Examiner Report

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  • Topic: Captain Atom, The Last Question, Unsecured creditor
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AC 208 – Examiner’s Report (Semester 1 AY 2010 / 11)
Question 1(a)
Most students are able to identify the issue of breach of duty of care, skill and diligence for Hannah as she signs all documents including statements of accounts blindly and is nonchalant and clueless about the business. For Joe, many students discussed the issue whether he was entitled to rely on Eva under s157C and concluded that he could not because Eva did not fall within the categories of persons listed in s157C. This is correct. The majority also discussed that Joe was negligent because he always relied on Eva and abdicated his responsibility. Marks were accordingly awarded to these students. Some even argued that Joe breached the duty to retain discretion- this is not quite correct as the facts did not indicate that Joe has contracted away his right to discretion. About 2/3 of the students were able to identify that Joe and Eva breached s339(3) for reckless trading. Most students identified Eva to be a de facto or shadow director although only the latter is correct. Overall, this question was well answered.

Question 1(b)
Students either know or do not know the issue to this question. Majority identified the issue correctly as lifting of corporate veil, particularly whether the company is an agent of the controllers. A handful wrongly thought that the issue was whether legal proceedings could be instituted in a winding up and was not awarded any marks. Quite a handful of students regurgitated all the exceptions to the corporate veil doctrine without identifying which were the relevant exceptions. These students were just given a pass grade. Question 1(c)

Almost all the students were able to identify the issue of full disclosure needed for a scheme of arrangement to be approved by the court. Only a minority could state why Wong should be put in a different class of creditors. Wong should be put in a different class because he stood to recover 100% of his debt. Some thought that Wong should be put in a different class because he was a shareholder or that he was owed the majority of the debts. Others thought that secured creditors should be in a different class from unsecured creditors such that United Bank should be in a different class. But these are all wrong answers and were the reason why some students fared poorly. Some very astute students argued that Wong’s votes should be disregarded because he had special personal interests in the scheme pulling through because he stood to recover everything. These students were awarded extra marks. Overall, students did not fare well for this question and most only got half the question correctly answered.

Question 2(a)
Students fared reasonably well for this question.
Majority of students were able to identify the two key issues raised by the question, i.e. the existence of a pre-incorporation contract and its impact and the implications of having Klaus’s appointment included in the Company’s Articles of Association, with a significant number addressing only one of these two issues instead of both. 1

A fair number, however, misinterpreted the facts and did not realise that the contract was a pre-incorporation contract. Some did not take Klaus to be a member he was clearly stated to be holding 3% of the shares in the company. Their discussion on the effect of the enforceability of the statutory contract was thus affected.

Question 2(b)
Students fared reasonably well for this question.
Those who fared poorly failed to directly address the question. They did not make reference to the relevant provisions of the Companies Act as instructed in relation to how provisions in Jack’s contract could be structured so that there would be no need to obtain shareholders’ approval and yet not be void. Instead, a significant number discussed using ‘entrenching provisions’ to entrench rights.

Question 2(c)
Most of the students did well for this question. They were able to identify the issue as whether s...
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