Law Society of Scotland Professional Education and Training (PEAT) PEAT 1: Business, Commercial and Financial Practice Flashcards

24 sample cards from the PEAT 1: Business, Commercial and Financial Practice deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. In a business-to-business contract, how can the implied terms of the Sale of Goods Act 1979 be excluded?

   They can be excluded or modified by express agreement, but any exclusion of the s13-15 implied terms (description, quality, fitness, sample) is subject to the reasonableness test under the Unfair Contract Terms Act 1977; liability for breach of s12 (title) cannot be excluded.

2. What core protections does the Consumer Rights Act 2015 give for goods supplied to a consumer?

   Goods must be of satisfactory quality (s9), fit for any particular purpose made known (s10), and as described (s11); consumers have a short-term right to reject within 30 days, and rights to repair/replacement and price reduction/final rejection.

3. What is the difference between an asset purchase and a share purchase in an acquisition?

   In a share purchase the buyer acquires the company's shares and takes the company with all its assets, liabilities and history; in an asset purchase the buyer cherry-picks specific assets and liabilities, leaving unwanted liabilities behind, but must transfer each asset and may trigger TUPE on employees.

4. What is the purpose of due diligence in an acquisition?

   To investigate the target's legal, financial, commercial and tax position so the buyer can identify risks and liabilities, decide whether to proceed, adjust the price, and structure warranties, indemnities and conditions in the purchase agreement.

5. What is the difference between a warranty and an indemnity in a share purchase agreement?

   A warranty is a contractual statement of fact about the target; breach requires the buyer to prove loss and mitigate, recovering damages. An indemnity is a promise to reimburse a specified liability pound-for-pound on a defined trigger, without the need to prove breach, loss or mitigation.

6. What is a standard security in Scots law?

   The only competent way to grant a fixed security (mortgage) over Scottish heritable property (land/buildings), created under the Conveyancing and Feudal Reform (Scotland) Act 1970 and perfected by registration in the Land Register; it secures the debt against the property.

7. What is a floating charge and how is it created in Scotland?

   A security granted by a company over its whole property (or a class of assets) that 'floats' until it crystallises (e.g. on insolvency or default), then attaches to the assets as a fixed charge. It is created by written instrument and must be registered at Companies House within 21 days to be effective against third parties.

8. Distinguish a guarantee from an indemnity as forms of commercial security.

   A guarantee (cautionary obligation in Scots law) is a secondary obligation to answer for another's debt only if the principal debtor defaults - it falls if the principal obligation is void. An indemnity is a primary, independent obligation to make good a loss regardless of the principal debtor's liability.

9. What is a cautionary obligation (caution) in Scots law?

   An accessory obligation by which the cautioner (guarantor) undertakes to the creditor to be liable for the debt or default of the principal debtor; it is accessory, so it is generally extinguished if the principal debt is discharged and the cautioner has rights of relief and ranking against the debtor.

10. What are the main corporate insolvency procedures available for a company?

    Administration (rescue/better outcome under a moratorium), company voluntary arrangement (CVA - a binding deal with creditors), receivership (now largely limited to pre-2003 floating charges in Scotland), and liquidation/winding up (members' voluntary, creditors' voluntary, or compulsory by the court).

11. What is the principal purpose and key feature of administration?

    To rescue the company as a going concern, or achieve a better result for creditors than winding up, or realise property to pay secured/preferential creditors. Its key feature is a statutory moratorium that stays legal action and enforcement against the company while the administrator pursues those objectives.

12. What is the order of priority for distribution of assets in a corporate liquidation?

    Fixed charge holders, then expenses of the liquidation, then preferential creditors, then the prescribed part for unsecured creditors, then floating charge holders, then ordinary unsecured creditors, and finally any surplus to shareholders.

13. What is a company voluntary arrangement (CVA)?

    A statutory composition or scheme of arrangement between a company and its creditors, supervised by an insolvency practitioner, binding all unsecured creditors if approved by 75% (by value) of creditors voting; it allows the company to reschedule or reduce debts while continuing to trade.

14. What is the difference between sequestration and a trust deed in Scottish personal insolvency?

    Sequestration is the formal court/AiB process of personal bankruptcy in Scotland, vesting the debtor's estate in a trustee. A protected trust deed is a voluntary arrangement where the debtor conveys assets to a trustee for creditors and, if protected, binds non-acceding creditors without full bankruptcy.

15. What is wrongful trading under s214 Insolvency Act 1986?

    Where, before insolvent liquidation, a director knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation and failed to take every step to minimise loss to creditors; the court can order the director to contribute personally to the company's assets.

16. How does fraudulent trading (s213 Insolvency Act 1986) differ from wrongful trading?

    Fraudulent trading requires actual intent to defraud creditors or for a fraudulent purpose and can give rise to both civil contribution and criminal liability; wrongful trading needs no dishonesty, only that the director ought to have realised insolvent liquidation was inevitable and failed to minimise creditor loss.

17. On what grounds can a director be disqualified under the Company Directors Disqualification Act 1986, and for how long?

    Grounds include unfitness following insolvency, fraudulent/wrongful trading, breach of duties, and persistent breaches of companies legislation. Disqualification periods run from 2 to 15 years, during which the person cannot, without leave of the court, act as a director or be involved in company management.

18. How is a 'contract of employment' distinguished from a contract for services (self-employment)?

    Key tests are mutuality of obligation (employer must provide and employee must accept work), personal service (no unfettered right of substitution), and control by the employer; courts also weigh integration into the business, provision of equipment, and financial risk.

19. What is the difference between fair and automatically unfair dismissal, and the qualifying service for ordinary unfair dismissal?

    Ordinary unfair dismissal generally requires 2 years' continuous service and depends on a potentially fair reason plus reasonable procedure; automatically unfair dismissals (e.g. pregnancy, whistleblowing, trade union membership, asserting statutory rights) need no qualifying period.

20. What are the five potentially fair reasons for dismissal under the Employment Rights Act 1996?

    Capability or qualifications, conduct, redundancy, statutory illegality (continued employment would breach the law), and 'some other substantial reason' (SOSR). The employer must also act reasonably in treating that reason as sufficient and follow a fair procedure.

21. What are the nine protected characteristics under the Equality Act 2010?

    Age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.

22. Distinguish direct from indirect discrimination under the Equality Act 2010.

    Direct discrimination (s13) is treating someone less favourably because of a protected characteristic. Indirect discrimination (s19) is applying a provision, criterion or practice that puts people with a protected characteristic at a particular disadvantage and which cannot be objectively justified as a proportionate means of achieving a legitimate aim.

23. What time limit generally applies for presenting a claim to the Employment Tribunal, and what step must precede it?

    Most claims (including unfair dismissal and discrimination) must be lodged within 3 months less one day of the relevant act/effective date of termination; the claimant must first notify Acas for early conciliation, which can extend (pause) the limitation clock.

24. What is the statutory cap and basic structure of compensation for ordinary unfair dismissal?

    Compensation comprises a basic award (calculated like a redundancy payment using age, gross weekly pay subject to a statutory cap, and length of service) plus a compensatory award for loss, which is subject to a statutory maximum (the lower of a fixed cap or 52 weeks' actual gross pay).

What this deck covers

PEAT 1: Business, Commercial and Financial Practice flashcards FAQ