LAW8143 CORPORATE GOVERNANCE AND CORPORATE FINANCE

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CORPORATE GOVERNANCE AND CORPORATE FINANCE

Additional information

(a) You should answer 4 of 8 questions only. You must answer 2 questions from PART A and 2 questions from PART B

(b) You should write no more than 1000 words per question with a leeway of 200 words per question. Any words over this limit will not be marked.

(c) When answering the exam you should observe normal exam conditions and must not communicate/collude with other students taking the paper. The work that you submit must be your own work.

(d) You should only spend 3 hours on the exam. If you have an SSP then please add on the extra time within the 24 hour period.

(e) The plagiarism rules still apply. While you are not expected to write fully-compliant references, all quotations must be in quote marks and all sources must be acknowledged in-line (not as footnotes). Your submission may be submitted to the Turnitin similarity checker as a check on plagiarism.

(f) As this is an exam you will not be able to contact the Library team for assistance.

(g) The answers should be in a word document format, font size 12 with 1.5 spacing. Or handwritten and scanned using Microsoft Lens.  Please note the guidance that has been given on software available for you. https://services.ncl.ac.uk/itservice/core-services/softwaredeals/student/ 

(h) A submission point has been created in your canvas module page. Your submission should be a single file uploaded through this submission point. To avoid system overload please submit in good time within the 24 hour period.

(i) If you are unfamiliar with submitting your work there is Canvas guidance available for submitting a Canvas Assignment/ there is Turnitin guidance available for submitting a Turnitin Assignment using file upload or submitting a file from the cloud.

There is further student guidance on assignments available on the Digital Learning webpages and in the Canvas Student Orientation course.

(j) Contact information for academic queries during the first hour of the 24 hour window: [email protected] You must use your Newcastle email address when contacting the above.

(k) University IT support is available 24/7. If you have any issues accessing your assessment or University IT systems you can contact IT support on +44 (0)191 208 5999 at any time, or by email at [email protected] (monitored 08:00-17:00 BST, Monday to Friday).

Should you encounter IT difficulties that significantly affect your ability to complete this exam or when uploading your answer(s) you may submit a PEC detailing these.

(l) It is your responsibility to ensure you have uploaded the correct document. Be sure to scan through the pages in the preview window Canvas produces to check the content before pressing the ‘Accept’ button. 

CORPORATE GOVERNANCE AND CORPORATE FINANCE 

Time allowed – 24 hours 

ANSWER TWO questions from PART A, AND TWO questions from PART B

PART A 

1. Biscotti plc, a UK based company, is a large coffeehouse chain. Over the years the company has invested heavily in product development, recently developing a line of vegan baked products and new flavours of tea and coffee. The new products have been very popular with customers. However, due to the rising costs of running a business, Biscotti has failed to grow as expected in the last two financial years. The board of directors are therefore considering a change of direction for the company. They decide to hold a board meeting to discuss ideas for new strategies.  

In the meeting, Lupita states that the strategy of Biscotti should be focused on maximising profits for their shareholders. She worries that the rise in the costs of energy and ingredients means that they will become less and less profitable, – and that the shareholders will be unhappy. Lupita puts forward a plan to reduce costs: less money should be spent on product development; and the chain should reduce staff numbers by laying off the workers who produce the fresh products for the coffeehouse and instead buy in ready-made sandwiches and pastries. She also argues for a reduction in the charitable donations the company makes and to decrease spending on reducing emissions and meeting other climate related goals.

Nish, on the other hand, believes that the company should focus on a modern stakeholder approach. He proposes that the company should embrace the principles of social responsibility, prioritising reducing their impact on the environment. He also recommends that Biscotti should remain focused on product development and providing a good quality product for their customers (which he believes would not be achieved by outsourcing the production of their goods).  

As the Chairperson of the board LAW8143 CORPORATE GOVERNANCE AND CORPORATE FINANCE , explain to the other directors, Lupita and Nish’s strategic positions; and give your opinion on how you think the company’s new strategy should be developed. Consider company and corporate governance regulations and norms within your answer.

2. Gigatron plc is a large corporation based in London and is listed on the London Stock Exchange. Eight people sit on Gigatron’s board of directors, four of whom are non-executive directors. The executive directors who sit on the board are: Gigatron’s CEO and Chairperson, Kate Hooper; the Chief Financial Officer, David Swann, the Chief Operating Officer, Andy Rayman and Lead Counsel, Ivy Miller. The non-executive directors include the Senior Independent Executive, Ed Kramer, Kate’s brother-in-law, Niall, and two previous Gigatron executive directors, who although retired, still retain a seat on the board. Ed Kramer holds multiple directorial positions at other companies. The average tenure for a non-executive director position at Gigatron is four years, with the longest length of service, for Niall, being ten years.

Over the last two years, Gigatron has become less profitable due to the increased costs of running a business. The company has also taken a financial blow this year after a number of risks taken to grow the company, backfired. Gigatron’s institutional investors are not happy with the strategies the board has developed. Their biggest investor, Magnus, has spoken to Kate and threatened that they will remove her as CEO if changes are not made to improve the board.

Advise Kate on how she can improve the composition of the board of directors taking account of the characteristics and skills that directors need to successfully fulfil their role.

Please refer to the Corporate Governance Code and important governmental reports in your answer.

3. The UK Corporate Governance Code (2018) operates on a “Comply or Explain” basis. The aim is to empower shareholders to assess whether non-compliance can be justified by the company’s directors. Evaluate whether “Comply or Explain” is an effective regulatory approach in UK Corporate Governance.

4. “It does no good to the reputation of UK business when top managers appear to benefit in spite of the collapse of the organisations that they are responsible for.”

Roger Barker, quoted in Simon Goodley, ‘Carillion's ‘highly inappropriate’ pay packets criticised’ Guardian (Jan 2018)

In light of the above quote, evaluate how successful current corporate governance mechanisms (including those in the Corporate Governance Code) are in reducing the excessive pay of directors.

PART B

5.  Platinum plc’s authorised legal capital is £20 million. Its current issued share capital is £20 million divided into two million shares of £10 par value each. One million of these are class A shares and one million are Class B shares.

The Articles of Platinum plc state that Class A shares have one vote each and priority as to the participation of surplus assets. Class B shares do not have any voting rights but are entitled to a cumulative dividend of 5% and to priority over the other classes as to the repayment of capital.  

Advise on each of the following independent scenarios:

(a) The company has suffered significant losses in the last two financial years and recently defaulted on a loan. Its directors would like to reduce its legal capital and they are asking your advice on the procedures of reduction, the class of shares to reduce first and whether the creditors can object to the reduction.

(b) The directors want to conduct the business on a smaller scale and they are asking your advice on the procedures to re-purchase some of the companies’ shares.

6. Connectall is a start-up company based in the UK and specialises in providing an interactive secure platform. for online meetings and sharing compressed files. Recently, its platform. has become very popular for online teaching and the number of its users has grown exponentially.

By consulting the relevant provisions of the FCA handbook and the Financial Services Act 2000 advise the directors of Connectall on the following matters:

(a) The requirements for premium listing on the London Stock Exchange and whether this would be the best option for the company to go public?  

(b) The liability of the directors if the prospectus included inaccuracies or omitted relevant financial information, and the extent to which this liability can be shared with the accountants who assist with the preparation of the prospectus.

7. ‘There seems to be an unnecessary overlap between the different legislative and regulatory provisions under the UK anti-market abuse regime. Therefore, maintaining only one set of rules would prove to be far more efficient’.

Discuss.

8.  A group of investors and high net worth individuals who are interested in setting up a private equity firm have approached you and asked for your advice on the following matters:

(a) The benefit of using Private Fund Limited Partnership as a structure for the business.

(b) The regulatory framework that the business needs to comply with         

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