Case Law - Part 4

Question 1

Reduction of share capital

Primary concern of the courts is the interests of the company’s
creditors. A reduction will only be confirmed if the ‘creditors of the company are safeguarded so that money cannot be applied in any way that would be detrimental to creditors’

Answer 1

Re Ratners Group plc (1988)

Question 2

Consequences of payment of unlawful distribution case law (The Capital Maintenance Rules)

Answer 2

Bairstow v Queens Moat Houses plc (2001)

• directors liable for unlawful distributions even when company was solvent
• directors dishonest in preparation of 1991 accounts
• deceive market to believe group was more profitable than it was

Question 3

The courts may conclude that a floating is actually a fixed charge

Answer 3

Russell Cooke Trust Co Ltd v Elliot (2007)

Question 4

The courts may conclude that a fixed is actually a floating charge

Answer 4

Agnew v Inland Revenue Commissioner (2001)

• key to determining the type of charge is the nature of the charge, not what it is called

Question 5

If distribution (dividend payment) is unlawful, directors personally liable to repay the money

Answer 5

Re Exchange Banking Co, Flitcroft’s Case (1882)

• HC found that the directors were liable to repay the unlawful dividends.
• Cannot pay dividends out of capital

Question 6

Case law used to support the Capital Maintenance Rule

Answer 6

Trevor v Whitworth (1887)

• Companies may only reduce capital in ways permitted by CA 2006
• Case concerning share buybacks

Question 7

Characteristics of a floating charged described - case law

Answer 7

Re Yorkshire Woolcombers Associated Ltd

Question 8

Case law - determining what amounts to a variation of class rights

Answer 8

Approach set out in:

White v Bristol Aeroplane Co Ltd (1953)

• Evershed MR stated distinction between an affecting of rights and an affecting of the enjoyment of the rights

Question 9

Case law example of when a change did not constitute a variation of the preference shareholders class rights

Answer 9

Re Mackenzie and Co Ltd (1916)

• Preference SH entitled to 4% dividend
• Proposed nominal value was reduced from £20 to £12
• Reducing dividend payment amount
• Reduction of nominal value did not constitute a variation
• Still entitled to 4%, enjoyment of class right changed (less valuable)

Question 10

Debentures case law

Answer 10

Levy v Abercorris Slate and Slab (1888)

• A debenture is a document which either creates a date or acknowledges it
• No precise definition