Company Law 2018 PDF

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University of BuckinghamLLB ProgrammeCompany Law2018Course CoordinatorDr Adolfo PaoliniOffice FEmail: [email protected] Number: +44 (0) 1280 828200Company LawReading ListChiu Iris H-Y, The Law of Corporate Governance in Banks, EE Publishing, 2015Dignam A & Lowry J, Company Law, Oxfor...

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University of Buckingham LLB Programme

Company Law 2018

Course Coordinator Dr Adolfo Paolini Office F121 Email: [email protected] Phone Number: +44 (0) 1280 828200

Company Law Reading List

Chiu Iris H-Y, The Law of Corporate Governance in Banks, EE Publishing, 2015 Dignam A & Lowry J, Company Law, Oxford University Press, 9th Edition Gower Principles of Modern Company Law, Oxford University Press, 10th Edition Hannigan B, Company Law, Oxford University Press, 4th Edition, 2015 Mayson, French & Ryan, On Company Law, Oxford University Press, 33rd Edition, Moore M & Petrin M, Corporate Governance: Law, Regulation and Theory, Palgrave, 2017 Paolini A & Nambisan D, Directors and Officers Liability Insurance, Informa, 2009 Paolini A (Editor), Research Handbook on Directors Duties, Edward Elgar Publishing, 2014 Paolini A & Nambisan D, Directors and Officers, in Simpson M QC, Professional Negligence and Liability Looseleaf, Informa, Chapter 23 Sealy & Worthington’s, Text, Cases & Materials in Company Law, 11thdition, Oxford, 2016

Company Law Final Mark Weighting

1. Written Assignment 25%. (Refer to the Written Assignment Question) 2. Final Exam 75%. 

The final exam is a 3 hours examination with a combination of essay and problem questions.

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There will be 8 questions in the exam. You must answer any 4 from the list.

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Questions could combine more than one of the topics covered during the course.

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Students could bring to the exam a clean copy of commercial statutes. Any other material will be provided.

Company Law Written Assignment

Question: Has what is now section 51 of the Companies Act 2006 solved all the problems associated with pre-incorporation contracts? Critically Discuss

Guidance for Submission

1. Maximum 2200 words (excluding footnotes) and word-processed. Students who exceed the word count will be penalised. 2. The essay must be checked via Turnitin before submission. No essay will be accepted without this report. 3. Footnotes and references are encouraged (reasonable length) 4. There is no need to write bibliography, table of cases, table of statutes. This is a short piece of research and the word count must be wisely used. 5. It must be proof-read. 6. This essay counts as 25% of the final mark and it is compulsory. 7. The deadline for submission is TBC 8. Electronic submissions via Moodle are the only form permitted. You must make sure that you have access to the Company Law account set up on Moodle before the deadline otherwise; you would not be able to submit your essay on time. Late submissions are penalised. 9. Students must keep a copy for their own records.

Dr Adolfo Paolini

Company Law Topic 1 Forms of Business Organisations 1. Sole Trader        

One person Business No legal filing requirements The use personal capital: Bank Loans There is no separate personality/liability Personal Insolvency No need for complex structures Income Tax: Personal Allowance £10000, (20% 0- £31865) ( 40% £31866-£150000) (45% £150001) Limitations regarding the raising of capital

2. Partnerships  

Definition: PA 1890 S 1(1) Features:

(i). It is not an organisation; it is a relationship without separate legal personality (ii) It is confusing since it can sue and be sued but decision is binding on the partners. (iii) Insolvent Partnership Order 1994 (SI 1994/2421) allows a Partnership to be treated as an entity for the purpose of arrangements with creditors. 2.1 Requirements 1) No Formalities 2) Existence of a Business 3) Carried on in Common 5) View of Profit 6) Illegality 7) Requires more than 2/ maximum is unlimited (before 2002 was 20 with the exception of professional firms) 2.1.1 No formalities: formal deed- written articles, oral agreement and by implication Walker v West Developments v F.J Emmett:  Land –owner and builder  Agreement as to profits  No agreement as to losses  Held: Partnership Reid v Hollingshead

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Plaintiff ‘London Merchant’ asked firm of Liverpool brokers to by 1000 bales of cotton for him Instead of commission they got 1/3 interest in the proceeds They called this venture, joint account, joint concern. Brokers insured and stored cotton and charged to the defendant as security for a loan. Plaintiff sued for conversion but Court said defendants had a good title since brokers were partners of the plaintiff.

2.1.2 Existence of a Business. S 45 PA 

There must be some commercial venture

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Exclusions 2(1) PA

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One single transaction attaches: Mann v D’Arcy

Keith Spicer v Mansell: 

Defendant and another person intended to set up a company to take over and run a restaurant owned by the defendant.

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Opened a Bank account in the name of the proposed company but left off the word ‘limited’.

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Second promoter ordered goods from the plaintiff for the proposed company, which was never formed.

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Plaintiff sued the defendant for the price arguing that the two were partners.

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Held: they were in the process of setting up a company but not carrying on business in common with a view of profit. They had not traded before incorporation.

Khan v Mia: 

Two claimants and three defendants wanted to open a restaurant

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One as manager, two as chefs and two provided capital

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The proposed manager took a lease on premises and he and one of the chefs opened a bank account ‘ as partners’.

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Furniture, laundry services and equipment were purchased

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There were delays in opening the restaurant. The relationship with one of the parties (funding capital) ended shortly after.

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House of Lords reversing CA: Yes there was a partnership albeit actual trading had not started since they become partners when they embark on the activity. Preparatory arrangements.

2.1.3 Carried on in Common: two or more people Britton v The Commissioners of Customs and Excise 

Court rejected a partnership between wife and husband despite profits went to a joint bank account.

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Sharing profits between husband and wife does not create itself a partnership.

2.1.4 View of Profit Cox Hickman 

Receipt of a share of the profits was enough to establish a partnership

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Partnership went into difficulties and creditors allowed them to run the business under their supervision as trustees, taking a percentage of the profits each year until debt was clear.

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Held creditors were not partners. Now it is covered by s 2(3).

2.2 Who can be a partner? 

Companies: Newstead v Frost

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Minors: Steinberg v Scala and Corpe v Overton

2.3 Name of Partnership 

Section (4) PA

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Business Names Act 1985 ss 1-4

2.4 Types of Partnerships 

General Partnerships

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Limited Partnerships: LP Act 1907( certain partners will full liability) (sleeping partners no managerial role)

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Limited Liability Partnership: Limited Liability Partnership 2000. (Professional partnerships/ protection from negligent acts)

2.5 Partners 2.5.1 Rights and Duties ss 19-31 2.5.2 Expulsion S (25 ) PA: Re Solicitors’ Arbitrators and Green v Howell. 2.5.3 What happens when a partner contributes capital and the other know-how S (24) PA Popat v Shonchhatra: 

Parties partners in a Business leasehold

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Plaintiff contributed £4564 ( of which £2700 was a loan from the defendant

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Defendant contributed £23064

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Partnership terminated and defendant carried on the business on his own.

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He bought the freehold and later sold business at a profit

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Plaintiff sued for an equal share in the capital and profits.

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Held: County Court divided shares pro-rata but CA ordered that in the absence of agreement, they were entitled to equal shares.

2.5.4

Keeping the accounts and full information

2.5.5

Duty to account for secret profits: Boardman Phipps

2.5.6

Duty not to compete s(30)

2.5.7

Right of assignee S (31)1

2.6 Liabilities 

S 5-17

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See Re Agriculturist Cattle Insurance Co, Bird’s Case and United Bank of Kuwait ltd v Hammond

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SS 26, 32-34

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Partnership Property S (20)

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See Tower Cabine Co Ltd v Ingram; Hudgell Yeates & Co Watson; Hurst Bryk

3. Companies 3.1 Definition: CA 2006 s (7)(1)(2)

“(1) A company is formed under this Act by one or more persons—(a) subscribing their names to a memorandum of association (see section 8), and (b) complying with the requirements of this Act as to registration (see sections 9 to 13). (2) A company may not be so formed for an unlawful purpose.”

3.2 Formation 

Agreement

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Lawful Purpose

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Reasons: Time –Capital- Skills

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Promotion: Pre-Incorporation Contracts

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Memorandum-Articles of Association

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Registration: Incorporation

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CA 2006 ss 7-15

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CA 2006 s 165 (Directors’ service address)

3.3 Types of Companies 

Limited and Unlimited Companies. CA 2006 s

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Private and Public Companies. Ibid s 4

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Companies Limited by Guarantee and Having Share capital. Ibid s 5

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Community Interest Companies. Ibid s 6 Subsidiary Companies: S 1159 CA 2006.

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3.3.1 Private Companies 

CA 2006 ss 288, 775

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LTD

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One man company suffice

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Limitations as to share transferring

3.3.2 Public Companies

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PLC CA 2006 s 58(1)

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Need two members

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Public Offering/Prospectuses

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CA 2006 s 763/ £50000

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No limitation for share transferring

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Listed Companies

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AIM (secondary market)

3.4 Constitutional Documents 3.4.1 Memorandum of Association 

Constitutional Document to the outside world.

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CA 2006 s 8

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CA 2006 s 10: nominal values of shares/ IA1986 s 74/ CA 2006 s 542

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Legal Status: S 16 CA 2006

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Content: S (9) CA 2006- Name ss 53-57- Type 58-65

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Object Clause: Corporate Capacity- S 31 ‘general commercial object’ unrestricted objects.

3.4.2 Articles of Association 

It deals with internal matters e.g. capital, meetings, directors, rights and dividends.

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Companies Model Articles/ CA 2006 s 20/default. The effect of s 21/ s168

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Contractual Effect s 33

3.5 Registration 

It is possible to incorporate a single member private limited company. Companies (Single Member Private Limited Companies) Regulation 1992.

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Registrar issues a certificate of incorporation then the company becomes a legal person

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Consequences of Incorporation: Salomon v Salomon.

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Re-Registration ss 105-111

Company Law Topic 2 Separate Legal Personality 1. The Nature of Legal Personality “CA 2006 s 16 Effect of registration: (1) The registration of a company has the following effects as from the date of incorporation. (2) The subscribers to the memorandum, together with such other persons as may from time to time become members of the company, are a body corporate by the name stated in the certificate of incorporation. (3) That body corporate is capable of exercising all the functions of an incorporated company. (4) The status and registered office of the company are as stated in, or in connection with, the application for registration. 5) In the case of a company having a share capital, the subscribers to the memorandum become holders of the shares specified in the statement of capital and initial shareholdings. (6) The persons named in the statement of proposed officers— (a) as director, or (b) as secretary or joint secretary of the company, are deemed to have been appointed to that office.” 2. Advantages of Incorporation        

Rights and Liabilities One man companies Shareholders or Members? Shareholder’s debts and liabilities are separated from C’s own rights and liabilities Property belong to Company not to shareholders Transfer of Shares Loan Finance Perpetual Succession

3. Disadvantages of Incorporation      

Cost of Documentation Publicity Accounting requirements Loss of Privacy Capital Maintenance Minority Shareholders Rights

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Shareholders cannot recover reflective Losses see: Prudential Assurance v Newman Industries (No 2) [1982] Ch 204; Shaker v Al- Bedrawi [2002] EWCA Civ 142; Giles v Rhind [2003] 2 WLR and Barings PLC ( in liquidation) v Coopers & Lybrand (No 4) [2002] AC 619

4. Salomon v Salomon Principle        

Mr Salomon sold his shoe business to a company he set up under CA1862 Shareholders were Mr Salomon, Mrs Salomon and his 5 children As part of the consideration for the sale of business, S received fully paid up shares and debentures to value of £10000 which he assigned to another party (Broderip) Business declined and C went into insolvent liquidation. The Debenture holder attempted to make S liable for debts of the company by alleging fraud on creditors and that the company was his agent. Later a liquidator was appointed and took over litigation. CA held Salomon personally liable. HL reversed the decision: There was nothing wrong with that company; Companies are not agents of shareholders. S was a different person. Lord Macnaghten: “ The company is a legal person altogether from the subscribers to the memorandum; and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act”

5. Modern Recognition of the concept of Corporate Personality   

Adams v Cape Industries Plc: in cases involving group enterprises e.g. parent –subsidiary companies, both companies are deemed to be separate legal entities and each benefit from the Salomon principle in the ordinary way. Lee v Lee’s Air Farming Ltd: Company can employ people even its majority and controlling shareholder. Mr Lee was worker for the purpose of worker’s compensation purposes. Macaura v Northern Assurance Co: property conveyed to the company belongs to the company and not to individual shareholders.

Company Law Tutorial 1

1. What are the advantages and disadvantages of setting up a company? 2. Partnerships v Companies: which one is better? 3. Please read the decision in Popat v Schonchhatra [1997] EWCA Civ 1966. Do you agree with the decision? 4. In your opinion, was the Liquidator’s argument right in Salomon v Salomon?

Company Law Topic 3 Lifting the Veil of Incorporation (Exceptions to Salomon v Salomon)

1. What is the veil of Incorporation? 2. Exceptions to the Principle of Corporate Personality. Statutory provisions. 3. Taxation and Financial Transparency for example:  

Parent Companies are required to prepare consolidated group accounts showing affairs of both parent and subsidiary companies (s 399). CA 2006 s 403 ss. See also CA 2006 s 1159 Insolvency Act 1986 s213 (Fraudulent Trading). S214 (Wrongful Trading). CA s 993

4. Few authors are of the view that this does not pierce the veil but makes individuals ((Directors) personally liable for the running of the company. Shadow Directors CA 2006 s 251 5. Situations where the veil is likely to be lifted  Agency  Fraud, Façade, Concealing the true facts  Taxation Issues  Group of Companies  Employment Relationships (Employment Rights Act 1996)  Lately, albeit with some discussion, divorce proceedings  Note: lifting the veil is an exception to the rule of separate legal personality therefore proceeds only in unique circumstances. Courts usually reject these petitions. 6. Case Law  Jones v Lipman  Gilford Motors Ltd v Horne  DHN Food Distribution Ltd Tower Hamlets  Woolfson v Strathclyde Regional Council  Adams v Cape Industries Ltd  Creasey v Beachwood Motors Ltd  Ord v Belhaven Pubs Ltd  Kleinwort Benson Ltd v Malaysian Mining Corp [1989]

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Trustor AB v Smallbone (No 2) VTB Capital Plc v Nutritek International Corp [2013] Bilta v Nazir [2015] Prest v Petrodel Resources Ltd [2013] Chandler v Cape PLC [2012] Williams v Natural Life Health Foods Ltd Standard Chartered Bank v Pakistan National Shipping Corporation MCA Records Inc v Charly Records Ltd Thompson v Renwick Group [2014]

Company Law Topic 4 Promoters and Pre-Incorporation Contracts 1. Promoters: definition Twycross v Grant: “A promoter, I apprehend, is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose” 2. Legal Position: S 90(8) FSMA 2000 3. Exclusions: Those who act in a professional capacity e.g. Solicitors, Accountants, Valuers. 4. Its ascertainment is a question of fact: Bagnall v Calton 5. He/she is neither and agent ( Kelner v Baxter) nor a Trustee ( Omnium Electric Palaces ltd v Baines) of the future company 6. Duties 6.1 Fiduciary Duties: Not to make secret profits and disclosure: 

Disclosure will not be enough if the original shareholder are not independent and or try to defraud investors. Gluckstein v Barnes

6.1.1 ‘One of the main problems regarding promoters is acquisition of property which is later sold to the company’. 6. 1.1.1 When property is acquired before promotion- Rescission Erlanger v New Sombrero Phosphate “Persons who purchase property and then create a company to purchase from them the property they possess, stand in a fiduciary position towards that company, and must faithfully state to the company the facts which apply to the property, and would influence the company in deciding on the reasonableness of acquiring it”. 6. 1.1.2 When property is acquired after promotion:  

Courts will assume that property has been acquired for the company. Rescission/ Retain property and account for profits

 

Sanction is against secret profits What happens when promoters are the first directors?

Lagunas Nitrate v Lagunas Syndicate:  Company formed and directed by syndicate  Company set up to purchase property from syndicate: nitrate works  Syndicate and Board of Directors the same people  CA Held: Company not entitled to rescission since it knew the facts. 6.2 Common Law Duties of Skill and Care 

Re Leeds and Hanley Theatres of Varieties Ltd and Jacobus Marler Estates v Marler

6.3 Statutory Duties: SS 598-604...