Monday 11 December 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 this newsletter.
Question:
Xylo Ltd, a company specializing in IT services, is facing financial difficulties and may be unable to pay its debts. The company’s directors decide to continue trading, hoping to turn the business around. However, they fail to inform the company’s creditors about the company’s financial situation. Which of the following statements is correct regarding the directors’ actions?
- The directors are personally liable for the company’s debts because they continued trading while insolvent.
- The directors are protected from personal liability because they were acting in the best interests of the company.
- The directors can avoid personal liability if they can demonstrate that they had a reasonable belief the company could overcome its financial difficulties.
- The directors are automatically disqualified from acting as directors due to the company’s insolvency.
- The directors’ personal liability depends on whether they have personally guaranteed any of the company’s debts.
Top Tip: Wondering whether you should prepare for the LPC instead of taking the SQE? Watch this video to help you make up your mind.
Relevant Reading: For a relevant text see ReviseSQE Business Law and Practice. You can obtain the text by following this link.
Something Fun: Looking for a fun gift for a friend who is battling the SQE? Get them some Law Exam Survivor merchandise for Xmas. Something to look back on fondly when all this studying is behind you.
Answer and feedback to last week’s question: The previous question was as follows: Jonah and Myriam are partners in a consultancy firm, operating as a general partnership. Jonah, without Myriam’s knowledge or consent, signs a contract on behalf of the partnership to provide IT services to a client. The client, upon discovering that Jonah acted without Myriam’s authority, wants to hold the partnership liable. Which of the following statements is correct regarding the partnership’s liability?
- The partnership is not liable because Jonah acted without Myriam’s consent.
- The partnership is liable because Jonah is a partner and his actions are binding on the partnership.
- The partnership is only liable if the client can prove that Jonah had apparent authority to bind the partnership.
- The partnership is only liable if Myriam ratifies Jonah’s actions after the fact.
- The partnership is not liable because Jonah’s actions fall outside the scope of partnership business.
The correct answer is 2: “The partnership is liable because Jonah is a partner and his actions are binding on the partnership”. In a general partnership, each partner is an agent of the partnership, and their actions within the scope of partnership business bind the partnership. Therefore, even if Jonah acted without Myriam’s knowledge or consent, he still has the authority to bind the partnership, and the partnership would be liable for the contract entered into by Jonah.
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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