LA 4008 Tut 2 v2 - ADDITIONAL NOTES ON TUTORIALS WEEK 3 AND 4 PDF

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Company and Partnership LawLATutorial 2 MULTIPLE CHOICE QUESTIONS When a company has been validly formed, the Registrar of Companies will issue it with which of the following documents? a) A certificate of validity b) A certificate of incorporation c) A practising certificate d) A licensing certific...

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Company and Partnership Law LA4008 Tutorial 2 __________________________________________________________________________________

___________________________________________________________________________ MULTIPLE CHOICE QUESTIONS 1. When a company has been validly formed, the Registrar of Companies will issue it with which of the following documents? a) b) c) d)

A certificate of validity A certificate of incorporation A practising certificate A licensing certificate

2. Which of the following is NOT a consequence of a company's separate legal personality? a) b) c) d)

The members are liable for all of the debts of the company The company can issue legal proceedings The company can own property The company can enter into contracts

3. Which type of company needs a trading certificate before it can commence trading? a) b) c) d)

A private company limited by shares A guarantee company A public limited company An unlimited company

4. A public limited company must meet minimum statutory requirements regarding share capital, what is this limit? a) b) c) d)

€1 €5,000 €10,000 €25,000

5. Is it possible to convert to another form of company in Ireland once registration is complete? a) Yes b) No 1

6. Once an application is made, how long does a court have to declare a dissolution of a company void from the date of dissolution? a) b) c) d)

One month Three months One year Two years

7. Does the Registrar of Companies have the power to strike a company off the register if it fails to make an annual return? a) Yes b) No 8. Which of the following companies does NOT need a memorandum and articles of association to incorporate? a) b) c) d)

A private company limited by shares A designated activity A public limited company A guarantee company

9. Which of the following is TRUE? The power to bind the company depends on the authority conferred upon whom? a) b) c) d)

The directors The shareholders The secretary The Registrar of Companies

10. What does the objects clause prescribe? a) b) c) d)

The permissible activities of the company The name of the company The authorised share capital of the company That the liability of the members is limited

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Long Question Discuss by reference to case law the right of minority shareholders to bring an action for oppression pursuant to section 212 of the Companies Act 2014 and the remedies which may be awarded in actions of that kind. o Case law o Minority shareholder o Oppression o S212 CA o Remedies Introduction: o A minority shareholder is an individual that becomes a member of a company and in the contract they sign to enter into the company they agree to accept the decisions made by the majority in the meeting, which is known as the majority rule. o Due to the majority rule, the minority shareholder does not have the right to take action against the decision if it was agreed by the majority. This rule was created Foss v Harbottle (England) and was confirmed in Ireland in Connolly v Seskin Properties Ltd. More recently in Ireland in 2012 was Glynn v Owen, where the high court refused to accept the locas standi (the right of capacity to bring an action or to appear in a court) of the shareholders. Case Law/Minority Shareholder: o Foss v Harbottle: Two shareholders brought an action against a director accusing him of application of company funds in relation to a real estate transaction. this case went to the court and the court held that the shareholders did not have a right to bring the case against the directors but against the company. The rule of this case is that if a company suffers a legal wrong, the proper plaintiff is the company and not anyone else i.e not a shareholder. o This rule was established to prevent multiple actions being taken by unhappy members. The problem with this rule is that it believes the majority have the best interests of the company at heart. o Connolly v Seskin Properties Ltd – Kelly J said that fraud consists of some element of moral turpitude (corruption/immorality). Exceptions to this ruling of Foss v Harbottle: this means the shareholder may take action on behalf of the company for the better of the company. 1. Minority shareholders can take action to prevent ultra vires or illegal situation from occurring within the company. Smith v Croth  it was held that this exception foes not apply where the shareholders are seeking compensation for the illegal act/ultra vires that has already occurred and they said nothing. However, a shareholder can be compensated if they prevent an illegal act from occurring. Other cases: Taylor v Num and Park v Daly News.

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2. Where individual membership rights have been breached then an individual member can sue directly. Edwards v Halliwell  held that the rule would not apply where the wrongdoing is done to an individual and not the company. However Courtney criticises this and states this is a misapplication and should not be referred to as an exception to the original Foss v Harbottle ruling. There was a lot of confusion surrounding this exemption until the implementation of the companies act, eg: Bender v Lushington. 3. When the requisite majority required for passing a resolution has not been reached but the company acts on the strength of the lesser vote than the majority are sanctioning a wrong doing.  shareholders are allowed to intervene where a decision requiring a special majority is taken by a simple minority. If the directors misguide the shareholders in a vote, the shareholders can take a claim against the directors. 4. Where the majority have attempted to commit a fraud against the minority. The fraud does not have to have an element of criminality, only how the court of equity would see it. Cook v Deeks – the director of the co. used their position to get a contract and benefited from it personally but the co. got no benefit, shareholder took a case and it was agreed the director had committed fraud against the company. Definition of oppression: o Oppression of the individual need not be in his capacity as a member it can also include oppression as a director. This is important because most small private companies, the shareholders will be directors and the particular form of oppression may attack them primarily as directors. o Lord Simonds in the case Scottish CWS Ltd v Meyer defined oppression as any conduct that is burdensome, harsh or wrongful, which was approved in Ireland Keane J in Greenore Trading Co. In this case Keane J held that the if there is oppressive conduct even if it’s not unlawful it will be reprimanded as it is unfairly detrimental to the individuals positions as members. o Re Clubman Shirts Ltd  established that negligence, carelessness and irregularity alone would not constitute oppression. However, deliberate planning to cause loss or damage to a shareholders rights as there was no AGM, was oppression and it was ruled that the company must buy out the petitioners shareholding based on the true value of the shares. o Re SkyTours Travel Ltd  The director admitted to syphoning off company funds for his own benefit (made a voluntary disclosure to revenue and made a settlement) because he did that he resisted a petition for oppression. Laffoy J held that there was oppression and ordered that he buy out the minority shareholders. o Re Jermyn Street Turkish Baths Ltd. – oppression there was said to be some lack of probity or fair dealing towards one or more members of the company and it didn’t have to be illegal. In contract to the last case, the court ruled they were individual

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o Crindle Investments v Wynes – there was litigation going on for a while and 2 of the 4 shareholders decided to settle but the other 2 refused to accept the settlement agreement. So the 2 applicants who wanted to settle claimed that the conduct of the majority rejecting the offer was so unreasonable as to constitute oppression and the courts agreed with them. o Re Bellador Silk Ltd. v Re Lundie Brothers Ltd. In this case there was a petition as it couldn’t succeed under S212 as the oppression complaint stated he was not oppressed as a member but as a director. Court ruled he wasn’t oppressed as a member. There has been no ruling in Ireland so we don’t know the Irish outcome. Derivative action/Winding up of the company: o Under what is known as a derivative action a shareholder may take action against the company under section 212 of the Companies Act 2014 when one of the exceptions to the rule in Foss v Harbottle is relied upon. This is an action brought by a member on behalf of the company against the company’s directors. They are brought in respect of wrongs committed against the company. o It means the shareholders of the company can petition for the winding up of the company. Under act S569(f) this is still possible. However, as Keane notes, it’s usually not in the best interests of anyone to have a winding-up as the assets might have to be sold at less than their rea; value, the business brought to an end and people would lose their jobs. o Re Murphys Restaurant Ltd  the courts agreed that an attempt by the majority to oust a fellow member/director from a small quasi-partnership type company based on mutual trust and understanding constituted oppression. It was held the petitioner was unlawfully oppressed and he was entitled to an order that the company be wound up equitably as the trust was broken. o Courtney notes that where a relationship of equality, mutuality, trust and confidence based on a personal relationship subsists in a private company it may be appropriate that it be considered as a quasi-partnership. In such companies, acts and omissions may be found to amount to oppression to disregard of members’ interests. S212: o Up until 2014, the S205 CA 1963 was the method for individual shareholders to bring forth an action on a statutory basis to care for individuals not fitting into these exceptions. However, it was repealed in S212 CA 2014 where a section was created to provide statutory remedies for minorities which came into force on 1 June 2015. This deals with the protection of minority shareholders and provides that if a court is of the opinion that a company’s affairs are being conducted or the director’s powers are being exercised in a manner oppressive to a member of the company or in disregard of its interests, it may make any order it thinks fit with a view to bringing to an end the matters complained of. Who can claim relief under section S212? 5

1. Members of the company 2. Personal representatives of deceased members of the company 3. Directors

Remedies to the S212 2014 Act: o Remedies in case of oppression can be given to any member of a company who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised: a) In a manner oppressive to him, her or any of the members b) In disregard of his, her or their interests as members o Remedies include: o Company’s constitution can be amended o Compensate the other party o The court can make the oppressor’s buy the others share back or suggest the company buy either party’s shares. Conclusion: o The ruling of Foss v Harbottle provides better remedies than the provision provides. Fortunately, while the rule in Foss v Harbottle has exceptions, relief can be found under the S212 2014 act and has a wealth of remedies to assist in a wrongful action known as oppression. o Oppression is a legal principle which has developed through case law and has found a new statutory basis under the new companies Act. o Section 212 hearings are always held privately to protect the integrity of the company and as they generally contain sensitive commercial information. However, the courts believe for the administration of justice it is important for the public to witness this. o This has occurred in the past in the case of Press Plc v Ingersoll Irish Publications Ltd. A comprise has since been reached and now most hearings are heard in camera andn sensitive parts of the case can be heard by the public.

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