Copyright Reserved No.

of Pages = 04
No. of Questions = 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

FINAL I EXAMINATION - APRIL 2007

Important - This question paper should be answered entirely in the ENGLISH Language only.

CORPORATE LAW
(Time allowed - 3 hours)

Answer all questions and submit all workings. Begin each answer on a separate page.

Question No: 1

(1) Popeye and Bluto intend to form a Partnership to carry on the business of growing and marketing
Spinach in Sri Lanka. They have already earmarked a government owned land to be obtained on a
lease, on which they plan to have a Spinach Plantation. They have also proposed to name the
Partnership as “President Spinach”. Advise them on whether they can use this proposed name and
state reasons for your answer.
(3 marks)

(2) Chris Old, a partner of “Young & Old” retired from the Partnership business on 1st April 2006. He
published an advertisement in the Daily News of 2nd April 2006 informing the public of his retirement.
Mr. Crafty, who was supplying stationery to this partnership for the last 2 years, supplied a
consignment of goods on 10th April 2006 for which the partnership did not pay.

(a) What is Mr. Chris Old’s liability in this transaction? (3 marks)

(b) What would be your answer, if Chris Old did not give any notice of his retirement to the
outside world?
(1 mark)

(3) Andare, a resident of Sri Lanka and Dracular, a resident of Ethiopia have formed a Partnership for the
purposes of trading. After some time a war breaks out between Sri Lanka and Ethiopia. What
consequences does this war have on their partnership?
(3 marks)
(Total 10 marks)

Question No. 2
(1) What are the grounds for compulsory winding up of a company by Court? (5 marks)

(2) What are the instances when the Court’s power to order a winding up of on the grounds that it is just
and equitable has been exercised ?

(5 marks)
(Total 10 marks)

Question No. 3

(1) State briefly an outline of Royal British Bank Vs Turquand’s Case [(1856) 5E & B.248] in which the
Rule, popularly known as “Turquand’s Rule”, was laid down.
(4 marks)

(2) State the instances in which “Turquand’s Rule” applies. (2 marks)

(3) State FOUR instances in which “Turquand’s Rule” does NOT apply. (4 marks)
(Total 10 marks)

Question No. 4

(1) Examine whether promoters are permitted to sell their own property to the Company. (3 marks)

(2) Explain the term “duty of disclosure” by promoters. (3 marks)

(3) What are the remedies available to a company, if promoters fail to make a full disclosure? (4 marks)
(Total 10 marks)

Question No. 5

(1) Girigoris incorporated a company by the name of Sahanadhara (Pvt) Ltd. The directors as well as the
shareholders of this company were himself and his wife. After the Company functioned smoothly and
profitably for about 1 year, he wishes to known whether he could obtain a loan from the Company for
his personal use.

Advise Girigoris based on the provisions of Section 188 of the Companies Act No. 17 of 1982 with
special reference to the provisions contained in the said Section 188, whereby it may be possible for
him as a director to obtain such a loan.
(6 marks)

(2) The Articles of Association of Copycat (Pvt) Ltd, were the same as Table A of the Companies Act No.
17 of 1982 Articles. The Directors of the company are planning to call a Board Meeting in which they
propose to discuss two issues. Firstly, to fix their remuneration and secondly to appoint one of the
directors to the salaried post of General Manager of the Company.

They seek your advice on these two issues which they propose to take up at the next Board meting.

(4 marks)
(Total 10 marks)

(2)
Question No. 6
(1) “A Ltd”, is looking at prospective candidates to fill up the vacancy for the post of its Company
Secretary. After a futile search, Mr. Single the only director of “A Ltd” intends to appoint a
corporation by the name of “ B Ltd” as the new Company Secretary of “A Ltd”. Mr. Single’s
argument is that since he is also the sole director of “B Ltd” he can have a better control over the new
Company Secretary. It must be noted that the Articles of “A Ltd” authorizes the board of Directors of
the company to appoint the Company Secretary.

Advise Mr. Single on the legality of the proposed appointment under Section 177 of the Companies
Act No. 17 of 1982
(3 marks)

(2) Mr. Duplicate is a director of the company “ Bargains Ltd.” In order to save costs, Mr. Duplicate has
also been appointed as the Secretary of the company. The company intends to open a Bank account
and for this purpose a Resolution of the directors need be passed and signed by a Director and
Secretary of the company, before submitting it to the Bank. The said Resolution was duly passed at a
meeting of the directors.

Can Mr. Duplicate sign this Resolution in his dual capacity as Director as well as Secretary? Give
reasons for your answer with reference to Section 178 of the Companies Act.
(3 marks)

(3) “Copycat Ltd” has adopted “Table A” Articles as its Articles of Association. The Company has made
profits during the current year. This is the first year in which the company has made profits. The
Balance Sheet for the current year shows Accumulated Losses coming in from the previous years.
The Directors have proposed the payment of a Dividend from the current year's profits. Can this be
allowed? Comment briefly with reference to a decided case.
(4 marks)
(Total 10 marks)

Question No. 7

(1) Miss. Sue Williams is aggrieved over a decision made against her by the Securities and Exchange
Commission of Sri Lanka (SEC). She intends to sue the SEC. Advise her briefly on whether the SEC
can be sued, giving reasons for your answer.
(3 marks)

(2) What are the requirements under Section 67 of the Companies Act No. 17 of 1982 that are to be
fulfilled by a company limited by share or guarantee, in order to reduce its share capital?
(3 marks)

(3) Section 59 of the Companies Act No. 17 of 1982 states that it is lawful for a company to issue at a
discount shares in the company of a class of shares already issued, if it complies with certain
requirements. State two of these requirements?
(4marks)
(Total 10 marks)

(3)

Question No. 8
(1) What is an Extra-Ordinary General Meeting? (2 marks)

(2) Who may request for an Extra-Ordinary General Meeting? (4 marks)

(3) How can the members of a company exercise their right to call for an Extra-Ordinary
General Meeting?
(4 marks)
(Total 10 marks)

Question No. 9

(1) What are the circumstances in which the purpose of a trust becomes unlawful under section 4 of the
Trusts Ordinance?
(5 marks)

(2) Who may be a beneficiary under sub-section (1) of section 9 of the Trusts Ordinance?
(2 marks)

(3) Who may be a trustee under sub-section (1) of section 10 of the Trusts Ordinance?

(3 marks)
(Total 10 marks)

Question No. 10

The Registrar of Companies has the power to remove the name of a defunct company from the Register. This
results in the dissolution of such company.

(1) Section 373 of the Companies Act No. 17 of 1982 states that instances where the Registrar of
Companies may strike off the name of a company from the Register and dissolve it in this manner.
What are these instances?
(5 marks)

(2) What is the effect on the liabilities of the directors and members of the company which has been
dissolved in this manner, namely, by the Registrar of Companies striking off the name of the
Company from the Register?

(1 mark)

(3) C is a creditor of the company Knock Out Ltd, which has been dissolved by the Registrar of
Companies by striking off its name from the Register. C is aggrieved by this decision as his debts
have not been settled by the company prior to this dissolution. What is the course of action available
to him? What are the consequences on the company if this action is successful?

(4 marks)
(Total 10 marks)

(4)