Monday 22 January 2024
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
If you are sitting SQE1 FLK2 exams this week, best of luck to you! For everyone else, I 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:
XYZ Ltd is a public limited company operating in the fashion retail industry. The company has recently experienced a significant decrease in its share price, due to concerns about human rights abuses in its supply chain, leading to consternation among its shareholders. One of the shareholders is considering taking legal action against the company’s directors for alleged mismanagement. Which of the following legal principles is relevant to the shareholder’s ability to bring a claim against the directors?
- Fiduciary duty.
- Statutory duty of care.
- The rule in Foss v Harbottle.
- Business judgment rule.
- The ultra vires doctrine.
Top Tip: Do you know enough about taxation as it relates to SQE FLK? Listen to the podcast linked here for a quick breakdown of personal and corporate taxation in the UK.
Relevant Reading: Find more practice MCQS in the ReviseSQE FLK1 question book. You can obtain the text* by following this link.
Answer and feedback to last week’s question: ABC Ltd is a private limited company engaged in manufacturing and distribution. The company has been facing financial difficulties and is considering options to restructure its operations. One possibility is to enter into a scheme of arrangement with its creditors to manage its debts. Which of the following statements best describes a scheme of arrangement?
- A legally binding agreement between the company and its creditors to restructure the company’s debts.
- A voluntary liquidation process initiated by the company to wind up its operations.
- A court order requiring the company to repay its debts within a specified time frame.
- An agreement between the company and its shareholders to change the company’s shareholding structure.
- A process by which the company transfers its assets to a new entity to avoid its existing liabilities.
The correct answer is 1: a legally binding agreement between the company and its creditors to restructure the company’s debts. A scheme of arrangement is a legal mechanism used by a company to reach an agreement with its creditors to restructure its debts. It is a formal and court-sanctioned process that allows the company to negotiate with its creditors and propose a repayment plan or other arrangements to manage its financial obligations. The scheme of arrangement requires approval from the court and must be accepted by the majority of the company’s creditors. Once approved, it becomes a legally binding agreement between the company and its creditors, outlining the terms of the debt restructuring. A scheme of arrangement provides the company with an opportunity to reorganize its finances, reduce its debt burden, and potentially avoid liquidation or bankruptcy. It allows the company to continue its operations while addressing its financial difficulties in a structured manner (CA2006/Part 26).
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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