SQE1 sample questions

Question 48

Four chartered surveyors set up together in business as a Limited Liability Partnership (‘the LLP’). Two of them are designated members and two are ordinary members of the LLP and all work full time. The members all meet formally once a month to discuss profit and loss, cash flow and financial forecasts. This financial information has indicated for the past 12 months that the LLP is unable to pay its debts. The LLP has continued in business, and the members have discussed ways of limiting costs. As a result they have made considerable reductions in office expenditure. At one meeting (‘the Meeting’) a few months ago, one of the ordinary members (‘the Ordinary Member’) suggested that they should obtain financial and/or legal advice on their position. This suggestion was rejected on the basis that it would be too expensive.

A liquidator is appointed on the insolvent winding up of the LLP. The liquidator considers it clear that at the date of the Meeting there was no reasonable prospect that the LLP would avoid insolvent liquidation and is considering whether to bring a claim for wrongful trading against all the members.

Which of the following must the Ordinary Member show to establish a defence against a claim by the liquidator?

A. That he took all reasonable measures to reduce expenditure incurred by the LLP.

B. That as he is not a designated member he benefits from limited liability and cannot be required to contribute to the assets of the LLP.

C. That he took every step to minimise the potential loss to the LLP’s creditors.

D. That it was reasonable for the LLP to continue trading in the expectation that the LLP’s business would recover.

E. That as he is not a designated member he did not have access to all information necessary to decide whether the business was insolvent.