Monday 20 November 2023
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 the newsletter.
Question:
Salma is a director of Yeah Ltd, a private limited company. She receives a lucrative job offer from a competing company and decides to resign from Yeah Ltd. However, she fails to inform the board of directors and secretly starts working for the competitor while still acting as a director of Yeah Ltd. Which of the following statements is correct regarding Salma’s actions?
- Salma’s actions are not a breach of her duties as a director since she has already resigned.
- Salma’s actions are a breach of her duty to act in good faith and in the best interests of Yeah Ltd.
- Salma’s actions are permissible as long as she doesn’t disclose any confidential information of Yeah Ltd to the competitor.
- Salma’s actions are acceptable as long as she compensates Yeah Ltd for any losses suffered due to her competing activities.
- Salma’s actions are only a breach of her duty if Yeah Ltd can prove that it suffered financial harm as a result.
Top Tip: Candidates for the January SQE1 exams should be aware that the SRA is changing the way pass scores are calculated. There is going to be set pass score at 60% now. For details on how this is calculated and what it means see the video here.
Relevant Reading: Watch the video linked here for a presentation of the duties of directors. For relevant sections in a text see ReviseSQE Business Law and Practice, Chapter 4. You can obtain the text by following this link.
Answer and feedback to last week’s question: The previous question was as follows: A company has a provision in its articles of association which allows the board to issue new shares, subject to the approval of the shareholders. The board decides to issue new shares to a group of investors without seeking the approval of the shareholders. Which of the following statements best describes the legal position of the company? 1. The company is not required to obtain shareholder approval because the provision in the articles of association is discretionary. 2. The company is not required to obtain shareholder approval because the board has the authority to issue new shares. 3. The company is required to obtain shareholder approval for the issuance of new shares, and the board is in breach of its duty for not doing so. 4. The company is required to obtain shareholder approval for the issuance of new shares, but the board is not in breach of its duty for not doing so. 5. The company is not required to obtain shareholder approval for the issuance of new shares, but the board is in breach of its duty for not doing so.
The correct answer is 3. “The company is required to obtain shareholder approval for the issuance of new shares, and the board is in breach of its duty for not doing so”. Under s.550 Companies Act 2006, the issuance of new shares by a company requires shareholder approval unless the articles of association provide otherwise. In this scenario, the provision in the articles of association allows for the issuance of new shares subject to shareholder approval, therefore the board is in breach of its duty for not seeking shareholder approval.
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All the best
Dr Ioannis Glinavos
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