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Law Ii Question Paper

Law Ii

Course:

Exam Year:

KENYA ACCOUNTANTS AND SECRETARIES NATIONAL EXAMINATIONS BOARD

CPA II

LAW II

Time: 3hrs

Answer any FIVE questions.

ALL questions carry equal marks.

1.(a) The principle of corporate legal personality is an important and fundamental aspect of company law.

Discuss this statement citing relevant decided cases.(6 marks)

(b) Rippofff Company Ltd,a private limited company,has been under inquiry on alleged fraudulent financial transactions

The officers of the company under suspicion have denied any association with the company.

At the inquiry it was suggested that the corporate veil be lifted and the realities of the company in question be looked into.

Explain the instances when the veil of incorporation may be lifted.(14 mark)

2.(a) The ruling in the case of Ashbury Railway Carriage vs.Riche (1875) stated that that an act that has not been authorized by the objects clause of a company's Memorandum of Association is ultra vires to the company and the members cannot ratify it."

Discuss.(8 marks)

(b) Explain the various ways in which persons intending to form a company may avoid personal liability on contracts they make on behalf of the proposed company.(6 marks)

(c) It has been held that the Memorandum and Articles of Association of a company shall,when registered,bind the company and the members to the same extent as if the documents had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and the articles.

Explain the effect of this provision on the relationship between shareholders and their company and between shareholders themselves.(6 marks)

3.(a) Outline the qualified minority rights of a member which can only be enforced by the joint efforts of a membership group as defined under the Companies Act.(10 marks)

(b) The articles of X Company Ltd.provide that every member is entitled to one vote for each of the first ten shares and thereafter to one vote for each additional ten shares.Jane owns one hundred shares.She transfers ten of her shares to her nine nominees to increase her voting power in general meetings.Joseph,who is the chairman at the general meeting;refuses to accept the votes of Jane's nominees.

Advise Jane on the validity of the Chairman's action and her right as a member.(10 marks)

4.(a) (i) State the rules in Foss-vs-Harbottle,making clear the purpose and the rationale underlying the rule.(6 marks)

(ii) State briefly the principal exception to the rule.(4 marks)

(b) Shadrack Ruto owns 500 shares of Sh.20 each in Alpha and Omega Ltd.and 500 shares of Shares of Sh.10 each in the Beginning and End Ltd.Both companies are regulated by Table A-articles of association.Shadrack Ruto has agreed to sell all his shares in Alpha and Omega to Albelnego Soi and 300 shares in Beginning and End to Meshack Mamba.He has been informed that both companies use the form of transfer that is generally used by brokers,who are members of national stock exchange.

Advise Shadreck Ruto on:

(i) The information which is required on the share transfer form.(4 marks)

(ii) The procedure which should be followed to effect,and the duration it will take to issue the new share certificates.(6 marks)

5.Advise the directors of Tangaza Company on the following issues:

(a) The provisions of the Companies Act that relate to the calling of the annual general meeting and the duties of the chairman during such a meeting.(10 marks)

(b) When a company is compelled to call an extra ordinary general meeting.(5 marks)

(c) The procedure to be followed to remove a director from office.(5 marks)

6.(a) State the provisions of the Companies Act relating to the qualification and appointment of the company secretary can contractually bind a company.(10 marks)

(b) In what circumstances can a court make a disqualification order against a director of a company?(10 marks)<br
7.(a) Explain the various types of the Companies Act,Section 96,as registrable charges.(10 marks)

(b) Kazi Bure Company Ltd.brews alcohol.It obtains barley from Narok Farm Produce Ltd.on terms stating that the company will not have ownership of the consignment of barley until it has paid full purchase price for the consignment.Kazi Bure Company Ltd.has an overdraft facility with Liquidity Bank but only pays Narok Farm Produce Ltd.in full for a consignment of barley when the alcohol made using that barley is sold to and paid for by the company's wholesalers (who receive on payment).

Kazi Bure Company Ltd has given Liquidity Bank a floating charge over all its assets.The company has however become insolvent and receiver,appointed by the bank under the floating charge,has taken over the brewery.

Explain how the receiver should handle each of the following items:

(i) Some bags of barley delivered by Narok Farm Produce Ltd.(6 marks)

(ii) Semi-processed alcohol in containers made of barley and yeast.(2 marks)

(iii) A consignment of brewed alcohol with a label marked "sold to wholesalers and paid for."(2 marks)

8.(a) Outline the circumstances under which a company may be wound up by the court on just and equitable grounds.(12 marks)

(b) Highlight the types of debts which are treated as preferential in a winding up under the Companies Act.(8 marks)

Law Ii Question Paper

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