1. hobbies and interests
2. inventors and patents

,
CORPORATE LAWS & GOVERNANCE
PROFESSIONAL 1 EXAMINATION - APRIL 2013
NOTES:
Two envelopes must be used to enclose answers:
·
Enclose answers to questions in Section A in one envelope, and
·
Enclose answers to questions in Section B in a second envelope.
Mark clearly on each envelope the Section to which the answers relate.
Section A:
You are required to answer three questions from this section, (Questions 1, 2 and either 3 or 4). However, if
you provide answers to both Question 3 and 4, you must draw a clearly distinguishable line through the answer
not to be marked. Otherwise, only the first answer to hand for each of these two questions will be marked.
Section B:
You are required to answer one question from this section. However, if you provide answers to each question in
this section, you must draw a clearly distinguishable line through the answer not to be marked. Otherwise, only
the first answer to hand for each of these two questions will be marked.
TIME ALLOWED:
3 hours, plus 10 minutes to read the paper.
INSTRUCTIONS:
During the reading time you may write notes on the examination paper, but you may not commence
writing in your answer book.
Marks for each question are shown. The pass mark required is 50% in total over the whole paper.
Start your answer to each question on a new page.
You are reminded to pay particular attention to your communication skills, and care must be taken
regarding the format and literacy of the solutions. The marking system will take into account the content
of your answers and the extent to which answers are supported with relevant legislation, case law or
examples, where appropriate.
List on the cover of each answer booklet, in the space provided, the number of each question(s)
attempted.
The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
CORPORATE LAWS & GOVERNANCE
PROFESSIONAL 1 EXAMINATION - APRIL 2013
Time allowed: 3 hours plus 10 minutes to read the paper.
Section A: You are required to answer three questions from this section.
Section B: You are required to answer one question from this section.
SECTION A
Answer both Questions 1 and 2 and either Question 3 or 4.
1.
Rosebury Farm Foods Plc (hereinafter called “the company”) was incorporated in 1995, with the primary objective
of manufacturing and selling organic ready-made meals. Although the company made considerable profits in the
past, in recent years it has experienced a substantial decline in sales and last month the company was put into
liquidation, following a resolution of its creditors. At a creditors’ meeting, Hayes was appointed as the company’s
liquidator.
Following his appointment, Hayes discovers that the following debts are due and outstanding by the company:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
€8,000 due to County Council for unpaid water and refuse rates;
€30,000 due to Pebble Plastic Packaging Ltd secured by a floating charge over the company’s stock. This
charge was created in March 2012 and duly registered. Pebble Plastic Packaging Ltd is owned by Milton and
Carter, both of whom were appointed as non-executive directors to the company in October 2010;
€250,000 due to Regional Savings and Investment Bank, secured by a fixed charge on the company’s
manufacturing equipment, created and registered in January 2010. This loan was also secured by a personal
guarantee by the company’s Chief Executive Officer, Walker. At the point of liquidation the company’s
manufacturing equipment is valued at €210,000;
€41,000 due to trade creditors;
€15,000 in declared, but unpaid, dividends due to the company’s shareholders. The dividend was declared
at the company’s Annual General Meeting on the 5 March 2013, and although the company had made a net
loss of €80,000, the dividend payment was declared as payable from accumulated retained past profit of
€100,000;
€22,000 due to the Revenue Commissioners in relation to unpaid taxes;
€27,000 due to one of the company’s executive directors in respect of unpaid salary for the past six months;
€30,000 due to Real Mutual Savings Bank secured by a floating charge created in February 2013, and duly
registered. This charge was created following a threat by the bank to revoke the overdraft facilities advanced
to Rosebury Farm Foods Plc when the company exceeded the agreed limit on this account. Following the
registration of this charge Real Mutual Savings Bank increased the company’s overdraft facility by €15,000;
and
€375,000 debenture loan due to All Prudential Investments secured by a fixed charge on the company’s
main business premises, created and registered in 1995. Unfortunately, due to an oversight this charge was
registered as €75,000.
In addition, the liquidation of the company will also create a redundancy obligation in the amount of €125,000.
Furthermore, a Mr. Spencer has also contacted Hayes the liquidator, and informed him that he has recently
discovered that he is the beneficiary of his late uncle Milford’s estate, and that part of this estate is 100,000 4%
preference shares in the company. Milford died in 2002, but as Spencer was living abroad he became aware of the
inheritance in the last month. Since Milford’s death, accumulated dividends valued at €24,000 have been declared
on his shareholding, but have not been claimed. Spencer has informed Hayes that he is now claiming this sum.
Hayes has contacted you requesting advice regarding these issues.
Page 1
REQUIREMENT:
List the priority of debt upon the liquidation of a company and evaluate the nature, validity and priority of ALL of the
aforementioned debt on liquidation. In addition, your answer should also address the impact of the personal guarantee by
the CEO of the company on the debt due to Regional Savings and Investment Bank, and determine whether or not the
unpaid dividends declared in March 2013 would be classed as a lawful or unlawful distribution.
NOTE: A definition or discussion of the nature of a fixed charge and a floating charge is NOT required.
[Total: 25 marks]
2.
Moonridge Hotels Plc was incorporated in 1995 and consisted of one luxury country house hotel based in Sligo.
Today, the company has grown into a European wide chain of luxury hotels. Since its incorporation in 1995, Porter
has been one of the company’s executive directors, and Radley has been the company’s managing director.
Following a recent audit the company’s auditor, Robson, has noticed some irregularities in the affairs of the company,
and has called a meeting of the board of directors to disclose his findings, as follows:
(i)
In January 2013, Radley entered into a contract with Blooming Delight Florists to provide over €2,000 worth
of flowers for a wedding taking place in the hotel. The flowers were delivered to the hotel and the invoice was
signed by Radley, but no wedding was booked to take place that weekend at the hotel. In addition, Truly
Scrumptious Cakes also delivered a wedding cake to the hotel on the same date, which was ordered by
Radley. The invoice for this cake is in the amount of €1,200. Following a meeting querying these invoices,
Radley admitted that his brother was getting married that weekend and that he had ordered the flowers and
cake on Moonridge Hotels Plc’s accounts and then transported them to his brother’s wedding. Radley has
since resigned his position. Robson has advised the company’s finance department that the invoices from
Blooming Delight Florists and Truly Scrumptious Cakes are not to be paid until this matter is resolved.
(ii)
In December 2012, Porter entered into a contract with Paxson Design Interiors to remodel the reception
areas of all of the Moonridge hotels located in Ireland. The estimated value of this contract is €400,000.
However, Robson is aware that Moonridge Hotels Plc’s Articles of Association contain a provision stating
that any contracts entered into by the directors valued in excess of €250,000 require approval by ordinary
resolution of the company’s shareholders at a general meeting. Robson is aware that no such meeting has
taken place. Paxson Design Interiors has been involved in many renovation projects with Moonridge Hotels
Plc over the years, and the business relationship between the two companies is so positive that the owner
of Paxson Design Interiors, Jocelyn, agreed to become a non-executive director of Moonridge Hotels Plc in
2009. Robson has advised the company’s finance department that any invoices from Paxson Design Interiors
are not to be paid until this matter is resolved.
REQUIREMENT:
This company’s board of directors has now contacted you seeking your advice as follows:
(a)
Evaluate whether the contracts created by Radley with Blooming Delight Florists and Truly Scrumptious Cakes are
enforceable against Moonridge Hotels Plc (7 marks) and whether the contract created by Porter with Paxson Design
Interiors is enforceable against Moonridge Hotels Plc (9 marks).
(16 marks)
(b)
Assess whether the action of Porter is in breach of his fiduciary duties, citing appropriate case law to support your
answer.
(5 marks)
(c)
Moonridge Hotels Plc needs to appoint a new company secretary. The company is currently drafting a job
specification outlining the necessary requirements of this position, and seeks your advice as to the qualification
requirements to act as a company secretary for a public limited company.
(4 marks)
[Total: 25 marks]
Page 2
3.
Eldridge Event Planners Ltd has decided to reduce its workforce from 200 to 150, following a significant decline in
business. Each branch of the company has been asked to review its personnel requirements and to make
recommendations as to which positions would be suitable for redundancy.
Grayson is the manager of the Waterford branch of this company, and is considering making three of the branch’s
ten staff members redundant for the following reasons:
(i)
(ii)
(iii)
Ashley, as she made a health and safety complaint against the company following an accident at an event.
As a consequence of this complaint, the company was fined €50,000;
Sian, who has the longest service history with the company, as she is being paid more than any other staff
member employed at the branch; and
Russell, as he is a recovering alcoholic, with the highest level of absenteeism – although some of this absence
was due to the fact that Russell was receiving treatment for his addiction.
REQUIREMENT:
As the company has never undertaken staff redundancies, your advice is requested on a variety of matters:
(a)
Define the term “redundancy”.
(3 marks)
(b)
Evaluate any TWO rights of an employee who is selected for redundancy.
(4 marks)
(c)
Assess the criteria that would be classified as fair selection for the purpose of redundancy (6.5 marks). In this
regard, determine whether the selection of Ashley, Sian and Russell would be classified as fair or unfair selection
(1.5 marks).
(8 marks)
(d)
Analyse the specific requirements that will be imposed upon Eldridge Event Planners Ltd as a consequence of the
fact that the company is planning to make 25% of the workforce redundant. Identify and comment on the penalties
for non-compliance.
(5 marks)
[Total: 20 marks]
OR
4.
Wonderwall Catering Ltd has just lost a very lucrative contract and, as a consequence, the company (although
solvent) is in a very difficult financial position. The board of directors of the company has met to discuss this situation,
and some of the directors are in favour of putting the company into liquidation, while it is still solvent, whereas other
directors are in favour of making an application for the examinership of the company.
They have contacted you for advice in this regard.
REQUIREMENT:
(a)
Explain the purpose of examinership (3 marks) and analyse the procedure to make an application for examinership
(7 marks).
(10 marks)
(b)
Identify the most suitable liquidation option for the company (2 marks), and evaluate the procedure to effect this
liquidation (8 marks).
(10 marks)
[Total: 20 marks]
Page 3
SECTION B
Answer One Question Only from either Question 5 or 6.
5.
Great Expectations plc operates in a jurisdiction where the UK Corporate Governance Code forms part of that
country’s Listing Rules. It has been experiencing trading difficulties recently and the Board of Great Expectations
plc has decided to merge the roles of Chief Executive and Chairman to give the company a renewed focus for the
period ahead, with the aim of taking it through the operating difficulties. The company must now provide an
explanation for that decision, given that it departs so significantly from the principles set out under Section A of the
Code dealing with Leadership. You are a recently qualified CPA, seconded to the Office of the Company Secretary
and she has asked you to assist her with her presentation to the Board in relation to this matter.
REQUIREMENT:
You are required to prepare a note for the Company Secretary that should include the following:
(a)
Identification of the key aspects of a ‘comply or explain’ approach to corporate governance guidance, as set out in
the UK Corporate Governance Code.
(9 marks)
(b)
Discussion and evaluation of what should be included in Great Expectations plc’s explanation statement, having
regard for the principles and provisions of the UK Corporate Governance Code, and the circumstances that are being
explained. Each well explained point will earn up to 2 marks.
(18 marks)
Format & Presentation (3 marks)
[Total: 30 marks]
OR
6.
Given your recent and relevant knowledge of regulatory bodies in Ireland as a result of your study, a partner in your
office has asked you to draft a note for him that will be eventually inserted on the practice’s website as an information
leaflet. The leaflet will deal with the work of the Office of the Director of Corporate Enforcement, the ODCE.
REQUIREMENT:
You should draft him a memo in the first instance, that:
(a)
lists the compliance and enforcement functions of the ODCE; and
(9 marks)
(b)
discusses and evaluates the principal duties of companies in Ireland, as set out in publications issued by the ODCE.
Each well explained point will earn up to 3 marks.
(18 marks)
Format & Presentation (3 marks)
[Total: 30 marks]
END OF PAPER
Page 4
SUGGESTED SOLUTIONS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
CORPORATE LAWS & GOVERNANCE
PROFESSIONAL 1 EXAMINATION - APRIL 2013
SECTION A
Solution 1
Liquidation: upon liquidation the debts of the company are paid in the following priority: (1) costs of liquidation
(Section 281 CA 63), (2) debentures secured by fixed charges, (3) preferential debts, (4) debentures secured by
floating charges, (5) unsecured creditors, and (6) return to shareholders (0-2 marks).
Fixed Charges: In our scenario this means that the fixed charges are paid first, in order of creation (provided they
are registered within 21 days – Section 99 CA 63) – (1) this means that Athlone Prudential Investments is paid first,
but only in the amount of €75,000 as this is the charge that was registered, the balance of €300,000 will rank as an
unsecured debt (although the Court may enforce the debenture based on the debenture document, as per Re
Shannonside Holdings Ltd, 20 May 1994, Unrep H.C.) (0-1.5 marks), (2) followed by Galway Savings and Investment
Bank – although the value of this debt is €250,000 the asset securing it is only worth €210,000 therefore it is this
amount that is paid in priority, the balance of €40,000 will rank as unsecured debt and if this amount is not repaid
in full on liquidation the personal guarantee by Walker will be enforced (0-1.5 marks) – a personal guarantee means
that in the event of the borrower not repaying the loan in full, the guarantor becomes personally liable to repay any
balance outstanding (0-1 mark)
Preferential Debts: The preferential debts are paid next and they all rank equally. In accordance with Section 285
Companies Act 1963 preferential debts include: (1) all local rates payable within the previous 12 months, (2) all
assessed taxes – assessed within the previous 12 months, (3) all PRSI payable within the previous 12 months, (4)
all wages and salary payable within the last 4 months, (5) all accrued holiday pay, (6) all redundancy payments
payable within the last 12 months, and (7) all damages in respect of personal injuries to employees (0-2.5 marks).
In our scenario the preferential debts include: (1) the €8,000 due to Clare County Council for unpaid water and refuse
rates; (2) the €22,000 in unpaid taxes due to the Revenue Commissioners; (3) a portion of the €27,000 due to one
of the company’s executive directors in respect of unpaid salary, representing unpaid salary for the previous four
months, the other two months of unpaid salary will rank as unsecured debt; and (4) the redundancy payments of
€125,000 due to employees (0-2.5 marks)
Floating Charges: These charges are next paid (in order of creation, subject to registration in accordance with
Section 99 CA 63, within 21 days). The floating charge of €30,000 in favour of Pebble Plastic Packaging Ltd is
registered and created first, so in theory should be paid first. However, as it was created within 2 years of liquidation
in favour of a connected person (an officer or their spouse, parent, brother, sister or child, or a trustee of a trust) the
Court/liquidator has the ability to invalidate this charge where there is no evidence that the company was solvent at
the point it was created (Section 288-289 CA 63). If this occurs, then the debt of €30,000 will rank as an unsecured
debt. In Re Creation Printing Company Limited; Crowley v Northern Bank Finance Corporation (1981) the Court
stated that the onus is on the charge holder to prove that the company was solvent at the point of creation of the
charge (0-2.5 marks).
In addition, the floating charge in favour of Roscommon Mutual Savings Bank in the amount of €30,000 is registered
and created second, so in theory it should be paid second. However, it may be potentially invalidated as a fraudulent
preference. Section 286 CA 63 defines this as any act relating to property done by a company, which is unable to
pay its debts, in favour of a creditor, with a view to giving that creditor preference over other creditors. Any fraudulent
preference created within 6 months of the liquidation of the company it is automatically invalid, where the company
was insolvent at the point the charge was created. In Re O'Connors Nenagh Shopping Centre Ltd; Fitzpatrick v
O'Connor (2011) Justice Gilligan in the High Court refused an application by a liquidator to have a mortgage declared
a fraudulent preference on the basis that there was no taint of dishonesty and there was “ ... no evidence that [the
company’s] dominant intention in signing up to the charge, which they had previously in any event agreed to do, was
for the purpose of giving a preference to the Bank of Ireland.” In our scenario, if this debt is invalidated as a fraudulent
preference then the €30,000 debt is void (0-3 marks).
Page 5
Unsecured Debt: Next unsecured debt is paid. In our scenario this includes:
(1) the €41,000 due to trade creditors;
(2) the balance of €300,000 due to Athlone Prudential Investments,
(3) the balance of the two months of unpaid salary due to the executive director, and
(4) the potentially invalid floating charge of €30,000 in favour of Pebble Plastic Packaging Ltd (0-2.5 marks).
Return to Shareholders: In general declared but unpaid dividends are repaid first and then the shareholders are
repaid in accordance with company law and the provisions of the Articles of Association (0-0.5 marks).
In relation to the €15,000 in declared, but unpaid, dividends due to the company’s shareholders – the rule in relation
to dividends and public limited companies Section 46(1), Part IV CAA 83 states that a dividend cannot be paid
unless the net assets of the company are not less than the aggregate of the called-up share capital and undistributable reserves, and that the distribution does not reduce the amount of those assets to less than the aggregate
amount. Un-distributable reserves may be defined as: (1) the Share Premium Account, (2) the Capital Redemption
Reserve Fund, (3) any surplus of accumulated unrealised profits over accumulated unrealised losses, and (4) any
reserve that the Company’s Memorandum or Articles prohibits it from distributing. Therefore, as the company made
a net loss, the net assets would have been less than the value of the capital and reserves and the dividend would
be classed as an unlawful distribution (as it is being paid from reserves) and does not have to be paid (0-3 marks).
In relation to the €24,000 due to Spencer in unclaimed dividends, the rule is that the statute of limitations for
unclaimed dividends is 12 years from the date of declaration, or the declared date of payment, whichever is the
later. However, where a company is in liquidation any unclaimed dividends are subject to a 6-year limitation period
unless the Articles provide otherwise (Section 283(2) CA 63). Therefore only lawful distributions of dividends declared
by the company between 2008 and 2013 are recoverable by Spencer (0-2.5 marks).
Page 6
SOLUTION 2
(a)
Corporate Authority/Contract between Radley with Blooming Delight Florists and Truly Scrumptious Cakes:
the key issue in this question relates to the authority of Radley to create contracts on behalf of Moonridge
Hotels Plc. Generally you would assume that the Managing Director has actual authority to create a contract
on behalf of the company, either express or implied. Even if he acted outside the scope of his authority then
agency by estoppel/ostensible authority applies. This arises where the principal allows a third party to believe
that the person is his agent, or where the actions of the principal have postulated this fact. This situation may
also arise by a course of dealing or a history of contracts between the parties. Relevant case law includes:
Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited (1971) where the Court
enforced a contract against the company made by the company’s secretary for her own personal benefit with
a longstanding customer of the company, and Freeman & Lockyer v Buckhurst Park Properties (Mangal)
Limited (1964) – according to Lord Diplock in the latter case: “... [a]n “apparent” or “ostensible” authority ... is
a legal relationship between the principal and the contractor created by a representation, made by the principal
to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter
on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render
the principal liable to perform any obligations imposed upon him by such contract.” (0-5.5 marks).
Conclusion: Therefore Moonridge Hotels Plc are obliged to pay the amounts outstanding to Blooming Delight
Florists and Truly Scrumptious Cakes as Radley made a representation to both parties that he was contracting
as an agent of Moonridge Hotels Plc and these parties relied upon this statement and created contracts (01.5 marks).
Indoor Management Rule/Contract created by Porter with Paxson Design Interiors: Under the terms of the
indoor management rule where a third parties contracts with a company they are entitled to presume that
things done within a company are done according to correct procedures as required by the Articles of
Association. In other words, an outsider is entitled to presume that issues of internal management have been
transacted in a procedurally correct manner. This rule originates from the case of Royal British Bank v
Turquand (1856). In this case the company’s Articles required prior shareholder approval for loans in excess
of a defined threshold. Despite this provision, the directors borrowed money in excess of the threshold without
the approval of the shareholders, and then argued that the loan from the Royal Bank was invalid (due to the
breach). The Court held that the Bank, as outsiders were entitled to presume that issues of internal policy,
such as the taking of votes, had been done according to the correct procedures. Therefore, as the borrowing
was within the company’s general powers and the Bank had no way of checking if an ordinary resolution had
been passed, the Court held that the loan was valid and accordingly it had to be repaid. However, it is important
to note that the indoor management rule does not apply in cases where the facts should make the outsider
enquire further, for example, where there are suspicious circumstances. In AL Underwood Limited v Bank of
Liverpool & Martins (1924) Underwood had a personal account with the defendant Bank. He also ran a
company under the name AL Underwood Limited, in which he was the major shareholder and only company
Director. Underwood paid company cheques into his personal account. When the company got into financial
difficulty the Receiver sued the Bank for the money lodged into Underwood’s personal account. The Bank held
that it was entitled to assume that that the account into which the cheques were paid was an internal issue of
the company. The Court held that the lodging of company cheques into a personal account was so unusual
that the Bank should have made further enquiries. Therefore the bank could not rely on the indoor management
rule to invalidate the contract (0-7 marks).
Conclusion: Based on the application of this rule the contract between Porter and Paxson Design Interiors is
potentially enforceable if Paxson Design Interiors was an independent third party, but as the owner of Paxson
Design Interiors, Jocelyn, is a non-executive director of Moonridge Hotels Plc the rule does not apply as she
would be aware that proper procedures were not followed to effect the creation of this contract. Therefore this
contract is not enforceable against Moonridge Hotels Plc (0-2 marks)
(b)
Breach of Fiduciary Duties: There are three main fiduciary duties owed by company officers, (1) to act in
good faith and in the best interests of the company (this includes the obligation to act within the company’s
powers and objectives), (2) to avoid/disclose all conflicts of interest (not relevant to this question), (3) to act
with due care, skill and diligence (not relevant to this question). It is the first duty that Porter has breached.
In effect, where the company’s own Articles of Association place a limitation on the powers of directors, any
action in contravention of the Article’s will automatically amount to a breach of fiduciary duties to act in the best
interests of the company. As mentioned in Part A, in Royal British Bank v Turquand (1856) the Directors
borrowed in excess of the amount authorised by the Articles of Association, without the required approval of
the shareholders, and were held personally liable for the loan arising from the fiduciary breach. Similarly, in
Boschoek Pty Company Ltd v Fuke (1906) the Articles stipulated that no more than £500 per annum could
be paid to the whole board by way of Directors fees. The board attempted to pay the defendant director £700
Page 7
per annum. The members in a general meeting attempted to ratify the payment by unanimously passing an
ordinary resolution of approval. The Court held this resolution ineffective since it conflicted with the provisions
of the Articles and the actions of directors in breach of their fiduciary duties (0-5 marks).
(c)
Qualification Requirements to Act as a Company Secretary for a Public Limited Company: Section 236
of the Companies Act 1990 provides that it is the duties of the directors in a public limited company to ensure
that the company secretary possesses the requisite knowledge and experience, as well as appropriate
qualifications, namely: (1) they were acting in the capacity of company secretary, deputy secretary or assistant
secretary when the 1990 Companies Act was enacted, or (2) they were a company secretary for three of the
previous five years, immediately prior to their present appointment, or (3) the Directors must be of the view
that the person seeking to act as a company Secretary is capable of discharging their functions based upon
their experience or professional membership, or (4) the person must be a member of a relevant professional
body recognised by the Minister (such as the Institute of Chartered Secretaries & Administrators) (0-4 marks).
Page 8
SOLUTION 3
(a)
Definition of Redundancy: Section 7(2) of the Redundancy Payments Act 1967 defines redundancy as being
a dismissal attributable wholly or mainly to (1) the fact that the employer has ceased, or intends to cease, to
carry on the business for the purposes of which the employee was employed by him or (2) has ceased, or
intends to cease, to carry on that business in the place where the employee was so employed, or (3) the fact
that the requirements of that business for employees to carry out work of a particular kind, or for employees
to carry out work of a particular kind in the place where they were so employed have ceased or diminished or
are expected to cease or diminish – it is important to note that it is the position that is made redundant and
not the employee per se (0-3 marks).
(b)
Rights of an Employee upon Redundancy: (1) the right to a redundancy payment: in accordance with
Section 10 of the Redundancy Payments Act 2003 statutory redundancy payments are equivalent to two
weeks pay per every year of reckonable service, regardless of age, plus a bonus week – a statutory week’s
pay is subject to a maximum threshold of €600 per week – although an employer may provide a higher
redundancy payment as a voluntary measure, (2) the right to statutory minimum notice in accordance with
Section 7 of the Redundancy Payments Act 2003: this is a minimum entitlement of two weeks’ notice of
dismissal by redundancy – the actual notice will also be subject to legislation (Minimum Notice and Terms of
Employment Act 1973) and the express terms of the contract, and (3) Section 7(2) of the Redundancy Payment
Acts 1979 provides that within two weeks of the employment termination by reason of redundancy the
employee has the right to time off during the notice period in order to seek alternative employment – such as
time off to meet with recruitment agents, attend interviews or training courses – however, an employer is
entitled to request that all affected employees furnish them with evidence of arrangements made for these
purposes, provided that it is not detrimental to the employee’s interest to do so (any 2 (or alternatives) x 02 marks each = 4 marks).
(c)
Fair Selection: Fair selection for redundancy may include the following: (1) Voluntary Redundancy: this is
when an employer needs to reduce the workforce and asks for some employees to volunteer for redundancy.
However, employers should ensure that eligibility for voluntary redundancy is in no way linked to age, as this
may amount to age discrimination for the purpose of the Employment Equality Acts 1998-2008, as amended;
(2) Last-in, first-out: this criterion is commonly used in relation to dismissals by reason of redundancy of
unskilled or semi-skilled workers, but is rarely used for highly skilled and professional workers; (3) Skills or
competencies: some employers adopt this criterion by evaluating the key positions that will be required following
rationalization or restructuring within the organisation and the key skills and competencies required from staff
who undertake these positions. In adopting this approach formal qualifications and advanced skills should be
considered but not in isolation. It may be appropriate for other aptitudes to be taken into account; and (4)
Performance: the standard of work performance or aptitude for work of those to be selected may be an
important consideration. However, in order to assess employees under this heading employers’ must have
objective evidence to support the selection, for example by reference to the company’s existing appraisal
system. Ideally, this system should rate the performance of the employee, and the employee should sign the
performance appraisal confirming agreement to the rating allocated. Where an employee has contested the
rating or where no rating system exists, it is more likely that selection based on performance may result in a
claim of unfair selection for redundancy. Under this heading if attendance or disciplinary records are to be
used as a measure of performance, then it will be necessary to ensure that they are accurate. Before selecting
on the basis of attendance it is important to know the reasons for and extent of any absences. This is
particularly important when considering sickness absence. Employers should look carefully at the duration of
the spells of sickness and in particular if they are continuous or intermittent. Absences relating directly to an
employee’s disability should be discounted when using attendance as a selection criterion – as this will amount
to discrimination based on a disability (0-6 marks).
Conclusion: The selection of Ashley, Sian and Russell would all be classified as unfair as (1) Ashley’s selection
was due to criminal proceedings against the employer (in breach of Section 6(2)(d) Unfair Dismissals Act
1977), (2) Sian’s selection was due to her payment (not an independent selection criteria), and (3) Russell’s
selection was based on his disability (alcoholism) (in breach of Section 6(2)(g) of the Employment Equality Act
1998, as amended by the 2004 Act) (0-2 marks).
Page 9
(d)
Consultation Obligations: By virtue of Section 6-7 of the Protection of Employment Act 1977 and the
Protection of Employment (Exceptional Collective Redundancies and Related Matters Act) 2007 there is a
statutory obligation upon any employer who plans to undertake collective redundancies (more than 10% of the
workforce within a period of 30 days – where the company employs more than 20 employees) to consult the
trade union or if there is no trade union, the elected body of employee representatives at least 30 days in
advance of making the first redundancy. As Eldridge Event Planners Ltd are planning on making 25% of its
workforce redundant, these consultation obligations must be complied with. These representatives must be
consulted regarding: (1) the rationale for the proposed redundancies, (2) the number of employees affected,
(3) the possibility of avoiding or reducing the proposed redundancies, (4) the method/(s) of selection being used
to implement redundancies, and (5) the period during which it is proposed to effect the proposed redundancies.
The purpose of the consultation is to look at methods of reducing or avoiding the necessity for redundancies,
and allow for discussions regarding how this could be achieved. There is also a statutory obligation for the
employer to give written notice to the Minister (0-4 marks). Failure to comply is treated as a criminal offence
and the employer is liable on indictment to a fine of up to €250,000, the Court may also award a protective
award (which can be up to a maximum of 90 days’ pay for every employee) against the employer (0-1 mark).
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SOLUTION 4
(a)
Purpose of Examinership: The concept of examinership was developed under the Companies (Amendment)
Act 1990 to provide a period of protection (70 days) to companies in financial difficulty but who are not yet
insolvent. The purpose of the protection is to give the company some breathing space, free from the risk of
liquidation or other legal proceedings, in order to allow the examiner to investigate the company’s affairs and
to report to the Court on its prospects for survival. Justice Fennelly in Gallium Limited and the Companies
Amendment Act 1990 (2009) stated that: “... [t]he entire purpose of Examinership is to make it possible to
rescue companies in difficulties. The protection period is there to facilitate examination of the prospects of the
rescue. However, the protection may prejudice the interests of some creditors. The court will weigh the
existence and degree of any such prejudice in the balance”. In effect, the purpose of examinership is to
endeavour to save companies where there is a reasonable prospect of survival. (0-3 marks)
Procedure: In order to appoint an examiner a petition must be presented to the Court (if the company’s debts
are greater than €317,500 then the petition is lodged in the High Court, whereas if the debts are less than
€317,500 then the petition may be lodged in the Circuit Court). This application may be made by: (1) the
company, (2) its directors, (3) its creditors, or (4) shareholders. All petitions must be made in utmost good faith
(uberrima fides) in order for the Court to be satisfied that all information supplied to it by the company is based
on truth. A serious lack of good faith may result in the examiner being discharged and his proposals being
rejected. In Re Wogans (Drogheda) Ltd (No.2) (1993) the Court refused to sanction a scheme of arrangement
where the directors deliberately misstated the value of revenue debts in the balance sheet presented on foot
of the Section 2(2) petition, on the basis that this material non-disclosure was a substantial abuse of process.
The petition, when presented, must also nominate a person to be appointed as examiner and state that the
petitioner believes that the company has a reasonable prospect of survival as a going concern. In accordance
with Section 7, of the Companies Amendment Act (No. 2) 1999 in order to justify this opinion a report of an
independent accountant must be attached to the application corroborating this opinion and indicating the
extent of the funding required for trading during the examinership period and the source of that funding. Section
7 states that this independent accountants report must contain the following information:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Details of the identity of the company Directors, other officers and shadow Directors
Details of other companies of which the Directors are also Directors
A statement of the affairs of the company, detailing the company’s assets, debts and liabilities at the date
of appointment, and provide a list of creditors and securities
A statement of opinion by the Accountant as to whether he considers that the company has a reasonable
prospect of survival as a going concern, and the steps that must be taken by the company to ensure
this, including proposals for a compromise or scheme of arrangement
The Accountant’s opinion as to whether the formulation, acceptance and confirmation of proposals for
a compromise or scheme of arrangement with the company’s creditors and members would facilitate
such survival
The Accountant’s opinion as to whether his work should be assisted by a direction of the Court,
extending the role and membership of the creditor’s committee
The Accountant’s opinion as to whether proposals for a compromise or scheme of arrangement with the
company’s creditors would be more advantageous to the members and creditors as a whole, than the
winding-up of the company
The Accountant’s opinion as to whether disparities exist that would indicate the existence of fraudulent
or reckless trading
The petition may also be accompanied by a copy of the proposals for a compromise or a scheme of
arrangement for submission to all interested parties. If the petition is presented by either the company or its
directors, a statement of the assets and liabilities of the company must be completed within 7 days of lodging
the petition. Once the petition is lodged the Registrar of Companies (CRO) must be notified within three days
(0-7 marks).
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(b)
Liquidation Options: As the company is solvent the main liquidation option is a members’ voluntary liquidation
– a creditors’ voluntary liquidation is only available to insolvent companies and a compulsory liquidation will
not be granted unless there are justifying factors (0-2 marks).
Liquidation Procedure: At the general meeting of the company before a special resolution can be passed to
voluntary wind up a company by the members, at least two of the directors of the company must have sworn
a declaration of solvency no longer than 28 days before the meeting passing the resolution. In accordance with
Section 256(1) CA 63 this declaration must state that the directors have made a full inquiry into the affairs of
the company and that in their opinion the company will be able to pay its debts in full with interest, within a
period not exceeding twelve months from the commencement of the winding up. This declaration must have
attached to it a statement of the company’s assets and liabilities as of the latest practicable date, but at least
within 3 months of swearing the declaration. A copy of the notice issued by the company of the general meeting,
at which it is intended to propose a resolution for voluntary winding-up, must also be attached to the declaration.
The directors who make the declaration of solvency must have reasonable grounds for doing so – if they do
not it is a criminal offence punishable by a fine and/or imprisonment. A copy of this declaration must also be
delivered to the CRO within 15 days of the passing of the resolution to liquidate (Section 143 CA 63).
This declaration of solvency must be accompanied by a report of an independent person in accordance with
Section 256(4) CA 63 (as amended by Section 128 CA 90). This report states whether or not the declaration
of solvency and the statement of affairs are reasonable. A failure to comply fully with these provisions will result
in the ensuing liquidation being a creditor’s liquidation.
The voluntary liquidation is deemed to have commenced at the time of passing the resolution at the general
meeting and the general meeting must also have appointed one or more liquidators for the purpose of winding
up the company’s affairs. In accordance with Section 252 CA 63, this resolution must be delivered to the CRO
within 14 days (0-8 marks).
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SECTION B
SOLUTION 5
Solution could include the following issues, amongst others:
(a)
Identification of the key aspects of a ‘comply or explain’ approach to corporate governance guidance, as set
out in the UK Corporate Governance Code
(9 marks)
MARKING SCHEME
MARKING GUIDE:
Identifying and discussing
¼
mark for listing of each aspect of “comply or explain”
¾
mark for discussing each point, depending on the quality of the discussion
1.
The “comply or explain” approach is the trademark of corporate governance in the UK, and as adopted
by the ISE.
2.
It has been in operation since the Code’s beginnings, it being the foundation of the Code’s flexibility.
3.
The Code is not a rigid set of rules.
4.
It consists of principles (main and supporting) and provisions.
5.
The Listing Rules require companies to apply the Main Principles and report to shareholders on how
they have done so.
6.
The principles are the core of the Code and the way in which they are applied should be the central
question for a board as it determines how it is to operate according to the Code.
7.
It is recognised that an alternative to following a provision may be justified in particular circumstances
if good governance can be achieved by other means.
8.
A condition of doing so is that the reasons for it should be explained clearly and carefully to shareholders.
9.
Shareholders may wish to discuss the position with the company; their voting intentions may be
influenced as a result.
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(b)
Discussion and evaluation of what should be included in Great Expectations plc’s explanation statement,
having regard for the principles and provisions of the UK Corporate Governance Code, and the circumstances
that are being explained.
(18 marks)
MARKING SCHEME
MARKING GUIDE:
Discussing and evaluating - each well explained point will earn up to 2 marks
½
1½
mark for listing of each point
marks for evaluating each point, depending on the quality of the evaluation
1.
In providing an explanation, the company should aim to illustrate how its actual practices are consistent
with the principle to which the particular provision relates, contribute to good governance and promote
delivery of business objectives.
2.
It should set out the background, provide a clear rationale for the action it is taking, and describe any
mitigating actions taken to address any additional risk and maintain conformity with the relevant principle.
3.
Where deviation from a particular provision is intended to be limited in time, the explanation should
indicate when the company expects to conform with the provision.
4.
In their responses to explanations, shareholders should pay due regard to the company’s individual
circumstances and bear in mind in particular the size and complexity of the company and the nature of
the risks and challenges it faces.
Whilst shareholders have every right to challenge companies’ explanations if they are unconvincing,
they should not be evaluated in a mechanistic way and departures from the Code should not be
automatically treated as breaches.
Shareholders should be careful to respond to the statements from companies in a manner that supports
the “comply or explain” process and bearing in mind the purpose of good corporate governance. They
should put their views to the company and both parties should be prepared to discuss the position.
Satisfactory engagement between company boards and investors is crucial to the health of the corporate
governance regime.
Companies and shareholders both have responsibility for ensuring that “comply or explain” remains an
effective alternative to a rules-based system.
There are practical and administrative obstacles to improved interaction between boards and
shareholders. But certainly there is also scope for an increase in trust which could generate a virtuous
upward spiral in attitudes to the Code and in its constructive use.
5.
6.
7.
8.
9.
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SOLUTION 6
Solution could include the following issues, amongst others:
(a)
lists the compliance and enforcement functions of the ODCE
(9 marks)
MARKING SCHEME
MARKING GUIDE:
Identifying and discussing
¼ mark for listing of each function
¾ mark for discussing each function, depending on the quality of the discussion
Compliance Function
1.
The compliance function of the ODCE is delivered via the Advocacy Unit of the Office.
2.
It is charged with fulfilling the Director's mandate to encourage compliance with company law.
3.
The work of the Unit involves preparing and publishing guidance and information documents, liaising with
professional bodies, considering international developments, developing policy proposals and
representing the Office at conferences and seminars.
4.
In order to apprise shareholders and creditors of their rights under Company Law, the ODCE has
published a number of Decision Notices and Information books which are accessible via the links below.
Enforcement Function
1.
The enforcement function is to gather evidence to support the possible initiation of criminal proceedings
in cases of suspected breaches of Company Law.
This work includes:
2.
determining which cases should be initiated;
3.
defining the most appropriate proceedings;
4.
instructing counsel, preparing case papers;
5.
managing case execution and considering appeals.
Page 15
(b)
discusses and evaluates the principal duties of companies in Ireland, as set out in publications issued by the
ODCE
(18 marks)
MARKING SCHEME
MARKING GUIDE:
Discussing and evaluating - each well explained point will earn up to 3 marks
½ mark for listing of each of the principal duties of a company
2 ½ marks for evaluating each point, depending on the quality of the evaluation
Companies’ principal duties are as follows, as set out by the ODCE:
1.
to maintain proper books of account - Section 202 of the Companies Act, 1990 (the 1990 Act) as
amended every company is required to maintain proper books of account;
2.
to prepare annual accounts - Companies are required to prepare accounts on an annual basis. The
annual accounts are prepared from the information contained in the company’s books of account and
other relevant information. The accounts are required to give ‘a true and fair view’;
3.
to have an annual audit performed (subject to exceptions) - Having prepared their financial statements,
companies are generally obliged by law to have their financial statements audited at least once a year.
An audit is an independent examination of the financial statements by an independent expert (an
auditor). The criteria and procedures for audit exemption are set out in Part III of the Companies
(Amendment) (No. 2) Act, 1999 as amended;
4.
to maintain certain registers and other documents - Every company is required by the Companies Acts
to maintain certain registers and other documents. (in line with: Section 116 Companies Act, 1963 as
amended; Section 119 Companies Act, 1963; Section 195 Companies Act, 1963 as amended; Section
190 Companies Act 1963 as amended; Section 91 Companies Act, 1963; Section 145 Companies Act,
1963 as amended; Section 50 Companies Act, 1990; Section 109 Companies Act, 1963; Section 222
Companies Act, 1990; Section 80 Companies Act, 1990);
5.
to file certain documents with the Registrar of Companies – Including the annual return; change of
registered office; notice of increase in nominal (authorised) capital; change of director and/or secretary
or of their particulars; declaration that a person has ceased to be a director or secretary; notice that a
person holding the office of director or secretary has died; nomination of a new annual return date ;
notification of the creation of a mortgage or charge; memorandum of satisfaction of charge; and ordinary
resolution.
6.
to hold general meetings of the company - Every company, other than a single-member private limited
company, is required to hold an annual general meeting (AGM). Under certain circumstances, companies
are also required to hold extraordinary general meetings (EGMs).
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