Chapter 1: Contract formation

1 Correct answer(s):
C An agreement for the transfer of land
Such an agreement must be in writing (the transfer itself must be by deed).

2 Correct answer(s):
B Voidable
For example where a party enters a contract as a result of undue influence, they may elect to avoid the
contract.

3 Correct answer(s):
C It can be oral provided it is evidenced in writing.
The written evidence must be signed or acknowledged in some way by Gary.

4 Correct answer(s):
D Florence is not entitled to the reward as she did not even know that a reward was being offered.
Acceptance will only be effective to create the agreement (that is an essential element of a contract), if the
accepting party is aware of the offer.

5 Correct answer(s):
B No
The flyer from Clarence is merely an invitation to treat.
D No
He cannot be in breach of contract since no contract has been made. He is simply rejecting Kenton’s offer
(which is made in response to Clarence’s invitation to treat).

6 Correct answer(s):
C Invitation to treat
Advertisements are generally invitations to treat.

7 Correct answer(s):
C When a pre-condition is satisfied
When a pre-condition is satisfied, the offer becomes unconditional.

8 Correct answer(s):
A The offer is terminated.
If the event or circumstances on which an offer is conditional does or do not transpire, the offer is no longer
capable of acceptance and is terminated.
9
B No, Hilda’s reply on Tuesday constitutes a counter offer which destroys the original offer. Hilda’s reply
constitutes a counter offer which terminates George’s offer.

10 Correct answer(s):
D It is a request for information.
The offer remains capable of acceptance (at least for a reasonable time). Mary is simply asking for information
about when she can make payment.

11 Correct answer(s):
B Nathan’s reply is a counter offer which Mark accepts.
He should have revoked his counter offer on buying the tandem from eBay by communicating that fact to Mark.

12 Correct answer(s):
B False
The offeror may still revoke the offer within that three-month period, unless they have bound themselves to keep it
open by a separate contract.
D False
The postal rule applies to acceptance only and not to revocation.

13 Correct answer(s):
D There is no contract because there is no positive act to indicate acceptance. There must be some act on the
part of the offeree to indicate their acceptance.

14 Correct answer(s):
B No
The ‘postal rule’ does not apply to revocation.
D No
The acceptance takes effect when it is posted on 1 June (assuming postal acceptance was within the contemplation
of the parties) with the result that there is a binding contract at that point.

15 Correct answer(s):
A True
D False
The offeror may waive the requirement for acceptance to be communicated (either expressly or by implication).

16 Correct answer(s):
B Yes, because Quentin accepts the offer before he receives Peter’s letter of revocation. Peter’s revocation is
not effective until received by Quentin.
17 Correct answer(s):

ICAEW 2021 1: Contract formation 2

 B False
The law has not yet provided a clear statement of when an acceptance sent by email becomes effective.
C True

18 Correct answer(s):
A True
The offeror would need to be very specific indeed for this not to be the case.
D False
The offeree may use any reasonable method.

19 Correct answer(s):
B No
When acceptance is to be made ‘by notice in writing’, this means that notice is required to be received by the
offeror and the postal rule does not apply.
D No
No, because there is no valid acceptance.

20 Correct answer(s):
A Carol’s acceptance is effective on 5 January.
Carol’s acceptance is effective when posted. A revocation is ineffective until received (which, in this case, is after
the contract becomes binding on the posting of the acceptance on 5 January).

21 Correct answer(s):
AYes( chứng minh rằng tài liệu ko có bao gồm tất cả các điều khoản đã thoả thuận)
Yes, if it can be shown that the document was not intended to comprise all the agreed terms (otherwise the general
rule applies, that oral evidence cannot be admitted to add to, vary or contradict written terms).
C Yes
The express term will prevail.

22 Correct answer(s):
C Yes, the normal presumption in family arrangements is rebutted by the fact that the parties enter into a
written agreement and rent is payable.
The fact that the arrangement concerns property does not mean that the presumption does not apply, but is
evidence of its rebuttal.

23 Correct answer(s):
A True
D False
The presumption is rebuttable.
24
C Consideration must be sufficient but need not be adequate.

ICAEW 2021 1: Contract formation 3

 Consideration must have some identifiable value (‘sufficient’) but does not need to be equal in value to the
consideration received in return (‘adequate’).

25 Correct answer(s):
A Yes
Such a rent may not be adequate but it is sufficient which makes it valid consideration.
C Yes
This is valid consideration.

26 Correct answer(s):
C No, because she was obliged to perform that duty anyway.
Performance of an existing contractual duty owed to the promisor is not valid consideration.

27 Correct answer(s):
A Yes, Eve was not already entitled to the bicycle so it is sufficient consideration for waiver of the debt.
The value of the bicycle is irrelevant. It is something to which Eve was not previously entitled.

28 Correct answer(s):
B Oscar agrees to accept £980 on 13 May in cash.
There is no consideration for the waiver of the additional £20 to which Oscar is entitled. The lesser sum in D is
sufficient because it is to be paid early.

29 Correct answer(s):
A True
C True
Provided that such implied terms are not inconsistent with express terms in the contract.

30 Correct answer(s):
D Prunella and Paul only
Phillip has given no consideration and is not a party to the contract. He has no rights to enforce the contract.

31 Correct answer(s):
B False
On the contrary, there is a rebuttable presumption that parties to a social or domestic agreement do not intend to
create legal relations.
C True
However, this presumption is rebuttable.
SAMPLE EXAM
32 Correct answer(s):
A True

ICAEW 2021 1: Contract formation 4

 As a general rule, an advertisement in a newspaper is an invitation to treat which, unlike an offer, cannot be
accepted to form a legally binding contract.
C True
No contract is formed without agreement between the parties (usually in the form of an offer and an acceptance).
SAMPLE EXAM

33 Correct answer(s):
D The contract with Louise is invalid; the contract with Adam is valid.
Louise’s performance of the works for which Matt promises a laptop is past consideration and not valid. However,
the contract between Matt and Adam is binding as there is a promise to pay for services promised in return.
SAMPLE EXAM

34 Correct answer(s):
A Yes, acceptance took place on 3 February and Harry’s revocation took place on 4 February.
The postal rule applies, which means that Beth’s acceptance is effective on posting. The postal rule does not apply
to revocation, which must be communicated to the offeree. The purported revocation is ineffective, therefore, as it
does not occur before acceptance on 3 February.
SAMPLE EXAM

35 Correct answer(s):
A Yes
Rejection of an offer terminates it. It cannot subsequently be accepted.
C Yes
An offer is deemed to lapse after a reasonable period of time (in the absence of an express provision or a separate
option contract).
SAMPLE EXAM

36 Correct answer(s):
B No
Not all contracts need to be in writing. For example, a contract for the sale of goods does not need to be in writing,
nor evidenced in writing.
C Yes
Contracts must contain an agreement (offer and acceptance).

37 Correct answer(s):
B False
Revocation does not have to be in writing, it may also be express or implied.
C True
Revocation must be communicated to the offeree before acceptance, either by the offeror or their agent.
38
B Executed

ICAEW 2021 1: Contract formation 5

 The consideration is executed because payment occurs at the time the contract is made. Executory consideration is
a promise given for a promise. Past consideration is made before the contract is formed. There is no such
consideration as executive consideration.

39 Correct answer(s):
A Individuals and businesses only have rights and obligations under a contract if they are a party to it.
In terms of contract law, every statement is correct. However, only statement A describes privity of contract.

ICAEW 2021 1: Contract formation 6

 Chapter 2: Termination of contract
1 Correct answer(s):
C A severable contract
It may also be known as a divisible contract.

2 Correct answer(s):
C Abigail must pay back the deposit and Xavier need not pay the balance.
The Act aims to reflect the fact that neither party is to blame for the contract coming to an end.
SAMPLE EXAM

3 Correct answer(s):
A True
D False
They may treat the contract as discharged and sue for damages.

4 Correct answer(s):
C The company will be liable for damages in respect of breaches of Geoff’s contracts with all his customers but
not in respect of the botanical gardens’ potential contract as this was not a normal loss and the company was
not aware of it.
Damage not arising in the ordinary course of things is only recoverable to the extent that it is in the reasonable
contemplation of the parties at the time of making the contract as the probable result of the breach.

5 Correct answer(s):
B False
Damages are intended to put the party in the position they would have been in had the contract been performed.
D False
The claimant is required to take only reasonable steps, not ones that carry undue risk or that are discreditable.( gây
mất uy tín)

6 Correct answer(s):
D A penalty clause
The sum of £5,000 is likely to be regarded as penal in nature and not in proportion to the legitimate interest of the
innocent party. As such it is likely to be a penalty clause and necessarily void. Had the sum been smaller (say £50) it
would have been in proportion to the interest of the innocent party (the prevention of errors or delays in
advertising) and it would have been a valid liquidated damages clause.

7 Correct answer(s):
B Jeremy is entitled to nominal damages only since he has been able to sell the car for greater profit.
James is in breach of contract and therefore liable to pay damages, but Jeremy is unlikely to be able to show any
outstanding loss.

2: Termination of contract

8 Correct answer(s):

ICAEW 2021 7
 B The provision is for liquidated damages and is valid because the figure is not penal in nature and protects
Siegfried’s legitimate interest.
The amount of £150 when compared against the contract price is only 1.5% per day and would not be thought of as
excessive. It is intended to protect Siegfried’s legitimate interest of ensuring the work is completed on schedule and
is therefore a valid liquidated damages clause.

9 Correct answer(s):
B Specific performance is likely to be more appropriate than damages in a contract involving personal services.
Specific performance is unlikely to be ordered in such a case because of the difficulties in supervising compliance
with the award.

10 Correct answer(s):
D A prohibitory injunction
Because it is a negative promise (ie, an agreement not to do something) that requires to be enforced. A mandatory
injunction compels positive action and specific performance is unsuitable because it should require supervision. A
quantum meruit award or claim is relevant where one party has been prevented from completing their performance
of a contract but deserves to be paid for partial performance.

11 Correct answer(s):
B No
Clauses that exclude liability for negligence are only void if unreasonable.
D No
A contract between two private individuals is not subject to UCTA.

12 Correct answer(s):
B Whether it is fair and reasonable, with regard to all the circumstances which were, or which ought to have
been known to the parties when the contract was made
This is how the test is expressed in the Act. The parties’ relative bargaining strengths (D) will be taken into account,
as well as whether any inducement was offered and whether the innocent party knew, or should have known of the
term.

13 Correct answer(s):
A Yes, but only the lost profits from the expected general increase in trade are recoverable, not those from the
loss of the lucrative supermarket contract.
Damages for losses sustained are recoverable to the extent that they are reasonably foreseeable and not too
remote. The losses claimed under the first head can be described as arising in the ordinary course of business and
are likely to be recoverable. However, those under the second head are too remote. Even if Foul Foods Ltd had
been able to bid for the lucrative contract, there is no certainty that the company would have been awarded the
contract.
SAMPLE EXAM
14 Correct answer(s):
B False
Specific performance is not usually awarded in cases of personal service.
D False
Likewise specific performance is unlikely in such a contract, where supervision would be required.
SAMPLE EXAM

ICAEW 2021 8
15 Correct answer(s):
D All of them
There is nothing to prevent the parties from continuing to settle the dispute themselves and the courts will actively
encourage alternative forms of dispute resolution.

16 Correct answer(s):
A Yes
The fire has clearly frustrated the contract because the house is no longer available to use.
D No
A contract that is made more difficult to perform, but is not rendered illegal or impossible to perform, is not
frustrated.

17 Correct answer(s):
B Yes, but only if the clause passes the reasonableness test set out in the Unfair Contract Terms Act (UCTA) 1977.
In this case the reasonableness test applies.

18 Correct answer(s):
B False
The other party may seek redress in respect of that part of the performance which did not match the contractual
obligations completely.
D False
There will be no liability for lack of performance if the party has a lawful excuse, for example if the contract is
discharged by frustration.

2: Termination of contract

ICAEW 2021 9
 Chapter 3: Agency
1 Correct answer(s):
A Yes
An agency by estoppel has arisen, by virtue of the supplier relying on the continuing representation by Lady Grey
that Arthur is her agent.
C Yes
She is estopped from denying the agency relationship. However, she may seek to reclaim the money from Arthur.

2 Correct answer(s):
D No agency of necessity has arisen because there is no pre-existing contractual relationship between Stephen
and Anthony.
Although Stephen acted in good faith and possibly reasonably (and was clearly unable to contact Anthony), the law
is unlikely to say that an agency of necessity has arisen, because it is not inclined to allow a person to be bound by
the act of a complete stranger.

3 Correct answer(s):
B No
It is the conduct of the principal that might give rise to an agency by estoppel, not the conduct of the ‘agent’.
D No
The contract can only be enforced against Scarlett personally.

4 Correct answer(s):
A Yes
Ratification needs more than passive inactivity but can be inferred from words or conduct.
D No
The contract has been ratified.

5 Correct answer(s):
B False
Ratification has retrospective effect as if the principal were the original contracting party and the agent no longer
has any liability on the contract. The third party must, therefore, sue the principal.
C True

6 Correct answer(s):
B Marilyn may dismiss Frank and recover the amount of commissions retained by him. An agent has a
duty to account for all monies received as a result of being an agent.
SAMPLE EXAM

7 Correct answer(s):
B No

3: Agency

ICAEW 2021 10
 Generally speaking, an agent owes a duty to provide personal performance and not to delegate it to another
person.
D No
An agent must respect the duty of confidentiality even after the agency relationship has ended.

8 Correct answer(s):
B No
In the absence of express provision, a reasonable amount of remuneration is payable.
C Yes
An agent has the right to exercise a lien over property of the principal pending payment of sums owed.
SAMPLE EXAM

9 Correct answer(s):
A It is bound because the contract is within the implied usual authority of the dentist, Barnaby.
A partner has implied usual authority to do usual things that a partner might do. The purchase of office supplies is
likely to be considered a usual activity for most partnerships.

10 Correct answer(s):
C InStyle is liable because Sophia has ostensible authority to carry out gardening services on behalf of InStyle.
Ostensible authority can arise through acquiescence of the other partners. It can also be wider than implied
authority (which must be usual or incidental).
SAMPLE EXAM

11 Correct answer(s):
C Suresend is bound because Barry had ostensible authority.
An agency by estoppel has arisen because Kelvin and Oscar were content to allow Barry to act as managing director
and Barry has ostensible or apparent authority to bind the company.

12 Correct answer(s):
A True
D False
There must be a causal link between the third party’s loss and their reliance upon the representation.

13 Correct answer(s):
B False
There is no such requirement.
C True
Otherwise, the principal may find themselves still liable if the agent enters into further contracts with the third party
without authority and the third party is unaware that they are no longer an agent.

14 Correct answer(s):
A Roz had ostensible authority to order the roses.
By calling her his ‘buying partner’, Vincent has given the impression that Roz was his agent and that she had the
authority to purchase goods on behalf of the company.

ICAEW 2021 11
15 Correct answer(s):
A Yes
If it appears that the parties intended this to be the case, she may be liable.
D No
It means that it is more likely that she will be personally liable but, again, it is subject to the intentions of the
parties.

16 Correct answer(s):
A Yes
In fact, either the agent or the principal can sue on the contract, but the agent’s rights are subordinated to the
principal’s rights.
C Yes
Vince may sue either Ashley or Phyllis on the contract (but not both).

17 Correct answer(s):
A Yes
C Yes
However, Barney can only enforce the contract against one or the other.

18 Correct answer(s):
B No
Not in the absence of ratification by her.
C Yes

19 Correct answer(s):
A Yes
A principal appoints an agent to carry out a specific task or tasks.
C Yes
A principal can subsequently ratify a contract entered into between their agent and third party, subject to certain
conditions being satisfied.

20 Correct answer(s):
A There is a binding contract between Dennis and the firm which supplied the goods.
Dennis is no longer a partner and there is no express or implied agency and no question of ratification. No agency
arises on the basis of Dennis holding himself out to be a partner.
SAMPLE EXAM

21 Correct answer(s):
A Yes
Express authority can be given orally or in writing.

3: Agency

ICAEW 2021 12
 C Yes
An agency by estoppel arises on the basis of a principal’s conduct in holding out another person to be their agent.
SAMPLE EXAM

22 Correct answer(s):
C Ostensible authority
Express authority is that which is expressly given to the agent. There is no express authority in regard to the parcel
delivery service.
Implied authority is given in regard to what is expressly authorised or which is usual by virtue of the agent’s
position; neither of which applies to Jeff.
By not preventing Jeff from running the parcel delivery service, Kit and Lin have provided ostensible authority to
Jeff. Their acceptance of his actions represents to third parties whom Jeff deals with that he has authority to run the
service.

23 Correct answer(s):
B Petra and Toni
Under agency law, Alice drops out of the picture. The contract is between Petra and Toni.

24 Correct answer(s):
B False
Duties may be implied by common law and by statute.
C True
Agents and their principals are bound by a fiduciary relationship.

ICAEW 2021 13
 Chapter 4: Negligence
1 Correct answer(s):
B No
There may be damage to property for example.
C Yes

2 Correct answer(s):
B No
There does not need to be any relationship at all. Indeed the parties to a tort case are often complete strangers.
C Yes
The question of public policy is one of several tests applied, but if public policy dictates that no duty should exist,
then none shall exist.

3 Correct answer(s):
B Whether the defendant intended to cause injury to the claimant
This may be relevant when assessing damages but is not relevant to whether a duty of care exists at all.

4 Correct answer(s):
A If the defendant succeeds in arguing res ipsa loquitur, the burden of proof is then on the claimant to show
negligence.
Res ipsa loquitur is an argument by the claimant that ‘the facts speak for themselves’ in pointing to a breach on the
part of the defendant. The burden of proof then shifts to the defendant to show that they were not negligent.

5 Correct answer(s):
D That the damage was not too remote.
Whether the damage was too remote is a matter for the court to decide in assessing damages once negligence has
been shown (ie, once the claimant has proved the other three options satisfactorily).

6 Correct answer(s):
D There should be a special relationship of some sort between the parties.
This option is a principle established by Hedley Byrne v Heller, involving negligent misstatement and economic loss.

7 Correct answer(s):
B The standard of care owed is that of a reasonable driver and it is irrelevant that she was especially vulnerable.
The defendant’s lack of qualification will not be taken into account to reduce the relevant standard of care, which is
that of a reasonable (qualified) driver. The fact that the claimant is especially vulnerable is only relevant to the
standard of care applied, if the defendant is aware of that fact, and such knowledge has the effect of raising the
standard of care to be met in discharging the duty of care.
8 Correct answer(s):
B No
The test will depend on knowledge and practice at the time of the incident.
D No

ICAEW 2021 4: Negligence 14

 The standard applied will be that of a reasonable man with the skill of a yard owner holding all the qualifications
that Natasha holds.

9 Correct answer(s):
C The local authority is liable because its workers are negligent in leaving tools on the pavement.
This is a difficult area of the law. However, it is likely that the conclusion would be that the tools carelessly left on
the pavement caused the accident. The local authority may argue that Naomi was contributorily negligent in not
taking sufficient care herself. The injury is likely to be considered to be too remote to give rise to any liability on
John’s part.

10 Correct answer(s):
C contract and tort
Contractual liability may arise where he gives the advice in performance of a contract. Tortious liability may arise
even where there is no contractual or fiduciary relationship between the parties.

11 Correct answer(s):
D It is not liable because the firm did not owe a duty to existing shareholders who rely on the accounts for a
purpose other than that for which they were intended.
The facts are similar to the Caparo case. The basic view is that the accounts are intended to enable shareholders to
exercise their rights regarding the management of the company and not to make investment decisions. (Special
circumstances may apply, of course, so that a different conclusion is reached, but there are none in this case.)

12 Correct answer(s):
C Campbells is not liable because the accounts were not prepared for the purpose of enabling people to decide
whether or not to lend to the company.
The facts are similar to the Caparo case. There is no duty of care owed to potential lenders.

13 Correct answer(s):
A Tristan owed a duty of care because George was known to him.
It was not known that George was planning to take control of the company.

14 Correct answer(s):
B No, because the advice was not given in a professional context.
There can be no liability for advice given on social or informal occasions unless there are exceptional circumstances
(and there are not in this case).

15 Correct answer(s):
A Yes
D No
They will not have suffered any loss.
16 Correct answer(s):
B False
An offence is committed but it is punishable by a fine only.

ICAEW 2021 4: Negligence 15

 D False
Such an agreement may be valid.

17 Correct answer(s):
B No
Such a provision is void under s.532 Companies Act 2006 (but may be valid if contained in a liability limitation
agreement that satisfies the provisions of that Act).
C Yes
Provided such an agreement is contained in a valid liability limitation agreement or is restricted to an indemnity in
respect of the costs of successfully defending any proceedings.

18 Correct answer(s):
A Yes
C Yes
Both statements are relevant to the court’s decision.

19 Correct answer(s):
D 1 January 20X6
The limitation period for tortious acts is six years (or three years in the case of personal injury).

20 Correct answer(s):
B Knowledge and general practice concerning the professional’s approach at the time the claim is made.
It is the knowledge and general practice at the time of the negligent event that are relevant. All the other options
are correct principles that are considered.

21 Correct answer(s):
B False
While you cannot exclude liability for personal injury, you may be able to exclude liability for other injury or
damage, if reasonable to do so.
D False
The Unfair Contract Terms Act 1977 applies to business-to-business liability.

22 Correct answer(s):
B No
D No
What must be reasonably foreseeable is the type of damage suffered. Provided the type of damage suffered was
reasonably foreseeable, it does not matter that it came about in an unexpected way nor that it was more or less
extensive than was reasonably foreseeable.
23 Correct answer(s):
A True
D False
Vicarious liability does not depend on the fault or endeavours of the employer.

ICAEW 2021 4: Negligence 16

24 Correct answer(s):
A Yes
The fact that he is acting in breach of a prohibition against doing his job in a particular way does not take the act
outside the scope of his employment.
C Yes

25 Correct answer(s):
B No
Lack of qualification or disability is not generally relevant. The standard applied will be that of a reasonable
(qualified) accountant.
C Yes
In this case, the necessary causal link between Alice’s negligent advice and Bashir’s loss cannot be established.
SAMPLE EXAM

26 Correct answer(s):
C He could sue Susan or Calculator LLP if Susan’s advice was negligent.
Tariq could sue Susan in contract or tort for her negligent advice. He could also sue Calculator LLP which would be
vicariously liable for the negligent advice of Susan in tort.
SAMPLE EXAM

27 Correct answer(s):
B Neither Tipster, Carl or Laylem LLP owe Rustom a duty of care.
There is no duty of care owed to Rustom by any of these parties since the relevant tests are not satisfied (for
example the need for a sufficient degree of proximity or special relationship). Laylem LLP owes no duty of care
to existing shareholders considering their investments. SAMPLE EXAM

28 Correct answer(s):
B Vicarious liability arises when the employee’s tort is committed in the course of his employment. The principal
purpose of the imposition of vicarious liability on an employer is to ensure the victim of the tort has a solvent
person against whom the victim can bring a claim.
Vicarious liability only arises for an employee’s tortious acts where those acts are committed in the course of their
employment or they are sufficiently connected to their employment. Vicarious liability is not designed to punish the
employer, rather to protect the victim of the tort.
SAMPLE EXAM

29 Correct answer(s):
D She cannot sue Zebra & Co because the firm does not owe a duty of care to potential purchasers of shares in
Widget plc.
There is no duty of care owed to Priya by Zebra & Co. Auditors do not generally owe a duty to potential
investors in a company. SAMPLE EXAM

30 Correct answer(s):
B False
This will depend on the facts and the relationship between the parties.

ICAEW 2021 4: Negligence 17

 C True
Generally speaking, sophisticated investors are likely to be considered responsible for their own actions.

31 Correct answer(s):
B No
The correct test is whether the damage was reasonably foreseeable at the time, not whether it was actually in the
contemplation of the parties themselves.
C Yes
Public policy will be considered as part of the court’s decision.

32 Correct answer(s):
A Yes
C Yes
The special skill of the defendant and the reliance on the advice by the claimant are both considerations of the
court.

33 Correct answer(s):
C Crime and tort only
There is a potential liability in crime (for dangerous driving) and potential liability to in tort (for negligence).

34 Correct answer(s):
A True
Emergency circumstances are taken into account.
C True
A higher standard of care is expected where the defendant is aware of the claimant’s special vulnerability.

ICAEW 2021 4: Negligence 18

 Chapter 5: Companies: the consequences of incorporation
1 Correct answer(s):
D Mark cannot claim on the insurance because the insurance is not effected in the name of King Kilts Ltd and the
company has the insurable interest.
Following Macaura v Northern Assurance Co Ltd 1925, the company (as a separate legal entity) has the insurable
interest and should insure its own assets.
SAMPLE EXAM

2 Correct answer(s):
B No
In the absence of fraud or an agency relationship based on the business activities of the companies, the separate
legal personality of each company within a group will be recognised.
C Yes
In such circumstances, the veil will be lifted in order to identify the company as a Neverland company.

3 Correct answer(s):
A True
Similarly, where directors are also members, provisions such as those in respect of fraudulent trading and wrongful
trading lift the veil between the company and its members to impose a liability for the company’s wrongful acts.
C True

4 Correct answer(s):
B No
A public company must be a limited company.
D No
The company should not commence trading until a trading certificate has been obtained.

5 Correct answer(s):
A Yes
A public limited company must have a company secretary.
D No
The share capital of a public limited company is subject to a statutory minimum, but that is currently £50,000.

6 Correct answer(s):
C Public and private limited companies must have at least two directors.
A private limited company must have at least one director; a public limited company must have at least two
directors.
7 Correct answer(s):
B No
A statement of guarantee is only appropriate for a company limited by guarantee. Instead, Richard should submit a
statement of capital and initial shareholdings.
C Yes
A statement of proposed company officers is required in the application.

ICAEW 2021 5: Companies: the consequences of incorporation 19

8 Correct answer(s): B Six months

9 Correct answer(s):
C Shares must be at least one quarter paid up on allotment.
A, B and D are true of private limited companies only. A public limited company cannot exclude preemption rights,
it must get a court order to reduce its capital and it cannot redeem shares out of its own capital.

10 Correct answer(s):
B False
In the event that none is provided, model articles prescribed by the Secretary of State will apply.
C True

11 Correct answer(s):
B No
Not unless Paddy and the vendor gave rights to New Style Ltd under the Contracts (Rights of Third Parties) Act
1999.
D No
Because it did not exist at the time the contract was made.

12 Correct answer(s):
B No
Simple Solutions Ltd is not bound because it is not a party to the contract.
C Yes
The contract takes effect as if it was entered into between the seller and Quentin personally.

13 Correct answer(s):
A Yes
On the basis that the articles can be implied into her contract of employment.
D No
No because her claim is not made in her capacity as member (but rather as company secretary) and the articles
bind the company and its members as if each member had contracted to observe its provisions.

14 Correct answer(s):
B False
Alteration requires a special resolution (in accordance with the Companies Act 2006) but unanimous agreement or
a court order is required to alter a provision for entrenchment.
D False
Nor can it provide that a provision for entrenchment cannot be amended.

15 Correct answer(s):
A Yes
But not to deprive Simon, the company’s solicitor, of any right to accrued pay before the passing of the resolution.

ICAEW 2021 5: Companies: the consequences of incorporation 20

 D No
A member is not bound by an alteration made after their becoming a member, that requires them to purchase
more shares or to increase their liability in any way.

16 Correct answer(s):
A Yes
However, they must not be made available for public inspection.
D No
It is not compulsory, but if the company does keep such a register, it must comply with the legislative provisions as
to its availability for inspection.

17 Correct answer(s):
B No
Only quoted companies need do so.
C Yes
A public limited company must do so within six months.

18 Correct answer(s):
B Details of resolutions passed by the company
A confirmation statement is a document which confirms there are no changes to prescribed information about the
company or sets out what changes have occurred. Details of company resolutions are not covered by the
statement.

19 Correct answer(s):
A Yes
The memorandum includes statements that the subscribers wish to form a company, agree to become members of
the company and agree to take at least one share each (but only if the company has share capital).
D No
Harwin will not have share capital because it is limited by guarantee.

20 Correct answer(s):
D Lotsaland Ltd is not bound because Craig lacked sufficient authority.
Borrowing is not within the implied usual authority of a company secretary, nor did he have express or ostensible
authority.
21 Correct answer(s):
B By and against Albert only
A pre-incorporation contract is not enforceable by or against the company (that is not incorporated at the time).
SAMPLE EXAM

22 Correct answer(s):
A Yes
A memorandum of association needs to be submitted on application for incorporation of a company.
D No

ICAEW 2021 5: Companies: the consequences of incorporation 21

 A trading certificate is only required for a public company, not a private company.

23 Correct answer(s):
A True
A company secretary normally has the authority to deal with all administrative matters. The exact scope of their
authority will usually depend on the size and nature of the company.
D False
A company secretary does not normally have authority to deal with the purchase of property or borrowing.
SAMPLE EXAM

24 Correct answer(s):
A All of the above
S.386 specifies that all companies must include (1) and (3). But since Cabbit Ltd deals in goods its accounts must
also contain a statement of stock.
SAMPLE EXAM

25 Correct answer(s):
C 9 months
As with all private companies, Whimsome Ltd must file its accounts within nine months of its year end.

26 Correct answer(s):
A True
Micro-entities have the option not to file a profit and loss account but must file a balance sheet.
D False
There are two compulsory notes for micro-entities which must be included in the accounts if relevant (advances to
directors and financial commitments).

27 Correct answer(s):
D A not-for-profit company that is subject to public sector audit
All insurance and banking companies must appoint an auditor. Only micro and small companies are exempt from
audit, medium companies must appoint an auditor. Quoted companies must appoint an auditor. Not-for-profit
companies that are subject to public sector audit are exempt from appointing an auditor.
28 Correct answer(s):
A Yes
The statement of capital and initial shareholdings includes the total number of shares, their aggregate nominal
value, details of individual classes of shares and the amount to be paid and unpaid on each share.
D No
Pre-emption rights are not covered by the statement.

29 Correct answer(s):
A True
Because Minimus plc produces group accounts it must produce a consolidated directors’ report.
D False

ICAEW 2021 5: Companies: the consequences of incorporation 22

 Only quoted companies are required to produce a directors’ remuneration report. Minimus plc is not quoted
because it is not listed on a stock exchange.

30 Correct answer(s):
D Quoted companies, large unquoted companies and large LLPs
The Regulations apply to quoted companies, large unquoted companies and large LLPs.

31 Correct answer(s):
C Compliance with money laundering regulations
Disclosure with regard to compliance with money laundering regulations is not required by the regulations. The
other options are all areas that do require disclosures to be made.

ICAEW 2021 5: Companies: the consequences of incorporation 23

 Chapter 6: Companies: ownership and management
1 Correct answer(s):
A True
D False
The director’s actions remain valid notwithstanding a defective or void appointment.

2 Correct answer(s):
A True
A sole director can be a company secretary but not a company auditor.
D False
Under s.157 of the Companies Act 2006 a person may not be appointed a director of a company unless they are
at least 16 years old.

3 Correct answer(s):
A Yes
A director can be removed on the passing of an ordinary resolution (with special notice).
D No
He may be entitled to sue for breach of contract as a result.

4 Correct answer(s):
A Simon has not been removed because the weighted voting rights have been validly given and validly
exercised.
The facts are similar to those in Bushell v Faith where the House of Lords held that since shares may be issued
with such rights as the company determines, there was nothing to stop a company giving weighted voting rights
in this manner.

5 Correct answer(s):
B False
The Companies Act 2006 changed the previous law to provide that companies have unrestricted objects unless
specifically restricted by the articles.
D False
Directors are not agents of the members and, therefore, are not subject to their instruction as to how to act.

6 Correct answer(s):
A Yes
C Yes
There are six areas that directors should consider when fulfilling their duty to promote the success of the
company. The company’s impact on the community and environment and the desirability of the company
maintaining a reputation for high standards of conduct are both included.
7 Correct answer(s):
C Frank has acted within the ostensible authority of a managing director to enter into all commercial
contracts in relation to the company’s business.

ICAEW 2021 6: Companies: ownership and management 24

 Frank’s authority arises from the conduct of Flora and Gail in allowing him to act as a managing director and is
therefore ostensible or apparent authority.

8 Correct answer(s):
C Parallels Ltd is bound because Mork had implied authority to enter into the contract. The contract is
within the implied usual authority of a managing director.

9 Correct answer(s):
B False
All the directors’ duties in the Companies Act 2006 are stated to apply to shadow directors also.
C True

10 Correct answer(s):
D The allotment is invalid because the directors have exercised their powers for a collateral purpose of
destroying an existing majority.
The facts are similar to those in Howard Smith Ltd v Ampol Petroleum Ltd, in which an allotment for such a
purpose was held to be unconstitutional and invalid.

11 Correct answer(s):
A Yes
D No
In a public company, the constitution must expressly allow such authorisation.

12 Correct answer(s):
A Yes
Usually the standard is that of a reasonably diligent person with the general knowledge, skill and experience that
may reasonably be expected of someone performing their functions as director. However, the actual
experience, knowledge and skill is also taken into account and may result in a higher standard being applied.
C Yes
Simply attending board meetings is not likely to be sufficient in the light of his business experience.

13 Correct answer(s):
B No
Disclosure is sufficient unless the constitution provides otherwise.
D No
Disclosure to the board is sufficient unless the constitution provides otherwise.

14 Correct answer(s):
B False
In certain circumstances, he may still be subject to the duty to avoid conflicts of interest and the duty not to
accept benefits from third parties.
C True

ICAEW 2021 6: Companies: ownership and management 25

 The contract may be avoided at the option of the company.

15 Correct answer(s):
A Kim and Tamsin are jointly and severally liable to make good the loss suffered by Teen Tunes Ltd.
Anna is not liable because she is not guilty of any breach of duty. She might be negligent in failing to spot the
transaction. Directors in breach are jointly and severally liable.

16 Correct answer(s):
D Giles will not be liable if there is a provision excluding him from liability for negligence.
Any such provision to exclude a director from or to indemnify them against liability for breach of duty or
negligence is void.

17 Correct answer(s):
B No
Civil liability only arises when a company is being wound up. Criminal liability exists regardless of whether the
company is solvent or not.
C Yes
The standard of care is that of a reasonably diligent person, but a director is also judged by reference to their
own skill, knowledge and experience. Wrongful trading is only relevant in liquidation.

18 Correct answer(s):
B No
A disqualification order (of up to 15 years) may be made in the discretion of the court.
D No
The court would also need to be satisfied that Elizabeth is unfit to be concerned in the management of a
company (the court may take into account her conduct as a director of Big Beans Ltd) in order for a
disqualification to be mandatory.

19 Correct answer(s):
B False
Only a member, or members, holding at least 15% of the class of shares in question may apply.
C True
In fact, holders of at least 5% of the company’s paid up capital with voting rights can requisition a meeting.

20 Correct answer(s):
B No
It is not necessary to show this.
D No
Such authorisation or ratification by the company will be binding and a derivative action will not be appropriate.
21 Correct answer(s):
D Where a parent company refuses to pay the debts of its subsidiary and the subsidiary becomes insolvent as
a result
Options A, B and C are all instances of cases where unfairly prejudicial conduct has been found to exist.

ICAEW 2021 6: Companies: ownership and management 26

22 Correct answer(s):
B 3% of the company’s members
At least 5% of the members are required to requisition a general meeting. All the other parties may requisition a
meeting.

23 Correct answer(s):
A True
D False
Although relief is considerably less likely to be given in the absence of any such breach.

24 Correct answer(s):
B All
All of these are possible orders. However, the most common relief granted is an order for the majority to
purchase the minority’s shares, valued on the basis of the shares’ worth before they were diminished by the
conduct of the controlling shareholders.

25 Correct answer(s):
A Yes
D No
This is a remedy of last resort. In this case there is clearly an alternative to liquidation (buying out his shares).

26 Correct answer(s):
C 90%
The articles may require a higher percentage up to 95%.

27 Correct answer(s):
C 21 days
Unless all members entitled to attend and vote agree to a shorter period.

28 Correct answer(s):
A True
D False
A public limited company must pass resolutions in general meeting.

29 Correct answer(s):
D The removal of an auditor
Only an ordinary resolution is required, but with special notice of 28 days.

30 Correct answer(s):
B No
A written resolution cannot be used in order to remove a director or auditor from office.

ICAEW 2021 6: Companies: ownership and management 27

 C Yes
For example, model articles provide for the removal of bankrupt directors.
SAMPLE EXAM

31 Correct answer(s):
A Yes
A director must act in good faith for the benefit of the company and must also avoid any conflict of interest.
C Yes
Exploiting such an opportunity constitutes a breach of duty, regardless of whether the company could actually
take advantage of the opportunity itself.
SAMPLE EXAM

32 Correct answer(s):
C Yes, in his capacity as managing director of ABC Carpets Ltd he should have checked that the insurance
form was completed correctly before he signed it.
These facts are most likely to amount to a breach of the duty of care owed by a director, particularly since he is a
managing director.
SAMPLE EXAM

33 Correct answer(s):
B False
A director is not an agent of the shareholders and is not liable to act as instructed by them.
D False
A director owes a duty to exercise independent judgement. Such an agreement would constitute a breach of this
duty. He may, however, act in accordance with an agreement duly entered into by the company restricting the
future exercise of discretion by its directors or in any way authorised by the company’s constitution.
SAMPLE EXAM

34 Correct answer(s):
C The removal of a company director
A company director may be removed by the passing of an ordinary resolution with special [Link] other
options require the passing of a special resolution.
SAMPLE EXAM

35 Correct answer(s):
A None of the above
Relief for unfairly prejudicial conduct applies to public and private companies where the company’s affairs are
being, or have been, conducted in a manner that is unfairly prejudicial to the interests of members generally or
some part of its members. SAMPLE EXAM

36 Correct answer(s):
C A non-executive director

ICAEW 2021 6: Companies: ownership and management 28

 Non-executive directors are formally appointed but are not involved in the day-to-day running of the business.
This is the role of executive directors.

37 Correct answer(s):
A True
Criminal liability may arise (but civil liability only arises on a winding up).
C True
Wrongful trading only applies when a company is wound up.

ICAEW 2021 6: Companies: ownership and management 29

 Chapter 7: Companies: finance
1 Correct answer(s):
D Neither (1) nor (2)
Ordinary shareholders are entitled to dividends if and when they are declared by the directors, but they cannot
compel the directors or the company to pay them a dividend. Preference shareholders are (typically) entitled to
receive a dividend at a specified rate before any other dividend is paid or declared, but they do not have the right
to compel payment of a dividend.

2 Correct answer(s):
C (1) and (2)
Both groups of shareholders have the same rights and so both get their capital repaid and share equally if there is
anything left over after repayment of capital. Where the articles state that the preference shareholders have a
preferential right to the return of capital, that is all they receive (before payment to ordinary shareholders) with
any surplus being exclusively for the ordinary shareholders.

3 Correct answer(s):
A Yes
C Yes

4 Correct answer(s):
B 15%
The members making this application to the court must not have voted for the variation.

5 Correct answer(s):
C No, because the 50p shares still carry one vote per share.
The fact that the value of existing rights may be affected does not constitute a variation of those rights.
SAMPLE PAPER

6 Correct answer(s):
A True C
True
Any part of the share capital that is not issued is called ‘unissued share capital’.

7 Correct answer(s):
A (1) or (3) only
The authority can be general or specific, conditional or unconditional.

8 Correct answer(s):
A Yes
The directors of a private company with only one class of shares may allot shares of that class unless such an
allotment is prohibited by the company’s articles.
C Yes
Failure to register the allotment within two months is an offence punishable by a fine.

ICAEW 2021 7: Companies: finance 30

9 Correct answer(s):
A True
D False
There is no obligation on the members to take additional shares. Indeed, they may sell their rights and obtain value
for their option over those shares.

10 Correct answer(s): A (1) only

The pre-emption rights are expressed (by the Companies Act 2006) not to apply to (2), (3) and (4).

11 Correct answer(s):
A Yes
A sum equal to the premium on each share must be transferred to a share premium account.
D No
Although a commission may be paid to someone who agrees to subscribe for or to procure subscriptions for shares
in the company, in accordance with a company’s articles of association.

12 Correct answer(s):
B False
This is true in respect of public companies but not private companies.
D False
Again, this is true only for public companies.

13 Correct answer(s):
B No
Shares in a public company cannot be paid for by an undertaking to perform work or services for the company.
D No
Shares in a public limited company must be paid up by at least one-quarter of the nominal value when issued.

14 Correct answer(s):
B No
Only in respect of listed shares.
D No
However, regulations may be made (under the Companies Act 2006) by the Treasury or Secretary of State which
will make it compulsory.
15 Correct answer(s):
A Yes
A company does this by passing an ordinary resolution to that effect (and subject to any restrictions in its articles).
C Yes
A company does this by passing an ordinary resolution to that effect (and subject to any restrictions in its articles).

16 Correct answer(s):
D When the nominal value of the allotted share capital falls below the authorised minimum.

ICAEW 2021 7: Companies: finance 31

 A public limited company must re-register as a private company unless the court orders otherwise.

17 Correct answer(s): B Subdivision

18 Correct answer(s):
B False
The company’s articles may, however, restrict or exclude the issue of redeemable shares
C True

19 Correct answer(s):
B False
The amount of the company’s issued share capital is diminished by the nominal value of the shares redeemed.
C True

20 Correct answer(s):
A True
D False
The capital redemption reserve may be used for this purpose.

21 Correct answer(s):
B (1) and (3) only
The company may lend to its employees for this purpose but not to directors who are not also employees.

22 Correct answer(s):
C A document that records the terms of any loan
Whether a loan is secured or unsecured, the written acknowledgement of its terms is called a debenture.

23 Correct answer(s):
A 6 months
D 12 months

24 Correct answer(s):
B False
The charge will also apply to future assets.
C True

25 Correct answer(s):
D Both take priority
Both fixed charges and preferential debts rank before floating charges.

ICAEW 2021 7: Companies: finance 32

26 Correct answer(s):
D The charge is void against any liquidator, administrator or creditor.
In addition, the money secured by the void charge is immediately repayable by the company.

27 Correct answer(s):
A Yes
A floating charge is typically over a class of assets of a company present and future with which the company may
continue to deal before crystallisation of the charge.
C Yes
A floating charge typically covers assets that change in the ordinary course of business and only fixes to those
assets at the time of crystallisation.
SAMPLE EXAM

28 Correct answer(s):
B No
A company may issue shares at a premium. No express authority is required in the company’s articles.
C Yes
Shares can be issued at a premium for cash or a non-cash consideration (although there are specific rules relating
to valuation of non-cash consideration for public companies).

29 Correct answer(s):
B Sarah will be able to sell her shares through a recognised stock exchange provided they have been listed.
Shares of a public company are transferable on a recognised stock exchange if the company is listed.
SAMPLE EXAM

30 Correct answer(s):
D A special resolution of the relevant class
Out of the options available, a special resolution is required. Otherwise written consent from at least 75% in
nominal value of the issued shares of that class should be obtained.
31 Correct answer(s):
C 21 days
Members have 21 days to accept a rights issue. After that, the shares may be allotted on the same (or less
favourable) terms to non-members.

ICAEW 2021 7: Companies: finance 33

ICAEW 2021 7: Companies: finance 34
 Chapter 8: Insolvency law: corporate and personal
1 Correct answer(s): D (2), (3), (1)
The primary purpose of administration is to rescue the company as a going concern, if at all possible.

2 Correct answer(s):
A 7 days
C 11 days

3 Correct answer(s):
B False
The period may also be extended by a prescribed majority of creditors (but only once).
C True

4 Correct answer(s):
A Yes
C Yes
Provided that to do so would, in their judgement, help the achievement of the purposes of administration, or
otherwise with the leave of the court.

5 Correct answer(s):
B No
During the period of administration, there can be no resolution or court order to wind up the company.
D No
It can only enforce the charge with the consent of either the administrator or the court.

6 Correct answer(s):
A Yes
But it must first obtain the consent of the administrator or the court, before it can instigate or continue legal
proceedings against the company.
D No
No resolution or petition for winding up can be passed or presented during administration.

7 Correct answer(s):
A True
The court may take various actions against the administrator.
D False
The company continues to be the employer (and the administrator is the company’s agent) but the administrator
may terminate any contracts of employment as they deem fit.
8 Correct answer(s):
B To realise the charged assets and pay off the appointing chargeholder’s debt
A receiver is typically appointed by a creditor with a fixed charge over property owned by the company.

ICAEW 2021 8: Insolvency law: corporate and personal 35

9 Correct answer(s):
D All of the above

10 Correct answer(s):
B False
Preferred and secured creditors are not bound by the CVA (unless they agree otherwise).
D False
The normal duration of CVA is three to five years.

11 Correct answer(s):
B a majority of the directors
Provided there are two or more directors.
C an ordinary resolution An ordinary resolution is sufficient.

12 Correct answer(s):
A True
Liquidation proceeds as a members’ voluntary liquidation only where it can be assumed that the company’s debts
can be paid in full (and a declaration of solvency has been made). If the liquidator concludes that that is not the
case, they must call a creditors’ meeting and lay before it a statement of the company’s assets and liabilities.
C True

13 Correct answer(s):
D Neither (1) nor (2)
It is the directors who nominate the liquidator. The creditors must consent to the nomination through the ‘deemed
consent’ procedure or by a virtual meeting.

14 Correct answer(s):
B No
He must also have served a written demand on the company at its registered office and the company must have
failed to pay it (or to offer reasonable security for it) within 21 days.
D No
This is effectively presumed by his satisfying the test referred to above.

15 Correct answer(s):
B False
On the contrary, this petition is normally presented by a member and, consequently, will only be considered where
the company is solvent (otherwise the member has nothing to gain from the winding up).
C True

16 Correct answer(s):
C The official receiver
Although they may be replaced by a qualified insolvency practitioner at a later date.

ICAEW 2021 8: Insolvency law: corporate and personal 36

17 Correct answer(s):
B No
The company’s assets remain the legal property of the company, but under Lionel’s control, unless the court orders
them to be vested in him as liquidator.
C Yes

18 Correct answer(s):
A Yes
Since it was made within two years before the liquidation.
D No
A liquidator does not have this power, but can apply to the court for such an order to be made.

19 Correct answer(s):
A Yes
A floating charge to a connected person may be void if entered into within the two years before the liquidation (12
months in the case of an unconnected person).
C Yes
This would be wholly appropriate and is part of the liquidator’s role to consider such matters and take action where
relevant.

20 Correct answer(s):
C (3), (1), (2)
Accrued holiday pay is a preferential debt, payable second, after the costs of liquidation and is followed by payment
of floating charges (subject to the ring-fencing provisions). Members may receive a share of any surplus in the event
that the company can, in fact, satisfy all its debts.

21 Correct answer(s):
D 10%
If less than 10% of the creditors in value object, the proposals are accepted.

22 Correct answer(s): A (1) only

Only an individual debtor may apply online for their bankruptcy. Third parties must petition the court.
23 Correct answer(s):
D Neither (1) nor (2)
Demelza cannot petition the court for her own bankruptcy, she must apply for it online with the Insolvency Service.
Hanwick Ltd cannot petition the court for Demelza’s bankruptcy either because it is not owed the minimum amount
of £5,000.

24 Correct answer(s):
B False
The trustee in bankruptcy, in these circumstances, declares a dividend so that each unsecured creditor receives part
payment of their debt.
C True

ICAEW 2021 8: Insolvency law: corporate and personal 37

 He must then pay creditors with provable debts in a prescribed order.

25 Correct answer(s):
A Yes
This is an important exception to the normal rule that the bankrupt can no longer be sued or have action taken
against them by their creditors.
C Yes
Such vesting occurs automatically and there is no need for any written contract or transfer of rights or property.

26 Correct answer(s):
B No
Tools and equipment that are necessary for use in the debtor’s employment, business or vocation are specifically
excluded from the sum of their estate.
D No
Such a sale would be void unless approved by the court, because of his status as an undischarged bankrupt.

27 Correct answer(s):
B (2), (3), (1)
The liquidator’s remuneration and expenses are paid first. The debt to the spouse is a postponed debt. Craig would
only receive payment if there were money left once all claims on the estate had been satisfied.

28 Correct answer(s):
A Yes
Rescuing the company as a going concern is the primary objective of administration.
C Yes
This is also an objective of administration where rescuing the company as a going concern is not practicable.
SAMPLE EXAM

29 Correct answer(s):
B No
Such a situation would not necessarily result in a winding up, which is generally a drastic remedy of last resort.
C Yes
If the court considers that a winding up is just and equitable, it may order compulsory liquidation.
SAMPLE EXAM

30 Correct answer(s):
C Return of contributed capital to ordinary shareholders
Only once all debts and charges have been paid, will the shareholders be entitled to a return of their capital and, if
applicable, a share in any surplus assets.
SAMPLE EXAM

31 Correct answer(s):

ICAEW 2021 8: Insolvency law: corporate and personal 38

 A Yes
If a declaration of solvency is made then the liquidation proceeds as a members’ voluntary winding up.
D No
Despite the label, this is not the case. The members initiate the winding up.

ICAEW 2021 8: Insolvency law: corporate and personal 39

ICAEW 2021 8: Insolvency law: corporate and personal 40
 Chapter 9: Sole traders and partnerships
1 Correct answer(s):
A True
D False

2 Correct answer(s):
C The admittance of new partners requires the unanimous consent of all existing partners.
Unanimous consent is required to admit new partners (C) and to change the nature of the partnership’s business
(D). No partners are entitled to remuneration for carrying out their firm’s business (A) (they are entitled to a share
of the profits instead). 5% interest per annum is only payable on any capital contributed beyond a partner’s initial
capital contribution to their firm (B).

3 Correct answer(s):
D The Limited Partnership Act 1907
The Limited Partnership Act 1907 applies to limited partnerships, not ordinary partnerships.

4 Correct answer(s):
B Lola must account to Lomays & Co for commission monies received.
A partner is required to avoid conflicts of interest without full disclosure to the other partners. If the other partners
know of the conflict and do not object, then the partner may proceed. A partner must account to the partnership
for all monies received in respect of it.

5 Correct answer(s):
A Freda, Gaynor and the firm are bound because the appointment is within the usual authority of a partner.
Such an appointment is within the usual authority of a partner. The fact that Hank was given express authority to
appoint Jane does not detract from his implied authority to appoint. The authority was not to appoint one and no
more.

6 Correct answer(s):
D Yes. Matt had no authority but Upmarket Businesses was not aware of that fact but knew that he was a
partner.
The Partnership Act 1890 provides that even without authority, a partner’s usual acts for the partnership business
are binding, unless the third party knows that they have no authority or does not know or believe them to be a
partner.

7 Correct answer(s):
D The firm and, therefore, all of its partners are liable on the contract to purchase 10 bulls from Farmer Giles.
There is nothing to suggest that Farmer Giles is aware that Mark was acting without authority or believed him not
to be a partner. Partners’ acts in the usual course of business bind the firm and the partners, unless the third party
knows that the partner does not have authority or does not know or believe him to be a partner.

9: Sole traders and partnerships

ICAEW 2021 41
8 Correct answer(s):
B Elliott is not liable because the contract was entered into before he became a partner.
A new partner is only liable for debts incurred after they became a partner unless they agree otherwise.

9 Correct answer(s):
B False
This is usually expressly provided for in a partnership agreement. However, in the absence of an express provision,
the Partnership Act 1890 provides that a partnership is dissolved in a number of instances, including on the death
or bankruptcy of a partner.
C True

10 Correct answer(s):
A Yes
C Yes
A partnership may be wound up in the same way as an unregistered company under Part V of the Insolvency Act
1986.

11 Correct answer(s):
B No
This is one of the differences between an ordinary partnership and a company.
C Yes
They can do so, but the other person does not thereby become a partner.

12 Correct answer(s):
B False
False. A partner can assign their interest (subject to any express provision to the contrary) but the assignee does not
become a partner as a result.
C True

13 Correct answer(s):
A True
In this respect it is like a registered company.
D False
The liability of every LLP member is limited.

14 Correct answer(s):
B No
Members are taxed as individuals on the partnership’s profits.
C Yes

15 Correct answer(s):
B No
They may be able to use this name as a business name, but the name of an LLP must end with the words ‘limited
liability partnership’ or the abbreviation ‘LLP’.
ICAEW 2021 42
 D No
An LLP will normally have one but it is not essential.

16 Correct answer(s):
B No
They must submit an incorporation document in the prescribed format.
C Yes

17 Correct answer(s):
B Arthur, Peter and William are each entitled to receive remuneration in respect of the part they each play in the
business.
As with an ordinary partnership, there is no implied entitlement to remuneration.

18 Correct answer(s):
B False
The Limited Liability Partnership Act 2000 provides that every member is an agent of the limited liability partnership
only.
D False
Where he acts without authority, he will still bind the LLP unless the third party knows that he does not have
authority or does not know or believe him to be a member of the LLP.

19 Correct answer(s): A All of them

They are all applicable to LLPs.

20 Correct answer(s):
C Withdrawals made in the last two years can be clawed back if it can be shown that, at the time of making each
withdrawal, Max and Lily had reasonable grounds to believe that the LLP would become insolvent.

21 Correct answer(s):
B No
In the absence of an express provision, the Partnership Act 1890 provides for the right to share in profits and losses
equally.
C Yes
There is an implied right of access to all partnership books and accounts.
SAMPLE EXAM

22 Correct answer(s):
B No
One would not be sufficient. The requirement is for two or more persons to subscribe their names to the
incorporation document.

9: Sole traders and partnerships

ICAEW 2021 43
 C Yes
This is also a requirement.
SAMPLE EXAM

23 Correct answer(s):
B No
There is no statutory right to remuneration.
C Yes
In the absence of express provision, there is an implied right to share in the profits of the LLP equally.
SAMPLE EXAM

24 Correct answer(s):
B False
Licences and VAT registration are only required for certain classes and size of business and so do not apply to all
sole traders.
C True
The main benefit of operating as a sole trader is that all business profits accrue to the trader.

25 Correct answer(s):
C A sole trader must report the business’s finances to the tax authorities each year.
Sole traders are not subject to audit and do not have to file accounts with the Registrar. They are required to report
to the tax authorities as part of the sole trader’s personal tax return. A sole trader’s business is not legally distinct
from their personal wealth – this is the main disadvantage of operating as a sole trader.

26 Correct answer(s):
A A sole tradership
Phyllis is clearly an employee so this is not a partnership. The mortgage, accounts and personal tax situation
describes a sole trader (ie, Dylan is personally liable for the mortgage and he is not required to submit statutory
accounts that a company would).

27 Correct answer(s):
B No
Only some companies are required to have a secretary.
C Yes
Unanimous agreement of the partners is required to admit a new partner.

ICAEW 2021 44
 Chapter 10: Criminal law
1 Correct answer(s):
B No
The Act applies to ‘workers’ (which is wider than ‘employees’ but does not include the selfemployed).
D No

2 Correct answer(s):
B False
There is no requirement as to length of continuous service.
D False
He will, however, need to have a reasonable belief that the health and safety of an individual has been, is being,
or is likely to be endangered.

3 Correct answer(s):
C That they have some documentary evidence of the matter complained of
While rumour and suspicion are unlikely to satisfy the need for reasonable belief, it is not necessarily the case
that someone will need to produce documentary evidence.

4 Correct answer(s):
C All of the above
Criminal offences and unsafe working practices are qualifying disclosures.

5 Correct answer(s):
A True
C True
In all cases the worker should have a reasonable belief that the information disclosed to the regulatory body
concerned is indeed true.

6 Correct answer(s):
A True
D False
There is no longer a requirement for good faith, but the apparent lack of good faith may result in any
compensation being reduced by up to 25%. The disclosure must be made in the public interest.

7 Correct answer(s):
B False
Nina could disclose the information to the Minister responsible for the NHS and still receive the statutory
protection (even though the aim of the Act is to encourage internal disclosure in the first instance).
C True
A tribunal may award an amount that it considers just and equitable in all the circumstances andthere is no
maximum limit.
8 Correct answer(s):
A Yes

ICAEW 2021 10: Criminal law 45

 It must be reasonable in all the circumstances and must not be made for personal gain.
D No
This is one option, but alternatively he may show that he had a reasonable belief that a cover-up was likely and
there was no prescribed regulator or a reasonable belief that he would be victimised if he raised the matter
internally or with a prescribed regulator.

9 Correct answer(s):
B No
The offence is also committed where the defendant intended to cause another person loss or to expose that
person to the risk of making that loss. (This is true whichever of the three instances of fraud applies.)
D No
He faces the possibility of being disqualified, however, for up to 15 years as a result.

10 Correct answer(s):
B Fraud by dishonestly appropriating property belonging to another
Under the Fraud Act 2006 there are three statutory instances of fraud. Options A, C and D are these three
instances. Dishonesty appropriating property belonging to another is primarily an offence of theft.

11 Correct answer(s):
A Yes
Although the Act is often applied in regards to wrongdoing by the employer, it also offers protection for
disclosing wrongdoing by fellow workers as well.
C Yes
Under the Enterprise and Regulatory Reform Act 2013, disclosure must be in the public interest.

12 Correct answer(s):
D 10 years’ imprisonment and an unlimited fine
10 years’ imprisonment and an unlimited fine is the maximum penalty for fraud under the Fraud Act 2006.

13 Correct answer(s):
A Yes
Civil liability, on the other hand, arises only where a company is in liquidation.
C Yes

14 Correct answer(s):
C Kevin is guilty. Leo and Nigel are not guilty because neglect or lack of positive dishonest action cannot
constitute fraudulent trading.
No statutory definition of ‘fraudulent’ is given but it seems that some positive act is needed and not just neglect.
Nigel may be in breach of his director’s duty to exercise reasonable care and skill however. The fact that Leo is
not a director does not mean that he has no potential liability.

15 Correct answer(s):

ICAEW 2021 10: Criminal law 46

 B Dealing in securities while in possession of inside information as an insider, the securities being price-
affected by the information

16 Correct answer(s):
A Yes
Richard is guilty of encouraging another person to deal.
D No
It is irrelevant whether any dealing actually takes place.

17 Correct answer(s):
B No
He does not know or have reasonable cause to believe that Freya will deal.
C Yes
The disclosure is not made in the proper performance of their employment and so an offence is committed
under the Criminal Justice Act 1993.

18 Correct answer(s):
A Yes
The information relates to particular securities and is price-sensitive, as it would be likely to have a significant
effect on the price of the securities if made public.
C Yes
Yes, because she obtained the information from an insider, Andy, who had the information by virtue of his
profession as auditor.

19 Correct answer(s):
B False
An offer is sufficient. It is immaterial whether the offer is accepted.
C True
It is likely that the managing director of a public limited company would be regarded as a person in business
who is expected to perform their functions impartially and in good faith.

20 Correct answer(s):
A True
The Bribery Act 2010 replaced the offence at common law and repealed several statutes dealing with
corruption.
D False
The maximum term of imprisonment is 10 years.
21 Correct answer(s):
D It is the process by which the proceeds of crime are converted into assets which appear to have a
legitimate origin.

22 Correct answer(s):
A 5 years

ICAEW 2021 10: Criminal law 47

 Plus an unlimited fine. The principal offence of money laundering is punishable by 14 years’ imprisonment and
tipping off by two years.

23 Correct answer(s):
B No
Although he has been concerned in an arrangement suspecting that it will facilitate use of criminal property (ie,
the proceeds of tax evasion), he has a defence, in that he has reported the matter to the
MLRO.
D No
The offence of tipping off is committed when a disclosure is made to a third party that a disclosure or report has
been made, where that disclosure is likely to prejudice any resulting investigation, or when a disclosure is made
that an investigation is being contemplated or carried out and that disclosure is likely to prejudice the
investigation.
SAMPLE EXAM

24 Correct answer(s):
A Yes
Failure to do so would be an offence. The Proceeds of Crime Act 2002 offers protection where information
rightly disclosed results in a breach of confidentiality.
D No
He should only report to the MLRO. He must then be aware that revealing his suspicions to any other person
could constitute the offence of tipping off, if it is likely to prejudice an investigation into the company’s affairs.

25 Correct answer(s):
B False
A business must appoint a MLRO.
C True

26 Correct answer(s):
B False
A defendant will have a defence if they can show that their conduct was necessary for the properexercise of
any function of either an intelligence service or the armed forces when engaged on active service.
D False
If the commercial organisation can show that it had ‘adequate procedures’ in place to prevent bribery, it will not
be guilty.

27 Correct answer(s):
A Yes
Disclosure of such activity would amount to a qualifying disclosure.
C Yes
Likewise, disclosure of endangering the health and safety of employees would amount to a qualifying disclosure.
SAMPLE EXAM

28 Correct answer(s):

ICAEW 2021 10: Criminal law 48

 A True
C True
Up to 10 years’ imprisonment (and/or an unlimited fine) is the maximum penalty for fraudulent trading.
SAMPLE EXAM

29 Correct answer(s):
A True
D False
Fraudulent trading is a criminal offence and it is not sufficient to show the officer ‘suspected’ the company might
not be able to pay its debts.
SAMPLE EXAM

30 Correct answer(s):
A True
The offence is committed whether or not the offeree accepts the money or other favour.
C True
SAMPLE EXAM

31 Correct answer(s):
A True
It was held in Royal Bank of Scotland v Bannerman Johnstone Maclay 2005 that a third party can be owed a
duty of care where auditors know their identity, the use to which the information would be put and that the
third party intends to rely on it. Brisco LLP was aware of Wyman plc and that the company would be relying on
the audited financial statements when making a takeover bid. Therefore a duty of care is owed.
C True
Abel Brisco is likely to be in breach of professional behaviour. By denying that he had not been notified of
Wyman’s reliance on the financial statements he will be lying. This is dishonest and likely to bring the profession
into disrepute.

32 Correct answer(s):
B No
The term ‘money laundering’ covers any activity by which the apparent source and ownership of the proceeds of
crime are changed, in such a way that the cash or other assets appear to have been obtained legitimately. Gavin
has not conducted any such activity because payment of a dividend which is illegal under the Companies Act
2006 is not a criminal offence.
C Yes
Gavin is party to the deception of users of the financial statements who will believe the dividend was legitimate.
Deception is dishonest and is likely to bring the profession into disrepute, hence he is in breach of professional
behaviour.

33 Correct answer(s):
B No
Generally speaking, the need to make a report to the National Crime Agency takes precedence over
considerations of client confidentiality. The Proceeds of Crime Act 2002 offers protection where information

ICAEW 2021 10: Criminal law 49

 rightly disclosed under the Act results in a breach of confidentiality. Therefore, the client cannot take legal
action against the firm.
D No
Under the ICAEW Code of Ethics, where an accountant is required by law or regulations to disclose confidential
information, they shall always disclose that information in compliance with relevant legal requirements.
Therefore, Harriet has not breached the rules on confidentiality.

34 Correct answer(s): B Keylogging

Keylogging is where criminals record what the user types onto their keyboard.

35 Correct answer(s):
A True
The use of emails to obtain bank information such as this is known as phishing.
D False
Phishing emails are an example of fraud by representation (dishonestly making a false representation of fact or
law, intending thereby to make a gain for oneself or another or to cause another party loss or expose that party
to the risk of making loss).

36 Correct answer(s):
B (1), (3) and (4) only
Accidentally spreading a virus is not an offence. The creation of ransomware and hacking are both offences, as is
the unauthorised access to content stored on a computer such as a colleague’s email account.

37 Correct answer(s):
A True
This statement describes hacking.
C True
This statement might involve, for example, the supply of stolen logins, that another individual could use to gain
unauthorised access to a computer system.

38 Correct answer(s):
D He passed the information on in the course of his employment.
Passing on information in the course of employment is only relevant (and means that no offence has been
committed) to the offence of disclosing inside information. The other options are all valid defences.
39 Correct answer(s): C 15 years
The maximum period of disqualification is 15 years.

40 Correct answer(s):
A True
This is an offence which is committed by commercial organisations such as companies and partnerships. The
penalty is a fine.
C True
It is an offence to bribe foreign public officials as well as those in the UK.

ICAEW 2021 10: Criminal law 50

41 Correct answer(s):
B Pharming is based on legitimate looking websites, phishing is based on legitimate looking emails.
Pharming uses legitimate looking websites to persuade victims to enter their personal details. Phishing involves
sending legitimate looking emails to victims. Although they are separate activities, they are often related, for
example phishing may be used to direct a victim to a pharming website.

42 Correct answer(s):
B False
Internet-enabled card not present fraud involves the fraudster taking card payments even if the victim and their
card are not present.
D False
Spear phishing is a form of phishing that targets a particular group of individuals in an attempt to increase the
success rate. The description is of online relationship fraud that is conducted through social networks or dating
sites.

43 Correct answer(s):
A Very carefully check websites to ensure they are legitimate before entering any information.
Professional scepticism is a powerful tool that accountants have against pharming. It is important not to trust
websites that require personal information to be entered until they have been verified as legitimate. The other
options are all methods of minimising the risk of cyber crime, but cannot prevent Ewan from entering personal
information on a fake website.

44 Correct answer(s):
B Cash transfers overseas
The cash balance is large, but not out of the ordinary; but the sudden transfer of cash out of the country is
suspicious. Employment of the new area manager is not a ‘red flag’ and the timing with the overseas transfers
could be a coincidence. The directors not having an answer to the question about whether the expansion was a
success could have a legitimate reason – it really could be too early for them to tell, but Mina should follow it
up.

ICAEW 2021 10: Criminal law 51

 Chapter 11: Employment, data protection and intellectual property law
1 Correct answer(s):
C Deduction of tax at source by the employer
Deduction of tax at source is consistent with and suggestive of a contract for services, but it is not conclusive.

2 Correct answer(s):
C Details of appraisal procedures
In accordance with the Employment Rights Act 1996, this information is not required to be included.

3 Correct answer(s):
D Ivy provides her own car for delivering flowers.
This suggests a contract for services, although it is not conclusive. A, B and C are all consistent with a contract of
service.

4 Correct answer(s):
B False
Although the existence of these elements is absolutely essential in order for a contract to be held to be a
contract of service rather than a contract for services, their existence does not necessarily mean that this will be
the case. The application of the multiple test may still result in the arrangement being a contract for services.
C True
In such cases there is an absence of mutuality of obligations, which is an essential ingredient for the existence of
a contract of service.

5 Correct answer(s):
B He is an employee. The fact that he is paid gross is not conclusive and the other factors point to him being
an employee.
The courts apply a multiple test and all the factors, save with regard to payment of tax and delegation to some
extent, suggest a contract of employment. A limited power of delegation is not inconsistent with a contract of
employment.

6 Correct answer(s):
C Flora is an independent contractor because she is only offered work by Bun the Bakers on an asand-when
required basis.
Although most factors are consistent with a contract of service, the absence of the mutuality of obligations
means that it cannot be one. If Bun the Baker were under an obligation to provide her with work and she was
under an obligation to do it, then it would be a contract of employment.

7 Correct answer(s):
A Yes
Maintaining trust and confidence is a duty that employees owe to their employer.
D No
Employees are only under an obligation to obey orders which are lawful and reasonable.

ICAEW 2021 11: Employment, data protection and intellectual property law 52
8 Correct answer(s):
B No
A written statement of employment particulars, provided in accordance with the Employment Rights Act 1996,
does not form part of a contract of employment but may serve as evidence of its terms.
C Yes
Terms can be implied into an employment contract from legislation.

9 Correct answer(s):
A Yes
An employee, on the other hand, would not register for VAT separately from their employer.
D No
Under the Employment Rights Act 1996, only employees have the right to bring a claim for unfair dismissal.

10 Correct answer(s):
A Yes
An independent contractor, on the other hand, is directly responsible to HMRC for income tax due.
D No
An independent contractor is still owed statutory duties by their employer under the Health and Safety at Work
Act 1974, although an employee is owed a greater duty of care. Moreover, under the common law, an employer
has a duty to protect their employees against reasonably foreseeable risks to their health, safety and welfare.

11 Correct answer(s):
B False
An employment contract can be created orally.
C True
Terms may be implied by common law or statute. For example legislation provides that all employees should
have equality of terms and conditions of employment relating to pay.

12 Correct answer(s):
C 2 months
Two months, in accordance with the Employment Rights Act 1996.

13 Correct answer(s):
B No
There are no criminal sanctions. Rather, the employee may apply for a declaration of rights stating what the
particulars of their employment should be and the employer may be liable to pay compensation to the
employee in certain circumstances.
D No
This will be sufficient to replace the need for a written statement.
14 Correct answer(s):
B False
There is no such duty if the instructions would require them to do an unlawful act or expose them to danger or
to do something outside their employment contract.

ICAEW 2021 11: Employment, data protection and intellectual property law 53
 D False
Naturally most duties do cease when the employment ceases. However, the duty not to misuse confidential
information may continue after that time.

15 Correct answer(s):
B No
There is no such duty on the employer implied by common law.
C Yes
The employer owes a duty at common law to pay reasonable remuneration. This duty is subject to any express
provision, for example to pay a rate fixed by the parties, or to pay nothing during a layoff.

16 Correct answer(s):
B No
The duty is to pay the agreed remuneration and, in the absence of express provision, to pay a reasonable
amount (subject to the legal requirements concerning the minimum wage).
C Yes
Generally speaking, there is an implied obligation to provide work or to continue to pay wages where no work is
provided. Where an employee is paid on a commission only basis (as Amran is here), the duty is to give the
employee the opportunity to earn their commission.

17 Correct answer(s):
A True
However, he may do so in those cases where he has received the employee’s consent.
D False
There is no obligation on an employer to provide a reference, but if an employer chooses to do so, they must
exercise reasonable care and skill in order to ensure that the information relayed in the reference is accurate
and fair.

18 Correct answer(s):
D Conrad is liable to a fine and imprisonment for up to two years and Tall Trees plc is liable to an unlimited
fine.
The company and any director or other officer who consents to or is responsible for the commission of the
offence may be liable to an unlimited fine and up to two years’ imprisonment.

19 Correct answer(s):
B At least a week
An employee who has continuous employment of between one month and 24 months is entitled to at least one
week’s notice.
20 Correct answer(s):
D No. Under the Employment Rights Act 1996 he is entitled to a minimum period of five weeks’ notice.
The 1996 Act provides that an employee with continuous employment with the same or an associated
employer of between 2 and 12 years is entitled to not less than one week’s notice per year of service.

21 Correct answer(s):

ICAEW 2021 11: Employment, data protection and intellectual property law 54
 C At least 12 weeks
The Employment Rights Act 1996 provides that the minimum period of notice is not less than 12 weeks where
an employee has continuous employment with the same or an associated employer of 12 years or more.

22 Correct answer(s):
A Yes
D No
However, a failure to comply with a relevant procedure, including the Acas Code, may render a dismissal unfair.

23 Correct answer(s):
B No
Dismissal at retirement age is a potentially fair reason for dismissal if it is shown to be proportionate and
objectively justifiable in order to constitute “some other substantial reason” for the dismissal.
C Yes
Pregnancy or related matters is an automatically unfair reason for dismissal.

24 Correct answer(s):
A True
D False
The claim may be reduced by up to 25%.

25 Correct answer(s):
C Three months
Three months.

26 Correct answer(s):
D If the conference were to be cancelled because a large proportion of the delegates were required to report
for duty in view of a major earthquake in Brighton.
These circumstances would frustrate the contract. Frustration of a contract does not constitute dismissal for the
purposes of unfair dismissal protection.

27 Correct answer(s):
A True
Since this is an automatically unfair reason for dismissal.
C True

28 Correct answer(s):
A Yes
Potentially fair reasons include that the employee’s conduct is unacceptable and that the employee lacks the
capability or qualification for the job which they are employed to do.
C Yes

ICAEW 2021 11: Employment, data protection and intellectual property law 55
 It is a question of fact for the tribunal to decide on all the evidence whether the employer acted reasonably in
treating the reason as sufficient grounds for dismissal.

29 Correct answer(s):
B Simon, who was dismissed on the grounds of misconduct based on Full Stop Ltd’s reasonable belief that he
had been using his work computer to run a personal business during working hours.
Simon was given one of the potentially fair reasons for dismissal under the Employment Rights Act 1996
(misconduct). The others received automatically unfair reasons for dismissal.

30 Correct answer(s):
D The employee having a spent conviction under the Rehabilitation of Offenders Act 1974
A spent conviction under the Rehabilitation of Offenders Act 1974 is an automatically unfair reason for
dismissal.

31 Correct answer(s):
D Potentially fair and the Sunshine Care Home has acted reasonably in the circumstances by giving Sophia
time off work and an offer of an alternative job. Her employer cannot be expected to keep her job open
indefinitely.
(Assuming that the Sunshine Care Home has followed the Statutory Disciplinary and Dismissal Procedure.) It
should be noted that, when making their decisions in employment cases, employment tribunals take into
account the fairness of their decision in relation to the employer, as well as to the employee concerned.

32 Correct answer(s):
D All of the above
The basic award is calculated by reference to an employee’s age and length of service. It may be reduced on
account of an employee’s unreasonable behaviour and any redundancy payment will also be taken into
account.

33 Correct answer(s):
A Yes
C Yes

34 Correct answer(s):
C Damages
D is also a remedy for wrongful dismissal but damages is the usual remedy that is awarded.
35 Correct answer(s):
B No
He does not have a sufficient period of continuous employment (of two years) with Hots Ltd.
C Yes
Wrongful dismissal is a common law action where the employer dismisses the employee in breach of contract.
In the present case Oliver’s employer has acted in breach of his implied duty of mutual trust and confidence.

36 Correct answer(s):

ICAEW 2021 11: Employment, data protection and intellectual property law 56
 C Raita has no right to sue for wrongful dismissal but may enforce the obligation to pay six months’ salary.
Raita may sue for the agreed sum, ie, the equivalent of six months’ salary, under the contract and will be under
no duty to mitigate her loss. Continuous employment is irrelevant to an action for wrongful dismissal (B).

37 Correct answer(s):
C Don, Amol and Dimitri only
Non-renewal of a fixed-term contract on expiry may constitute an unfair dismissal but it is not a wrongful
dismissal. The other options are all examples of wrongful dismissal.

38 Correct answer(s):
B False
The labels attached by the parties (ie, ‘employee ‘and ‘employer’) are relevant but are not critical or conclusive.
D False
The ability to delegate work indicates self-employment not employment.

39 Correct answer(s):
A The school is justified in dismissing Arthur without notice, as he has engaged in gross misconduct and the
school therefore has no liability, particularly since disciplinary and dismissal procedures appear to have
been followed.
This is not a wrongful dismissal because Arthur has engaged in gross misconduct justifying his summary
dismissal.

40 Correct answer(s):
A True
C True
It is calculated in the same way as a basic award for unfair dismissal (based on an employee’s age and length of
service).

41 Correct answer(s):
B False
C True
Only working for one ‘employer’ and being given all the tools necessary to perform a role are both indications of
employment, not of being an independent contractor.

42 Correct answer(s):
D The notice period for termination of the employment
Notice periods do not have to be included in prescribed particulars.

43 Correct answer(s):
B If the employee is required to do something that is not in their employer’s best interest.
Provided the instruction is lawful, reasonable and within their employment contract, the employee is bound to
comply with it.

ICAEW 2021 11: Employment, data protection and intellectual property law 57
44 Correct answer(s):
A Yes
The requirements of Bespoke Windows Ltd for work of a particular type have ceased.
D No
An employee must have two years’ or more continuous employment with the same or an associated employer
at the relevant date, in order to be entitled to claim a statutory redundancy payment.

45 Correct answer(s):
B Six months
He should apply to the employment tribunal within six months of the relevant date of his dismissal by reason of
redundancy, although the tribunal has a (rarely exercised) discretion to allow a late claim within the following
six months also.

46 Correct answer(s):
A Yes
The requirements of Complete Gardens Ltd for work of a particular type have ceased.
C Yes
The new post, although at the same premises and for the same salary, would be perceived as being lower in
status and he is not bound to accept it, on the grounds that it is not suitable alternative employment in
accordance with the 1996 Act.

47 Correct answer(s):
A Yes
Employees have the right not to be unfairly dismissed.
D No
Employees are paid net of income tax and national insurance contributions.

48 Correct answer(s):
A True
Where the worker undertakes a degree of financial risk, this is generally regarded as a factor consistent with a
contract for services.
C True
This power of limited delegation is consistent with Andrew being an employee.

49 Correct answer(s):
C The duty to protect an employee’s personal property while they are engaged in performing their
contractual duties
No such duty is implied at common law.

50 Correct answer(s):
D Where the loss suffered by the employee was less than the value of the award

ICAEW 2021 11: Employment, data protection and intellectual property law 58
 Basic awards are governed by the Employment Rights Act 1996 and are made regardless of the amount of loss
suffered by an employee.

51 Correct answer(s):
A Yes
Terms may be implied into a contract of employment by common law and by statute where no express
provision is made.
D No
The prescribed particulars may provide evidence of the terms of a contract of employment but the written
statement does not actually form part of that contract.

52 Correct answer(s):
A True
This is a duty implied at common law and owed by employers to their employees.
C True
Damages is the most likely remedy.

53 Correct answer(s):
A Yes
Termination of a fixed-term contract before the expiry date constitutes a dismissal.
C Yes
Termination with no, or insufficient, notice constitutes a dismissal.

54 Correct answer(s):
A Yes
Dismissal on the grounds of membership or non-membership of a trade union or the taking part in protected
industrial action is automatically unfair.
C Yes
Dismissal on such grounds is likely to be automatically unfair.

55 Correct answer(s):
A True
D False
In order to be fairly dismissed on the grounds of lack of qualification, there must be a contractual obligation to
hold that qualification.

56 Correct answer(s):
B False
An employee must have at least two years’ continuous service in order to claim a statutory redundancy
payment.
C True
The employee must have been dismissed, laid off or put on short-time working in order to succeed in a claim.

ICAEW 2021 11: Employment, data protection and intellectual property law 59
57 Correct answer(s):
B False
The Act also applies to manual files.
C True

58 Correct answer(s):
A Yes
C Yes

59 Correct answer(s):
B There is potential liability to (2) only
The company could be fined up to £17 million or 4% of its global turnover. Destruction of databases is not a
potential penalty under the Act.

60 Correct answer(s):
B False
The data controller is only required to take reasonable steps to ensure accuracy.
D False
There is no such obligation on the data controller. The data subject must request the information in accordance
with their right of access.

61 Correct answer(s):
B No
A claimant may be able to claim compensation if they can show that they have suffered damage as a result of a
contravention of the Act. It is not a right righted in the Act itself.
C Yes
This is one of the rights given by the Act to protect data subjects and is also known as the right ‘to be forgotten’.

62 Correct answer(s):
A Yes
All organisations are covered by the Act, being unincorporated makes no difference. Therefore, Amy may
exercise her right of access to her data.
C Yes
One of the principles of data protection is that the purpose for recording data must be made clear to the data
subject. The club is in breach of this principle because there is no information available to members on the
purpose for holding information about them.

63 Correct answer(s):
B False
All data pertaining to a data subject are accessible by the data subject whatever the form in which they are held.
C True
The data subject has the right to have inaccurate data rectified.

ICAEW 2021 11: Employment, data protection and intellectual property law 60
64 Correct answer(s):
B No
D No
An employer processing data in compliance with employment law and processing of data for academic purposes
are both exemptions to the Data Protection Act 2018.

65 Correct answer(s):
B The fact that a person’s corporate employer is on the verge of insolvency. The Act
applies only to personal data, ie, data about individuals.

66 Correct answer(s):
C The Information Commissioner only regulates data protection in the UK.
The Information Commissioner only regulates data protection in the UK. They do not have the right to seize
hardware and only have to be notified of data breaches that affect the rights and freedoms of individuals. They
may issue fines, but these are capped at £17 million or 4% of global turnover.

67 Correct answer(s):
C Personal data shall not be kept for longer than is agreed between the data controller and the data subject.
There is no applicable concept of agreement between the parties. The data shall not be held for longer than is
necessary for the purpose for which they are processed.

68 Correct answer(s):
A Yes
Copyright applies to music, film and art.
D No
Copyright is granted automatically and does not have to be applied for.

69 Correct answer(s):
D Trademark
Trademarks are used to protect product names and logos.
70 Correct answer(s):
C Patent
Patents apply to inventions and products, such as machines or parts of machines.

ICAEW 2021 11: Employment, data protection and intellectual property law 61
ICAEW 2021 11: Employment, data protection and intellectual property law 62
 Chapter 12: Sample exam
1 Correct answer(s):
B False
Legislation often implies terms to protect the weaker party, notwithstanding any express provision in the contract
(for example the supply of Goods and Services Act 1982).
D False
An adult not of sound mind, for example, does not have capacity.

2 Correct answer(s):
C Unenforceable
A contract for the sale of land must be in writing.

3 Correct answer(s):
B No
The display constitutes an invitation to treat only.
C Yes
An offer is made by Matilda when she takes the roses to the till and proffers £6. The shopkeeper is free to accept or
reject that offer.

4 Correct answer(s):
C That the third party must be identified in some way in the contract
The third party must be identified. Either the contract must expressly provide that the third party can enforce it or
the term must confer a benefit on them (unless it appears that the contracting parties did not intend them to be
able to enforce the right). The Act allows enforcement of exclusion clauses as well as positive rights.

5 Correct answer(s):
D A contract is likely to be deemed to exist and its terms will be a question of fact in all the circumstances.
It is probably unrealistic to imagine that major works would have been undertaken with no contract being in place.
However, the terms of that contract will be a question of fact in all the circumstances and cannot readily be
assumed.

6 Correct answer(s):
C Derek is entitled to payment of the contract price less a reasonable amount in respect of the omission made.
Substantial performance is a sufficient discharge of a party’s contractual obligations but entitles the other party to
seek redress in respect of the part not completed.

7 Correct answer(s):
A True
C True
The amount ordered to be paid will be such amount as the court considers just, having regard to all the
circumstances of the case.
8 Correct answer(s):
B False

ICAEW 2021 12: Sample exam 63

 C True
Fred’s breach entitles Ginger to treat the contract as discharged or to affirm the contract. It does not automatically
discharge the contract.

9 Correct answer(s):
B An exclusion clause can remove all liability for a party in regard to their breach of contract.
An exclusion clause can exclude liability altogether for a breach of contract. The contract need not be signed for the
clause to be incorporated, provided it can be shown that the person whose rights it restricts was made sufficiently
aware of the exclusion clause at the time of making the contract. Exclusion clauses are interpreted against the party
seeking to rely on them. In a signed contract, all clauses are deemed binding, even if they have not been read.

10 Correct answer(s):
C The agent can be sued on the contract.
The agent effectively drops out of the picture. The third party can also be sued on the contract.

11 Correct answer(s):
A True
D False
It can be oral unless the agent is to execute a deed, in which case the appointment must be by deed. It is usual to
appoint an agent in writing in commercial transactions.

12 Correct answer(s):
B No
A principal cannot ratify a part of a contract only.
C Yes

13 Correct answer(s):
A True
C True

14 Correct answer(s):
B False
Damages are normally calculated to put the claimant in the position they would have been in, had the contract
been performed.
C True

15 Correct answer(s):
A True
D False
This is unlikely to be sufficient. He must provide evidence of a body of professional opinion which the court
considers to be reasonable.

ICAEW 2021 12: Sample exam 64

16 Correct answer(s):
B Nathan must pay damages of £15,000.
The court has already established the amount of loss and the proportion by which damages should be reduced to
reflect Esther’s contributory negligence.

17 Correct answer(s):
A Yes
D No
Although the incident happened during a business audit, the act was not closely connected with his employment.

18 Correct answer(s):
B No
The liability of the members may be limited, but the liability of the company is always unlimited.
D No
If a shareholder (A) bought their shares from another shareholder (B), A’s liability is only in respect of the shares’
nominal value. The unpaid amount of any premium is a debt owed by B. It does not pass to A with the shares.

19 Correct answer(s):
A A statement that its subscribers wish to form a company.
A statement that subscribers wish to form a company is required in the memorandum of association.

20 Correct answer(s):
A Yes
By special resolution or otherwise as provided by its articles of association.
D No
The Secretary of State (or company names adjudicator) may order a change of name in certain circumstances.

21 Correct answer(s):
B No
It is not a small company as it satisfies the criteria as to employees (under 50) but not turnover (up to £10.2 million)
and balance sheet (up to £5.1 million).
C Yes
A small company would be exempt (although 10% of its members could still require an audit) but this company does
not qualify for such an exemption.

22 Correct answer(s):
D Non-executive director
A de facto director is not formally appointed but, like a shadow director, is a director by virtue of their conduct. An
alternate director is appointed by a director.

23 Correct answer(s):
A True

ICAEW 2021 12: Sample exam 65

 Substantial property transactions (as well as loans and payments on retirement or loss of office) require approval.
The purchase of the limousine is a substantial property transaction because as it exceeds £5,000 and 10% of the
company’s asset value.
D False
Only guaranteed terms of two years or more require approval.

24 Correct answer(s):
B False
A director is not in breach of this duty where they act in accordance with the company’s constitution or with an
agreement, entered into after due consideration, that restricts the future exercise of a director’s discretion.
C True

25 Correct answer(s):
A True
Members may amend the articles (including the re-allocation of director powers) by approving a resolution
containing the change.
D False
Members’ approval for director borrowing is not required unless the articles set a maximum borrowing limit which
the directors are seeking to exceed.

26 Correct answer(s):
B False
In the absence of any express provision, preference shares carry the same voting rights as ordinary shares. Typically,
however, preference shares are expressed not to carry voting rights (or only to carry them in specified
circumstances).
C True

27 Correct answer(s):
A True
C True

28 Correct answer(s):
A All of the above
The forfeiture or surrender of shares in accordance with a company’s articles where there is failure to pay for them
may also be permitted.

29 Correct answer(s):
C 21 days
Registration can be effected by the company or any person interested in the charge.
30 Correct answer(s):
A Yes
An ordinary resolution is required.
C Yes
A court must be satisfied of both before it can make the necessary order.

ICAEW 2021 12: Sample exam 66

31 Correct answer(s):
A Yes
It must notify any other qualifying floating charge holder and must satisfy the court that its floating charge is
enforceable.
D No
A qualifying floating charge holder cannot make an administration order once a company is in liquidation (or
administration or administrative receivership).

32 Correct answer(s):
A Yes
C Yes
Generally speaking, the administrator has all the powers of the directors in addition to some specific powers
conferred by the Insolvency Act 1986.

33 Correct answer(s):
B No
These provisions only apply where the fund available for distribution is at least £10,000.
D No
He should receive £100, as he ranks after all other claims listed.

34 Correct answer(s):
D It is an ordinary partnership because they are in business together and intend to make a profit even though
they make a loss.
No formal agreement is necessary. The ‘& Co’ after Damian does not mean that it is a company. Equal sharing of
profits does not necessarily mean that it is a partnership, since the same result could be achieved in an
incorporated business.

35 Correct answer(s):
B False
This is true of a limited liability partnership but not an ordinary partnership.
C True

36 Correct answer(s):
B False
They have an express agreement as to profit-sharing and so losses will be borne in the same proportions as profits
are shared.
D False
In the absence of express provision to the contrary, partners must agree unanimously on the appointment of a new
partner.

37 Correct answer(s):
A The profit sharing ratio between its members
The profit sharing ratio is not required. The other options all contain information that is needed to register an LLP.

ICAEW 2021 12: Sample exam 67

38 Correct answer(s):
B False
The 1998 Act is aimed at encouraging internal disclosure but it is not always appropriate or necessary.
C True

39 Correct answer(s):
B Both Danny and Carol might be guilty of fraudulent trading.
The offence can be committed by any person who is knowingly a party to the company’s business being carried on
with intent to defraud creditors.

40 Correct answer(s):
B No
Provided she can demonstrate that she would have purchased the shares in any event.
D No
Disclosing information in the course of employment is not an offence under the 1993 Act. Assuming he did not also
encourage Karl to buy, he has committed no offence.

41 Correct answer(s):
B False
Bribery may be committed by either the recipient or the offeror of the money or favour.
D False
The person bribed may be in public office or in business. They must be in a position of trust or otherwise expected
to perform their function or activity in good faith or impartially.

42 Correct answer(s):
B Xavier should report his suspicion of money laundering to the NCA because he is not bound by client
confidentiality or excused by legal professional privilege.
If the client had been worried that tax might not have been paid adequately and was seeking advice in order to
correct the situation, these would be privileged circumstances and provide a defence to a failure to report, under
the Proceeds of Crime Act 2002.

43 Correct answer(s):
C A contract for services
Do not confuse with a contract of service which is another name for an employment contract between an employer
and an employee.
44 Correct answer(s):
A Fred is not allowed to delegate his work.
Personal service is a necessary element of a contract of service. Although a limited ability to delegate is acceptable,
an absolute prohibition makes it more likely that it will be a contract of service. B, C and D are all consistent with a
contract for services.

45 Correct answer(s):
B No

ICAEW 2021 12: Sample exam 68

 An employee still makes social security contributions, but primary class 1 contributions rather than class 2 and class
4 contributions.
C Yes
Where their employer has dismissed them in breach of their employment contract they can bring a claim within six
years of the date of their dismissal. An independent contractor cannot claim wrongful dismissal.

46 Correct answer(s):
A The duty of fidelity
The duty of fidelity is a common law duty owed by an employee to their employer to provide faithful service.
Marmaduke is liable to be dismissed because he has acted in breach of this implied term of his employment
contract and will be liable to account to Fashions First Ltd for all the secret commissions that he has received.

47 Correct answer(s):
A Yes
To establish constructive dismissal, Luca will have to prove that Brand Records Ltd committed a serious breach of
contract, she left because of the breach and that she did not affirm the contract.
D No
There is no need to prove anything in regards to her conduct.

48 Correct answer(s):
C Where an employee has been dismissed for enforcing their right to payment of the minimum wage
A, B and D are potentially fair reasons for dismissal under the Employment Rights Act 1996 (subject to the
requirement that the employer has acted reasonably in the circumstances), and require the employee to have
been continuously employed for at least two years at the employee’s effective date of termination.

49 Correct answer(s):
B No
The Act protects individuals not business organisations.
D No
The company has 72 hours to report itself.

50 Correct answer(s):
C Statutory parental bereavement leave is for two weeks during which the employee is paid.
Under the Parental Bereavement (Pay and Leave) Act 2018, parental bereavement leave lasts two weeks during which
the employee is paid.

ICAEW 2021 12: Sample exam 69

Appendix
Mock Exam guidance notes
Suggested structure for Mock Exams in 2021
Exam standard
The Mock Exam should be set at the same level of difficulty as that represented by the 2021 sample exam.

Exam format
The Mock Exam should consist of 50 questions worth two marks each.

Style of exam questions

Each question should conform to the style used in the sample exam, ie: • Multiple
Choice Question (MCQ) (1 from 4); or
• 2-part MCQ (eg, 2 × ‘true or false’).
There is no partial marking, so all parts of a question must be answered correctly to obtain 2 marks.

Exam coverage and balance

A Mock Exam should have approximately the syllabus coverage and balance set out in the table below.
Syllabus area Weighting Number of
% questions

1 The impact of civil law on business and professional services 35 17

2 Company and insolvency law 40 20

3 The impact of criminal law on business and professional services 10 5

4 The impact of law in the professional context 15 8

Total 100 50

ICAEW 2021 Appendix 201

The following matrix contains three sets of questions, selected from within this Question Bank.
Each one contains an appropriate balance of questions which form a ‘sample exam’ for you to attempt. Note that
the questions listed here are only examples of the nature of questions which may be included – the actual exam
questions may be on different topics.
Question Sample exam 1 Sample exam 2

1 Ch 1; Q 5 Ch 1; Q 14

2 Ch 1; Q 26 Ch 1; Q 20

3 Ch 1; Q 27 Ch 1; Q 22

4 Ch 1; Q 29 Ch 1; Q 25

5 Ch 1; Q 36 Ch 1; Q 37

6 Ch 2; Q 7 Ch 2; Q 4

7 Ch 2; Q 8 Ch 2; Q 10

8 Ch 2; Q 16 Ch 2; Q 11

9 Ch 3; Q 1 Ch 3; Q 2
10 Ch 3; Q 4 Ch 3; Q 3

11 Ch 3; Q 7 Ch 3; Q 11

12 Ch 3; Q 9 Ch 3; Q 14

13 Ch 3; Q 22 Ch 3; Q 15

14 Ch 4; Q 6 Ch 4; Q 7

15 Ch 4; Q 8 Ch 4; Q 12

16 Ch 4; Q 9 Ch 4; Q 13

17 Ch 4; Q 11 Ch 4; Q 15

18 Ch 5; Q 8 Ch 5; Q 9

19 Ch 5; Q 20 Ch 5; Q 17

20 Ch 5; Q 28 Ch 5; Q 22

21 Ch 5; Q 29 Ch 5; Q 25

22 Ch 6; Q 5 Ch 6; Q 2

23 Ch 6; Q 15 Ch 6; Q 6

24 Ch 6; Q 18 Ch 6; Q 10

25 Ch 6; Q 23 Ch 6; Q 14

26 Ch 6; Q 24 Ch 6; Q 20

27 Ch 6; Q 26 Ch 6; Q 29

28 Ch 7; Q 16 Ch 7; Q 17

29 Ch 7; Q 22 Ch 7; Q 24

30 Ch 7; Q 23 Ch 7; Q 25

31 Ch 8; Q 17 Ch 8; Q 14

Question Sample exam 1 Sample exam 2

32 Ch 8; Q 19 Ch 8; Q 18

33 Ch 8; Q 27 Ch 8; Q 20

34 Ch 9; Q 5 Ch 9; Q 6

35 Ch 9; Q 14 Ch 9; Q 15

36 Ch 9; Q 18 Ch 9; Q 16

37 Ch 9; Q 24 Ch 9; Q 25

38 Ch 10; Q 1 Ch 10; Q 8

39 Ch 10; Q 9 Ch 10; Q 20

40 Ch 10; Q 18 Ch 10; Q 24

41 Ch 10; Q 42 Ch 10; Q 41

42 Ch 10; Q 44 Ch 10; Q 43

43 Ch 11; Q 4 Ch 11; Q 7

44 Ch 11; Q 13 Ch 11; Q 14
45 Ch 11; Q 15 Ch 11; Q 16

46 Ch 11; Q 27 Ch 11; Q 28

47 Ch 11; Q 40 Ch 11; Q 29

48 Ch 11; Q 54 Ch 11; Q 44

49 Ch 11; Q 57 Ch 11; Q 60

50 Ch 11; Q 68 Ch 11; Q 69

ICAEW 2021 Appendix 203