Case Names & Law names

Question 1

Caparo Industries v Dickman (1990)?

Answer 1

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.

Question 2

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

Answer 2

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

Question 3

What is stakeholders theory?

Answer 3

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.

Question 4

Khan v Miah (2000)?

Answer 4

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

Question 5

Don King Productions Inc v Warren?

Answer 5

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

Question 6

Salomon v Salomon & Co (1897)?

Answer 6

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

Question 7

Macaura v Northern Assurance Ltd (1925)?

Answer 7

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

Question 8

Gilford Motor Co Ltd v Horne (1933)?

Answer 8

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

Question 9

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

Answer 9

Siebe Gorman and Co. Ltd v Barclays (1979)

seebee and gorillaman co ltd v barclays

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

Question 10

NatWest Bank v Spectrum Plus Ltd (2005)?

Answer 10

NatWest Bank v Spectrum Plus Ltd (2005):

Facts: Spectrum granted a “fixed charge” over book debts to NatWest but retained control over collecting and using the proceeds.

Issue: Was the charge fixed or floating?

Decision: The charge was a floating charge because Spectrum controlled the book debts.

Principle:
A fixed charge requires creditor control.
If the company can manage the asset, it’s a floating charge.

Relevance to Companies Act 2006:
Links to Section 859A (charge registration) and Section 859H (unregistered charges void against creditors).

natwest vs the spectrum autists

Question 11

Pender v Lushington (1877)?

Answer 11

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

Question 12

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

Answer 12

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

Question 13

Jones v Lipman (1962)?

Answer 13

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

Question 14

Hickman v Kent or RMSBA (1915)?

Answer 14

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

Question 15

Wood v Odessa Waterworks Co (1889)?

Answer 15

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

Question 16

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

Answer 16

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

Question 17

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

Answer 17

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

Question 18

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

Answer 18

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

Question 19

Rayfield v Hands (1960)?

Answer 19

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

Question 20

Freeman & Lockyer v Buckhurst Park (1964)?

Answer 20

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

Question 21

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

Answer 21

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.

Question 22

Odyssey Entertainment Ltd v Kamp (2012)?

Answer 22

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)

Kamp was camp

Question 23

Hellard and Others v Carvalho (2013)?

Answer 23

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

Question 24

Dorchester Finance Co Ltd v Stebbing (1989)?

Answer 24

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

Question 25

Brumder v Motornet Service & Repairs Ltd (2013)?

Answer 25

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

Question 26

Killen v Horseworld Ltd (2012)?

Answer 26

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

Question 27

Re Sykes (Butchers) Ltd

Answer 27

Topic: De-facto directors

A butcher is someone who manages the shop, much like a director manages a company.

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.

Question 28

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

Answer 28

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

Topic: shadow directors - “dear veil”

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

Question 29

Glossop v Glossop (1907)?

Answer 29

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

Question 30

Re Continental Assurance Co of London plc (2007)?

Answer 30

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

Question 31

Panorama Developments Ltd v Fidelis (1971)?

Answer 31

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

Question 32

Barron v Potter (1914)?

Answer 32

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

Question 33

Foss v Harbottle (1843)?

Answer 33

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

Question 34

Stainer v Lee (2010)?

Answer 34

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

Question 35

Clemens v Clemens Bros Ltd (1976)?

Answer 35

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

Question 36

CA 2006 s 393?

Answer 36

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

Question 37

Kelner v. Baxter (1866)?

Answer 37

Kelner v. Baxter (1866): A classic English case where a promoter of a company entered into a contract to buy wine before the company was legally formed. The court held the promoter personally liable because the company did not exist at the time of the contract

Question 38

Discuss the details of the following, including who is
allowed to attend, and the notice period required:
(i) Board meeting.
(ii) General meeting.
(iii) Annual general meeting (AGM)

Answer 38

1. Board Meeting
   Who can attend: Directors (others by invitation)
   Notice period: Typically 7 days
2. General Meeting
   Who can attend: Shareholders, directors, auditors (if invited)
   Notice period: Minimum 14 days
3. Annual General Meeting (AGM)
   Who can attend: Shareholders, directors, auditors
   Notice period: Minimum 21 days

Question 40

When companies need to submit their annual accounts
to Companies House?

Answer 40

Private Companies:
Deadline: 9 months after the end of the financial year.

Public Companies:
Deadline: 6 months after the end of the financial year.

Question 41

The four different “classes” (or sizes) of companies as
outlined by Part 15 of the Companies Act 2006.

Answer 41

Micro-entities

Smallest companies meeting specific criteria (e.g., turnover under £632,000, balance sheet total under £316,000, and fewer than 10 employees).
Small companies

Companies that meet two out of three criteria: turnover under £10.2 million, balance sheet total under £5.1 million, and fewer than 50 employees.
Medium-sized companies

Companies that meet two out of three criteria: turnover under £36 million, balance sheet total under £18 million, and fewer than 250 employees.
Large companies

Companies that exceed the thresholds for medium-sized companies, requiring full financial reporting and auditing.

Question 42

What type of accounts need to be filed at Companies
House, depending on the class of the company.

Answer 42

1. Micro-entities
   Accounts Required:
   Simplified accounts with fewer disclosures (balance sheet and limited notes).
   Option to file: A micro-entity can file an abbreviated balance sheet and fewer details compared to other company types.
2. Small Companies
   Accounts Required:
   Simplified version of full accounts (balance sheet, profit and loss account, and limited notes).
   Exemptions: No need for an auditor’s report if they meet the criteria for a small company.
3. Medium-sized Companies
   Accounts Required:
   Full set of accounts (balance sheet, profit and loss account, and detailed notes).
   Audit: Medium-sized companies may be required to have an audit, depending on whether they exceed certain thresholds.
4. Large Companies
   Accounts Required:
   Full set of accounts (balance sheet, profit and loss account, detailed notes, and auditor’s report).
   Audit: An audit is mandatory for large companies, and they must file detailed financial statements.

Question 43

Insolvency Act 1986)?

Answer 43

Insolvency Act 1986 - Key Points:
Corporate Insolvency Procedures:

Liquidation (Winding Up): Company’s assets are sold to pay creditors.
Administration: Aims to rescue a company or reorganize its debts.
Company Voluntary Arrangement (CVA): Agreement with creditors to avoid liquidation.
Receivership: Secured creditor appoints a receiver to recover debts.
Personal Insolvency Procedures:

Bankruptcy: Individual’s assets sold to pay creditors.
Individual Voluntary Arrangement (IVA): Payment plan to avoid bankruptcy.
Creditor Protection: Ensures creditors are paid in a defined order of priority.

Offences and Penalties: Wrongful or fraudulent trading can lead to penalties and disqualification of directors.

Priority of Claims: Secured creditors are paid first, followed by unsecured creditors.

Director Disqualification: Directors involved in misconduct can be disqualified from acting as directors.

Reforms: Amendments have been made, including updates through the Enterprise Act 2002 and Corporate Insolvency and Governance Act 2020.

Question 44

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

Answer 44

Case Study: Automatic Self-Cleansing Filter Syndicate Co Ltd v. Cunningham (1906)

Facts: In this case, the company’s shareholders sought to remove a director who was accused of misconduct and not acting in the best interests of the company. The company’s articles of association allowed for the removal of directors by an ordinary resolution (simple majority vote of shareholders).

Outcome: The court upheld the shareholders’ right to remove the director, even though the director argued that his removal was unjust. The court ruled that as long as the procedure was followed, the shareholders had the power to remove the director.

Legal Implication: This case highlights the power of shareholders to remove a director through a formal process, typically by passing an ordinary resolution at a general meeting.

the cunningham diposed of the tyrant

Question 45

Croft v Day?

Answer 45

Mr Croft owned a business that made Day & Martin boot polish

Later on, a Mr Day & Mr Martin started a business in the same profession and established the same business name as the existing company

Outcome: The court deemed that Mr Day & Mr Martin had attempted to mislead customers by passing their business off as the existing company owned by Mr Croft