ICAEW BL Company and insolvency law: practice questions with answers

Question 1

Rhian Morgan holds all 100 £1 ordinary shares in Coldharbour Ltd, which are fully paid, and is its only director. The company now owes £48,000 to a supplier, Teasel Supplies Ltd, and has no assets. Rhian gave no personal guarantee and has not acted wrongfully or fraudulently. What is the legal position?

1. A Rhian is personally liable for the £48,000, because a sole member and director runs the company as her agent
2. B Teasel can claim only against Coldharbour Ltd; Rhian has no further liability because her shares are fully paid
3. C Rhian must contribute up to £100, the nominal value of her shares, towards the £48,000 debt
4. D Rhian and the company are jointly liable, because a one-member company has no separate legal personality

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Answer: B. A registered company is a legal person separate from its members (Salomon v A Salomon & Co Ltd, 1897), so Coldharbour Ltd alone owes the £48,000. In a company limited by shares a member's liability is limited to the amount, if any, unpaid on her shares (CA 2006 s 3(2)). Rhian's shares are fully paid, she gave no guarantee and no statutory or court ground for lifting the veil applies, so Teasel is an unsecured creditor of the company only.

Question 2

Wexcombe Ltd's board appoints Marisol Vega as a director on 12 January 2027. She has never been a director of any company before. Which of the following is correct under the identity verification rules introduced by the Economic Crime and Corporate Transparency Act 2023?

1. A Marisol has 12 months from appointment to verify her identity, at the company's next confirmation statement
2. B Identity verification applies to persons with significant control only, so no step is needed for Marisol
3. C Marisol must verify her identity with Companies House, and the notice of her appointment must confirm this before it can be registered
4. D Identity verification is needed only for directors of public companies, so it does not apply to Wexcombe Ltd

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Answer: C. ECCTA amended CA 2006 so that, from 18 November 2025, a person appointed as a director must have verified their identity with Companies House, and the company's notice of the appointment must include confirmation of this (by the director's personal code) for the appointment to be registered. Directors and PSCs already in post had a 12-month transition, verifying by the company's next confirmation statement. The rules apply to private and public companies alike.

Question 3

Ravensby Ltd has issued share capital of £600,000 and accumulated realised losses of £250,000. Its directors want to reduce its share capital to £350,000 to eliminate the losses, without applying to the court. Which procedure must be followed?

1. A A special resolution, supported by a solvency statement made by all the directors within the 15 days before it
2. B An ordinary resolution of the members, supported by a report from the company's auditors
3. C No such procedure exists: every reduction of share capital must be confirmed by the court
4. D A board resolution is enough, because the reduction only eliminates losses and returns nothing to members

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Answer: A. A private company limited by shares may reduce its share capital by special resolution supported by a solvency statement (CA 2006 s 641(1)(a)). The statement must be made by all the directors not more than 15 days before the resolution and must state that the company can pay its debts now and over the following 12 months (s 643). The resolution, solvency statement and a statement of capital must be delivered to the registrar within 15 days (s 644). Any other company, including every public company, needs a special resolution confirmed by the court (s 641(1)(b)).

Question 4

Which of the following statements about annual general meetings (AGMs) under the Companies Act 2006 is correct?

1. A A private company must hold an AGM each year unless all its members agree to dispense with it
2. B A public company may call its AGM on 14 clear days' notice, the same as any other general meeting
3. C A public company may deal with its AGM business by written resolution instead of holding a meeting
4. D A public company must hold an AGM within six months after the end of each financial year

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Answer: D. Under s 336(1) every public company must hold an AGM within the six months beginning with the day after its accounting reference date. Notice of a public company's AGM must be at least 21 clear days (s 307(2)(a)), and a public company cannot use the written resolution procedure (s 281(2)).

A private company is not required to hold an AGM. It can pass resolutions by written resolution or at general meetings called on 14 clear days' notice (s 307(1)), unless its articles require an AGM.

Question 5

Kwame is a director of Ravensworth Logistics Ltd and has a service contract with three years left to run. The majority shareholder wants him removed from the board as soon as possible. Which of the following is correct?

1. A He can be removed only by special resolution at a general meeting, though he keeps any claim for breach of his service contract
2. B He can be removed by an ordinary written resolution, and he loses any claim because removal under the statute is lawful
3. C He can be removed by ordinary resolution at a general meeting after special notice, but this ends any claim under his service contract
4. D He can be removed by ordinary resolution at a general meeting after special notice, and he keeps any claim for breach of his service contract

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Answer: D. Under s 168 CA 2006 the members may remove a director before the end of his term by ordinary resolution at a meeting, despite anything in the articles or in any agreement with him.

- Special notice (28 days) of the resolution must be given to the company (ss 168(2), 312).
- The director may make written representations and be heard at the meeting (s 169).
- The resolution cannot be passed as a written resolution (s 288(2)(a)), because that would deny him his right to be heard.
- Removal does not deprive him of compensation or damages payable for termination of his appointment or of any service contract (s 168(5)).

Question 6

Pritchard is a director of Morland Signs Ltd. He has never been formally appointed managing director, but for two years the board has let him act as if he were, negotiating and signing contracts with suppliers. He now engages Cobb Consulting Ltd to redesign the company's website for £40,000. The board objects to the contract. What is the legal position?

1. A Morland is not bound, because Pritchard was never formally appointed as managing director by the board
2. B Morland is bound, because by letting Pritchard act as managing director the board gave him at least apparent authority
3. C Morland is bound only if the members in general meeting ratify the contract by ordinary resolution
4. D Morland is not bound unless Cobb checked the articles and saw that they allow a managing director

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Answer: B. A company is bound by an agent's apparent (ostensible) authority where (Freeman & Lockyer v Buckhurst Park Properties, CA 1964):

1. a representation was made to the third party that the agent had authority;
2. it was made by persons with actual authority to manage the business (here, the board, by allowing Pritchard to act as MD);
3. the third party relied on it; and
4. the company had capacity to enter into the contract.

Hiring a website designer is within the usual authority of a managing director. Cobb dealt with Pritchard in reliance on his position, so Morland is bound. Its remedy is internal, against Pritchard.

Because the board knowingly let him act as MD for two years, he may also have had implied actual authority (Hely-Hutchinson v Brayhead, CA 1968). Either way the company is bound; apparent authority is enough even if the board argues it never authorised him.