LAW OF INTERNATIONAL
ORGANISATIONS REVIEWED
QUESTIONS AND EXPECTED 100%
CORRECT COMPLETE SOLUTIONS
Two years ago, Aadi had set up in business as a sole
trader. He invested all of his savings of £10,000 in the
business. Recently the business has struggled
financially, and a major supplier is owed £18,000. Aadi
realises that he will have to sell the business and
calculates that if all of its assets were sold, they would
realise £8,000. Aadi himself owns a car worth £5,000.
He owns a flat which, if sold, will raise £50,000 once
the mortgage is paid off. He has no other substantial
assets. The business has no other debts.
Which of the following statements best reflects the
position of the supplier in relation to the debt?
a) The supplier would only be able to recover £8,000,
which is the amount that would be realised from the
sale of the assets of the business.
b) The supplier would be able to recover £10,000, as
Aadi would be personally liable for the amount that he
originally invested in the business.
c) The supplier would be able to recover £13,000 as
Aadi would be personally liable for the full amount of
the debt and, although he may have to sell his car
,which will raise an additional £5,000, he could not be
forced to sell his home.
d) The supplier would be able to recover the full
£18,000 as Aadi is personally liable for the whole of
the debt and can be forced to sell any of his assets to
pay the balance of £10,000 once the business is sold.
D is correct. A sole trader has unlimited liability for the
debts of the business. If the business fails and cannot pay
the full amount of the debt, as here, he will have to meet
the debts with his own property, including his home. If he
cannot do so he may be declared bankrupt. Here, Aadi
seems to have enough assets and can therefore pay the
full amount of the debt. Note that the facts state that Aadi
has used all of his savings for the business and it appears
that his only assets are the car and the flat.
This makes A-C wrong.
Assume for the purposes of this question that Aadi
set up the business in partnership with Liam. Each of
them invested their savings (£5,000 each) in the
business. Acting within his authority, Liam entered
into a major supply contract, but following some
difficult times, the business has been unable to pay
the debt, and the supplier is owed £18,000. The
partners realise that the assets of the business will
have to be sold. Again, the sale would realise £8,000.
Aadi has substantial personal assets, including a
house and a car. Liam has no substantial assets of his
own. The firm has no other debts.
Which of the following statements best reflects the
position of the supplier in relation to the debt?
,a) The supplier would only be able to recover £4,000
from Aadi personally, as this is the amount of his
share of the business.
b) The supplier would be able to recover £5,000 from
Aadi, as although he is personally liable for the debt,
he is only liable for the amount that he originally
invested in the business.
c) The supplier would be able to recover the full
£18,000 from Aadi as Aadi is jointly and severally
liable for the whole of the debt and he can be forced to
sell any of his assets to pay it off.
d) As Liam entered into the contract, he is solely
responsible for the debt but as he has no personal
assets, the supplier will only be able to recover the
£8,000 from the sale of the assets of the business.
The correct answer is C. Partners have unlimited liability
and are jointly (and severally) liable for the debts of the
business. This means that a creditor can choose to sue
any or all of the partners, so he could sue either Aadi or
Liam for the whole amount of the debt. On the facts, Liam
has no funds, so there would not be much point pursuing
him, but the supplier could sue Aadi, who has ‘substantial
assets’ for the full £18,000.
As the business appears to have failed and does not have
enough money to pay the debt, Aadi will have to pay the
balance from the sale of his own property, including his
home. This makes A and B wrong. D is wrong as partners
are jointly and severally liable, regardless of who
concluded the contract.
Assume for the purposes of this question that Aadi,
Liam and Jess set up a private limited company. Aadi
, was issued with 10,000 shares and Liam was issued
with 5,000 shares. Aadi paid for his shares in full
(£10,000) but Liam only paid £2,500, agreeing to pay
the balance of £2,500 in two years’ time. Aadi and
Liam are the directors of the company together with
Jess, who is not a shareholder.
Acting within her authority, Jess entered into a major
supply contract, which has turned out to be a very
poor deal and following some difficult times, the
company has been unable to pay the supplier, who is
owed £18,000. The directors realise that the business
will have to be sold. Again, the sale would realise
£8,000. Both Aadi and Jess have substantial personal
assets, including in both cases, a house and a car.
Liam has no substantial assets of his own. The
company has no other debts.
Which of the following statements best reflects the
position of the supplier in relation to the debt?
a) The supplier will be able to recover £8,000 from the
sale of the assets of the company and a further £2,500
from Liam, the amount unpaid on his shares.
b) If Liam is unable to pay the £2,500 which he still
owes to the company, the supplier will only be able to
recover the £8,000 from the sale of the assets of the
company.
c) As Jess entered into the contract, the supplier
could bring an action against her for the full £18,000.
d) As Aadi is the major shareholder in the company,
he will be liable for the full amount of the debt.
The correct answer is B. As a company is a separate
and distinct legal personality, it is liable for its own debts.
ORGANISATIONS REVIEWED
QUESTIONS AND EXPECTED 100%
CORRECT COMPLETE SOLUTIONS
Two years ago, Aadi had set up in business as a sole
trader. He invested all of his savings of £10,000 in the
business. Recently the business has struggled
financially, and a major supplier is owed £18,000. Aadi
realises that he will have to sell the business and
calculates that if all of its assets were sold, they would
realise £8,000. Aadi himself owns a car worth £5,000.
He owns a flat which, if sold, will raise £50,000 once
the mortgage is paid off. He has no other substantial
assets. The business has no other debts.
Which of the following statements best reflects the
position of the supplier in relation to the debt?
a) The supplier would only be able to recover £8,000,
which is the amount that would be realised from the
sale of the assets of the business.
b) The supplier would be able to recover £10,000, as
Aadi would be personally liable for the amount that he
originally invested in the business.
c) The supplier would be able to recover £13,000 as
Aadi would be personally liable for the full amount of
the debt and, although he may have to sell his car
,which will raise an additional £5,000, he could not be
forced to sell his home.
d) The supplier would be able to recover the full
£18,000 as Aadi is personally liable for the whole of
the debt and can be forced to sell any of his assets to
pay the balance of £10,000 once the business is sold.
D is correct. A sole trader has unlimited liability for the
debts of the business. If the business fails and cannot pay
the full amount of the debt, as here, he will have to meet
the debts with his own property, including his home. If he
cannot do so he may be declared bankrupt. Here, Aadi
seems to have enough assets and can therefore pay the
full amount of the debt. Note that the facts state that Aadi
has used all of his savings for the business and it appears
that his only assets are the car and the flat.
This makes A-C wrong.
Assume for the purposes of this question that Aadi
set up the business in partnership with Liam. Each of
them invested their savings (£5,000 each) in the
business. Acting within his authority, Liam entered
into a major supply contract, but following some
difficult times, the business has been unable to pay
the debt, and the supplier is owed £18,000. The
partners realise that the assets of the business will
have to be sold. Again, the sale would realise £8,000.
Aadi has substantial personal assets, including a
house and a car. Liam has no substantial assets of his
own. The firm has no other debts.
Which of the following statements best reflects the
position of the supplier in relation to the debt?
,a) The supplier would only be able to recover £4,000
from Aadi personally, as this is the amount of his
share of the business.
b) The supplier would be able to recover £5,000 from
Aadi, as although he is personally liable for the debt,
he is only liable for the amount that he originally
invested in the business.
c) The supplier would be able to recover the full
£18,000 from Aadi as Aadi is jointly and severally
liable for the whole of the debt and he can be forced to
sell any of his assets to pay it off.
d) As Liam entered into the contract, he is solely
responsible for the debt but as he has no personal
assets, the supplier will only be able to recover the
£8,000 from the sale of the assets of the business.
The correct answer is C. Partners have unlimited liability
and are jointly (and severally) liable for the debts of the
business. This means that a creditor can choose to sue
any or all of the partners, so he could sue either Aadi or
Liam for the whole amount of the debt. On the facts, Liam
has no funds, so there would not be much point pursuing
him, but the supplier could sue Aadi, who has ‘substantial
assets’ for the full £18,000.
As the business appears to have failed and does not have
enough money to pay the debt, Aadi will have to pay the
balance from the sale of his own property, including his
home. This makes A and B wrong. D is wrong as partners
are jointly and severally liable, regardless of who
concluded the contract.
Assume for the purposes of this question that Aadi,
Liam and Jess set up a private limited company. Aadi
, was issued with 10,000 shares and Liam was issued
with 5,000 shares. Aadi paid for his shares in full
(£10,000) but Liam only paid £2,500, agreeing to pay
the balance of £2,500 in two years’ time. Aadi and
Liam are the directors of the company together with
Jess, who is not a shareholder.
Acting within her authority, Jess entered into a major
supply contract, which has turned out to be a very
poor deal and following some difficult times, the
company has been unable to pay the supplier, who is
owed £18,000. The directors realise that the business
will have to be sold. Again, the sale would realise
£8,000. Both Aadi and Jess have substantial personal
assets, including in both cases, a house and a car.
Liam has no substantial assets of his own. The
company has no other debts.
Which of the following statements best reflects the
position of the supplier in relation to the debt?
a) The supplier will be able to recover £8,000 from the
sale of the assets of the company and a further £2,500
from Liam, the amount unpaid on his shares.
b) If Liam is unable to pay the £2,500 which he still
owes to the company, the supplier will only be able to
recover the £8,000 from the sale of the assets of the
company.
c) As Jess entered into the contract, the supplier
could bring an action against her for the full £18,000.
d) As Aadi is the major shareholder in the company,
he will be liable for the full amount of the debt.
The correct answer is B. As a company is a separate
and distinct legal personality, it is liable for its own debts.
