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Case Names & Law names Flashcards

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1
Q

What is the act and section that lays out the duties of the auditor?

A

The dtuies of an auditor is laid out in the

Companies act 2006, section 498

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2
Q

What is laid out in the Companies act 2006, section 498?

A

the Companies act 2006, section 498 lays out the duties of an auditor

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3
Q

What act and section lays out the rights of the auditor?

A

Companies act 2006, section 499 lays out the rights of an auditor right after their respsonsibilities in section 488.

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4
Q

What is laid out in the Companies act 2006, section 499?

A

the Companies act 2006, section 499 lays out the rights of an auditor

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5
Q

What act and section covers the auditors report?

A

Companies act 2006, section 495 covers the auditors report.

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6
Q

Companies act 2006, section 495 covers what?

A

Companies act 2006, section 495 covers the auditors report.

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7
Q

Caparo Industries v Dickman (1990)?

A

The Caparo v Dickman case established that The auditors owe the company as a whole (not to outsiders or to individual shareholders) a duty of care in tort of negligence. It is a criminal offence for an auditor to knowingly or recklessly cause a report to be misleading, false or deceptive

Foreseeability: The damage must be reasonably foreseeable.

Proximity: There must be a close relationship between the parties.

Fair, just, and reasonable: It must be fair, just, and reasonable to impose a duty of care.

Dickman was a dick and dint audit right.

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8
Q

What is the main case about the auditors duty of care and tort of negligence?

A

Caparo Industries v Dickman (1990) established that the auditors also owe the company as a whole (not to outsiders or to individual shareholders) a duty of care in tort of negligence

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9
Q

What is stakeholders theory?

A

Stakeholder Theory says that a company should care about all the people and groups affected by its actions, not just the shareholders who own stock.

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10
Q

Companies Act 2006 section 173 talks about what?

A

Companies Act 2006 section 173 talks about how a director of a company must exercise Independent judgment

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11
Q

Companies Act 2006 section 393 talks about what?

A

CA 2006 s 393: Accounts to give a true and fair view

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12
Q

Companies Act 2006 section 172 talks about what?

A

S172 – Duty to promote success of company

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13
Q

Khan v Miah (2000)?

A

Khan v Miah (2000)

A group of individuals formed a partnership to open a restaurant business

One of the partners left the business before the restaurant opened, then later tried to claim a share of the obtained profits

The remaining partners felt that they were not entitled to any as they had left before trading

Decision: A partnership had existed and the estranged partner was entitled to a share of profit because:

All partners had engaged in activities that were required as part of the partnership, including obtaining a business loan

Also, this was a joint venture with a view to a profit

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14
Q

What is the Partnership Act 1890?

A

Partnership Act 1890:

Still the legislation governing the definition and behaviour of general partnerships.

Defines a partnership (known as “the firm”) as “the relationship which subsists between persons carrying on a business in common with a view to profit”

If no partnership agreement exists (or the agreement doesn’t cover that particular issue) then the rules stated in PA 1890 will apply

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15
Q

Partnership Act 1890 Section 5?

A

Partnership Act 1890 Section 5: Every partner is an agent of the firm and all the co-partners.

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16
Q

Partnership Act 1890 Section 28?

A

PA1890 s28: Duty of disclosure

Partners must provide true accounts and full information on all things affecting the partnership, to all the other partners or their legal representative

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17
Q

PA1890 s29?

A

PA1890 s29: Duty to account

Partners must account to the firm for any benefit obtained without consent from any transaction concerning the partnership

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18
Q

PA1890 s30?

A

PA1890 s30: Duty not to compete

Where a partner competes with partnership business without the consent of the other partners.

That partner is liable to account to the partnership for any profits made in the course of the competing business

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19
Q

Don King Productions Inc v Warren?

A

Don King Productions Inc v Warren:

King and Warren (two boxing promoters) set up a partnership to promote and manage boxers in Europe

Warren subsequently entered into personal contracts with some of the boxers

Decision: Warren had breached the duty to not compete S30, therefore the partnership was entitled to the profits from the personal contracts

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20
Q

Salomon v Salomon & Co (1897)?

A

Salomon v Salomon & Co (1897):

Mr. Salomon formed a company of which he was the majority shareholder

He also held a debenture (loan) on the company, secured by a floating charge

Company later fell bankrupt
As a secured creditor, Mr. Salomon could recover money loaned, but unsecured creditors not happy

Decision: The company was a separate and distinct legal entity away from Mr. Salomon as an individual

As Mr. Salomon was a separate person, he was entitled to recover the money lent to the company

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21
Q

Macaura v Northern Assurance Ltd (1925)?

A

Macaura v Northern Assurance Ltd (1925):

Manager of a timber mill company took out an insurance policy on the company’s assets
But the policy was taken out under his own name

When the timber was destroyed in a fire, he was ineligible to make a claim as he had no ownership of the company’s assets

Key point: The company and him were separate legal entities, so the policy should have been under the company’s name

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22
Q

Gilford Motor Co Ltd v Horne (1933)?

A

Gilford Motor Co Ltd v Horne (1933)

  • Mr. Horne was former MD of Gilford Motor Co Ltd (he was fired)
  • There was a clause in his contract stating that, should he leave the role, he could not solicit Gilford’s customers
  • He originally set up his own business undercutting Gilford before his lawyer recommended he stop
  • Mr. Horne then set up a company, JM Horne & Co Ltd
  • His wife and a friend were the sole shareholders & directors
  • Sent out fliers advertising spares and services for all Gilford vehicles
  • Court of Appeal ruled that JM Horne & Co Ltd was formed purely as a device to circumvent the contract clause
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23
Q

Siebe Gorman and Co. Ltd v Barclays (1979)?

A

Siebe Gorman and Co. Ltd v Barclays (1979)

Charge was imposed on the company’s book debts

Bank insisted this was a fixed charge

The court deemed it to be a fixed charge as the funds went into a separate account which the borrower did not have control over

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24
Q

NatWest Bank v Spectrum Plus Ltd (2005)?

A

NatWest Bank v Spectrum Plus Ltd (2005):

Exception being that the company was free to deal with the item (being the proceeds of the book debt)

This was viewed to be a floating charge

If the charge remains in control of the asset(s), it will generally be regarded as a floating charge

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25
Q

CA 2006 – s 870?

A

CA 2006 – s 870
A charge must be registered within 21 days of its creation
https://www.legislation.gov.uk/ukpga/2006/46/section/870
The registrar will then issue a certification of registration, including details of its particulars (CA 2006, s 869)
https://www.legislation.gov.uk/ukpga/2006/46/section/869

If a charge is not registered, it will be invalid

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26
Q

Pender v Lushington (1877)?

A

Pender v Lushington (1877):

Company articles stated every shareholder gets 1 vote per 10 shares, but is capped at 100 shares maximum
Pender owned 1,000 shares, so transferred them to other nominees so that they could vote for a resolution he wanted to pass

Chairman refused to accept the votes of the nominees

Verdict – company was bound by rights of the shareholders, had to accept the votes

27
Q

Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame (1906)?

A

Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame (1906)

Topic: the power of the articles

A 55% majority of company shareholders wanted to sell the company’s assets to another firm, passed an ordinary resolution

Directors were opposed to this move as they saw it as not in the company’s best interests, declined to comply with resolution

Articles stated that directors had general power of management

Verdict: Based on the articles, the views of the directors could not be disregarded

Shareholders would require a special resolution to pass an amendment to the articles

28
Q

Jones v Lipman (1962)?

A

Jones v Lipman (1962)

Lipman entered into a contract to sell land to Jones, but changed his mind before the contract was completed

To incapacitate the sale, Lipman created a company (with him as sole shareholder and transferred the land to that company)

He then claimed that he could not sell the land to Jones as he no longer owned the land

Decision: The court ruled that the company was setup purely for the purpose of evading performance of the contract, therefore was a sham

Lipman was ordered to transfer the land to Jones per the original contract

29
Q

Hickman v Kent or RMSBA (1915)?

A

Hickman v Kent or RMSBA (1915):

Company articles stated that any dispute between a shareholder and the company should go to arbitration before court proceedings commence

Mr Hickman was aggrieved that the company refused to register his sheep, so threatened court action

Company applied to have the court action suspended

Verdict – Mr Hickman was bound by the articles and had to take the matter to arbitration

30
Q

Wood v Odessa Waterworks Co (1889)?

A

Wood v Odessa Waterworks Co (1889):

Topic: Binding power of the constitution

Articles stated that, with approval of the general meeting, directors had the power to declare a cash dividend

Directors recommended a long-term bond be awarded instead

Recommendation pass by ordinary resolution at GM

Shareholder argued that this action breached the articles

Verdict: The company and its members were bound to the articles, and as the bonds are not payment in cash, they indeed breach the articles. The bonds proposal was not valid

31
Q

what is the case that says that the shareholders are bound to the company?

A

The shareholders are bound to the company – see Hickman v Kent

32
Q

what is the case that says that The company is bound to the shareholders?

A

The company is bound to the shareholders (regarding their rights as shareholders) – see Pender v Lushington

33
Q

What case says that the shareholders are bound to each other?

A

The shareholders are individually bound to each other – see Rayfield v Hands

34
Q

Rayfield v Hands (1960)?

A

Mr Rayfield was a shareholder who wanted to sell his shares

The company articles stated ‘Every member who intends to transfer shares shall inform the directors who will take the said shares equally between them at a fair value.’

The directors were refusing to follow this rule, and Mr Rayfield sought an injunction.

Verdict – the articles bound all shareholders to each other, so the directors had to purchase Mr Rayfield’s shares

35
Q

Freeman & Lockyer v Buckhurst Park (1964)?

A

Freeman & Lockyer v Buckhurst Park (1964)

Four directors on board

One of them made all the contracts as if he were MD, the other directors knew this

The company refused to pay out on one of the contracts entered

Verdict – company was liable on the contract, as their apparent authority bound the company

36
Q

what act are the saftey measures to protect comapnys from directors misuing thier powers?

A

Safety measures to protect the company from directors misusing their powers

Now codified in Companies Act 2006, s 171-177

Were previously found in common law rules

Most of these related to fiduciary duties i.e. those relating to trust and confidence

37
Q

what is section 171?

A

s 171 – A duty to act within powers

Directors must act in accordance with company constitution

Must only exercise their powers for the purpose they were given

Transactions can be approved (or ratified) by the shareholders in a GM, even after it has occurred

38
Q

Eclairs Group & Glengary v JKX Oil and Gas plc (2015)?

A

Eclairs Group & Glengary v JKX Oil and Gas plc (2015)

E & G were shareholders in JKX plc

Directors of JKX believed that E & G were planning a takeover of the company, so imposed restrictions on their shares to prevent them voting at a shareholders’ meeting

Decision: As the directors’ power to impose restrictions had been given for a different purpose, it was deemed that the directors had used their powers for an improper purpose i.e. a breach of s171.

39
Q

What is section 172?

A

S 172 – A duty to promote the success of the company

Directors must act in good faith and in the company’s best interests

Director needs to consider what is best for the company (and its members) as a whole

May involve subjective decisions e.g. short-term profit v long-term potential

40
Q

Odyssey Entertainment Ltd v Kamp (2012)?

A

Odyssey Entertainment Ltd v Kamp (2012)

Director of company decided he would be better off taking on his own work, did this without knowledge of company
Told board of directors that future financial prospects were poor, the other directors decided to wind up company

Verdict: broken duty of good faith under s 172
Also in breach of s 175 (avoiding conflict of interest)

41
Q

Hellard and Others v Carvalho (2013)?

A

Hellard and Others v Carvalho (2013)

Mr Carvalho was the principal director of a company

He actioned a series of payments by the company including debts owed to his father, other companies under his control and a Xmas bonus to an employee

Decision: the court considered the rationale of these payments, and concluded they were done without regard to the best interests of the company
He was also judged to have breached s. 171

He was ordered to repay substantial amounts to the company

42
Q

S 173 – A duty to exercise independent judgement?

A

S 173 – A duty to exercise independent judgement

Directors need to exercise their own judgment, and not merely rely on instruction from others

When a parent company acts as a shadow director, it is important that the directors still consider what is in the best interests of the company

43
Q

S 174 – A duty to exercise reasonable skill, care and diligence?

A

S 174 – A duty to exercise reasonable skill, care and diligence

This duty has an objective and subjective test

Objective part – Test based on how a reasonable director would have acted

Subjective part – Test based on how that particular director would have acted based on their actual knowledge, skill & expertise

44
Q

Dorchester Finance Co Ltd v Stebbing (1989)?

A

Dorchester Finance Co Ltd v Stebbing (1989)

Money lending company has 3 directors (1 ED, 2 NEDs both accountants)

The NEDs signed blank cheques for the ED to use, who then took out loans that the company could not reclaim

The company brought an action for negligence against all 3, but the 2 NEDs claimed they were not liable

Verdict – all directors liable. Court did not distinguish between standards expected of ED and NEDs

45
Q

Brumder v Motornet Service & Repairs Ltd (2013)?

A

Brumder v Motornet Service & Repairs Ltd (2013)

Mr. Brumder injured himself on a hydraulic ramp

Mr. Brumder sued the company for failing to keep the ramp in sufficient working order

Mr. Brumder is the sole director of the company

Verdict – As a director, he should have been aware of any health and safety issues and so was in breach of exercising due care

46
Q

what is s175?

A

S 175 – A duty to avoid conflict of interest

A director must avoid a situation which they have an interest that may conflict with the interests of the company

The conflict may be unavoidable

In which case, appropriate safeguards need to be taken (with a full paper trail)

47
Q

Killen v Horseworld Ltd (2012)?

A

Killen v Horseworld Ltd (2012)

Ms. Killen was a former director of Horseworld Ltd

Whilst she was on the board she negotiated a contract for her own company at the expense of Horseworld Ltd

Verdict – even though she was no longer a director, she had breached her duty at the time of her directorship, and was ordered to pay any related profits to Horseworld Ltd

48
Q

what is s176?

A

S 176 – A duty not to accept benefits from third parties

Benefits can be financial or non-financial

Include bribes and gifts
Director must not accept benefits arising from their position as director, or for them to do (or not do) an act as director

Larger companies usually have strict rules regarding acceptance of gifts

49
Q

what is s177?

A

S 177 – A duty to declare an interest in any proposed transaction or arrangement with the company

Where the company are proposing a course of action, directors must disclose any interest (direct or indirect) they have in this action

For example, if the company plan to enter into a contract with another business, which is run by the director’s partner

50
Q

what act covers the disqualification of directors?

A

Covered in The Company Directors Disqualification Act 1986

The act allows a court to disqualify any person from being a director (and certain other roles)

Prevents failed directors from creating new companies without incurring personal liability

51
Q

Re Sykes (Butchers) Ltd

A

Topic: De-facto directors

A person denied that he was a director of the company

However, certain actions he undertook could see him described as a de facto director

These included paying off a bank overdraft whilst promising the funds to other creditors

Key point: The court said that it was difficult to lay down one decisive test of whether a person is a de facto director. All the relevant facts relating to an involvement in management must be considered.

52
Q

Secretary of State for Trade and Industry v. Deverall (2000) ?

A

Secretary of State for Trade and Industry v. Deverall (2000) :

Topic: shadow directors

The company was in the travel business

It went into voluntary liquidation owing creditors over £4m

Disqualification proceeds were brought against three of its directors and two advisers/consultants

As the advisers had experience in the travel business, it was determined that the advice they had given the board was sufficient enough for them to be deemed shadow directors

Therefore, a disqualification order could be brought against them

53
Q

Glossop v Glossop (1907)?

A

Glossop v Glossop (1907)

A director gave a notice of resignation to the board, but later wanted to withdraw their resignation

Key point: Once a director has given notice, it cannot be withdrawn unless the board gives consent for the withdrawal

It is possible that the articles can give a provision that a notice of resignation can be withdrawn any time before the board gives acceptance of the resignation request

54
Q

Glossop v Glossop (1907)?

A

Glossop v Glossop (1907)

A director gave a notice of resignation to the board, but later wanted to withdraw their resignation

Key point: Once a director has given notice, it cannot be withdrawn unless the board gives consent for the withdrawal

It is possible that the articles can give a provision that a notice of resignation can be withdrawn any time before the board gives acceptance of the resignation request

55
Q

Re Continental Assurance Co of London plc (2007)?

A

Re Continental Assurance Co of London plc (2007):

Company had become insolvent and had a crisis meeting

Under normal circumstances, the meeting should have made clear that there was no reasonable prospect of coming out of insolvency

But the directors continued to trade
Company went into liquidation

The liquidator judges that the trades made after the crisis meeting meant that the directors were guilty of wrongful trading

The directors deny wrongful trading, arguing that many years of disorganised financial records meant that it was difficult to tell if the company was insolvent or not

Verdict: the directors’ actions were appropriate given the information they had. Therefore the liquidators had failed to show a case of wrongful trading

56
Q

Panorama Developments Ltd v Fidelis (1971)?

A

Panorama Developments Ltd v Fidelis (1971):

Company secretary was responsible for hiring cars for the business

They used this position to order cars for their personal business

When the company found this out, they attempted to make the secretary liable for these expenses

Decision: the secretary had the apparent authority to enter into such contracts, therefore the company was liable

57
Q

Barron v Potter (1914)?

A

Barron v Potter (1914):

Topic: power of the directors & the general meeting

The company had two directors that were no longer speaking to each other

Potter sought to appoint new directors

Barron (an existing director) argued that articles stated power to appoint new directors lay with the board

Verdict: If the board is in a deadlocked position, the power to appoint reverts to the general meeting i.e. the shareholders
Therefore, the appointment of new directors was valid

Note: whilst you can have a board meeting of directors anywhere, it’s only valid with the directors’ consent

58
Q

Foss v Harbottle (1843)?

A

Foss v Harbottle (1843) Ruling from the case is when the company has been wronged by the board, the company itself needs to instigate court proceedings (as a separate legal entity)

But as the board of directors controls and runs company, it is up to the board to start proceedings in the company’s name

Board is unlikely to start an action against themselves

59
Q

Stainer v Lee (2010)?

A

Stainer v Lee (2010):

Stainer had a small shareholding in a company

The directors had allowed the company to make interest-free loans to another company

Stainer went to court to start a derivative action

Verdict: Directors were in breach of their duties

Judge allowed the claim, company could seek damages against directors

60
Q

Clemens v Clemens Bros Ltd (1976)?

A

Clemens v Clemens Bros Ltd (1976):

Topic: protection of minority shareholders

An aunt and niece held 55% and 45% of shares in the company respectively

Aunt proposed a scheme where more shares would be issued to directors and employees

This would result in the niece’s shareholding being reduced to under 25%

Despite the niece’s objections, scheme passed via ordinary resolution

Verdict: Whatever other purposes there were behind the scheme, there was a clear indication that it was designed to diminish the niece’s voting power. The aunt had used her voting power inequitably

61
Q

CA 2006 s 393?

A

Accounts to give true and fair view CA 2006, s 393

62
Q

CA 2006, s 499?

A

CA 2006, s 499

An auditor of a company:
has a right of access at all times to the company’s books, accounts and vouchers (in whatever form they are held), and

may require any of the following persons to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor.

It is a criminal offence to knowingly or recklessly give an auditor misleading, false or deceptive information

63
Q
A

Company Law (11 decks)

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