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03 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

FINAL I EXAMINATION - APRIL 2008

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 "Ancient (Pvt) Ltd" is a company which was incorporated under the Companies Act No. 17 of 1982 and therefore its Articles of Association too is in accordance with the provisions of the Companies Act No. 17 of 1982. Now the company wishes to adopt a new set of Articles of Association based on the "Model Articles" under the new Companies Act No. 7 of 2007, in place of the old Articles. The Directors of "Ancient (Pvt.) Ltd." have consulted you in this regard and wish to know the procedure to be followed to achieve this. Advise them in this regard. Also mention about the nature of notice and resolution needed in this regard. (10 marks) Question No. 02 (a) What is meant by an Overseas Company under Section 488 of the Companies Act No. 7 of 2007? (4 marks) (b) What is meant by a Registered Overseas Company under Section 488 of the Companies Act No. 7 of 2007? (2 marks) What are the powers given to a Registered Overseas Company to hold lands in Sri Lanka? (2 marks)

(c) (d)

Explain briefly the provisions with regard to the power of an Off-Shore Company to carry on business within and outside Sri Lanka. (2 marks) (Total 10 marks)

Question No. 03 (a) A and ten others formed a Cricket Club, solely for the purpose of playing cricket. arrangement fall under the classification "partnership" under the Partnership Law? Does this (2 marks) (b) "Mr. Old" a partner of "Young & Old" dies. The remaining partner, Mr. Young continues the same business under the name "Young & Old". After Mr. Old's death the partnership entered into a contract with Mr. Fox. As a result of this contract the partnership owed Rs. 1 million to Mr. Fox. Explain the liability of Mr. Old's estate for the Rs. 1 million debt to Mr. Fox. (c) (2 marks)

A and B are in a partnership business. C enters this partnership as a new partner. Explain briefly on C's liability to the debts of the partnership before C joined the partnership. (2 marls) Can a Court of Law dissolve a partnership in the following instances? Give reasons for your answer. (i) A and B are in a partnership business. A was convicted of traveling without a ticket on a train and with the intent of defrauding the railway authorities. (2 marks) X & Y are in partnership business X is convicted of being of unsound mind. (2 marks) (Total 10 marks)

(d)

(ii) Question No. 04 (a)

Explain briefly the term "standard of care" as expected from a director of a company specified as under Section 189 of the Companies Act No. 7 of 2007. (3 marks)

(b)

A Director is permitted to be an interested party in a transaction entered into by the company with another party and the interested director has a duty to disclose such interest to the company. Explain the term "disclosure of interest" in relation to section 192 of the Companies Act No. 7 of 2007. (7 marks) (Total 10 marks) Question No. 05 The Companies Act No. 7 of 2007 provides for "Two or more companies may amalgamate and continue as one company". The Act also provides for different methods of amalgamation and preparing an amalgamation proposal.

List out briefly 10 such contents of an Amalgamation Proposal as specified under section 240 of the Act. (10 mark) Question No. 06 (a) X Private Limited entered into a pre-incorporation contract with Y for the purchase of a land called "Millagahawatte". X Private Limited failed to ratify the contract after its incorporation. Y made an application to court for relief. What are the orders that a court may make under section 25 of the Companies Act No. 7 of 2007 in relation to ratification of contracts? (6 marks) (b) Explain the term "consideration for issue of shares" under section 52 of the Companies Act No. 7 of 2007. (4 marks) (Total 10 marks) (2)

Question No. 07 (a) (b) Explain the term "solvency test" as specified under sub-section (1) of section 57. (4 marks) What are the factors that a board of a company shall/may take into consideration as to whether a company satisfies the "solvency test" under sub-section (2) of section 57? (6 marks) (Total 10 marks)

Question No. 08 What are the documents to be filed with the Registrar of Companies for the registration of an off-shore company in Sri Lanka under the sub-section (2) of section 261 of the Companies Act No. 7 of 2007? (10 marks)

Question No. 09 (a) (b) What are the circumstances that a company may be wound up voluntarily? (5 marks)

Explain the power of a company to appoint and fix the remuneration of liquidators under section 326 of the Companies Act No. 7 of 2007. (5 marks) (Total 10 marks)

Question No. 10 (a) What are the four (4) certainties specified under Section 6 of the Trusts Ordinance for the creation of a valid trust? (4 marks) What are the duties of trustees with regard to the trust property under the provisions of the Trusts Ordinance? (6 marks) (Total 10 marks)

(b)

(3)