f4 - final

Final Assessment

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ACCA FINAL ASSESSMENT

Corporate and Business Law

JUNE 2009

QUESTION PAPER

Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall

Time allowed Reading time: 15 minutes Writing time: 3 hours Answer ALL questions

Kaplan Publishing/Kaplan Financial

ACCA F4 (ENG) Corporate and Business Law

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Final Assessment

Answer ALL questions QUESTION 1 Explain briefly: (a) the doctrine of judicial precedent; and (5 marks) (b) the circumstances when a precedent will not be binding. (5 marks) (Total: 10 marks) QUESTION 2 Explain the remedies available for breach of contract. (10 marks) QUESTION 3 (a) What is a company’s share capital? (4 marks) (b) Explain the meaning of the following:

(i) issued capital; (3 marks) (ii) paid up capital. (3 marks)

(Total: 10 marks) QUESTION 4 (a) Distinguish between executory, executed and past consideration. (5 marks) (b) Explain the principle that performance of an existing duty is not sufficient to amount to

consideration. (5 marks) (Total: 10 marks) QUESTION 5 (a) Explain the meaning of corporate governance and what it covers in relation to

companies. (4 marks) (b) Explain the meaning of ‘a principles–based approach’ to corporate governance and

the advantages and disadvantages of such an approach as opposed to a rules-based approach. (6 marks)

(Total: 10 marks)



QUESTION 6 (a) Describe the circumstances in which a partnership may be dissolved. (7 marks) (b) Briefly summarise the differences between a partnership governed by the Partnership

Act 1890 and a Limited Liability Partnership (LLP). (3 marks) (Total: 10 marks) QUESTION 7 (a) Explain what is meant by the following in company law:

(i) a promoter; (3 marks) (ii) a pre-incorporation contract. (3 marks)

(b) What is the liability of a promoter on a pre-incorporation contract? (4 marks) (Total: 10 marks) QUESTION 8 Info Ltd is a small company that specialises in selling computer hardware and software to accountancy firms. It advertised in a specialist accounting journal as follows: ’Clearance sale: Limited number of Super 6686 Computers for only £1,000 each! Will be sold to the first 20 customers to send an order and cheque for the full amount.’ Alan, an accountant, reads the advertisement on Wednesday, the day of publication of the journal. He immediately posts an order including his cheque to Info Ltd. By 8 am on Thursday morning he has changed his mind and he sends a fax to Info Ltd cancelling his order and requesting the return of his cheque. His posted letter arrives one hour later. Info Ltd subsequently cashes Alan's cheque, claiming that it has a binding contract with him, and refuses to return the money. Required: Advise Info Ltd whether it has contractual rights against Alan. (12 marks)

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Final Assessment

QUESTION 9 Raymond is a director of Atkinson Ltd, a soft drink company. In January, Raymond paid a visit to Charles who is the chief executive of ‘Carbon Cans Ltd’, a company that manufactures drinks cans and bottles aimed at the beer market. During a round of golf, Charles informs Raymond that he has patented an ingenious design for a beer can which can keep beer at the correct temperature. Charles asks Raymond whether his company would be interested in licensing the product. In March, the board of directors of Atkinson decides that the company will enter into the beer market. In April, Raymond resigns as director and assumes the position of director of a rival company, and one of his first actions as director is to adopt the Carbon Cans license as proposed by Charles. Raymond’s new company is making a roaring trade selling quality beer which remains fresh and cooler far longer than its competitors. Required: Explain the nature of the duties that a director owes to his company and whether Raymond is liable to account to Atkinson for the profit made. (10 marks) QUESTION 10 Samson is a partner in a firm of solicitors and is representing his client Timothy in the purchase of an apartment for £250,000. Timothy is financing this purchase with a £180,000 mortgage loan from a building society and the remaining sum from his own savings. However, he only has a total of £20,000 in his savings account and does not own any other assets such as shares. On a recent visit to see Samson, Timothy seemed very anxious and was very concerned that he had absolutely no money left to cover the outstanding balance. Two days later Timothy returned to Samson's office with £50,000 in cash and told Samson, 'this should settle it'. Samson is concerned about how quickly Timothy has been able to obtain the money to cover the transaction and he is uncertain about how to proceed. Required: Advise Samson what he must and must not do to avoid liability for Money Laundering under the Proceeds of Crime Act 2002. (10 marks)


Final Assessment

ACCA

Paper F4 (ENG)

Corporate and Business Law June 2009

Final Assessment – Answers

To gain maximum benefit, do not refer to these answers until you have completed the final assessment questions and submitted them for marking.

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Final Assessment

ANSWER 1

Tutorial help and key points: The key word here is 'briefly', so detail can be limited. In (a), the main points are the three factors: hierarchy, material facts, 'ratio' not 'obiter' statements. In (b), there are five exceptions to the doctrine of precedent.

Marks (a) The UK courts are generally bound by their earlier decisions, based on

the following three principles:

(i) The hierarchy of the courts. As a general rule, higher courts bind lower courts in this (descending) order: ECJ, House of Lords, Court of Appeal, High Court. [1–2]

(ii) Decisions are binding where the important or 'material' facts are

the same. [1] (iii) Only the 'ratio decidendi' aspect of a ruling (literally the 'reason

for the decision') forms the binding part of a decision. This is the principle of LAW (not facts) on which the decision was based. [1–2]

(An example would be the principle of the duty of care owed by a

manufacturer to a consumer established in Donoghue v Stevenson (1932), not the fact that the consumer ate the partially decomposing remains of a snail.)

Other statements made 'obita dicta' (literally 'other things that

were said') are merely persuasive, not binding. A judge in a later case can choose to follow it but is not bound to do so. [1–2]

The purpose of the doctrine of judicial precedent is to provide

clarity and consistency in the law, yet retaining flexibility should the law need to be changed. [1]

(b) A precedent is not considered binding in circumstances where:

(i) it has been overruled by a higher court; (ii) the material facts differ from those of the earlier case, so it may

be 'distinguished on the facts'; (iii) it has been overruled by statute; (iv) it was made per incuriam ('through lack of care'); or (v) where the ratio was obscure or ambiguous, such as where

judges sitting on appeal (between three and five in each case) reach the same conclusion but for different reasons, so that in effect there are several 'ratios'.

[1 mark per point] [Total max: 10 marks]



ANSWER 2

Tutorial help and key points: This question is a difficult one. As there is potentially so much information that you could give, you can easily be tempted into overrunning your time. A very important point of exam technique is that, once you've earned the marks allocated, you must stop writing and go on to the next question. Remember, the marker cannot give you more than the maximum marks allocated. Perhaps the best approach to this question is to plan to write out the key matters concerning the three major remedies (damages, specific performance and injunction) and only to mention others such as action for the price and quantum meruit. Key points for damages:

• Common law remedy. • Remoteness – rule in Hadley v Baxendale. • Quantum – compensatory, i.e. to put the innocent party in the same position that he

would have been in had the contract been properly performed. Key points for specific performance:

• Court order requiring performance of a positive contractual obligation. • An equitable remedy, therefore given at the discretion of the court. • Just three examples of the guidelines (you must include the 'only where damages

would be inadequate' one because it is the most important). Key points for injunction:

• Court order requiring performance of a negative obligation. • An equitable remedy, therefore given at the discretion of the court in much the

same way as specific performance.

Marks Remedies for breach of contract include the following. Damages Damages is the major common law remedy for breach of contract and is therefore available as of right. The aim of awarding damages is to compensate the injured party, not to punish the contract-breaker. [1–2] When the courts are assessing unliquidated damages there are two issues: remoteness and measure. (i) Remoteness assesses what losses may be claimed for. In principle,

damages can be claimed for financial loss, property damage, and personal injury but not for mental distress or loss of enjoyment unless the contract is selling enjoyment – Jarvis v Swan Tours. [1–2]


Final Assessment

Marks Not every loss is recoverable though: some losses are too remote. The

basic rule, stated in Hadley v Baxendale, is that the defendant is liable for losses:

(1) arising naturally, i.e. according to the usual course of things, from

the breach; or (2) such as may reasonably be supposed to be within the

contemplation of the parties, at the time they made the contract, as the probable result of the breach. [1–3]

(ii) Measure (or quantum) deals with assessing the monetary amount of the

loss. This is the amount required to put the innocent party into the same financial position he would have been in had the contract been performed properly. The most common basis of this is the 'bargain loss' basis of assessment as in, for example, Victoria Laundry v Newman Industries, where the claim was for loss of profit. Sometimes a claimant may instead prefer to base his claim on the 'reliance loss' basis and thereby recover expenses incurred in anticipation of performance and wasted as a result of the breach – Anglia Television v Reed. [1–2]

If a contract includes a provision that, on a breach of contract, damages of a certain amount or calculable at a certain rate will be payable, the courts will accept the relevant figure as the measure of damages, provided it was a genuine pre-estimate of the expected loss. Such clauses are called liquidated damages clauses. [1–2] Action for the price This is the remedy sought where the breach of contract is failure to pay the price. In general such an action may only be brought once the claimant has completely and precisely performed his part of the contract. [1–2]



Marks Specific performance This is an order of the court requiring performance of a positive contractual obligation. [1] Being an equitable remedy, it is given at the discretion of the court. The following are the main guidelines: • It is only given where damages would be inadequate. This will often be

the case in contracts for the sale of land and other unique items. • It is not given where the order would cause undue hardship. • It is not given where an order of specific performance would be possible

against one party to the contract, but not the other. • It is not given where the contract is of such a nature that constant

supervision by the court would be required. • It is not given where the party seeking the order has acted unfairly or

unconscionably. He is barred by the maxim ‘He who comes to Equity must come with clean hands’.

• Where the order is not sought promptly the claimant will be barred by the maxim ‘Delay defeats the Equities’. [1–3]

Injunction An injunction is an order of the court requiring a person to perform a negative obligation. [1] Like specific performance it is an equitable remedy and the court exercises its discretion according to the same principles as with specific performance. Unlike specific performance, however, an injunction will be given of a contract of personal service unless this is tantamount to specific performance. [1–2] Quantum meruit This is normally a 'quasi-contractual' claim in that it arises when a contract either ceases to exist or perhaps never existed but the situation is 'as if' a contract existed, in which case the court will order the payment of a quantum meruit – a merited amount. [1–2] [Total max: 10 marks]


Final Assessment

ANSWER 3 Marks (a) Share capital

A share has been defined as ‘the interest of the shareholder in the company measured by a sum of money, for the purposes of liability in the first place and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders’ (Borland’s Trustees v Steel (1901)). [1]

On the basis of this definition it may be taken that:

(i) the nominal value of the share normally fixes the amount which the shareholder is required to contribute to the assets of the company; [1]

(ii) the share represents a proportionate interest in the business. This right is, however, no more than the contingent rights to receive a dividend payment and attend and vote at general meetings of the company. [1]

As has been seen above in considering separate personality, the concrete capital assets of the business are the property of the company and there is no direct link between the shareholder and those assets. Shareholders merely have the right to participate in the profit generated by concrete assets while the company continues to operate and only has a claim against the assets when the company is wound up. [1]

[Max 4] (b) Types of share capital

The word ‘capital’ is used in several different ways in relation to shares:

(i) Issued capital. This represents the nominal value of the shares actually issued by the company. It is more important than authorised capital as a true measure of the substance of the company. If a company is willing to pay the registration fee, it can register with an authorised capital of £1 million, yet only actually issue two £1 shares. Public companies must have a minimum issued capital of £50,000 (s118 CA 1985). [3]

(ii) Paid-up capital. This is the proportion of the nominal value of the issued capital actually paid by the shareholder. It may be the full nominal value, in which case it fulfils the shareholder’s responsibility to outsiders; or it can be a mere part payment, in which case the company has an outstanding claim against the shareholder. Shares in public companies must be paid up to the extent of at least a quarter of their nominal value (s101 CA 1985). [3]

[Max 6]

[Total max: 10 marks]



ANSWER 4

Tutorial help and key points: Key points for part (a): • Definition of consideration. The answer guide gives the one from Dunlop v

Selfridge. The one from Currie v Misa would have been just as good. In this question it would not have been worth giving both because the mark allocation doesn't justify both.

• Executory = in the form of a promise. • Illustrative example. • Executed = in the form of an act. • Illustrative example. • Past consideration is no consideration. • Past = an act that has been wholly performed before the other makes his promise. • Illustrative example (i.e. facts of Re McArdle). Key points for part (b): • Explanation of existing duty (under the law/contract). The leading case of Stilk v

Myrick is a must here. • The 3 modifications/exceptions.

Even if you were not able to remember all 3 you could be have gained a further mark for explaining the relevant illustrative case for the one(s) you did remember.

Marks (a) Consideration (i.e. payment) was defined in Dunlop v Selfridge: 'one

party's act or forbearance (promised or actual) is the price of the other party's act or forbearance (promised or actual)'. [1]

Consideration in the form of a promise, also called executory consideration, is an undertaking to do something in the future. For example, if today X and Y exchange promises that next week X will deliver a car to Y and Y will then pay £50, their promises today to do something next week constitute consideration with the effect that the consideration exists from today. [1 – 2]

Consideration which is actual, also called executed consideration, arises where a promise is made in return for the performance of an act. Until the act is done by the promisee he has not provided consideration and therefore the other is not bound by his promise until then. In Carlill v Carbolic Smoke Ball, for example, the respondent promised a reward of £100 to any person who, having used their smoke ball in the prescribed manner, caught influenza. Mrs Carlill made no reciprocal promise so she was not bound to use the smoke ball but as soon as she did use it she had provided consideration for the respondent’s promise and both became bound. [1 – 2]

In contrast to executed and executory consideration, past consideration is no consideration. [1]


Final Assessment

Marks Past consideration is an act that has been wholly performed before the other party makes his promise. Thus in Re McArdle a person who carried out repairs to a house was unable to enforce the owners' subsequent promise of reimbursement. [1 – 2]

There are exceptions to the rule that consideration must not be past. For example, where the claimant performed the action at the request of the defendant and payment was expected, then any subsequent promise to pay will be enforceable – Re Casey's Patents. [1 – 2]

[Max 5] (b) As a general rule, performance of an existing duty, whether imposed by

the general law or by contract, is insufficient. Thus in Stilk v Myrick some sailors who were under a contractual duty to exert themselves to the utmost were unable to enforce the captain's promise of extra wages if they worked the ship back home since they had done no more than that which they were already contractually obliged to do. [1 – 2]

Exceptionally:

• If a person does more than his existing duty, the more will

amount to sufficient consideration – Glasbrook Bros v Glamorgan. [1]

• Recent case law, Williams v Roffey Bros, has indicated that

performance of an existing contractual duty may be sufficient if this confers a practical benefit on the other party. [1]

• Performance of an existing contractual duty will be sufficient to

support a promise from a person to whom that existing contractual duty was not owed – Shadwell v Shadwell. [1]

[Max 5] [Total max: 10 marks]



ANSWER 5

Answer guide and important points: Part (a) Candidates are required to explain the meaning of corporate governance and then state when it affects companies.

Part (b)

Pay attention to the separate requirements of the question.

• Meaning • Advantages • Disadvantages

Marks will be allocated to each part of the question.

Marks

(a) Corporate governance is the system by which companies are directed and controlled. It deals which such matters as how power is divided between the board and the members, the accountability of the board to its members and the rules and procedures for making decisions.

[1−2]

[1−3]

[Max 4]

(b) The Combined code on corporate governance is a set of principles rather than rules. This means that directors can describe in their own words the way in which they have applied the principles of corporate governance to their company.

Advantages

• As the directors report on the actual situation in their own

company, the report should be more meaningful than one based on specific rules which may have no relevance to that company.

• A code of practice can be changed more easily than legislation. This enables the combined code to be updated more easily to respond to changing conditions and changing expectations of members and others.

• A principles-based approach encourages the directors to follow the spirit of the Code, whereas a rules-based approach may result in a tick box mentality. This means that the directors may follow the letter rather than the spirit of the rules.

[1−2]

[1−2]

[1−2]

[1−2]

[Max 6]

Disadvantages

• A principles-based approach may result in general meaningless statements.

• It may be difficult for directors to make sure that they have met the requirements of the Code.

[1−2]

[1−2]

[Max 6]


Final Assessment

ANSWER 6

Answer guide and important points: Part (a) Candidates are required to give examples when partnership can be dissolved automatically and by court order. Part (b) Candidates are required to briefly summarise the most important differences between partnerships and LLPs.

Marks

(a) Partnerships will automatically come to an end in the following situations:

• the expiry of a fixed term or the completion of a specific

enterprise (as defined in a Partnership Agreement); • one of the partners give notice of his intention to leave the

partnership (unless that right is excluded by the Partnership Agreement);

• the death of a partner; • the bankruptcy of a partner; or • where continuation of the partnership would be illegal.

Under S35 of the Partnership Act 1890 a partnership can be brought to an end by court order in the following situations:

• a partner has a mental disorder or permanent incapacity; • a partner engages in activity prejudicial to the business; • a partner wilfully or persistently breaches the Partnership

Agreement; • a partner conducts himself in such a way that it is no longer

reasonably practical for the other partners to carry on business with him;

• the business can only be carried on at a loss; or • in the opinion of the court it is just and equitable to wind up the

partnership.

[1 mark allocated for each example given, up to a max

of 7 marks]

(b) The differences between a ‘standard’ partnership and a Limited Liability Partnership arise from the general principle that in English law an LLP is treated in a similar way to a limited company:

• The liability of members of an LLP is limited to the capital they

have agreed to contribute; whereas the liability of partners in a standard partnership is unlimited.

• The LLP must file annual accounts and an annual report with Companies House, unlike a standard partnership.

• The LLP is an artificial legal entity in its own right, much like a limited company: it can own property, enter into contracts, sue and be sued, and create floating charges.

[1]

[1−2]

[1]

[1−3]

[Max 3]



ANSWER 7

Answer guide and important points: Part (a) Candidates are expected to explain the meaning of promoter and pre-incorporation contracts. Part (b) Candidates are expected to explain the legal effect of a pre-incorporation contract under S51 Companies Act 2006.

Marks

(a) (i) There is no statutory definition of the term promoter. However, in the case of Twycross v Grant, a promoter was defined as a person who undertakes to form a company with reference to a given project and to see it going and who takes the necessary steps to accomplish that purpose. This means that the person who is a promoter is a question of fact not of law. He is a person who draws up the memorandum and the articles, including deciding on the name of the company and the objects.

He will invite persons to be the company’s directors and the company secretary. It is quite common for a promoter to become one of the first directors of the company.

The promoter will file the necessary documents with the registrar of companies to incorporate the company.

[1−3]

[1]

[1]

[Max 3]

(ii) A pre-incorporation is a contract which promoters enter into naming the company as a party, prior to the date of incorporation of the company. The difficulty in law is that a company cannot enter into a binding contract until it has been incorporated, and it is not generally bound by any contract made on its behalf before the incorporation of the company. After incorporation it is not possible for a company to ratify a pre-incorporation contract. In Kelner v Baxter the promoters of a company bought goods from the claimant on behalf of the company before it was incorporated. The court held that the company could not ratify the contract after its incorporation because it did not exist at the time the contract was made.

[1−2]

[1−2]

[1−2]

[Max 3]


Final Assessment

Marks

(b) S51 CA 2006 states that a contract which purports to be made by or on behalf of the company, has effect, at a time when the company has not been incorporated, subject to any agreement to the contrary, as one made by the person acting as the company’s agent and he is personally liable on the contract. In Phonogram v Lane, the promoters proposed to set up a company called FM Ltd to manage a pop group and L made a contract with P ‘for and on behalf of FM Ltd’. FM was never incorporated but court held that L was personally liable on the contract with L. The fact that L had signed for and on behalf of LM made no difference to his personal liability.

A promoter can avoid liability in a number of ways. He may wait until the company is incorporated before he enters into the contract. Alternatively, he could make any agreement with a third party ‘subject to contract’. This means that there is no contract and therefore the promoter is not personally liable. The company will then enter into a contract with the third party after its incorporation.

[1−2]

[1−2]

[1−3]

[Max 4]



ANSWER 8

Tutorial help and key points: First, this part of the question is examining your understanding of the difference between invitations to treat and offers, and the general rule that advertisements are invitations to treat but that so-called 'take-it-or-leave-it' adverts like in Carlill can exceptionally be offers. Thus, your answer should have included: • definition of offer; • definition of invitation to treat; • usual position re adverts and the exceptional position; • application of the above to the advert in the journal.

Secondly, this part of the question is examining your understanding of acceptance. Thus, your answer should have included: • definition of acceptance; • postal rule; • contract comes into being at the moment of acceptance; • application to Alan's posted letter and subsequent fax.

Marks Info Ltd v Alan Info Ltd will have contractual rights against Alan only if there is a contract between them. The relevant essential element for the existence of contract in this question is that of offer and acceptance. [1] The first issue is whether the advertisement for the 6686 machines is an offer, which is capable of acceptance, or whether it is merely an invitation to treat, which is not capable of acceptance. [1] An offer is defined as a definite and unequivocal statement of willingness to be bound by contract on specified terms without further negotiations. [1] An invitation to treat is often described as the starting point in negotiations in that it is an invitation to the other party to make an offer. [1] The general rule is that advertisements are regarded as invitations to treat and not offers – Partridge v Crittenden. This is because: • further negotiations are normally intended or expected; and • where items are for sale, an advertiser sometimes needs the ability to

reject offers to buy by customers. This can be important if he receives offers in excess of the number of items that he has to sell and if he receives offers from persons to whom he does not wish to supply goods.

If neither of these two conditions is present, then an advertisement can be an offer, for example in the 'reward' cases such as Carlill v Carbolic Smoke Ball where no further negotiations were either intended or expected. [2–4]


Final Assessment

Marks There are a number of indications in the 6686 advertisement that could lead to a finding that it amounted to an offer, not an invitation to treat: • the words ‘will be sold’ indicate a definite willingness to be bound without

further negotiations; and • the advertisement contains very specific terms; and • the words of the advertisement confine the total number of possible

acceptances to 20. [1–3] On the assumption that the advertisement is an offer, the second issue is whether Alan has accepted the offer. Acceptance is the unconditional assent to all the terms of the offer. It may be oral, in writing or by conduct. [1] Alan, in posting an order together with his cheque, has clearly accepted the offer. [1] The general rule is that acceptance is effective only when it has been communicated to the offeror, in the sense of being received by the offeror – Entores v Miles Far Eastern. Exceptionally, if the postal rule applies, acceptance by post is effective as soon as the letter, properly stamped and addressed, is posted – Adams v Lindsell. The postal rule will apply only if it is reasonable to use the post as a means of communication, i.e. the post is within the contemplation of the parties. [2–3] The terms of the advertisement appear to envisage the use of the postal services and it therefore follows that Alan's acceptance was complete when he posted his order and cheque on the Wednesday. [1–2] Since the contract came into being at that moment, his later fax cancelling his order is a breach of contract. [1] In conclusion, Info Ltd is advised that it has contractual rights against Alan. [Total max: 12 marks]



ANSWER 9

Answer guide and important points: Candidates are expected to explain the general nature of directors’ duties as set out in CA 2006. The situation is similar to the case of IDC v Cooley and applying the case, Raymond is liable to account to the company for the profit made.

Marks

CA 2006 sets out the duties that directors owe to the company which are as follows: S171 states that directors must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred. S172 stats that directors must act in the way that they consider, in good faith would be most likely to promote the success of the company for the benefit of the members as a whole. In doing so they must have regard to the interests of stakeholders and the community.

[1]

[1−2]

S173 states that directors must exercise independent judgment when making decisions. S174 states that directors must exercise reasonable care, skill and diligence when making decisions. S175 states that directors must avoid a situation in which he has or can have a direct or indirect interest which conflicts with the interests of the company. This applies to any exploitation of any property, information or opportunity. Where a director makes such a profit he is liable to account to the company for the profit made. This comes from his position as a director. It is not a question of whether the company has been damaged or suffered loss as a result of the actions of a director. This can be illustrated by a number of cases. In IDC v Cooley, C was the managing director of IDC and in that capacity went to negotiate with the Gas Board about certain work the Gas Board was putting out to tender. During the course of the discussions it was made clear to C by the Gas Board that the work would not be awarded to IDC itself. The Gas Board made it clear that, if C set up his own operation and tendered for the work, he was likely to be successful. He resigned from IDC for health reasons and was then awarded the work personally. The court held that he was liable to account to IDC for the profit made because he had made the contact with the Gas Board as a director of IDC. He was using corporate opportunity to make a personal profit in breach of his fiduciary duty. S176 states that directors are under a duty not to accept bribes from third parties.

[1]

[1]

[1−3]

[1−2]

[1]


Final Assessment

Marks

S177 states that directors are under a duty to disclose any interest in any proposed transaction or arrangement between the company and a third party. He must declare the nature and extent of his interest to the other directors. It must be declared before the company enters into the transaction. This situation is very similar to the case of IDC v Cooley as explained above. Raymond has been given this opportunity in his capacity as a director of Atkinson. Therefore this corporate property belonging to Atkinson. This profit has been made in breach of S175 above. Raymond will be liable to account to the company for the profit made.

[1−3]

[1−3]

[Max 10]



ANSWER 10

Answer guide and important points: Money laundering is governed by the Proceeds of Crime Act 2002. Three criminal offences: • Laundering. • Failing to report. • Tipping off.

Marks

Money laundering is the process by which the proceeds of crime are converted into assets that appear to have a legal rather than an illegal source. The aim of disguising the source of the property is to allow the holder to enjoy it free from suspicion as to its source. Money laundering is primarily regulated by the Proceeds of Crime Act 2002. The legislation imposes some important obligations upon professionals, such as accountants, auditors and legal advisers. These obligations require such professionals to report money laundering to the authorities and to have systems in place to train staff and keep records. Money laundering usually comprises three distinct phases: • placement – the initial disposal of the proceeds of criminal activity into

an apparently legitimate business activity or property; • layering – the transfer of money from business to business, or place to

place, in order to conceal its initial source; • integration – the culmination of the previous procedures through which

the money takes on the appearance of coming from a legitimate source.

[1−2]

[1−2]

[1−2]

[1−2]

[1−2]

The Proceeds of Crime Act 2002 created three categories of criminal offence – laundering, failure to report and tipping off.

Laundering It is an offence to conceal, disguise, convert, transfer or remove criminal property from England, Wales, Scotland or Northern Ireland. Concealing or disguising criminal property includes concealing or disguising its nature, source, location, disposition, movement or ownership, or any rights connected with it.

[1−2]

[1]

‘Criminal property’ is defined as property which the alleged offender knows (or suspects) constitutes or represents benefit from any criminal conduct.

[1]


Final Assessment

‘Criminal conduct’ is defined as conduct that which: • constitutes an offence in any part of the United Kingdom; • would constitute an offence in any part of the United Kingdom if it

occurred there. Failure to report Under S330 individuals carrying on a ‘relevant business’ may be guilty of an offence of failing to disclose knowledge or suspicion of money laundering where they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in laundering the proceeds of crime. This offence only relates to individuals, such as accountants, who are acting in the course of business in the regulated sector. Any individual who is covered by S330 is required to make disclosure to a nominated money laundering reporting officer within their organisation, or directly to the Serious Organised Crime Agency (SOCA), as soon as is practicable. Tipping off S333 states that it is an offence to make a disclosure likely to prejudice a money laundering investigation. It therefore covers the situation where an accountant informs a client that a report has been submitted to SOCA. The maximum penalty for the S327 offence of money laundering is 14 years’ imprisonment. Failure to report and tipping off are punishable on conviction by a maximum of 5 years' imprisonment and/or a fine.

Marks

[1]

[1−2]

[1]

[1−2]

[1−2]

[1]

[1]

It would appear from the information given in the scenario that Samson could reasonably suspect that Timothy has obtained the balance of £50,000 from an illegal source. By using the money to buy property, Timothy has committed the offence of money laundering. Samson, as a solicitor, is required to report this matter to a nominated money laundering officer within his firm or directly to SOCA. If he fails to do so, Samson commits a criminal offence. If Samson informs Timothy that he has done so, Samson will commit a criminal offence.

[1−3]

[Max 10]


f4 - final

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