Monday 18 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:
Tracy is a director of Xena Ltd, a company engaged in the construction business. She is negotiating a contract with a client, who is a close relative, one of her uncles. Tracy wants to be sure the negotiations are conducted in a way that won’t raise any issues for any of the parties involved. Which of the following statements is correct regarding Tracy’s situation?
- Tracy can proceed with the contract negotiation without disclosing her relationship with the client.
- Tracy must disclose her relationship with the client to the board and obtain their consent to continue.
- Tracy can proceed with the contract negotiation but must obtain the client’s consent to continue.
- Tracy must ask another director to sign the contract once negotiations are complete.
- Tracy can proceed with the contract negotiation but must inform the client about her fiduciary duty as a director.
Top Tip: The more you practice MCQs, the better you get at it. You can find the newsletter questions in the form of short videos on this link.
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: 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.
The correct answer is 3: “The directors can avoid personal liability if they can demonstrate that they had a reasonable belief the company could overcome its financial difficulties”. Directors have a duty to avoid wrongful trading, which includes continuing to trade when the company is insolvent and there is no reasonable prospect of avoiding further losses to creditors. By failing to inform the company’s creditors about the financial situation, the directors are in breach of their duty and may be held personally liable for the company’s debts incurred during the period of wrongful trading.
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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