7- Trans at an undervalue- CL Doctrines Flashcards
Purpose of CL Docs for transaction at an undervalue?
The CL docs were used by liquidators prior to 1989 to have transactions at an undervalue set aside for various reasons. BUT they are not as effective as the statutory provisions.
However, they are still used today be receivers who cannot use the Act and by liquidators/administrators of the provisions are unsuccessful.
Lack of capacity in memorandum/ultra vires cases?
Re Horsely and Weight (1982);
Rolled Steel Productions v British Steel Corp (1986);
Re Duomatic;
Re Halt Garage (1964)/CA 2006 s.247(7
Director’s fiduciary duties cases?
Kinsella v Russel Kinsella Ltd (1986);
Aveling Barford v Pearson (1989);
Precision Drippings (1986)
FT case?
Anglo Australian Publishing Union (1895)- compare with Re Yagerphone for where statute used.
Re Horsely v Weight (1982)
A pension scheme was set aside because the memorandum of association required board approval, which had not been granted.
Rolled Steel Productions v British Steel Corp (1986)
Case: Co had guaranteed borrowings of another co to the bank. This was permitted by the co’s memorandum, but not if it was not in the interests of the co to do so.
Decision:
1. An incorporated co can only do acts which fall within its memorandum, or which are reasonably incidental to the objects in the memorandum.
- If an act is not reasonably incidental then the co has a lack of capacity to do it and it is ultra vires.
- if the p/co dealing with the co knew it was not reasonably incidental (as they did here), they cannot rely on the apparent authority of the director to hold the co to the transaction.
Re Duomatic
Case: Remuneration payements had been made to directors despite the fact that none of them had service contracts and no resolution had been passed to appoint/pay directors.
Decision: Buckley
1. Golden handshakes can be set aside for being UV.
- BUT on the facts the payments were properly authorised because they were made with the full knowledge and consent of all the SHs that would have needed to approve the resolution in a general meeting.
Re Halt Garage (1964)
NB: Now CA 2006 2.247(7).
Case: H and W began and were SHs in Halt Garage Ltd. W became ill and was unable to work but was still paid £500-£1,500 for 3 years. When co wound up liquidator said this was an illegal reduction of capital.
Decision:
1. SHs are entitled to assume that what is paid as remuneration is that, and not a disguised distribution to SHs.
- Though there is nothing to prevent payments to employees during illness, the sums here were excessive, so could not be considered remuneration.
CA 2006 s.247(7)
Ex gratis (voluntary) payments to employees on cessation (end) or transfer of business must “be made out of profits of the company that are available for dividend”
Kinsella v Russel Kinsella Ltd (1986)
Case: Director granted a lease an an artificially low rent to other director.
Decision: Street
1. If directors act in a way to promote their own or other’s private interests they have not acted in the best interests of the co.
- When a co is solvent the director owes his fiduciary duties to SHs, but when it is known to be insolvent the co’s assets become the creditor’s, so he owed his duty to the creditors.
- Thus, SH approval/ratification of a trans is ineffective if the co is insolvent.
Aveling Barford v Pearson (1989)
Past 1986 but receiver. NB Hoffman refers to this as a liquidation but this must be wrong otherwise would have been tried under s.238.
Case: L controlled by A co and P co. A sold land to P for £350K when it was work 1.15M. When in liquidation (receivership) receiver sued director for breach of fiduciary duty through a trans at an UV.
Decision:
1. The sale resulted in an unlawful reduction in capital from the creditors (whom the director owes his fiduciary duty to in insolvency (Kinsella)).
- P is a CT of land for A.
Precision Drippings (1986)
SH approval/ratification is ineffective once co is in liquidation/admin/receivership.
Re Anglo Australian Publishing Union (1895)
Compare with Re Yagerphone which is based on the statute.
Case: Because the claims on a floating charge were vested in the company before it went into liquidation, the proceeds of misfeasance proceedings would be caught by the floating charge where it was expressed to include any after-acquired property.
Vaughan Williams: Finds this with regret. Says it is an unwholesome state of things that the proceeds of misfeasance proceedings should go to debenture holders rather than unsecured creditors. Debenture holders usually acquire their rights in circumstances that they only expect to receivea percentage of their investment and frequently if they receive that they are making a large profit, so allowing them to take more is unwholesome, but is is the state of the current law.
