the register. This facility is only available where the company has ceased trading (or has never traded) and the value of the company’s assets does not exceed €150, the value of the company’s liabilities does not exceed €150 and the company is not a party to an ongoing or pending litigation. If Jamie cannot satisfy these conditions, he will not be able to avail of the voluntary strike-off procedure for Sharp Toys Ltd. Otherwise, a liquidation is the appropriate method of bringing about the company’s dissolution.

The voluntary strike-off process is as follows:

All outstanding annual returns must be flied by the company and relevant fees and any applicable late filing penalties in respect of such filings must be paid.

A letter of no objection must be obtained from the Revenue Commissioners.

An advertisement is placed in one daily newspaper published and circulated nationwide in the Republic of Ireland.

The company submits a request for strike-off of the company using a Form H15 (filing fee €15) which contains a declaration to the effect that the company has ceased trading (or has never traded) and that the value of the company’s assets does not exceed €150, the value of the company’s liabilities does not exceed €150 and the company is not a party to an ongoing or pending litigation. The entire newspaper page on which the advertisement referred to at 3 above appears must be submitted to the CRO along with the Form Hl5, as must the Revenue letter of no objection.

As soon as is practicable after the receipt of an application by a company to be struck off, that satisfies all of the above conditions, the Companies Registrar shall, by publishing a notice in the CRO Gazette, give public notice of the Companies Registrar’s intention to strike the company off the register. The company will be dissolved within 90 days of the date of the notice in the CRO Gazette.

SOLUTION 2

(i) Article 288 of TFEU states that “a directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods”.

Directives are not, on conception, designed to be law in and of themselves, rather they are a direction to Member States to make national laws in particular terms. [A directive is a politically expedient tool as, rather than having to get agreement on every single issue, the Council of Ministers can agree a consensus on the fundamentals of a directive and make this section mandatory but it can make other sections of the directive optional. It is for this reason that VAT - which is based on the VAT Directive - is fundamentally the same in each Member State but with numerous variations in the detail of how it operates.]

One weakness of directives which became apparent from a very early stage is that because it is not designed to be law itself, but is instead a direction to make laws in a particular manner, Member States could fail or refuse to implement national legislation which correctly implements the directive, or could even fail to implement any domestic legislation whatsoever (thus depriving its citizens of the rights envisaged by the directive). This problem was surmounted by the evolution of the principle of “direct effect”.

The principle of direct effect is best illustrated by reference to one of the seminal cases in the area - Van Gend en Loos. In that case, ECJ provided that:

“The Court has consistently held…that, whenever the provisions of a directive appear, as far as their subject matter is concerned, to be unconditional and sufficiently precise, those provisions may be relied upon before the national courts by an individual against the State where that State has failed to implement the directive in national law by the end of the period prescribed or where it has failed to implement the directive correctly.

A Community provision is unconditional where it sets forth an obligation which is not qualified by any condition, or subject, in its implementation or effects, to the taking of any measure either by the Community institutions or by the Member States...

Moreover, a provision is sufficiently precise to be relied upon by an individual and applied by a national court where it sets out an obligation in unequivocal terms.”

The most fundamental point to take away from all of this is that treaties and directives do not have direct effect. Rather, certain provisions of treaties and directives will have direct effect, i.e. only those provisions that satisfy the two-tier test: they are unconditional and they are sufficiently precise.

By contrast, Article 288 TFEU states that regulations are to be “directly applicable in all Member States”. Direct applicability means that the regulations are law in each Member State as soon as they are published. They do not require Member States to draft national legislation to give effect to them (as they are required to do with directives) but are law in each Member State as if they were domestic legislation. The subject matter of regulations tends to be of lesser political significance than that dealt with in directives and a large number of regulations will be issued in a given year.

(ii)

(I) Supremacy – EU law enjoys supremacy over national legislation, including the Irish tax legislation, and in certain cases our domestic laws are based on EC directives, e.g. the VAT legislation. Where a provision of the Irish legislation conflicts with EU law, then that domestic, provision must be declared invalid either by challenge in court or infringement proceedings.

(II) Indirect Effect – Irish law must be interpreted and applied in a manner which is consistent with EU law. This principle is known as the Doctrine of Indirect Effect. This doctrine ensures that all EC enactments have indirect effect, whether they are capable of being enforced in their own right or not.

(III) Principle of Effectiveness – The principle of effectiveness requires that domestic legislation must be framed in such a way so as to ensure that the European provision it transposes is effective.

(IV) Principle of Equivalence – The principle of equivalence provides that rights which may be obtained under national law be no less favourable than equivalent rights under European law.

(iii) While in Ireland the literal rule remains the primary rule of interpretation, especially if there is no ambiguity in the statute’s language, European law is interpreted using a schematic or purposive approach. This is the manner in which the courts of Europe (most notably France and Germany) interpret statutes, and it is a common approach adopted by the European Court of Justice in Luxembourg. This means that the courts try to find the purpose of the legislation and give effect to it, whatever the specific words of the legislation. In Ireland, where the application of the literal rule leads to an absurdity, or where the literal rule is of no assistance because an ambiguity in wording leads to more than one possible interpretation, courts tend to use the schematic or purposive approach and invoke the scheme and purpose of the statute. For example, courts may look at the log title to the act, Dail debates etc. Once the statutory purpose is identified, the provision in question is interpreted in the manner that is consistent with it.

SOLUTION 3

(i) It is a basic principle of company law that a company’s share capital should remain intact. This is aimed primarily at protecting creditor interests, in maintaining a company fund from which creditors may seek payment of their debts if the company is wound up. In addition, the rules surrounding the maintenance of share capital are designed to protect shareholders from other shareholders redeeming their shares and thereby reducing the share capital available to the company.

The Companies Act 2014 provides that an Delicious Breads Ltd will be able to reduce its share capital by either:

employing the summary approval procedure; or

passing a special resolution that is confirmed by the courts.

(ii)

(I) The issue of creditors will not change the position and capital maintenance rules continue to apply even where the company concerned has few, or even no, creditors.

(II) Public companies must maintain a minimum issued share capital of €25,000. The summary approval procedure is not however available to a PLC, and a PLC will only be permitted to reduce its capital if confirmation has been obtained from the High Court.

(III) If Delicious Breads was an unlimited company, it could reduce its share capital by passing a special resolution.

(iii) Section 146 of the Companies Act 2014 gives an important power the shareholders to remove any or all of the directors if they so wish by a simple majority. This provision can be used to remove a director before the expiration of their period of office and so it does not matter that Mary is engaged under a fixed term contract. Consequently, those members who have control of over 50% of the voting shares have control over the appointment of those who manage the company. As John, Paul and George collectively hold 75% of the shares in the Delicious Breads Ltd, they will be able to meet this threshold. While the board of directors may choose to ignore the wishes of the shareholders at general meeting, the effect of the power contained in Section 146 is that the shareholders can oust the board in its entirety should it not pay due attention to their wishes.

It is important to note however, that if John, Paul and George exercise the rights under section 146, Mary is not, according to Section 143 CA 2014, deprived, by being so removed, from any compensation or damages payable to her in respect of the termination of his office as a director or any other appointment held with Delicious Breads Ltd.

The effect of this provision is that as there is a contract of service between Mary and Delicious Breads Ltd, the company may be liable to pay damages for termination of Mary’s employment or otherwise in connection with her loss of office.

If John, Paul and George wish to remove Mary from her employment, they will also ensure they do not fall foul of any of the provisions of the Unfair Dismissals Acts (assuming Mary has the requisite period of employment to trigger rights under that legislation)

(iv) A director will be deemed automatically to vacate office where:

1. the director resigns.

2. the director becomes disqualified under Chapter 4 Part 14 CA 2014.

3. the director is adjudicated bankrupt.

In addition, unless the company’s Constitution provides otherwise, the director will be deemed automatically to vacate office where:

4. the health of the director is such that he or she can no longer be reasonably regarded as possessing an adequate decision making capacity.

5. a declaration of restriction under Chapter 3 Part 14 CA 2014 is made in relation to the director and the directors, at any time during the currency of that declaration, resolve that his or her office be vacated.

6. the director is sentenced to a term of imprisonment following conviction of an indictable offence.

7. the director is for more than 6 months absent, without the permission of the directors, from meetings of the directors held during that period.

SOLUTION 4

(i) There are two main types of co-ownership, (i) joint tenancy and (ii) tenancy in common. Both joint tenancies and tenancies in common can apply to both freehold and leasehold interests.

Joint tenancy

Where a joint tenancy exits, the joint owners together own the whole property and do not have a particular share in it. Each of the joint tenants holds 100% of the property. That entitles them to possession of the whole premises and the other joint tenant(s) cannot exclude them from it. In order to sell the entire property, both of the joint tenants must agree. If they cannot agree they can apply to court to have the property partitioned i.e. physically divided between them or sold in lieu of partition.

If two people jointly own the property and one of the owners, dies the other automatically becomes the sole owner. This is referred to as the right of survivorship. This would be the case even if a will had been made leaving the deceased owner’s ‘share’ to someone other than the co-owner. A co-owner does not have the power to give their share in the property to anyone else.

A husband and wife normally own the marital home as joint tenants. The advantage being that on the death of one, the ownership of the entire property is vested automatically in the other.

Tenancy in common

In contrast to a joint tenancy, tenants in common each have a definite share in the property. The two (or more) tenants could own the property in equal shares, or in unequal shares (that is, A could own one-fifth with B owning four fifths). The ability to own unequal interests cannot exist in a joint tenancy hence, where unequal ownership exists, the owners hold as tenants in common.

Regardless of whether the tenants in common hold equal or unequal shares, they are each entitled to possession of the entire of the property and cannot exclude the other or others from any part. While each tenant in common can sell his share in the property, in order to sell the entire property all tenants in common must be a party to the instrument of transfer.

The principle of survivorship does not apply to tenancies in common. If one of the owners dies, his share of the property will pass on to whoever he specifies in a will, or if a will is not made, in accordance with the rules of intestacy (someone dying without leaving a will).

As Sean and Pat are simply business partners it would be better for them to own the properties as tenants-in-common so that the principle of survivorship will not apply.

(ii) Easements are rights for one landowner to do something - or to prevent a third party from doing something - on another person’s land. Common examples of easements are rights of way, rights of light and rights of support. Easements generally cannot be sold or transferred but they can be surrendered to the person who owns the legal title to the land.

(iii) A profit a prendre is the right to go on to someone else’s land and take natural materials from it and would, for example, include the right to mine, quarry, fish, hunt, graze animals or cut turf.

(iv) The Summary Approval Procedure is a procedure which permits certain restricted activities that would otherwise be prohibited. It is a means by which companies can engage in restricted activities by ensuring that the persons those restrictions are designed to protect, consent to the action. The restricted activities include providing financial assistance for the acquisition of the company’s own shares, a reduction in company capital, providing loans to directors and connected persons, a members voluntary winding up and a re-organisation.

Under the Summary Approval Procedure:

1. A directors meeting is held and a written declaration is made (by a majority of the directors) in relation to the proposed restricted activity. The content of the declaration depends on the specific restricted activity; however, it should include confirmation that a full inquiry has been made into the affairs of the company and that the company is able to discharge its liabilities as they fall due for a period of 12 months after the restricted activity is carried out.

2. Within 30 days of the director’s declaration made, and not more than 12 months prior to the commencement of the restricted activity, a special resolution is passed authorizing the restricted activity. A special resolution will require the approval of 75% of the votes cast on the subject.

3. A copy declaration must be delivered to the Companies Registrar not later than 21 days after the date on which the restricted activity is commenced.

4. A copy of the special resolution must be delivered to the Registrar of Companies within 15 days of the date on which it is passed.

5. Unless more than 90% of members of each class of issued shares vote in favour of the special resolution the company must wait 30 days from the passing of the special resolution before proceeding to carry on the restricted activity. This delay is intended to enable an application to court to be made and if an application is made the moratorium extends until the application has been disposed of or withdrawn. Members holding not less than 10% of the issued shares may make the application (excluding for this purpose any member who voted for the resolution).

SOLUTION 5

(i) Jane holds the beneficial interest in the artwork. Sam is the legal owner of the artwork, but holds the artwork in trust for Jane.

(ii) The basic principle is that a minor must be protected against immaturity in their dealings with other persons. At the same time, the policy of the law is to mitigate some of the hardships that might be imposed on persons dealing with a minor, so as to encourage them to enter contracts that are for the minor’s benefit.

The contracts of a minor may be dealt with under the following three headings:

1. Contracts that are binding on the minor – where a minor enters into a contract with another person, whereby that person sells or supplies him with a necessary or necessaries, the contract will bind the minor. Depending on the circumstances, food, drink, clothing, lodgings will be regarded as necessaries.

2. Contracts that are void ab initio (from the beginning) – certain contracts entered into by minors are void ab initio by virtue of legislation. For example, all contracts entered into by a minor for the repayment of a loan made, or to be made to the minor, or for goods supplied other than contracts for necessaries are absolutely void.

3. Contracts that are binding on the minor unless and until the minor repudiates them – where a minor enters into a contract involving the acquisition of an interest in property of a permanent nature, with continuing obligations attached to it, the minor may repudiate it at his/her option either before or within a reasonable time after attaining the age of majority at 18. The adult party, however, cannot repudiate the contract solely because the contracting party was a minor.

(iii) In order for there to be a valid contract between Sam and Jane it must have the following components:

1. The Agreement – which has two components:

i. The offer – The offeror is the person who makes the offer and the offeree is the person to whom the offer is made. The offer is a proposal to give or to do something which, when accepted, constitutes the agreement.

An offer should be distinguished from an invitation to treat. An invitation to treat is a contract law term that means an invitation to others to make offers.

ii. The acceptance – Any words or actions signifying the offeree’s consent to the terms proposed by the off error constitutes acceptance. The general rule is that acceptance must be communicated to the offeror. There are 3 exceptions to this general rule which are:

where the performance constitutes acceptance

where acceptance is by post – the postal rule is that, unless the parties agree otherwise, once a letter of acceptance is posted, acceptance is complete.

Subject to contract/contract denied – this type of acceptance is means that the offeree is agreeable to the terms of the offer but is not agreeable to be legally bound until a formal contract is entered into. Where discussions are “Subject to Contract” this must communicated by the offeror to the offeree.

2. Intention to create legal relations – The intention to create legal relations is an essential element of the contract. The courts ignore the mental intent of the parties and look to the express terms of their contract or the conduct of the parties to decide whether a reasonable man would say there was intention to create legal relations.

Any express statement by the parties of their intention not to make a binding contract is conclusive. Where there is no express statement as is the case in the majority of contracts, the courts apply two presumptions. The courts make various presumptions depending on the relationship between the parties; in a social and family arrangement the presumption is that there is no intention to create legal relations and in commercial and business arrangements there is a presumption to create legal relations.

In the case of Jane and Sam (and as a result of the father daughter relationship between them), it is likely that unless there is an express statement the presumption against there being an intention to create legal relations will apply.

3. Consideration – this means something of value is given by one party to the other. It is the “price of the promise”. Consideration must be real or sufficient in that some value, however trivial, must be places on it. While consideration must be real, it need not be adequate commercially to be enforceable. For example, should a person wish to sell 1,000 houses for €10, the courts will not interfere.

Consideration must also move from the promisee. This means that a party can only enforce a promise if that party had provided the consideration. If the transferee did not transfer the consideration but it moved from a third party then it will not be possible to enforce the contract.

In the case of Jane and Sam, Sam is suggesting that the Disneyland trip should be treated as the consideration for the transfer of the artwork. It is an important principal however that consideration must not be past consideration. This means that if one party has performed some service prior to the making of the promise, that service cannot support the promise as it constitutes past consideration. It would appear that this would apply in this case and as such, there would not appear to be any valid consideration for the transfer of the artwork, or, given the relationship between Sam and Jane, any intention to create legal relations.

SOLUTION 6

(a)

(i) If Harry wishes to defend the restriction application, he will need to satisfy the court that:

a. He acted honestly and responsibly in relation to the conduct and affairs of Fab Fishtanks Ltd, both before and after it became an insolvent company.

b. He has, when requested to do so by the liquidator of Fab Fishtanks Ltd co-operated as far as could reasonably be expected in relation to the conduct of the winding up of Fab Fishtanks Ltd; and

c. There is no other reason why it would be just and equitable that he should be subject to a restriction order.

(ii) Harry should note that Chapter 5, Part 14 of Companies Act 2014 contains a new feature which permits restrictions to be made by way of an undertaking procedure. This would mean the ODCE can send a notice to Harry requesting that they take the restriction as an undertaking without recourse to the court.

(iii) Firstly, it is important to note that while Harry suggests Jack will act as director of Incredible Ice Sculptures Ltd., given that Harry will have major input into the decision making and operation of Incredible Ice Sculptures Ltd., Harry will in fact be deemed to be a shadow director. CA 2014 defines shadow director as “a person in accordance with whose directions and instructions the directors of the company are accustomed to act.” This will clearly apply here as Jack will be following Harry’s instructions.

As Harry is subject to a restriction order, he cannot, for a period of 5 years, be appointed (directly or indirectly) director, secretary, or be involved in the formation of a company unless the company is adequately capitalized.

Chapter 6, Part 14 of CA 2014 imposes penalties for acting in breach of a restriction order. The penalties include the imposition of criminal sanctions and also provide that any consideration paid by a company to a director for services performed while acting in breach of an order will be recoverable by the company as a simple contract debt. It is possible therefore that Incredible Ice Sculptures Ltd. would be able to recover all amounts paid to Harry under his employment contract.

CA 2014 further provides that where a restricted director is on the board of a company and his fellow directors knew of the existence of the restriction order, his fellow directors can themselves be held personally liable for the debts of the company if the company is wound up insolvent.

(b) Any person under obligation to act in a fiduciary capacity must do so in good faith in the best interests of the person/entity he represents. Sarah will owe such a duty to Futureproof Devices Ltd. These fiduciary duties are now also statutorily prescribed by virtue of section 228 CA 2014.

Duty to act in good faith and in what the director consider the interests of the company - A director owes a fiduciary duty to act in good faith (bona fide) in what he or she considers is in the interests of his/her company. The duty to act bona fide in the best interests of the company has been interpreted by the courts to mean a duty to act in the best interests of the members of the company taken as a whole.

In general, the law does not recognise any distinction between executive and non-executive directors, and will not impute a “lesser” responsibility on non-executives to discharge their fiduciary duties.

As long as directors proceed prudently and are careful to record the reasons behind their decisions, and can show that these decisions were made in the interest of the company and not for any other purpose, it will be difficult for someone to demonstrate successfully that a director has breached his fiduciary duty to act in the best interests of the company.

Duty to use the powers for the proper purpose - The directors must exercise their powers for the purpose for which they were given to them and not for some other purpose. The powers of the director are set out in the company’s constitution and CA 2014. It is for the courts to interpret the relevant provisions in order to determine the purpose for which the power was conferred. The courts are frequently being required to opine on this point and as a result, a significant body of case law is arising around this point.

Duty not to fetter his discretion - The directors must be free to exercise their discretion at all times in the best interests of the company. This means that the directors should not enter into covenants as to how they will vote in the future.

Duty not to be in a position whereby there is a conflict of interest - This is perhaps the most important and most litigated aspect of directors’ duties. The directors must not put themselves into a position whereby there is a conflict between their duties as a director and their own personal interests. Where a director does have a conflict of interest, they should absent themselves from any vote in relation to the matter and/or ensure that the nature and extent of their conflict of interest is included in the relevant board minutes.

Liability to account to the company for benefits - If a director gains some advantage from his position as a director he may be required to account for this benefit to the company. Because of the fiduciary relationship which exists between the director and the company, the law will impose a constructive trust on any benefits at the option of the members/shareholders.

Examiner’s Report

Overall, the standard of answers was mixed with some students achieving very high marks. It appears that students are being selective in their studying. Students are reminded that any knowledge of a topic being examined tends to generate marks and students are discouraged from omitting chapters in their entirety when studying.

Question 1

Part (a) was generally quite poorly answered with only a small minority of students showing a detailed understanding of the law surrounding exclusion clauses.

Part (b) was answered to a much higher standard with students continuing to demonstrate an awareness of the procedural requirements of making a voluntary strike-off application.

Question 2

This question was quite unpopular with students. The majority of students who attempted the question demonstrated a basic, but not detailed, understanding of the EU law concepts being examined.

Question 3

This question was the least popular amongst students. Very few students showed any detailed knowledge of a company’s capital maintenance obligations. Some students also failed to demonstrate a practical understanding of the statutory provisions enabling shareholders to remove a director from office.

Question 4

This was the most popular question. Students continue to demonstrate excellent knowledge and understanding of the property law concepts being examined and most students were also able to apply this knowledge to the facts presented.

At part (iv), some students struggled to demonstrate a practical understanding of the summary approval procedure introduced by the Companies Act 2014. The summary approval procedure is something that frequently arises in practice and students are encouraged to study this area in detail.

Question 5

This question was generally answered well by most students. Students continue to show good in-depth knowledge of the necessary elements of a valid contract and most students were able to correctly apply their knowledge of this area to the facts surrounding Jane and Sam as presented in this question.

Question 6

This question was generally answered well by most students. At part (b) many students demonstrated excellent knowledge of the fiduciary duties which Sarah would owe to Futureproof Devices Ltd.

Q1

Q2

Q3

Q4

Q5

Q6

Highest

19

20

19

20

20

20

Lowest

1

2

1

1

1

1

Average

10

10

9

11

11

11

Autumn 2017

QUESTION 1

Tim is a 100% shareholder and sole director of Terrific Trucks Ltd. In recent years, business became very slow and, about 3 years ago, Tim allowed Terrific Trucks Ltd to be involuntarily struck off the Register of Companies after Tim repeatedly failed to complete and submit annual returns in the Companies Registration Office.

REQUIREMENTS

(i) Outline the implications of Terrific Trucks Ltd being involuntarily struck off the Register of Companies.

(4 marks)

(ii) Tim has recently received payment for a historic order which Terrific Trucks Ltd delivered, but payment in respect of which had not been received and had been written off as a bad debt by Tim and Terrific Trucks Ltd’s auditors. Payment is made out to “Terrific Trucks Ltd” so Tim now wants to have Terrific Trucks Ltd restored to the Register of Companies so he can open a new bank account in the company’s name and cash the payment.

Outline the steps Tim must follow to complete this process.

(6 marks)

(iii) After taking the necessary steps to have Terrific Trucks Ltd re-instated, Tim continues trading on a part-time basis. Tim wishes to invest as little time and money as possible until he determines whether an improvement in the economy has contributed to a larger market for his product. Tim is aware that he is under a statutory duty to maintain proper books of account for the company but wants to do the bare minimum in order to comply with this obligation.

Briefly outline to Tim what should be contained in the books of account.

(4 marks)

(iv) Advise Tim of the implications of failing to comply with the statutory obligations which you have set out at (iii) above.

(6 marks)

Total 20 Marks

QUESTION 2

(a) What is State Aid? In your answer, you should explain what is the position of the EU regarding State Aid, when can it arise and explain what three elements, arising from ECJ caselaw, are said to make up the test for determining whether State Aid has been given.

(6 marks)

(b) What two forms of State Aid will automatically be deemed to be compatible with EU laws.

(2 marks)

(c) List four types of aid which may be deemed to be compatible with the common market.

(4 marks)

(d) What are the consequences of a finding that State Aid has been given?

(5 marks)

(e) What are the “Four Fundamental Freedoms” in the context of EU Law?

(3 marks)

Total 20 Marks

QUESTION 3

Ken has a business manufacturing kitchens. He operates his business by way of a designated activity company known as Ken’s Kitchens DAC. Ken is considering expanding his business into the area of property development. He understands that there is a difference between Ltds and DACs and, in particular, that the doctrine of ultra vires will continue to apply to DACs but he is not quite sure what this means or how this will impact his business expansion plans.

REQUIREMENTS

(i) Briefly outline the meaning of ultra vires to Ken and explain how the doctrine of ultra vires now applies to DACs and Ltds and the relevance of this for people dealing with the company.

(7 marks)

(ii) Other than differences relating to the doctrine of ultra vires, identify 3 differences between a DAC and a Ltd.

(3 marks)

(iii) Business has improved greatly over the last 12 months and Ken has decided to reward some of his employees with improvements in their working conditions including better annual leave entitlements, rest periods and hourly rates of pay. Ken tells you he proposes only improving the conditions for his full time and permanent staff and not for his part-time workers or those on fixed term contracts. Advise Ken of the legal consequences of this course of action.

Marks will be awarded for statutory references.

(4 marks)

(iv) Would your answer to part (iii) above be any different if the part time and fixed-term employees were agency workers?

Marks will be awarded for statutory references.

(2 marks)

(v) Ken also wants to allot shares in Ken’s Kitchens DAC to reward some key employees and other family members. Briefly outline to Ken what steps need to be taken to achieve this.

(4 marks)

Total 20 Marks

QUESTION 4

Linda has recently incorporated a company called Delicate Diamonds Ltd which is involved in the importation and retail of precious stones. Linda is a director of Delicate Diamonds Ltd. There are also two other directors who are both specialists in the diamond industry. Linda and her three siblings each own 25% of the issued share capital of Delicate Diamonds Ltd.

REQUIREMENTS

(i) Explain the purpose of convening an annual general meeting (AGM) on a recurring basis for Delicate Diamonds Ltd and what matters are dealt with at an AGM.

(3 marks)

(ii) Explain to Linda what time limits she must adhere to for convening the first AGM and each subsequent AGM for Delicate Diamonds Ltd.

(3 marks)

(iii) Linda’s siblings are each based in different countries across the world and would prefer not to have to meet in person for each AGM. What must happen in order for Delicate Diamonds Ltd to dispense with the requirement to convene an AGM on a recurring basis?

(4 marks)

(iv) Some time later, Linda comes to you and tells you that each of her siblings wish to reduce their respective shareholdings in Delicate Diamonds Ltd, and to facilitate this, Linda proposes acquiring a number of shares held by her three siblings. Linda also tells you that Delicate Diamonds Ltd. will be required to give a form of financial assistance to facilitate this share acquisition taking place.

Explain in detail to Linda the new procedure introduced under the Companies Act 2014 which will be required to be undertaken to authorise this form of restricted activity.

(10 marks)

Total 20 Marks

QUESTION 5

(a) Your elderly aunt Tina tells you that when her husband recently passed away, his will provided that their family home would be left to each of their six children in equal shares but that Tina would retain a right of residence.

REQUIREMENTS

(i) Tina is unclear what having a “right of residence” actually entitles her to but was too shy to ask her solicitor. Briefly explain this term to Tina.

(5 marks)

(ii) Tina also tells you that she has recently entered into a contract with her daughter Rosie to transfer a large investment portfolio into Rosie’s sole name for €100. Tina tells you that while she understood the significance of the contract and noted that she had received €100, she felt pressured by Rosie into transferring the large investment portfolio as Rosie had told Tina that if she did not do so, Rosie would stop paying for Tina’s full-time carer. Tina tells you that she regrets entering into this contract as she had planned on leaving the investment portfolio to each of her six children in equal shares.

Advise Tina whether there may be any relief available to her and explain any relevant factors.

(7 marks)

(b) Identify and briefly explain any four of the five presumptions which a court will make when interpreting tax legislation.

(8 marks)

Total 20 Marks

QUESTION 6

Mel is the director and 100% shareholder of a company called Mel’s Medicine Ltd which is engaged in developing pharmaceuticals. Mel is concerned that in the future, he may be sued personally if his company develops a drug which inadvertently ends up causing harm.

REQUIREMENT

Explain to Mel whether his concerns are well founded. In your answer you should make specific reference to:

(i) the concept of separate legal personality;

(6 marks)

(ii) the benefit of incorporating a company and the concept of limited liability;

(4 marks)

(iii) the circumstances in which the veil of incorporation will be looked through in order to impose personal liability on individuals; and

(7 marks)

(iv) when the concept of separate legal personality may be ignored in the context of groups of companies.

(3 marks)

Marks will be awarded for references to case law and statute.

Total 20 Marks

SOLUTION 1

(i) The consequences of strike-off are very serious and include:

The company ceases to exist as a legal entity with effect from the date of dissolution;

All assets of the company become the property of the State on dissolution of the company;

The protection of limited liability is lost with effect from the date of dissolution, and if the business formerly carried on through the company is continued, the owners are now trading in their personal capacity with potentially unlimited liability for the debts of the business contracted post-dissolution; and

There can also be consequences for directors of such companies in that a disqualification order may be made against them by the High Court on the application of the Director of Corporate Enforcement.

(ii) As Terrific Trucks Ltd has been struck off the register for a period exceeding 12 months, it will necessary for Tim to make an application to court to have the company re-instated. In order to achieve this, Tim must:

(I) Submit a letter signed by a director or solicitor on behalf of a director to the Registrar requesting confirmation that the Registrar has no objection to the restoration of the company to the register of companies, subject to the company filing all outstanding returns.

(II) Obtain a “Letter of No Objection” from the Chief State Solicitors Office (on behalf of the Minister for Finance), stating there is no objection to the restoration of the company to the register;

(III) Obtain a letter of no objection from Revenue.

(IV) File all outstanding annual returns in the CRO

The High Court will hear the application and provided all the necessary documentation is in place, a restoration Order is usually granted by the judge. Tim should bear in mind that, if, as a consequence of Terrific Trucks being struck off the register of companies, a disqualification order has been made against him on application by the Director of Corporate Enforcement, he will not be able to act as director of Terrific Trucks Ltd., once it is restored to the register of companies.

A certified copy of the Order restoring the company, together with the € 15 filing fee, must be delivered to the CRO for registration by the company within 28 days of its perfection (i.e. when the order is drawn up and signed).

The name of the company cannot be restored to the register unless the Order is lodged in a timely fashion with CRO. If the order is not lodged within the requisite timeframe, a fresh restoration application will be necessary.

(iii) While Tim may want to do the bare minimum, the Companies Act 2014 sets out certain prescribed information which Tim will be require to include in the accounts. Section 282(3) of the Companies Act 2014 provides that all books of account must contain:

(a) all day to day receipts and expenditure and the matters to which they relate to;

(b) a record of the assets and liabilities of the company;

(c) if the company’s business involves dealing in goods:

a record of all goods purchased, and of all goods sold (except those sold for cash by way of ordinary retail trade), showing the goods and the sellers and buyers in sufficient detail to be identified and a record of all the invoices relating to such purchases and sales;

statements of stock held by the company at the end of each financial year and all records of stocktakings from which any such statement of stock has been, or is to be prepared, and

(d) if the company’s business involves the provision of services, a record of the services provided and of all related invoices.

Accounts can be kept in any form, ‘documents or otherwise’ as long as they:

a. contain the correct transactions of the company, with an explanation where needed;

b. contain the financial position of the company with reasonable accuracy;

c. can ensure that all accounts comply with the requirements of the companies acts;

d. can be audited

(iv) In the event of Tim failing to keep adequate accounting records, CA 2014 provides that if Terrific Trucks Ltd subsequently is wound up and is unable to pay its debts and the court considers that the failure to keep accounting records has:

(1) contributed to the company’s inability to pay all of its debts; or

(2) resulted in substantial uncertainty as to the assets and liabilities of the company; or

(3) substantially impeded the orderly winding up of the company, the court on the application of the liquidator or any creditor or contributory of the company, declare that any one or more of the officers and former officers of the company who with respect to the contravention, is or are in default be personally liable, without any limitation of liability, for all, or such part as may be specified by the court, of the debts and other liabilities of the company.

The fact that a company has failed to keep adequate accounting records does not automatically mean that the directors of the company will be held personally liable. In order for this section to apply, the company must be (i) in the course of winding-up and (ii) unable to pay off all its debts.

Failure to keep proper books of account may also lead to criminal liability being imposed on Tim. Under CA 2014, failure to keep adequate accounting records is a “category 2 offence”. If found guilty of offences under this category, Tim (or any other director or any other officer of the company who is in default) face fines of up to €50,000 and/or a term of imprisonment of up to 5 years.

SOLUTION 2

(i) State Aid is seen as being one of the most obvious threats to the achievement of a single and seamless Economic Union in the EU.

Article 107(1) of TFEU prohibits State Aid in the following terms:

“Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall in so far as it affects trade between Member States, be incompatible with the internal market.”

Although “State Aid” is not defined in the EC treaty, unsurprisingly the ECJ have given the term a wide meaning.

The test as we can see is threefold:

1. The aid must be granted “through State resources”. Any tax break or tax relief results in lower revenues for the exchequer and so is provided “through State resources”

2. The aid must have the potential to distort competition which almost any tax break will have. So if Irish strawberry growers were taxed at 10% that would give strawberry growers a competitive advantage over raspberry growers. If lrish fruit growers were taxed at 10% then they might have a competitive advantage over foreign fruit growers looking to sell their fruit in Ireland creating a competitive advantage which has the potential to distort competition, and finally

3. The aid must favour certain undertakings or the production of certain goods. This test is also very broad, we know that manufacturing relief favoured manufacturers over other companies and so was a State Aid. A retailer could never have availed of manufacturing relief for example. By contrast, the reduced rate applicable to trading income is not a State Aid because almost any business can constitute a trade and whether it actually constitutes a trade or not is a matter of fact.

(ii) Article 107(2) deems three types of aid to be compatible with the common market:

(1) Aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned; and

(2) Aid to make good damage caused by natural disasters or exceptional occurrences.

(iii) Article 107(3) lists certain categories which may be deemed to be compatible with the common market. It covers the following matters:

aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment;

aid to promote the execution of an important project of European interest or to remedy a serious disturbance in the economy of a Member State;

aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

aid to promote the conservation of culture and heritage; or

such other categories of aid as may be specified by the decision of the Council on a proposal from the Commission.

(iv) Where State Aid is determined to have been given, and not notified to the Commission in advance, then that aid must be clawed back. Even where, had the aid been notified, the Commission would have approved it as being within one of the exceptions. It is for this reason that tax reliefs are often announced and then brought into effect at a later date. Where the Court finds that State Aid has been given then the Court will order the aid to be repaid unless this is “absolutely impossible”. The ECJ has even accepted that if the recipient company was wound up, the recovery of the unlawful aid would have to take its place alongside claims to the company’s assets by other creditors even where this meant that other creditors would receive less from the proceeds of the liquidation.

Where the Commission has looked into something and concluded that it is not State Aid, but later changes its mind on the matter, no claw back is necessary but the State Aid should be phased out.

(v) The “Four Fundamental Freedoms” is a blanket term commonly used to refer to the set of Treaty provisions, secondary legislation and court decisions which protect the ability of goods, services, capital and people to move freely within the EU. More precisely, they apply throughout the EU and provide that nothing should in any way hinder the:

Free movement of goods;

Free movement of services/freedom of establishment;

Free movement of persons; and

Free movement of capital.

SOLUTION 3

(i) “Ultra vires” means literally “beyond the power”. It is an act which is in excess of the authority conferred by law and therefore invalid. With regard to a company, the doctrine of ultra vires prevents a company from having legal capacity to act outside the objects of the company as stated in the Memorandum of Association of the company Constitution.

CA 2014 provides that a company, other than an LTD, shall have capacity to do anything stated in the objects clause of its memorandum of association. However, it goes on to provide that, the validity of any act done by the company cannot be called into question on the grounds of a lack of capacity by reason of anything contained within that company’s objects clause. As such, a third party dealing with a company will not be prejudiced if the company exceeds their corporate capacity, and any contract entered into by that third party with the company will remain enforceable by either party. It is therefore not necessary for the third party to inspect the company’s memorandum of association before entering into any such contract.

This does not mean that the objects clause is no longer of relevant to the company. CA 2014 provides that the directors of the company are still under a duty to observe any limitations on their powers flowing from the objects clause. Any action taken which is outside the parameters of the objects clause may only be ratified by special resolution.

In addition a member of the company may bring proceedings to restrain any act which is outside the parameters of the objects clause. However, such proceedings cannot be brought in respect of the fulfilment of a legal obligation already arising from a previous act of the company.

(ii) Differences between DACs and LTDs include:

An LTD will have a one document constitution whereas a DAC will have a two document constitution consisting of a memorandum and articles of association.

The name of an LTD will end in LTD or Limited; whereas a DAC must end in DAC or Designated Activity Company.

An LTD may have just one director; a DAC requires two directors;

An LTD can adopt written procedures instead of holding an AGM; a DAC can only dispense with convening an AGM if it is a single member company.

(iii) In circumstances where Ken does not have different terms and conditions with the employees or otherwise treat the employees differently, Ken should not continue to proceed in only rewarding full time and permanent staff. The Protection of Employees (Part-Time Work) Act 2001 ensures that part-time employees cannot be treated less favourably than comparable full-time employees regarding conditions of employment, and that all employee protection legislation applies to part-time employees in the same manner as it applies to full-time employees.

A fixed-term employee is one that is employed under a contract for a specified period of time or a specified purpose. Their rights are protected by the Protection of Employees (Fixed-Term Work) Act, 2003 which provides that fixed term employees may not be treated less favourably than comparable permanent employees unless the employer can objectively justify the treatment; such justification cannot be connected with the fact that the employee is on a fixed term contract.

(iv) The same principles would apply in the case of agency workers. Under the terms of the Protection of Employees (Temporary Agency Work) Act 2012 all temporary agency workers must have equal treatment to those hired directly in respect of the duration of working time, rest periods, night work, annual leave, public holidays and pay.

(v) The steps which Ken should follow in order to allot shares in Ken’s Kitchens DAC to members of his management team are as follows:

a. Check that the Board has the authority to allot shares

b. If not, it is necessary to pass a member’s resolution to do same and a copy of this resolution should be filed at CRO with a form G2.

c. Check that the company has sufficient authorised unissued share capital for the allotment.

d. As Ken’s Kitchens DAC is a DAC, check the company’s authorised share capital.

e. The allotment should be approved at a Board meeting of the company.

f. A Form B5 should be prepared and filed at CRO for the allotment detailing the name and address of the member, share class, number of share, and amount paid for the shares issued.

g. A B5 should be filed at CRO within 30 days of allotment.

h. The allotment should be entered in the register of allotments and register of members of the company.

i. A share certificate should be issued to the new member, signed and sealed by two Directors or a Director and the Company Secretary.

SOLUTION 4

(i) The purpose behind the requirement to hold the AGM is for shareholders to receive copies of the company’s accounts as well as reviewing financial information over the past year and asking any questions regarding the direction the business will take in the future.

The ordinary business dealt with at the AGM is the presentation of the balance sheets, the P&L accounts, the directors’ report (which is to be read to the shareholders and open to inspection) and the state of the company’s affairs for consideration by the shareholders. The company directors must lay before the company’s members at the AGM the annual accounts, the directors’ reports and the auditor’s reports and the accounts. Any election or re-election of directors will also generally occur at the AGM.

Other matters which may be dealt with at the AGM include:

- Declaration of a dividend;

- The election of directors in place of those retiring;

- Reappointment of a retiring auditor; and/or

- The fixing of remuneration of the auditors.

(ii) Section 175 CA 2014 provides that every company must hold an AGM in each calendar year and it must be held within 15 months of the previous AGM. There is one exception to this – in the case of newly incorporated companies, provided that the company holds its first AGM within 18 months of its incorporation, it is not obliged to hold another AGM in the year of its incorporation or in the following year.

(iii) A private company limited by shares may dispense with the requirement to hold an AGM in any particular year where all members entitled to attend and vote at the AGM sign a written resolution which:

a. acknowledges receipt of the financial statements that would have been laid be-fore that meeting;

b. resolves all such matters as would have been resolved at that meeting; and

c. confirms no change is proposed in the appointment of the company’s statutory auditor (if the company is required to appoint a statutory auditor).

(iv) Providing financial assistance for the acquisition of a company’s own shares is one of the “restricted activities” included under the Companies Act 2014. As such, the Summary Approval Procedure will need to be undertaken before Linda proceeds to acquire the shares held by her siblings.

Under the Summary Approval Procedure:

1. A directors meeting is held and a written declaration is made (by a majority of the directors) in relation to the proposed restricted activity. The content of the declaration depends on the specific restricted activity; however it should include confirmation that a full inquiry has been made into the affairs of the company and that the company is able to discharge its liabilities as they fall due for a period of 12 months after the restricted activity is carried out.

2. Within 30 days of the director’s declaration made, and not more than 12 months prior to the commencement of the restricted activity, a special resolution is passed authorizing the restricted activity. A special resolution will require the approval of 75% of the votes cast on the subject

3. A copy declaration must be delivered to the Companies Registrar not later than 21 days after the date on which the restricted activity is commenced.

4. A copy of the special resolution must be delivered to the Registrar of Companies within 15 days of the date on which it is passed.

5. Unless more than 90% of members of each class of issued shares vote in favour of the special resolution the company must wait 30 days from the passing of the special resolution before proceeding to carry on the restricted activity. This delay is intended to enable an application to court to be made and if an application is made the moratorium extends until the application has been disposed of or withdrawn. Members holding not less than 10% of the issued shares may make the application (excluding for this purpose any member who voted for the resolution)

SOLUTION 5

(a) (i) A right of residence is a right peculiar to Irish land law and consists of a personal right to occupy a house, or a room or rooms in a house, and often includes a right of support or maintenance out of the land, usually expressed in a monetary sum or “annuity”. A right of residence may be:

1. an exclusive right of residence, whereby only the owner of the right of residence is entitled to occupy the house or land;

2. restricted to one or more rooms in the house; or

3. a non exclusive right of residence in which case the owner of the land and the owner of the right of residence have equal rights to occupy the entire house or land.

(ii) Based on the information which Tina has provided, it would appear that she may have a claim for undue influence. The equitable doctrine of undue influence grants relief where an agreement has been obtained as a result of certain forms of improper pressure, which fall short of duress. A contract induced by undue influence is voidable at the behest of the party unduly influenced.

The law makes the presumption that undue influence has been exerted in contracts of a fiduciary nature. A fiduciary relationship exists where there is trust and confidence between the parties. Rebutting this presumption is usually done by showing there was a full disclosure of all material facts; that the consideration was adequate; and that the weaker party was independently advised.

In McMahon v Hibernian Bank 1 a daughter who had just reached her majority while living with her mother, signed a promissory note to secure her mother’s debts. The bank was aware of the circumstances. It was held that the transaction could be set aside because the law recognised that a young person living with, or under the influence of, a parent is likely to remain for some time under parental dominion after reaching majority.

(b) In interpreting statutes, the courts are guided by certain presumptions:

(1) Presumption of constitutionality - In the case of statutes enacted after the present Constitution came into force in 1937 there is a presumption of constitutionality. Thus, where a court is faced with two reasonable interpretations, one of which would result in the statute bearing a constitutional meaning and the other which would render the statute unconstitutional, the former must be adopted. The presumption of constitutionality is particularly weighty in the case of tax statutes.

(2) Presumption against retrospective effect - Article 15.5 of the Constitution prohibits the Oireachtas from declaring acts to be infringements of the law which were not so at the date of their commission. This clearly prohibits retrospective penal legislation and probably, legislation which imposes a civil revenue liability. The philosophy underlying this provision is that it is inherently unjust to declare (after the event) acts to be unlawful which were lawful at the time of their commission.

(3) Presumption against extra-territorial effect - It is presumed that the operation of an Act is intended to be confined to the territory of the State, unless a contrary intention is evident. As income tax charging provisions generally specify their territorial scope it is not normally necessary to imply any territorial limits into their operation.

(4) Presumption against unclear changes in the law - The effect of this presumption is that a change in the law must be achieved clearly, either by expressed terms or by a dear implication. In the event of an ambiguity, a court should decline to interpret the provisions as changing the law. Hence there is a rebuttable presumption that the TCA does not alter the pre-existing law (but merely consolidates it all into one statute).

(5) Presumption against strict liability - Mens rea (guilty intent) is a necessary element of most criminal offences. There are some exceptions for certain offences where liability is strict or absolute (i.e. intention to commit an offence is not a necessary element in proving the offence). However, there is a presumption against offences being interpreted as being of strict liability unless the intention of the Oireachtas in this respect is clear and unambiguous.

SOLUTION 6

(i) A company incorporated under the Companies Acts becomes a body corporate and constitutes a legal person with a legal identity completely distinct and separate from its members.

A company is capable of suing and being sued in its own right, a company can hold and own property in its own name, and can enter contracts in its own name.

A company’s separate legal personality features throughout the company’s dealings, whether these are between the company and its shareholders, or between the company and third parties. This separate legal entity or personality of a company (which is also referred to as “the veil of incorporation”) was confirmed in the leading decision of the House of Lords in Salomon v Salomon & Company. In that case, the court, in confirming the principle of a company having a separate legal personality, stated that:

“The company is at law a different person altogether from the subscribers to the Memorandum and, although it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not at law the agent of the subscribers or a trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided in the Act. That is, I think, the declared intention of the enactment.”

(ii) One of the principal advantages of incorporating a company is the benefit of limited liability. What this means is that the liability of the members for the debts and wrongs of the company is limited to the amount that they have agreed to pay for the shares which they own in the company. This is in contrast to a sole trader who has unlimited liability for the debts of the business. It is important to note that it is only the members’ liability that is limited. The company remains liable for all its debts and liabilities.

A registered company acquires this separate legal personality through the process of incorporation by registration with the Registrar of Companies.

The CA 2014 set out certain instances in which limited liability may be lost, and the shareholder and/or directors of a company may become personally liable for the company’s debts without limitation as to amount. However, these instances are exceptions to the general rule, which remains that the shareholders’ liability is limited to the amount (if any) unpaid on their shares: once their shares are fully paid up they have no further liability for the company’s debts.

(iii) The decision in the Salomon case paved the way for the modern small private company limited by shares highlighting that members can protect their investment by limiting their liability to the amount invested in the company.

The benefits of separate legal personality are immediately obvious. Entrepreneurs can engage in economic endeavours safe in the knowledge that their exposure is limited to the amount of money that they have invested in the company; creditors cannot seek to make the members (owners) of the company personally liable for its debts.

However, this separate legal personality is also open to abuse by the unscrupulous. As a result of this potential for abuse, the law has developed many exceptions to the rule in Salomon’s case both through the jurisprudence of the courts and through legislation.

The effect of these exceptions ranges from the attribution to the company of some personal characteristic of its controlling members such as residence or intention (referred to as ‘’peeping behind the veil’), to actually making the members, directors or other officers of the company personally liable for the debts of the company (referred to as “ignoring the veil completely’).

The courts’ tendency at common law to lift the veil of incorporation where it was being used for a “fraudulent illegal or improper purpose” has been supplemented by certain provisions of CA 2014 which impose personal liability for company debts on misbehaving directors and other officers of a company. Some examples of where personal liability may be imposed on the officers or members of a company are as follows:

where proper books of accounts have not been kept (officers may be personally liable);

where an improper declaration of solvency has been made in a voluntary winding-up (officers may be personally liable);

where there has been reckless on fraudulent trading (officers may be personally liable).

(iv) Legislation has also ignored the separate legal personality of each company when enacting provisions relating to groups of companies. Where a company (Company A) is a subsidiary of another (Company B) i.e. where a majority of Company A’s shares are held by Company B or it is effectively controlled by Company B - Company A remains in law a separate legal entity from Company B (its holding company). There is however a growing tendency for the legislature to modify this principle in a number of areas, for example:

by requiring a holding company to publish consolidated accounts for the group as a whole;

requiring a company in a group to pay the debts of another company in the same group in limited cases;

requiring the assets of the group to be pooled for the benefit of creditors and contributors in certain insolvency scenarios;

enabling an examiner appointed over a company to be appointed over a related company; and

the extensive grouping provisions provided for in tax legislation.

Examiner’s Report

Generally, the standard of answers to this paper were consistent. than in recent years. Most students were able to correctly identify the issues being examined and demonstrate an acceptable level of working knowledge in those areas.

Comments on the standard of answering on a question by question basis are as follows:

Question 1

This question was generally answered to a satisfactory standard, with most students having a reasonable knowledge of the issues identified. Only a few students however demonstrated the detailed knowledge which was required to achieve top marks.

Question 2

This was by far the least popular question with only one third of students attempting it. This suggests that this is an area which many students are omitting from their studies although State Aid has received significant coverage in the news over the last year. Those who attempted the question, however, generally displayed sufficient knowledge to achieve a pass mark for this question.

Question 3

This question was generally answered well with most students being aware of the differences between an LTD and a DAC. Students were also familiar with employment law concepts being examined at parts (iii) and (iv).

At part (i), while most students were able to explain the meaning of “ultra vires”, few were able to explain in detail the implications of a company entering into an ultra vires contract with third parties since the commencement of the Companies Act 2014.

At part (v), some students seemed to be confused between an allotment of shares and a transfer of shares.

Question 4

At parts (i) – (iii), most students were aware of the purpose for holding an AGM, however not all students were able to correctly identify the timelines to be adhered to when convening an AGM.

At part (iv), however, many students did not demonstrate a detailed knowledge (as was required by the question in order to achieve the full 10 marks on offer) of the summary approval procedure introduced by the Companies Act 2014. Given the importance of the summary approval procedure, and the fact that it frequently arises in practice, students are strongly encouraged to study this area in more detail and to be aware of the mechanics of how it operates for practical application.

Question 5

This question had the lowest standard of answer. At part (b) in particular, many students continue to be confused between the presumptions a court will have when interpreting legislation and the rules of interpretation. These are two separate areas which are examinable and students are encouraged to become familiar with the distinction.

Question 6

This question was generally answered well by most students who attempted it with most students able to demonstrate good knowledge and understanding of the concepts of separate legal personality and limited liability. In order to achieve top marks in this area, however, students would be well advised to study in more detail the circumstances when the veil of incorporation will be looked through to impose personal liability on individuals and when the concept of separate legal personality may be ignored in the context of group companies.

Q1

Q2

Q3

Q4

Q5

Q6

Highest

19

17

20

18

17

16

Lowest

3

1

3

2

1

1

Average

12

11

12

10

9

10