Section B – Item Sets (5 Sets with 3 Tasks Each)

1. Item Set 1: Contracts (Chapters 3, 4, and 5)

o Formation, breach, and remedies.

2. Item Set 2: Company law (Chapters 8, 9, and 10)

o Incorporation, director duties, and shareholder meetings.

3. Item Set 3: Corporate Governance and Capital Maintenance

(Chapters 11, 14)
o Corporate governance principles and share buybacks.

4. Item Set 4: Insolvency, Fraudulent and Wrongful Trading

(Chapters 12, 16)
o Liquidation processes and director misconduct.

5. Item Set 5: Anti-money laundering and Data Protection (Chapters

17, 18)
o Financial crime and data privacy.

Item set 1
Background
Smith & Co., a retail firm, entered into a contract with Vega Supplies Ltd to
purchase 1,000 units of office furniture. The contract was signed on 1 January
2024, with delivery scheduled for 1 March 2024. The contract includes a clause
that states, “Delivery is of the essence.” On 15 February 2024, Vega informed
Smith & Co. that they could not deliver the goods until 15 March 2024. Smith &
Co. refused this delay and claimed damages.
Additionally, Smith & Co. had another contract with Moon Ltd for a software
development project. Moon Ltd abandoned the project halfway through, claiming
financial difficulties.

Task 1 (2 Marks)
Which of the following best describes the term “Delivery is of the essence” in the
contract between Smith & Co. and Vega Supplies Ltd?
 Options:
A) It makes time a condition of the contract.
B) It indicates that time is a warranty, not a condition.
C) It has no legal effect on the contract.
D) It means the buyer cannot refuse late delivery.
 Correct Answer: A) It makes time a condition of the contract.
  Chapter Reference: Chapter 4
 Explanation: When time is of the essence, it is treated as a condition.
Any breach of this term allows the non-breaching party to terminate the
contract and claim damages.

Task 2 (2 Marks)
If Vega Supplies Ltd’s failure to deliver on time is considered a breach of
condition, what remedies are available to Smith & Co.?
 Options:
A) Terminate the contract and sue for damages.
B) Accept the delayed delivery and claim specific performance.
C) Terminate the contract but cannot claim damages.
D) Claim only nominal damages.
 Correct Answer: A) Terminate the contract and sue for damages.
 Chapter Reference: Chapter 5
 Explanation: Breach of a condition entitles the injured party to terminate
the contract and claim damages for losses suffered as a result of the
breach.

Task 3 (2 Marks)
Regarding the contract with Moon Ltd, which of the following legal principles
applies when a party abandons a contract due to financial difficulties?
 Options:
A) The contract is frustrated, and no remedies are available.
B) The party in breach is liable for damages to the non-breaching party.
C) The contract is void due to impossibility of performance.
D) Both parties are released from their obligations.
 Correct Answer: B) The party in breach is liable for damages to the non-
breaching party.
 Chapter Reference: Chapter 5
 Explanation: Financial difficulties do not constitute frustration. Moon
Ltd’s abandonment is a breach, making them liable for damages to Smith
& Co. for any resulting losses.

Item set 2
Here is Item Set 2: Company Law (Chapters 8, 9, and 10), focusing on
incorporation, director duties, and shareholder meetings, with a mix of
question types:
Background
Eclipse Ltd, a private company limited by shares, was incorporated on 1 January
2022. The company has three directors: Jane, Mark, and Lucy. Jane, the
managing director, has entered into a contract with a supplier without consulting
the board. This contract has caused financial loss to the company. Additionally,
there is a dispute regarding the calling and conduct of a recent shareholder
meeting.

Task 1 (2 Marks)
Which of the following actions is required to properly convene an annual general
meeting (AGM) for a private company under the Companies Act 2006?
 Options:
A) Issue a notice of at least 14 days to all shareholders.
B) Ensure the quorum is at least 75% of the shareholders.
C) Provide a minimum of 21 days’ notice to all eligible shareholders.
D) Obtain approval from the board before issuing any notices.
 Correct Answer: C) Provide a minimum of 21 days’ notice to all eligible
shareholders.
 Chapter Reference: Chapter 10
 Explanation: Under the Companies Act 2006, private companies must
give at least 21 days’ notice to convene an AGM unless all members agree
otherwise.

Task 2 (2 Marks)
Question Type: drag and drop
Under the Companies Act 2006, directors owe a duty to act in the way they
consider most likely to promote the success of the company. This is known as
the duty to act in the _________.
 Answer: Best interests of the company.
 Other distractors:
o Financial interest of directors

o Short-term profit of shareholders

o Sole discretion of the board

o Legal obligations of creditors

 Chapter Reference: Chapter 9

  Explanation: Directors are required to act in good faith and promote the
success of the company for the benefit of its members as a whole. Failing
to do so can result in personal liability.

Task 3 (2 Marks)
Question Type: Scenario-based
Jane, the managing director, entered into a contract with a supplier without
board approval, which resulted in a financial loss to the company. What legal
remedies are available to Eclipse Ltd in this case?
 Answer:
Eclipse Ltd may:
1. Void the contract if Jane acted beyond her actual or apparent
authority.
2. Hold Jane personally liable for the loss caused to the company
under her fiduciary duties.
3. Seek indemnity from Jane for breaching her duty of care, skill, and
diligence.
 Chapter Reference: Chapter 9
 Explanation: Directors must act within their authority. If a director
exceeds their authority or breaches their fiduciary duties, the company
can void the contract and claim damages for losses incurred.

Item set 3
Background
StarTech Plc, a publicly traded company, is reviewing its corporate governance
practices following criticism from shareholders about a lack of accountability in
its board structure. Additionally, the company has recently issued bonus shares
and is considering a reduction in share capital to improve its financial flexibility.

Task 1 (2 Marks)
Which of the following is a principle of good corporate governance under the UK
Corporate Governance Code?
 Options:
A) Ensuring that the board is composed entirely of executive directors.
B) Encouraging shareholders to abstain from voting on sensitive issues.
C) Maintaining an appropriate balance of skills, experience, and
independence on the board.
D) Avoiding external evaluation of board performance to preserve
confidentiality.
  Correct Answer: C) Maintaining an appropriate balance of skills,
experience, and independence on the board.
 Chapter Reference: Chapter 14
 Explanation: The UK Corporate Governance Code emphasises board
independence, diversity, and the balance of skills to ensure effective
leadership and accountability.

Task 2 (2 Marks)
Question Type: Drag-and-Drop / Dropdown
Match the following scenarios to the correct provisions under the Companies Act
2006 related to share capital:
1. Scenario 1: StarTech Plc issues fully paid bonus shares to its existing
shareholders.
2. Scenario 2: The company proposes to reduce its share capital to return
surplus funds to shareholders.
3. Scenario 3: StarTech Plc issues shares at a price below their nominal
value.
Options (Distractors):
A) The issuance of bonus shares requires no consideration from shareholders.
B) Share capital can only be reduced by special resolution and court approval or
solvency statement.
C) Issuing shares below nominal value is prohibited under the Companies Act
2006.
D) Bonus shares can only be issued to directors.
E) Share capital cannot be reduced once declared.
Correct Matching:
 Scenario 1: A) The issuance of bonus shares requires no consideration
from shareholders.
 Scenario 2: B) Share capital can only be reduced by special resolution
and court approval or solvency statement.
 Scenario 3: C) Issuing shares below nominal value is prohibited under the
Companies Act 2006.
 Chapter Reference: Chapter 11
 Explanation:
o Bonus shares are issued without shareholder payment, capitalising
reserves.
o Share capital reductions need either court approval or a solvency
statement to ensure creditor protection.
o Issuing shares below nominal value breaches statutory provisions.
Task 3 (2 Marks)
StarTech Plc is evaluating the effectiveness of its corporate governance
practices. Which of the following measures would help improve accountability
and transparency?
 Options:
A) Replacing independent non-executive directors with executive directors
for better alignment with management.
B) Establishing a nominations committee to oversee board appointments.
C) Ensuring board decisions remain confidential and are not disclosed to
shareholders.
D) Limiting the frequency of general meetings to avoid shareholder
interference.
 Correct Answer: B) Establishing a nominations committee to oversee
board appointments.
 Chapter Reference: Chapter 14
 Explanation: Establishing a nominations committee ensures that board
appointments are merit-based, transparent, and aligned with good
governance practices.

Item set 4
Background
Phoenix Ltd, a private company, has been struggling financially for over a year.
The directors continued trading even though they were aware the company
could not meet its debts. Phoenix Ltd was placed into compulsory liquidation on
1 July 2024. During the liquidation process, the liquidator discovered that the
directors transferred assets worth £200,000 to a related company at below-
market value to avoid paying creditors.

Task 1 (2 Marks)
Which of the following best describes wrongful trading under the Insolvency Act
1986?
 Options:
A) Trading while insolvent with no intention to defraud creditors.
B) Trading with the intent to defraud creditors.
C) Failing to file annual accounts with Companies House.
D) Directors failing to repay their loans to the company.
 Correct Answer: A) Trading while insolvent with no intention to defraud
creditors.
 Chapter Reference: Chapter 16
  Explanation: Wrongful trading occurs when directors continue to trade
despite knowing the company is insolvent, without any fraudulent intent.

Task 2 (2 Marks)
Question Type: Scenario-based
The liquidator wants to recover the assets transferred by the directors to the
related company. Under what grounds can the liquidator challenge the
transaction, and what remedy is available?
Answer:
 Grounds for Challenge:
The transfer of assets is an undervalued transaction under the Insolvency
Act 1986, as the directors transferred assets worth £200,000 for
significantly less than their market value. Such transactions made within
two years of liquidation are voidable.
 Remedy Available:
The liquidator can apply to the court to reverse the transaction, recover
the assets, or seek compensation equivalent to the loss incurred.
 Chapter Reference: Chapter 12
 Explanation: The court can set aside undervalued transactions to protect
creditors and ensure fair asset distribution.

Task 3 (2 Marks)
What personal consequences might the directors face for fraudulent trading if
the liquidator proves intent to defraud creditors?
 Answer Options:
A) Personal liability for company debts and potential criminal prosecution.
B) Disqualification as directors for up to 5 years.
C) Loss of voting rights as shareholders.
D) A fine imposed by Companies House.
 Correct Answer: A) Personal liability for company debts and potential
criminal prosecution.
 Chapter Reference: Chapter 12
 Explanation: Fraudulent trading involves intent to defraud creditors, and
directors can be held personally liable for the company’s debts. They may
also face criminal charges, including fines and imprisonment.

Item set 5
Background
Eagle Financial Services Ltd, a firm offering investment advisory services, has
been investigated by regulatory authorities for failing to comply with anti-money
laundering (AML) requirements. During the investigation, it was discovered that
the company had not conducted adequate due diligence on high-risk clients and
had failed to report suspicious transactions. Additionally, a data breach occurred
in which personal information of clients was accessed by unauthorised
individuals.

Task 1 (2 Marks)
Which of the following actions would comply with the firm’s AML obligations
under the Money Laundering Regulations 2017?
 Options:
A) Performing client due diligence only for transactions exceeding
£10,000.
B) Monitoring client transactions continuously and reporting suspicious
activities.
C) Maintaining records of client transactions for six months.
D) Conducting due diligence on low-risk clients only when suspicious
transactions occur.
 Correct Answer: B) Monitoring client transactions continuously and
reporting suspicious activities.
 Chapter Reference: Chapter 17
 Explanation: Under the Money Laundering Regulations, firms are
required to continuously monitor transactions and report suspicious
activities, regardless of transaction size or client risk level.

Task 2 (2 Marks)
Question Type: Fill-in-the-blank / Dropdown
Under the UK General Data Protection Regulation (UK GDPR), a data breach
occurs when ________.
Answer Options:
A) Personal data is accessed or disclosed without authorisation (Correct
Answer).
B) A company loses profits due to data misuse.
C) Only sensitive personal data is lost or stolen.
D) A company fails to delete old client records.
 Chapter Reference: Chapter 18
 Explanation: A data breach under UK GDPR refers to the unauthorised
access, loss, or disclosure of personal data, potentially compromising the
privacy rights of individuals.
Task 3 (2 Marks)
In light of the data breach at Eagle Financial Services Ltd, which of the following
actions must the company take to comply with UK GDPR?
 Options:
A) Notify the Information Commissioner’s Office (ICO) within 72 hours and
inform affected individuals if there is a risk to their rights.
B) Immediately terminate all client contracts and avoid any further
transactions.
C) Issue a public statement to shareholders detailing the breach.
D) Delete all affected client data to prevent further issues.
 Correct Answer: A) Notify the Information Commissioner’s Office (ICO)
within 72 hours and inform affected individuals if there is a risk to their
rights.
 Chapter Reference: Chapter 18
 Explanation: Under UK GDPR, organisations must report data breaches to
the ICO within 72 hours and notify affected individuals if there is a high
risk to their privacy or personal rights.