Monday 30 March 2026
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
Hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
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This Week’s Question: A private company had been trading profitably for several years but then suffered a sharp cashflow collapse after losing a major customer. The company owed substantial sums to trade creditors and to its bank, which held a floating charge over all present and future assets. The directors knew the company was under severe pressure, but they believed a rescue refinancing might still be possible. Five days before a winding-up petition was presented, the company repaid in full a loan made six months earlier by another company owned by one of the directors’ spouse. No similar payments were made to ordinary trade creditors, who remained unpaid. Two weeks later, the company entered insolvent liquidation. Which statement best explains the liquidator’s strongest argument in relation to that repayment?
A. The repayment is automatically void because any payment made shortly before insolvency is invalid once a floating charge exists over the company’s assets.
B. The repayment is most likely challengeable as a preference, because it put a connected creditor into a better position and the connection supports the inference of the required desire to prefer.
C. The repayment is challengeable only as a transaction at an undervalue, because repaying an existing debt always counts as disposing of value for no consideration.
D. The repayment cannot be challenged because paying a genuine debt is always a proper exercise of directors’ powers, even where connected persons are involved.
E. The repayment is valid unless the liquidator can prove the directors acted fraudulently and intended to cheat the company’s creditors.
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Last Week’s Question: A company contracts with a software developer to build a bespoke booking platform for £120,000, to be delivered by 1 June. The contract states that “time is of the essence” and that the platform must be capable of processing at least 5,000 bookings per hour. On 1 June, the developer delivers a functioning platform, but it can only process 3,500 bookings per hour. The company uses the platform for two months while repeatedly asking for the performance problem to be fixed. It then purports to terminate the contract and claims the cost of replacing the whole system with a new provider. Which of the following best reflects the company’s legal position?
A. The company automatically lost the right to terminate by using the platform after delivery, so it is limited to damages only for the reduced processing capacity.
B. The company is entitled to terminate because any failure to meet a contractual specification is a repudiatory breach where time is of the essence.
C. The company may have affirmed the contract by continuing to use the platform, and whether termination was still available will depend on whether the breach was repudiatory and whether affirmation can be inferred from its conduct.
D. The company cannot terminate because the platform was substantially performing the contract and substantial performance always prevents termination.
E. The company is entitled to terminate and recover the full replacement cost because the platform never matched the contractual description, regardless of its later conduct.
✅ Correct Answer: C. The company may have affirmed the contract by continuing to use the platform, and whether termination was still available will depend on whether the breach was repudiatory and whether affirmation can be inferred from its conduct. Feedback: This question engages several difficult contract principles at once: conditions and warranties, repudiatory breach, affirmation, and election. The first issue is whether the failure to meet the 5,000-bookings-per-hour requirement is serious enough to amount to a repudiatory breach. A term may be a condition, an innominate term, or a warranty. Even where “time is of the essence” makes the delivery date term more likely to be treated as a condition, that does not automatically mean every other specification term is also a condition. The performance-capacity obligation is more likely to be analysed by reference to its seriousness and consequences, in line with the approach to innominate terms in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
If the breach was repudiatory, the innocent party had a choice: terminate or affirm. By continuing to use the platform for two months while asking for the defect to be remedied, the company may have affirmed the contract, depending on whether its conduct objectively showed an election to continue. Once a contract is affirmed, the right to terminate for that breach is lost, though damages remain available. This reflects the principles seen in cases such as White and Carter (Councils) Ltd v McGregor [1962] AC 413 and the general doctrine of election.
A is too absolute. Continued use may amount to affirmation, but not automatically in every case; much depends on the facts, including whether the company reserved its position and whether it had sufficient knowledge of the breach and its legal rights.
B is wrong because not every failure to meet a specification is automatically repudiatory, even if another term in the contract states that time is of the essence.
D is wrong because substantial performance does not “always” prevent termination. The issue is whether the relevant breach was repudiatory and whether the innocent party affirmed.
E is wrong because later conduct does matter. Even where a repudiatory breach initially exists, the right to terminate can be lost by affirmation.
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Dr Ioannis (Yannis) Glinavos
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