Deck 27: Corporate Governance: External Responsibilities

Question 1

A and B carry on business as a general partnership,which recently went bankrupt.In the event that the partnership assets are insufficient to pay off the creditors of the partnership

A)both A's and B's personal assets will be seized.
B)neither A's nor B's personal assets will be seized.
C)only B's personal assets will be seized.
D)only A's personal assets will be seized.
E)none of the above

Answer 1

A

Question 2

Pat is one of 16 owners of Camstick Ltd.This corporation has been fined $30 000 for polluting the town's water supply.Pat is on the board and now finds himself charged and being convicted on the same matter.The judge finds that Pat personally knew and did nothing about the polluting.Not only that,but he has no remorse concerning the incident.The judge is now giving him,under the Environmental Protection Act,the maximum prison term of

A)12 months.
B)10 years plus $50 000.
C)90 days.
D)5 years plus $10 000.
E)3 years plus $5 000.

Answer 2

A

Question 3

Several years back Dean Pigeon with two friends invested $300 000 equity capital into a new corporation.As it turns out,they have more capital in the business than they can profitably use.Will the CBCA allow them to take out the excess capital?

A)Yes,it will,provided the corporation can satisfy the court that the capital is truly unutilized.
B)Yes,it will,provided the corporation has no creditors.
C)No,it will not,since the excess is not accumulated retained earnings.
D)Yes,it will,as long as the corporation can satisfy both parts of the solvency test.
E)No,it will not,because a "capital fund" is not available to shareholders.

Answer 3

D

Question 4

Hazel was deliberately cheated by a clerk at the Hamilton Bay Corp.Can the corporation be found guilty of a criminal offence?

A)Yes,it can,since there is obviously a "directing mind" in this act.
B)Yes,it can,since the clerk was an employee working at her job at the time.
C)No,it cannot,because she was a low-level employee.
D)Yes,it can,because there is vicarious liability to the corporation.
E)No,it cannot,since corporations cannot be criminally found guilty.

Question 5

Schemes of government regulation resemble traditional criminal law because

A)damage is done through committing a tort rather than through breach of a contract.
B)conviction for an offence is typically punished by imprisonment.
C)it must be proved the accused not only committed the offence,but also was at fault and had mens rea (a guilty mind).
D)they are enforced by the RCMP.
E)they prohibit certain kinds of conduct and punish those who ignore the prohibitions.

Question 6

Walter and Gordon are the shareholders of a small private Ontario company,which recently went bankrupt due to the world wide recession,owing $100 000.00 to its creditors.Unfortunately the company's assets are only $50 000.00.In this case,the amount available to satisfy the creditors of the company will be

A)$50 000.00 plus Gordon's assets only.
B)$50 000.00 plus Walter's assets only.
C)$50 000.00 plus the assets of both Walter and Gordon.
D)$50 000.00 only.
E)none of the above

Question 7

When it comes to damage of the environment,any person who actually commits an offence is personally liable

A)provided he or she was not acting within the scope of his authorized activities.
B)if there was no direct participation in the offence.
C)even if a senior officer ordered him to perform.
D)provided he or she had no knowledge of the offence.
E)provided he or she had no significant role in controlling what happened.

Question 8

When it is unlawful to declare dividends because of a deficiency in the capital fund and yet the shareholders want a quick pay-out,then

A)Revenue Canada can issue "not withstanding" tax credits.
B)the corporation needs to earn enough profits to restore the deficiency.
C)shareholders can lend money to the corporation and receive interest payments in return.
D)the corporation can re-capitalize at a lower amount.
E)wages can be paid to officers instead of dividends.

Question 9

Directors may become personally liable to the corporation for deficiencies if,when they pay out dividends,the corporation cannot meet

A)a shortage of working capital.
B)the test of bankruptcy.
C)a scheduled bond redemption.
D)current corporate indebtedness.
E)the solvency test.

Question 10

Bill and four friends are driving to the movies.The vehicle Bill is driving is travelling 21 km per hour over the speed limit.Terry is one of the passengers in the back seat.He intentionally throws an empty bottle at a pedestrian who is walking on a nearby sidewalk.She is struck with the bottle and injured.The police pull the car over and charge Bill and Terry with separate offences.The classification of the offences with which they are charged is as follows

A)absolute liability and mens rea.
B)strict liability and mens rea.
C)mens rea and absolute liability.
D)strict liability and absolute liability.
E)not listed above.

Question 11

Mandy had her securities licence suspended by the securities commission,yet she continues to buy and sell stock as an investment dealer.Mandy certainly

A)has committed a criminal offence.
B)will have all her stock trades cancelled and/or reversed.
C)will be barred for life from working in the securities industry in Canada.
D)must go up before the discipline committee of the securities commission.
E)will face private discipline by the investment house where she is an agent.

Question 12

A parks his car in a no-parking zone and A gets a ticket.In this case,A has committed

A)an absolute liability offence.
B)a mens rea offence.
C)a criminal offence.
D)no offence.
E)a strict liability offence.

Question 13

The Criminal Code of Canada contains some offences that are applicable to corporate conduct.With respect to whistle-blower retaliation,it is an offence to

A)threaten a whistle-blower or potential whistle-blower.
B)discipline a whistle-blower or potential whistle-blower.
C)demote a whistle-blower or potential whistle-blower.
D)request a statement from a whistle-blower or potential whistle-blower.
E)fire a whistle-blower or potential whistle-blower.

Question 14

In order to avoid an environmental accident,a business should take all of the following steps EXCEPT

A)review current practices to learn whether any of their activities create a concern about health,safety,or breach of environmental regulations.
B)keep up-to-date with current technology and best practices adopted across their industry.
C)take every reasonable precaution to meet the latest standards.
D)directors should not try to educate themselves about the business's activities and risks but rather hire knowledgeable individuals who can deal with potential environmental problems.

Question 15

Under criminal law,corporations are subject to be punished.Punishment can take place by

A)heavy fines on the corporation itself.
B)imprisonment of the directors.
C)finding the "directing mind" behind the offence and fining and/or imprisoning this person.
D)dissolving the corporation.
E)all of the above

Question 16

In spite of the fact that a corporation does NOT meet the solvency test,it can

A)buy back shares.
B)pay wages to employees.
C)pay dividends.
D)make loans to directors.
E)none of the above

Question 17

Under the regulatory offence of "strict liability," the standard that must be met for obtaining a conviction is

A)the same as under the regulatory offence of "absolute liability."
B)to let the accused try to avoid liability by proving that she or he was completely unaware of the regulation.
C)to satisfy the court that the breach is of the regulation rather than a statute.
D)where the doing of the prohibited act raises a presumption that an offence has been committed-unless the accused can prove she or he took all reasonable care.
E)to prove the existence of mens rea (a guilty mind).

Question 18

John and George are the shareholders of a private provincial company,which has capital assets of $250 000.00.Lately,due to the recession,the company has not been doing well financially,but it is going to issue dividends of $50 000.00 each to John and George.A few days later the company declares bankruptcy.In this case the creditors of the company

A)can recover the value of the dividends from John and George as shareholders.
B)can look to the assets of the company.
C)can recover the value of the dividends from John and George as directors.
D)can look to the assets of the company and receive the value of the dividends issued to John and George.
E)all of the above

Question 19

In Canada,the jurisdiction over the securities industry is

A)divided between federal and provincial governments.
B)with the federal Parliament.
C)substantially within provincial jurisdiction.
D)with the federal Securities and Exchange Commission.
E)with each of Canada's four stock exchanges.

Question 20

Susie owns a small tool and die company.She has hired an occupational health and safety expert to assess the workplace on a monthly basis in order to identify potential dangers that could injure her employees.The expert reports back to her every month.Part of the reason Susie incurs the costs of hiring this expert is

A)to avoid any civil action brought by an injured worker.
B)to prove that she took all reasonable steps in the circumstances should she ever be charged with an occupational health and safety offence after the injury of a worker.
C)to prevent an attempt by any party to "pierce the veil" of the corporation and seek damages against her personally.
D)to provide her with the basis to raise a "reasonable doubt" should she be charged with any regulatory offence.
E)to avoid a conflict of interest.

Question 21

The characteristics of corporations presents special problems for criminal liability in part because

A)it is often impossible to determine which individual is exercising control.
B)a corporation cannot be imprisoned.
C)the corporate veil cannot be pierced.
D)a corporation is not subject to fines.
E)a corporation cannot be dissolved.

Question 22

Why has provincial and federal legislation removed the requirement of mens rea for regulatory offences?

Question 23

A corporation that is not paying its creditors in a timely fashion is probably insolvent.

Question 24

Regarding ratification of pre-incorporation contracts,how has the CBCA resolved the problem presented by common law?

Question 25

No knowledge of the law is a good defence to an absolute liability offence.

Question 26

Secondary market liability occurs when someone who owns shares in a company sells them in circumstances where information released about the state of the company is false and not yet corrected.

Question 27

Where a corporation is held liable in tort,it is almost invariably on account of a negligent or wrongful act committed directly by the corporation.

Question 28

To escape personal liability,when a party enters into a pre-incorporation contract,it is enough for that party to simply state on the written contract that he or she is entering into the contract on behalf of a company to be incorporated.

Question 29

Explain why the insolvency and maintenance of capital tests are important when it comes to corporations.

Question 30

The principle that a person dealing with a corporation is entitled to assume that its internal procedural rules have been followed unless it is apparent that such is not the case is known as the indoor management rule.

Question 31

How serious is Canada about taking steps to reduce greenhouse emissions?

Question 32

Explain why legislation is necessary in areas of law other than contracts or torts to regulate the conduct of corporations and those who run them.

Question 33

The failure of a company to ensure that its employees are well trained for the job they do and to ensure that their workplace is safe is an offence under occupational health and safety legislation.

Question 34

Offences under the Criminal Code of Canada are both criminal and regulatory in nature.

Question 35

Corporations are always liable in tort for contracts entered into with third parties.

Question 36

Consumer protection is a matter

A)of federal jurisdiction only as set out in the Competition Act.
B)that can only be addressed by a court order in a civil action.
C)of provincial jurisdiction,and all provinces have legislation limiting unfair business practices.
D)that regulates conduct among competitors and improper marketing and advertising strategies.
E)regulated by criminal law pursuant to the Criminal Code of Canada.

Question 37

Provincial securities legislation delegates control over the public offering of shares to provincial securities commissions.The goals of the legislation include all of the following EXCEPT

A)to ensure integrity of the market.
B)to ensure fairness of the market.
C)to ensure efficiency of the market.
D)to fairly allocate investor losses.
E)to promote investor confidence.

Question 38

At present,and largely due to the Enron debacle and the events of the world-wide recession of 2008,there is a trend toward a greater consideration of ethics in corporate business.Will this continue?

Question 39

Offences under such statutes as the Canada Environmental Protection Act are criminal offences.

Question 40

There are a number of statutes that contain protections for the benefit of employees.Which of the following pieces of legislation does NOT contain any provisions with respect to protection of employees?

A)occupational health and safety legislation
B)human rights legislation
C)employment standards legislation
D)sale of goods legislation
E)workplace safety legislation

Question 41

What condition(s)must be met before a corporation may purchase its own shares?

Question 42

Ward Bond was the sole director of Able Contractors and Hauling Ltd.The corporation entered into a contract to dig up and remove a below-ground storage tank that contained a residue of pesticides.The corporation dug up the tank and placed it on a flatbed truck for transportation to an approved disposal facility.While the tank was being transported,it started to rain.The driver called Ward to ask what he should do,because he had no tarpaulin to cover the tank.Ward knew that a tarpaulin would be useful but the cost would be several thousand dollars,so Ward instructed the driver to park the truck until the rain had stopped.The driver did so in a restaurant parking lot and the rain washed out the pesticide residue from the tank.It leaked onto the parking lot below the truck.The driver noticed this and called Ward to find out what to do and Ward told him to leave immediately and go to the disposal facility.The pesticide residue was ultimately discovered and led to a clean-up at a cost of $35 000.What potential liability is there as a result of this situation? Who do you think will be liable,and what is the nature of their liability?

Question 43

Marian,Phillis,and Lauren are three directors at A Mart Supplies Ltd.The corporation has $150 000 in assets,including capital and $110 000 in debt.
(1)If the directors passed a resolution redeeming all the preferred shares of the corporation for $50 000,what remedy would unpaid creditors of the corporation have and against whom?
(2)If Phillis and Lauren voted in favour of a directors' resolution approving the corporation's purchase of artwork from an unknown artist for $60 000 for resale purposes and it turned out that the work was unsaleable and was ultimately disposed of for less than $10 000,what remedy would unpaid creditors have and against whom?

Question 44

Briefly describe the circumstances whereby a corporation can be held liable in tort.

Question 45

Explain how directors and senior officers can be held liable when the corporation commits a criminal offence.

Question 46

Briefly describe corporate loans to shareholders,directors and employees and the concerns behind considering restricting such loans from a tax perspective.

Question 47

What standard of care and skill is usually imposed by the court on an accused corporation and its directors when the activities of the corporation were carried on negligently?

Question 48

What is meant by the indoor management rule?

Question 49

In trying to protect corporate creditors,what is the solvency test?

Question 50

In addition to the licensing and prospectus provisions,the legislation has introduced further controls on the securities industry.Give a couple of examples.

Question 51

Explain the general purpose of securities legislation in Canada.How are these purposes achieved?