Monday 24 November 2025
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 company sues its former finance manager in the civil courts, alleging that he fraudulently transferred company funds into his personal account. The manager denies wrongdoing and claims that any payments were authorised bonuses. The company’s solicitor explains that fraud is a serious allegation requiring strong evidence. The manager’s counsel argues that the company must prove the case “beyond reasonable doubt” because of the seriousness of the accusation.
Which statement best reflects the correct legal position?
A. The company must prove the allegation beyond reasonable doubt, as fraud involves criminal conduct.
B. The company must prove the allegation on the balance of probabilities, but stronger evidence may be required in practice because of the gravity of the claim.
C. The company must prove the allegation to a “clear and convincing” standard, midway between civil and criminal proof.
D. The company must prove the allegation beyond reasonable doubt unless the manager has already been acquitted in criminal proceedings.
E. The company must prove only that there is some evidence suggesting dishonesty, as fraud is presumed if funds are missing.
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Last Week’s Question: A director of a private company learns that the company plans to purchase a plot of land for development. Before the board has made a final decision, the director arranges for a separate company owned by his spouse to buy the same plot and then sell it to the company at a profit. When the transaction is later discovered, the company’s shareholders demand repayment of the profit made by the spouse’s company. The director argues that he acted in good faith and that the company ultimately suffered no loss.
Which duty under the Companies Act 2006 has the director most clearly breached?
A. The duty to exercise reasonable care, skill and diligence (s.174).
B. The duty to promote the success of the company for the benefit of its members (s.172).
C. The duty to avoid conflicts of interest (s.175).
D. The duty not to accept benefits from third parties (s.176).
E. The duty to declare interest in a proposed transaction or arrangement (s.177).
✅ Correct Answer: C The duty to avoid conflicts of interest (s.175). Feedback: Under s.175 Companies Act 2006, a director must avoid a situation in which they have, or could have, a direct or indirect interest that conflicts with the interests of the company. Here, the director diverted a corporate opportunity for personal (or connected-party) gain, which constitutes a clear conflict of interest. It is irrelevant that the company suffered no actual loss or that the director acted “in good faith” — see Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 and IDC v Cooley [1972] 1 WLR 443.
- Option A is wrong: this concerns competence and diligence, not loyalty.
- Option B is wrong: while relevant, the primary breach is the conflict itself, not general promotion of success.
- Option D is wrong: no third-party benefit was accepted; the profit arose from misuse of opportunity.
- Option E is wrong: declaring an interest after the fact does not cure the breach.
This question tests FLK1: Business Law and Practice, focusing on fiduciary obligations and conflicts under ss.171–177 Companies Act 2006.
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Dr Ioannis (Yannis) Glinavos
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