Company Law Flashcards
Percival v Wright 1902 establishes ?
Directors in fiduciary relationship with company so owe duties to the company
What is the duty of section 171?
Directors have a duty to act within powers
What is the duty of section 172?
Duty to promote the success of the company
Duty of section 171 means that you must act in accordance with the constitution and ?
Only exercise powers for the proper purpose for which they are Conferred
What happened in Hogg v Cramphorn 1967 and what directors duty failed?
Shares were issued not to raise capital but to stop takeover - failure of directors duty to act within powers
What is lord Wilberforce 2 step process for deciphering what is a proper purpose ?
- what is the power in question , on a fair view , and what is its nature and limits within which it may be exercised
- Is the substantial purpose is the power used for purposes which they were conferred or granted
Steps to decipher what the substantial purpose of the conduct is and whether it is for a proper purpose ? [ Hogg v cramphorn]
- identify the power in question
- Identify the proper purpose for which that power was given to directors (whether it is proper is discerned from articles)
- Identify the substantial purpose for which the power was in fact exercised and
- Decide whether that purpose was proper
Is section 172 easy or difficult to breach and why?
Section 172 is difficult to breach because in principle aslong as director acted in good faith will not be subject to judicial scrutiny
Regentcrest ltd v cohen 2001 says the question is what about directors in relation to section 172?
Question is whether the director honestly believed that his act or omission was in the interest of the company. The issue is as to the directors state of mind.
Although this test is subjective there is an allowance for the court to import some level of reasonableness in that the honest belief must be shown to be credible
Chatterbridge corp ltd v Lloyds bank ltd 1970 reasonableness test ?
Whether an intelligent and honest man in the position of the director of the company concerned, could in the whole of the existing circumstances have reasonably believed that the transactions were for the benefit of the company
Antuzis v dj houghton catching services ltd 2019 judgment said?
Cannot mistreat workers to maximise profits otherwise could do anything.
Conflicting duties in r on the application of people and planet v hm treasury 2009 ?
Main duty is success of company so environmental issues lost as would have detrimental effect on profits
What is the duty in section 173?
Duty to exercise independent judgement
Boulting v association of cinematograph television and Allied technicians 1963 established that you cannot what in relation to section 173 ?
Cannot agree to carry out duties in accordance with the instructions of another or subordinate the interests of those he should protect to the interests of someone else
Fulham football club v cabra estates 1994 facts
Fulham signed agreement with landlord of club premises in that Fulham would support Cabra development plans as Cabra paying and Fulham would not support local authority
Fulham directors then changed mind and decided to support local authorities under section 173
Fulham football club v Cabra estates 1994 judgment
Directors can still bind themselves to future exercise of their powers if contract is for benefit of company otherwise companies could be prevented from entering into commercially beneficial Contracts
Does section 173 prevent directors seeking advice and acting on it ?
No aslong as not treated as instruction
Duty in section 174?
Duty to exercise reasonable care, skill and diligence
Does section 174 require high or low standard of care from directors?
Low
Does Re Cardiff Savings bank, Marquis of Butler 1892 mean high or low standard of care required from directors and why ?
Low as director appointed at 6 months old and only attended 1 meeting in 39 years… bank went bust but directors held not responsible
Does Re Forest of Dean Coal mining Co 1878 mean high or low standard of care required from director and why?
Low as directors were not expected to put Same attention as managing partners - only attend meetings
Section 174 (2) states that a directors actions will be measured against?
The conduct expected from a reasonably diligent person and subjective consideration in relation to special skills will apply
Section 174 director comparison against the reasonable diligent person comes from what case and judge?
Lord Hoffman in Norman v Theodore Goddard 1991
Re Djan of London ltd 1994 case summary and judgment
Director negligent in signing proposal form for fire insurance which led to insurance being void - he signed without reading which was deemed to be a breach of care
What is the duty in section 175?
Duty to avoid conflicts of interest
Bray v Ford famous for ?
Person in Fiduciary position is not allowed to make profit or put himself in a position where his interest and duty Conflict
Boulting 1963 says what about conflict of interest
Must be a realistically sensible possibility of conflict
Bhullar v bhullar 2003 confirms that ?
Director owes duty to avoid conflict of interest , including through the exploitation of corporate opportunity
Bought adjacent car park privately without disclosing to company and should have as company would have been interested potentially
What is the duty in section 177?
Director must declare interest in a proposed transaction with the company
What is the duty in section 182 ?
Director must declare interest in existing transaction with the company
Do directors need to obtain approval to pursue an interest which may conflict with their duty to avoid conflict of interest ?
Yes
What must director do to avoid breach of section 177 and 182?
Director must declare nature and extent of Interest to other directors- unlike in section 175 They do not need to obtain approval
Remedy for section 177?
Transaction or arrangement is voidable of the companies instance - Hutchinson v brayhead ltd 1968
Remedy for section 182 ?
Criminal liability not fiduciary duty
What is the duty in Section 176?
Duty not to accept benefits from third parties , benefit received must give rise to conflict of interest - if amounts to a bribe then use bribery act 2010
Shareholder remedy problem
Parties who have caused the loss are the ones who have the ability to seek redress through the company so minority shareholders who sustain loss due to wrongdoers could be left without remedy if no law
What are the statutory remedies
Unfair prejudice petition and petition to wind up company and breach of contract claims and derivative claim
What is a derivative claim
Wrong done to the company
Foss v harbottle 1843 rules
Conduct complained of was a wrong done to the company so only the company old sue
Proper claimant principle
Majority - internal management rule
What was the exception to the rule in foss v harbottle ?
Common law derivative which is now superseded by codification
Criticisms of common law derivative action ?
Courts reluctance to derivative action
1998 law commission report emphasised need for reform to make more flexible and create a criteria to determine if member could Pursue derivative action
Who sues for statutory derivative action
Member sues on behalf of company
Statutory derivative Action replaces replaces common law rules in foss v harbottle
What are the share holder remedies
Derivative action
Unfair prejudice
Just and equitable winding up
What is the requirements for u fair prejudice claim
Conduct of company affairs
Unfair prejudice
To members interests
Conduct of company affairs in an unfair prejudice claim is …. And relates to
Highly fact specific - graham v every 2015
Proposed acts - re Kenyon Swansea group 1987
Subsidiaries - re city branch group ltd 2004
Exclusions of conduct of company affairs in unfair prejudice claim
Re Leeds United holdings plc 1996 - disagreements between shareholders in relation to share disposals
Re Ubisoft group ltd 1993- excludes conduct of shareholders in private capacity
Re a noble and sons ltd 1983
No need to show controllers have acted deliberately in bad faith or with conscious intent to treat one unfairly
Conduct for unfair prejudice must be both unfair and prejudicial — cases are ?
Rock ltd v rco holdings plc 2004
Re metropolis motorcycles ltd 2006
BTI v Sequana 2022
About whether creditors should be considered
Lord reed confirms that section 172 evidences shareholder primacy
Duty owed to company but shareholders are the intended beneficiaries of that duty because it says for the benefit of the members as a whole
Creasy v breachwood motors ltd 1992 facts and judgment
Welwyn dismissed the claimant from general manager role
C claimed wrongful dismissal
Welwyn seized trading and transferred all assets to breachwood motors
Default judgment obtained against Welwyn but no assets
Lifted the veil - in interest of justice
Ord v belhaven pubs 1998
Said creasy not authoritative
Mr and mrs ord ran fox inn
Dispute with freehold owner, belhaven pubs for misrepresenting about profitability of pub
Belhaven had no assets as part of group
Asset stripping took place before so not lift veil
Re djan of london means must take into account the …
The general knowledge skill and experience that is expected of a person carrying out the functions of the director
And the general knowledge skill and experience that the director actually has
O’Donnell v shanahan 2009 conflict case
Co directors had acquired for another company of which they were sole directors a property that might have been bought by the company
Directors should have disclosed
Undivided loyalty required
Franbar holdings case
If you can Persue another claim ie 994 u fair prejudice then 260 derivative will be thrown out
Quasi partnership means legitimate …
Expectation to be on board of directors therefore grounds for unfair prejudice claim
Mukwiri, myth of shareholder primacy in English law
Difficult to defend shareholder primacy in legal system that doesn’t recognise as owners
Uses Lele and siems study - uk corporate governance neither clearly shareholder orientated nor stakeholder orientated
Study raised doubts to validity of shareholder primacy in other countries too or US Germany France
Shareholder primacy os theory not practice
172 does not intent shareholder primacy - inclusion of benefit for members as a whole is to aid assessment of duty to promote success of company
Also too differentiate between company and shareholders thus entity principle
Talbot , trying to save the world
Law does not provide social alternative to market that many company lawyers hope it might
Law insists on shareholder primacy evident in 172
Shareholder value is intrinsically bound up with profits
Would not be better if managers do not promote shareholder primacy by ignoring the shareholders therefore a stakeholder approach
Directors engage in profit making strategy because they are best to deliver shareholder value
O’Neil v Philips u fair prejudice case
Legitimate expectations take hold if
1) an association formed or continued on the basis of a personal relationship involving mutual confidence
2) an understanding that all or some shareholders shall participate in the conduct of the business ; and
3) restrictions on the transfer of shares, do that a member cannot take out his stake and go elsewhere
Stout , bad and not so bad arguments for shareholder primacy
Plus stout team production against James trains
Stout says Agency cost is best argument for shareholder primacy ie shareholder can monitor directors through share price etc
Criticises Friedman by saying obviously not lawyer as shareholders do not own company
Shareholders not residual claimants as directors decide Whne to dish out dividends etc
Team production against James train where factories will be closed down if sell to highest bidder and employees laid off … or sell for lower who will keep employees and factories
Paddy Ireland , limited liability, shareholder rights and the problem of corporate irresponsibility
Law treats separate legal personality very seriously in some contexts ie shareholder liabilities , whilst ignoring it in others ie shareholder control rights , shareholder primacy
The result is shareholders paradise
Interprets 172 best interests of the company to mean best interests of shareholders
Corporate managers today are much more accountable than they were to shareholders reflecting relentless pursuit of shareholder value
Prest v petrodel 2013
Used trusts instead of lifting veil
Properties belonged to husbands companies
Also limits veil lifting to sham/ facade ie deliberately avoiding outstanding liability
Or fraud
Friedman the social responsibility of business is to increase its profits
AAS v Benham 1991
Scope of business test
Jones v lipman 1962 sham
Sold house but before transfer … set up company and made himself director … transferred property to company and said spectate
Re fg films ltd 1953
Agency
Company set up simply to enable the film made by American company to qualify as bristish film
Re a company 1985
Interests of justice for veil piercing
Chandler v cape 2012
Parent company owes duty of care to subsidiary
Reisberg, the uk stewardship code on a road to nowhere
Not success because
1) FCR characterised as engagement deficit … not made impact on attitude of companies
2) number of signatories not evidence of compliance - fear of alternative ie regulation approach such as eu proposals to regulate shareholder engagement
3) compliance also maybe based on loooing good to avoid cristicim
4)
2012 and 2020 steward ship codes soft law
