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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: 3 hrs

Answer any FIVE questions.

ALL questions carry equal marks

1.(a) Identify five clauses contained in the Memorandum of Association.(5 marks)

(b) To what extend and by what methods may the various clauses in the memorandum of association of a company be altered?(15 marks)

2.(a) State and briefly discuss the conditions which must be fulfilled before a company can either issue or redeem shares which are stated to be redeemable.(10 marks)

(b) State the requirements of the Companies Act which relate to the company giving financial assistance for purchase of it's own shares.What are the consequences of non-compliance with these requirements?(10 marks)

3.Birds Limited has three directors:Peacock,Sparrow and Vulture.

Explain the legal implication of each of the following situations:

(a) Vulture's son has recently come of age and Vulture wishes to appoint him a director of the company.(4 marks)

(b) The company is considering the purchase of a substantial quantity of goods from Fly Ltd,in which Sparrow has a large shareholdings,though he is not a director.Peacock and Vulture are unaware of Spirrow's interests in Fly Ltd.(4 marks)

(c) Because of adverse publicity about Peacock's private life,Vulture and Sparrow wish to remove him as a director,since he refuses to resign.(4 marks)

(d) In view of the adverse publicity,Vulture and Sparrow decide to exclude Peacock from participation in the company's affairs.(4 marks)

(e) The directors are advised by Wise & Co., the company's auditors, that there is no possibility of the company trading at a profit in the foreseeable future and no reasonable prospect of it paying its debts.(4 marks)

4.Joan has inherited one million shillings from the estate of her late mother.She has decided to invest it in a small private company of which Janet and Jeffrey,her old friends are directors.However,Joan is not sure whether to lend the money to the company secured by a debenture containing a fixed and floating charge or through purchase of ordinary or preference shares.

Joan now seeks your advice on the following issues:

(a) What is the difference between ordinary and preference shares, and what rights accrue to the holders of each class of shares?(8 marks)

(b) (i) What is the return on ordinary and preference share capital?( 4 marks)

(iii) What are the restrictions that may be imposed on her ability to transfer any shares she may purchase in the Company?(8 marks)

5.(a) What are the advantages and disadvantages of a floating charge to a debenture holder?(8 marks)

(b) Outline the exceptions to the general prohibition on financial assistance by a company for the purchase of its own shares.(6 marks)

(c) Outline the circumstances under which a floating charge will crystallize.(6 marks)

6.(a) Explain five circumstances under which the veil of incorporation may be lifted by the court.(10 marks)

(b) Name and briefly explain four classes of persons who may incur civil liability in respect of a false statement in a prospectus.(4 marks)

(c) (i) Explain the doctrine of ultra vires with regard to the objects of a company.(2 marks)

(ii) State the effects of ultra vires transactions(2 marks)

(iv) What are the purposes of the rule?(2 marks)

7.In the context of voluntary winding up,explain the statutory provisions regarding the powers of the liquidator which may be exercisable:

(a) with the court sanction;(10 marks)

(b) without the court sanction(10 marks)

8.(a) Detail the conditions that have to be satisfied before an applicant can bring an action successfully under the exception to the Rule in Foss v Harbottle.(10 marks)

(b) Naliaka owns 10% of the issued shares in Pendo Limited.There are two directors Wanyonyi and Wafula who have an eccentric style of management.They own 45% of the issued shares.Naliaka understands that Wanyonyi and Wafula want to merge Pendo Ltd.with another more profitable company that the two directors wholly ow.

If this plan goes ahead,Naliaka of her legal position and protection under the law if any.(10 marks)

Law Ii Question Paper

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