King’s College London

This paper is part of an examination of the College counting

towards the award of a degree. Examinations are governed by the
College Regulations under the authority of the Academic Board.

LLB EXAMINATION

6FFLK017 COMPANY LAW

EXAMINATION PERIOD 2, 2021

FORMAT: OPEN BOOK TAKE-HOME EXAM

This exam may be taken at home or elsewhere. You are permitted
to refer to any written, printed or electronic material, including
material on KEATS.
We expect the use of sources, i.e., that you cite legislation, cases
and secondary materials in your answers. You may use short-form
referencing rather than precise citations or OSCOLA referencing.
Quotes must be attributed by indicating their source.
WORD LIMIT: [5000] WORDS PER WHOLE EXAM
The word count does not include any cover sheet or title page, or
any text that appears in the header and footer. It includes headings
and any text that appears in footnotes.
TIME ALLOWED: 24 HOURS
This exam should not take more than EIGHT hours to complete. Do
not leave submission to the last minute. The exam duration of 24
hours allows you plenty of time to submit your work and check your
submission has uploaded successfully.
ALL CANDIDATES MUST ANSWER THREE QUESTIONS
AT LEAST ONE QUESTION MUST BE FROM PART A AND AT LEAST ONE
FROM PART B. (THE THIRD QUESTION MAY BE FROM EITHER PART.)

YOU ARE NOT PERMITTED TO DISCUSS THIS PAPER OR PROPOSED

ANSWERS WITH ANY PERSON.

YOU MUST USE YOUR CANDIDATE NUMBER AS ‘SUBMISSION TITLE’

WHEN UPLOADING YOUR WORK. DO NOT WRITE YOUR NAME
ANYWHERE ON YOUR SUBMISSION.

2020 © King's College London

 6FFLK017

PART A

Question 1

'The courts have consistently respected the legal reality created

by incorporation and enforced its consequences.'
Kershaw, Company Law in Context, p. 42

Critically discuss this assertion, noting what those

'consequences' are.

Question 2

‘Many opportunities were missed when directors’ duties were

“codified” in the Companies Act 2006, Part 10.’

Discuss.

Question 3

The Company Law Review (leading to the Companies Act 2006)

concluded that the “Duomatic Principle” should be codified in the
2006 Act but this proposal was rejected.

Discuss if this was a sensible decision and consider what issues

such a codification might cover.

Question 4

“Given that the doctrine of limited liability shifts the risk of a

company’s failure from its shareholders to its creditors, it is only
right that the company law regime should contain a variety of
creditor protection measures. However, the regime goes too far
in its efforts to protect creditors.”

Discuss.

See next page

Page 2 of 7
 6FFLK017

PART B

Question 5

Box owns a storage facility and last year was approached by Grape
and Elderberry who wanted to rent it in order to store crates of
wine which they intended to sell through a company they were
about to form: Vino Ltd ('Vino'). Box agreed to grant the company
a lease for 10 years at a nominal rent in exchange for a 30%
shareholding in the new company and for a seat on the board,
intending to protect his interests as landlord. The rest of the
shareholding was divided equally between Grape and Elderberry,
who also became directors. Vino adopted the Model Articles for
Private Companies Limited by Shares (latest edition) but (a) pre-
emption rights were excluded and (b) Box (who also ran a wine
bar), negotiated the insertion of an additional article:

Art 6A Directors shall be entitled to buy wine from the

company at half the retail price.

In an attempt to protect his position on the Board, Box also insisted

that a contract be executed between the company and his fellow
shareholders that Box should remain a director for the duration of
the lease and Grape and Elderberry would take not steps to remove
him.
Box, who exercises his rights under Art.6A extensively, attends all
Board meetings and finds himself on bad terms with his fellow
directors who have suggested that he cease exercising his rights
under art.6A 'for the good of the company'. He has refused and has
just discovered that Grape and Elderberry intend to issue more
shares to their friend Teetotal so that he becomes a 50%
shareholder, although the company is very successful and does not
need any more share capital. Teetotal has revealed that Grape
and Elderberry have offered him the shares on condition (which he
feels bound to fulfil) that he will vote to support shareholder
resolutions to be tabled by him that (a) Box be removed as director
and (b) Art. 6A be deleted and (c) a new article be inserted
enabling directors to force any shareholder to sell their shares to
the directors at a fair price (determined by an independent party).

Question continues on next page

Page 3 of 7
 6FFLK017

Moreover, Box is also unhappy with the lease as he would now be

able to achieve a very high rent. On consulting solicitors, they
have discovered that the lease, although signed by Grape and
Elderberry 'pp. Vino Ltd', was executed a day before Vino was
incorporated.
Box wishes to remain as director (primarily to continue exercising
his rights under Art 6A) and shareholder of Vino, and to evict Vino
from his storage facility.

Advise him on the legal position, without considering the means

by which he may be able to enforce any rights he may have.

Question 6

Inspired by the government’s pledge to achieve carbon neutrality

by 2050, Axelle, Bonnet, Carbon, and Diesel co-founded Speedy EV
Ltd in 2018 with the specific purpose of designing and
manufacturing environmentally friendly electric cars. Axelle and
Bonnet were previously employed by a major European carmaker
in Munich as senior mechanical engineers. Carbon used to be a
Professor of Renewable Energy at London University who
specialised in novel battery technologies such as lithium nickel
cobalt aluminium oxides (NCA). Diesel is an environmentalist who
has been advocating the total ban of petrol and diesel cars. Axelle,
Bonnet, and Carbon became the directors of the company, whilst
Diesel sometimes promoted Speedy EV Ltd incidentally during her
environmental campaigns. Speedy EV Ltd adopted the Model
Articles for Private Companies Limited by Shares (latest version),
with the exclusion of the pre-emption article and the addition of
Article 30A: “The company will not distribute cash dividends to
shareholders for the first 10 years after incorporation, as profits
shall be reinvested in the research and development of innovative
technologies to retain a competitive edge.”
On incorporation, Speedy EV Ltd issued 100,000 ordinary shares
with £1 nominal value. Axelle subscribed for 35,000 shares and she
paid for her shares by giving the company an IOU promising to pay
the capital in September 2021 when she is expected to make some
money from exercising her share options from her previous
employer. Bonnet decided to subscribe for 35,000 shares by

Question continues on next page

Page 4 of 7
 6FFLK017

directly paying £35,000 into the company, after he was promised a

commission equivalent to 10% of the upfront payment. Carbon
planned to sell his NCA patent to the company as consideration for
20,000 shares, and all directors agreed that this was a fair bargain
for the company given the patent’s potential commercial value.
Diesel paid for her 10,000 shares by Ethereum (a cryptocurrency)
as she considered cryptocurrency as a greener form of money.
In 2019, Speedy EV Ltd launched the Model Z, a purely electric
sports car, which turned out to be a huge commercial success as
the company sold over 6,000 vehicles to affluent clients across the
world. This generated substantial profits for the company, so
Axelle and Bonnet wanted to call a shareholder meeting to pass a
resolution to distribute non-cash dividends for shareholders (e.g. a
Model Z for the holder of every 5,000 shares). Carbon and Diesel
strongly opposed this initiative as they thought the money should
be saved for rainy days, and more importantly, they insisted that
Article 30A prohibits the distribution.
In 2020, the sale of Model Z plummeted during the COVID-19
pandemic, by 85%, when travel around the world was not allowed
due to the lockdown policy. The company encountered severe
financial difficulty due to the loss of sales and the high operating
costs. The directors would like to issue 100,000 preference shares
with £1 nominal value to external investors to raise funds, at the
price of £20 each with an annual yield of 5%. They also plan to
incorporate a redeemable clause (only at the option of the
company after 2 years of issuance). Green Tree LLP, a Dubai-based
private equity firm focusing on the investments in the new energy
and the sustainable infrastructure sector, was the only institution
expressing interest in subscribing for all the preference shares at
the asking price and it made a counter-offer with one of the
following conditions to be satisfied: (a) raising the coupon rate
from 5% to 15% and removing the redeemable clause; or (b)
inserting a convertible clause to allow the holders of preference
shares to convert their equities to ordinary shares after 1 year.
Axelle and Bonnet were more in favour of accepting (a), whilst
Carbon and Diesel preferred to take (b).
As the confrontation among directors intensified, Axelle and
Bonnet wanted to force Carbon to leave the firm but only offered
a derisory sum for purchasing back his shares. Carbon felt

Question continues on next page

Page 5 of 7
 6FFLK017

desperate, and considered leaving the firm to set up a new EV

manufacturer in direct competition to Speedy EV Ltd, as he has
been approached by Great Bay Capital, a California-based venture
capital firm who is willing to provide generous seed funds.

(i). Advise the shareholders of Speedy EV Ltd regarding: (a) the

legality of the company’s original financing structure in 2018;
(b) the feasibility of the distribution plan proposed in 2019; and
(c) the potential legal implications of issuing preference shares
in 2020 and how this affects the rights of existing shareholders.
(ii). Advise Carbon as to his decision to exit the company in
2021: (a) how to obtain a fairer price for selling his shares in
Speedy EV Ltd; and (b) whether he can accept the seed funds
from Great Bay Capital to set up a new EV venture.

Question 7

A few years ago, Boozy Ltd (‘Boozy’) was established by Box, Cox
and Fox in order to run a wine bar. It adopted the Model Articles
for Private Companies Limited by Shares (latest version), with the
addition of the following article:

Art 3A: Any borrowing in excess of £10,000 needs the

authorization of all the directors.

It also adopted a narrow 'objects clause' whereby its only object

was the running of wine bars All three became equal shareholders
and directors and negotiated a small overdraft with Golden Bank
plc (the bank insisting on taking a copy of its articles for its files).
They employed Useless as manager of their wine bar and he proved
so effective that in January 2020 they decided to take a long
holiday touring the world, leaving Useless to run the company and
saying they would ‘check in’ with him fortnightly. In fact they
went to such remote places (without internet access) that they
rarely contacted him but when they did, he satisfied them that he
was operating efficiently. COVID 19 upset their travel plans and in
April 2020 they became stuck in a remote mountain range with no
internet access for 4 months.

Question continues on next page

Page 6 of 7
 6FFLK017

On their return to the UK in August 2020, they discovered that the

wine bar had been shut-up because of the COVID restrictions in the
UK but that Useless (who has since disappeared) had decided that
the business should continue by selling (by mail order) the wine
stock already aquired by Boozy. The ‘small business consultant’ at
Golden Bank plc had suggested this course of action and the bank
lent the business £15,000 to cover the costs of the change in
business. This loan was secured by what was termed a ‘fixed
charge’ over the company’s receivables generated by the mail
order business. In August Box decided to take charge of trying to
salvage the business and employed his elderly mother, Hopeless,
on a two-year contract to continue the mail order business so that
she could augment her pension. However, the mail order income
did not cover the rent payble to Boozy’s landlord and it was obvious
that the business was loss-making.
As Boozy’s rent has not been paid for nearly 12 months, its landlord
has just threatened to petition for the winding up of the company.
Its main liabilities, as well as the rent and the bank overdraft and
loan, are unpaid VAT and Hopeless’s salary. Its main assets are a
(large) store of wine and payments due from its on-line customers.
Box (and his fellow directors and shareholders) ask you for advice
as to what action the liquidator is likely to take.

Advise them.

Final Page

Page 7 of 7