LPC Business Law and Practice Full-time and Part-time 2021- 22 PRACTICE ASSESSMENT (formerly the Formative Assessment)

LPC Business Law and Practice Examination Paper I Time allowed: 3 hours Write in blue or black ink on the Answer Booklet provided Answers written in pencil or made elsewhere such as on rough paper will not be marked Note: This assessment paper must not be removed from the assessment room Candidates should attempt ALL of the questions The following box will appear on your LPC assessment papers and appears on this practice assessment paper for information only Students’ instructions - PLEASE READ In addition to this Question Booklet, you should have been supplied with the following for the purposes of this assessment: 1. an Answer Booklet; and 2. several sheets of rough paper. All of your work must be written in blue or black ink in the Answer Booklet. Anything written in pencil or made anywhere other than in the Answer Booklet will not be marked. There is no allocated reading time for this assessment so you may start writing as soon as you are informed that the assessment has commenced. However, it is recommended that you spend an initial period familiarising yourself with the contents of the paper. A Tax Rate Summary, which you may wish to use in this assessment, is attached to the back of this Question Booklet. You have 3 hours in which to complete this assessment. Permitted materials The following materials are the ONLY materials that you are permitted to use in this assessment: 1. The Butterworths Company Law Handbook issued to you at the start of the BLP Module. 2. If you studied the module before August 2013, the Business Law and Practice Additional Permitted Material. 3. The SRA Code of Conduct and Accounts Rules 2011 (LPC Edition) OR the Draft SRA Code of Conduct and Accounts Rules 2011 (LPC Student Edition) OR the BPP PCR Additional Permitted Material (Extracts from the Draft SRA Code of Conduct 2011). 4. The BPP Professional Conduct Regulation Handbook OR the BPP Professional Conduct and Financial Services Handbook. 5. The usual writing materials: pens, pencils, highlighters, rubbers, correction fluid and a ruler. 6. A clean copy of an English language dictionary in book (not electronic) form. 7. A clean copy of an English/foreign language dictionary in book (not electronic) form. 8. A silent, non-programmable, non-scientific calculator without a case or other covering. Assessment information There are 80 marks available for this examination Paper I. The marks available for each question are set out in the Question Booklet. This Paper I forms 80% of your final aggregate mark in Business Law and Practice. Paper II forms 20% of your final aggregate mark in Business Law and Practice. Your mark for this Paper I will be added to your mark for Paper II to give your overall mark for Business Law and Practice. In order to pass Business Law and Practice your overall mark must be 50% or more. P R I C E P R I O R MEMORANDUM To: Trainee Date: January 2020 From: Natasha Weinberg Subject Matter: Fournier Limited Ref: 2023/FL/6 I would like your help on a number of matters relating to an existing client – Fournier Limited (‘Fournier’). Fournier is a language college with premises in Mildenhall, Oxfordshire (the ‘Mildenhall Premises’). I have attached the following documents that are relevant to the work we are doing for Fournier. Enclosure No. Document Date 1 Memorandum of Association of Fournier 15 January 1990 2 Certificate of Incorporation of Fournier 15 January 1990 3 Extract from Articles of Association of Fournier 3 October 2011 4 Extract from Confirmation Statement of Fournier 15 June 2019* 5 Extract from Annual Return of Fournier 15 June 2016 6 Proposed new article setting out rights to be attached to the Preference Shares undated 7 Extract from balance sheet of Fournier January 2024 8 Extract from Confirmation Statement of Enertech Limited (‘Enertech’) 15 June 2019* 9 Extract from Annual Return of Enertech 15 June 2016 *Confirmation statements submitted by Fournier and Enertech in 2017 and 2018, but not provided. I have received confirmation that there have been no changes to the information contained within the Confirmation Statements of either Fournier or Enertech (Enclosures 4 and 8) since the date they were submitted to Companies House. Further, Fournier has confirmed that it has not made any amendments to its Articles of Association contained in Enclosure 3. This memorandum continues on the next page Brigitte Raffel (‘Brigitte’) (the Chairperson of Fournier) and Cameron Dixon (‘Cameron’) came to see me last week about some proposals. Cameron is the Managing Director of Fournier and is highly respected by Brigitte and also by the employees of Fournier. Brigitte is keen to encourage Cameron to stay with Fournier on a long term basis and would like to give him the opportunity to increase his investment in Fournier by issuing more shares to him. The other three shareholders (Doreen, Elise and Francesca) recently inherited their shares in Fournier from their grandfather, Matthew, the founder of the college. None of them is involved in the day-to-day running of Fournier. Fournier has been reasonably profitable but now needs capital to expand its business if it is to have any prospect of exceeding its previous profit levels. As I explain below, Fournier proposes to raise finance for this expansion by issuing shares to a local businessman, Armadeep Singh (‘Armadeep’), and by way of a secured loan from Northern Bank plc. (a) New Premises Fournier is concerned that it is running out of space in its existing premises at Mildenhall, so it is considering acquiring new premises from which to run its administration and marketing operation. Fournier has been offered a small freehold property, Ham House, Ditchleigh (‘Ham House’), which is two miles from its current premises at Mildenhall. Ham House is currently owned by Enertech, a company run by Tony Dixon, Cameron’s cousin. (b) Colour Copiers and Computer Hardware Before the start of the next academic year, Fournier also wishes to purchase new machinery, including several top of the range colour photocopiers and document publishing hardware (together, the ‘Hardware’) in order to produce materials for a distance learning programme. It is considering buying the Hardware from Thames Valley Printing Limited (‘TVP’), a local printing company which has several print shops in and around Oxford. According to Armadeep, TVP wishes to dispose of the Hardware as soon as possible as it is short of cash. TVP overspent on expansion and state of the art equipment just before it faced much increased competition. Rumour has it that TVP’s bank is threatening to demand repayment of a substantial overdraft. The Hardware has a value of around £50,000 but, having spoken to his contact at TVP, Armadeep believes that he will be able to get “the deal of the year”. He says the directors of TVP have already indicated that TVP is in trouble and that they “don’t really care what price they get” for the Hardware. They are setting up a brand new company soon and apparently quick cash from the sale of the Hardware would be very welcome to that end. However, before spending money on the Hardware, Fournier would like some reassurance from us as to its position. This memorandum continues on the next page (c) Proposed Acquisition Fournier often uses a small publishing company, TextinTime Limited (‘TextinTime’) for its teaching manuals and brochures. A few weeks ago, Brigitte heard that the shareholders of TextinTime were keen to sell up and retire. Brigitte and Cameron believe that this would be a good acquisition for Fournier but they have not yet decided whether Fournier should buy the entire issued share capital of TextinTime or just buy the business and assets of TextinTime. Although small, TextinTime has an excellent reputation as an academic publisher and a highly skilled workforce including a very experienced editing team. (d) Proposed Financing Brigitte and Cameron have agreed that Fournier should: (i) take a secured loan of £200,000 from Northern Bank plc (the ‘Loan’); (ii) issue 8,000 5% cumulative redeemable preference shares of £30 each to Armadeep (the ‘Preference Shares’); and (iii) issue 6,000 ordinary shares of £1 each to Cameron (the ‘New Ordinary Shares’). Armadeep will pay the nominal value of £30 for each of the Preference Shares. Cameron will pay £25 for each of the New Ordinary Shares (£1 in nominal value and £24 premium). Northern Bank plc has instructed its solicitors to prepare a first draft of a loan agreement in respect of the Loan. The Loan will be secured by a fixed charge over the Mildenhall Premises. Armadeep, Brigitte and Cameron have already agreed the form of a proposed new article for Fournier setting out rights to be attached to the Preference Shares. A copy of this proposed new article is attached (Enclosure 6). Armadeep, Brigitte and Cameron are happy to proceed with the proposed financing on this basis and consider that the proposals will substantially benefit Fournier. The other shareholders have not yet been consulted and Brigitte and Cameron are not sure they will agree. Questions start on the next page PLEASE ANSWER THE FOLLOWING QUESTIONS: FOR ALL QUESTIONS PLEASE GIVE FULL REASONS AND GIVE FULL STATUTORY AND ARTICLE REFERENCES, WHERE RELEVANT. 1. On the assumption that the minority shareholders do not object to the proposed financing detailed in paragraph (d) of your supervisor’s memorandum, please set out a procedure plan identifying all the steps which should be taken, and by whom, in order for the board and shareholder resolutions to be proposed and voted on, in relation to: (a) the taking of the Loan; (b) the issue of the Preference Shares; and (c) the issue of the New Ordinary Shares. Please assume that this procedure should be put in place as soon as possible but the written resolution procedure will not be used. (24 marks) 2. If Doreen, Elise and Francesca do object to the issue of the Preference Shares and the New Ordinary Shares, will they be able to prevent or delay the issue? There is no need to consider any possible derivative action or any claim under s.994 Companies Act 2006. (6 marks) 3. Identify and explain the advantages and disadvantages for Fournier of acquiring the shares in TextinTime as opposed to the business and assets of TextinTime, bearing in mind the information provided in paragraph (c) of your supervisor’s memorandum. (6 marks) 4. For the purposes of this question, please assume that it is now just after the fourth anniversary of the date of issue of the Preference Shares and Fournier wishes to redeem the Preference Shares for a total price of £280,000. You may assume that the attached balance sheet for Fournier (Enclosure 7) is dated immediately before the redemption of the Preference Shares. Explain the steps that Fournier and/or its directors will need to take in order to redeem the Preference Shares in January 2023 and explain in detail how Fournier may pay for that redemption. (12 marks) Questions continue on the next page 5. Explain whether, and if so how, a future insolvency of TVP could cause Fournier any problems if it went ahead with the purchase of the Hardware. Give full reasons for your conclusions. (10 marks) 6. Fournier has reached agreement with Enertech to purchase Ham House for £250,000, which is its current market value. Fournier’s auditors have raised concerns that certain procedures will need to be followed under the Companies Act 2006 before Fournier can proceed with this purchase. What procedures are the auditors referring to and what would the consequences be if the directors did not follow the procedures? (12 marks) 7. Brigitte is considering selling 2,000 of her shares in Fournier (the ‘Sale Shares’) for a total price of £50,000 and has asked for some tax advice. Your supervisor has agreed that Price Prior can provide this advice as she is satisfied that Price Prior has no conflict of interest in acting for Brigitte on this matter. The Sale Shares were originally issued to Brigitte at a subscription price of £3.50 a share in 2005. Her incidental costs in relation to her subscription for the Sale Shares were £300. Please assume that the incidental costs of sale of the Sale Shares will be £500. Please calculate Brigitte’s taxable chargeable gain on the assumption that she sells the Sale Shares for £50,000 and explain how her capital gains tax liability will be calculated. For the purposes of this question please assume that the tax rates and annual exemption will be the same as for tax year 2019/20, that Brigitte is a higher rate tax payer and that she will make no other capital gains or losses in the year in which she sells the Sale Shares. Assume that the shares carry the right to receive dividend and distributions on a winding up pro rata to her shareholding. Statutory references are not required. Please assume that this will be Brigitte’s first disposal of shares or of a business asset of any kind. (10 marks) TOTAL PAPER I: 80 MARKS END OF QUESTIONS Enclosures start on the next page Enclosure 1 No. THE COMPANIES ACT 1985 COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION of