Monday 20 April 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 firm acts for a company buyer in an asset purchase. On Monday, the firm receives a single bank transfer of £18,000 from the client. The transfer is made up of £12,000 to be held on account of completion, £4,000 in respect of the firm’s profit costs for work already done, and £2,000 to reimburse counsel’s fee, which the firm has already paid from office account the previous week. The client’s email sent immediately before the transfer clearly identifies all three elements. No bill or written notification of costs has yet been delivered by the firm. The cashier asks how the money should be dealt with that day. Which is the best answer?
A. Pay the full £18,000 into client account first, because all money received from a client in connection with a matter must initially be treated as client money until billing is completed.
B. Pay £12,000 into client account and £6,000 into office account, because the payment is mixed and the firm should allocate promptly to the correct accounts; however, the £4,000 for profit costs cannot be transferred from client account without first giving a bill or other written notification.
C. Pay £16,000 into client account and £2,000 into office account, because reimbursement of counsel’s fee already paid by the firm is office money, but money for the firm’s own costs must always pass through client account before any transfer out.
D. Pay the full £6,000 relating to costs and disbursements into office account only after first delivering a bill, because until then the whole mixed payment must remain unallocated in suspense.
E. Pay the full £18,000 into office account, because the client has expressly identified the purpose of each sum and none of the money therefore needs the protection of client account.
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Last Week’s Question: A company purchases goods from a supplier on credit. The contract states that ownership of the goods remains with the supplier until full payment is made. The company later grants a bank a floating charge over all its stock. Before paying the supplier, the company becomes insolvent. At the time of insolvency, some goods are still identifiable, while others have been sold and mixed into finished products. Both the supplier and the bank claim priority over the remaining assets. Which of the following best reflects the likely legal position?
A. The bank has priority over all goods because a floating charge covers all stock of the company.
B. The supplier has priority over all goods because ownership never passed to the company under the clause.
C. The supplier may recover identifiable goods, but will lose priority over goods that have been sold or transformed.
D. The bank automatically takes priority because secured creditors rank ahead of unsecured suppliers in all cases.
E. The supplier will rank as an unsecured creditor for all goods because retention clauses are not enforceable in insolvency.
✅ Correct Answer: C. The supplier may recover identifiable goods, but will lose priority over goods that have been sold or transformed. Feedback: A retention of title clause allows a supplier to retain ownership of goods until payment is made. If valid, the supplier can recover goods still identifiable in their original form, as ownership never passed to the buyer. However, Once goods are sold on, the supplier’s rights are usually lost unless the clause validly extends to proceeds. If goods are mixed or transformed into new products, ownership is generally lost because the original goods no longer exist in identifiable form. A floating charge covers circulating assets like stock but only attaches to assets that belong to the company. If ownership has not passed, the charge does not attach to those goods. The other options are incorrect because:
- A is wrong: the bank’s charge only covers assets owned by the company.
- B is too broad: the supplier’s rights are limited to identifiable goods.
- D is incorrect: priority depends on ownership and security, not simply secured vs unsecured status.
- E is incorrect: retention of title clauses can be valid and effective if properly drafted.
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Dr Ioannis (Yannis) Glinavos
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