QUESTION FOUR

Western Railway Co Ltd (WRL) is constituted under the Companies Act 1993. It owns and

operates a railway line. It has a registered constitution which provides, amongst other things,

that it shall only carry on the business of owning and operating railway lines. The board of

directors of WRL is concerned that the business is insufficiently profitable. It decides to acquire

a busing (i.e., transport of people by bus) business from another company, Eastern Omnibus Co

Ltd (EOL). WRL and EOL enter into a contract for the sale and purchase of the busing business.

Soon after formation of that contract and before the contract had been duly performed, the

Government announces a policy designed to ensure that road transport businesses bear the

actual cost associated with their use of the public road network. The board of directors of WRL

forms the view that, because of the extra costs that the busing businesses will incur as a result

of the new Government policy, rail transport will regain profitability. The lawyer acting for

WRL in the transaction is also a director EOL. He has not read WRL's constitution.

Required:

Referring to relevant sections of the Companies Act 1993, advise Western Railway Co Ltd whether it is bound by the contract with Eastern Omnibus Co Ltd.

QUESTION FIVE

There are a variety of ways to respond to a situation in which a company is unable to pay its debts other than liquidating the company.

Required:

Referring to relevant sections of the Companies Act 1993 (and other legislation you think relevant), describe in general terms the different means of responding to corporate insolvency (other than liquidation) and when those processes might be appropriate.