Company Law

Question 1

Features of a company

Answer 1

-seperate legal personality
-limited liab
-perpetual succession
-common seal
-contractual capacity
-ownership of assets
-borrowings
-suing + being sued
-transferable shares
-tax treatment
-financing options

Question 2

Perpetual concession

Answer 2

-member + directors come and go, but company remains unaffected

Question 3

Common seal

Answer 3

Like a stamp used to authenticate legal documents

Question 4

Contractual capacity

Answer 4

Company (coz its separate legal person) can enter into binding contracts with ppl inside + outside company

Question 5

PLC features

Answer 5

Req min 50k
At least 2 directors + secretary
Listed on a stock exchange (trades shares publicly)
Needs PLC on end of name
Heavily regulated
Limited by shares or guarantee

Question 6

LTD features

Answer 6

Can’t trade shares publicly
Limited by shares or guarantee (no shares, members act as guarantor)
Limited liab usually
At least 1 Director
Must have LTD on end of name
Less regulated than PLC
No min capital req

Question 7

Ashbury Railway v Riche

Answer 7

Established ultra vires principle
Contractual capacity
Limits company’s powers to what’s stated in Memorandum of Association (MOA)

Question 8

Macaura v Northern Assurance

Answer 8

Separate legal entity principle
Ownership of assets
Timber was owned by company not member so insurance Co wouldn’t pay out

Question 9

R v Registrar of Companies

Answer 9

Principle that once certificate of incorporation is issues , challenges to registration due to public policy issues are limited.
Basically this brothel company kept naming company with offensive words

Question 10

Perry v Truefitt

Answer 10

Principle that a man is not to sell his goods under pretence that they are goods of another man (opportunistic registration - tort of passing off/misleading)

Question 11

Regulations prohibit which words w/o permission in names of companies

Answer 11

-University
-police
-British
-midwife
-charity

Question 12

What does certificate of incorporation state

Answer 12

-name of company
-registration number
-date of incorporation
-limited or unlimited + by shares or guarantee
-PLC OR LTD
-where co’s registered office is

Question 13

Main source of legislation for companies

Answer 13

Companies Act 2006

Question 14

Articles of association

Answer 14

Basically a companies rule book for internal operations- outlining how it’ll be run (agreed by directors/shareholders/secretary/guarantor
It’s a legal document published on companies house

Question 15

Who is bound to who in a company (binding power of the constitution)

Answer 15

Shareholders bound to company
Company bound to shareholders, in respect of their rights
Shareholders bound individually to each other

Question 16

Hickman v Kent

Answer 16

Established principle that AOA bind company and its members to the provisions within

Question 17

Alteration of articles

Answer 17

Amendment by special resolution (must be passed by 75%+ at GM)

Question 18

Types of shares

Answer 18

-ordinary shares
-preference shares
-redeemable shares

Question 19

What are debentures and who is paid our first in liquidation, shareholders or debentures

Answer 19

Debentures = debt financing , written document sets out terms
They are paid out before shareholders during liquidation

Question 20

Are directors defined by CA 2006 ?

Answer 20

No, but it does state ‘de jure’ (in law) and ‘de facto’ (in fact) relating to those validly appointed + those who act in way that implies they’re a director

Question 21

Shadow director

Answer 21

Not formally appointed (so not on companies house)but they exert significant control over

Question 22

Executive director

Answer 22

Involved in day to day management

Question 23

Non-executive Director

Answer 23

Mostly an outsider , not involved in day to day operations. But provide an insight/advice ensuring stakeholders best interest

Question 24

Nominee director

Answer 24

‘De jure’ director , appointed by a main shareholder
Act in shareholders best interest
May delegate powers to other managers

Question 25

Process of appointment of directors

Answer 25

1)First directors appointed at registration 2)Additional directors appointed per AOA or by ordinary resolution 3)For PLCs ,Board appointments new directors until next AGM

Question 26

Removal/retirement of directors process

Answer 26

1)Retirement as per AOA, non-executive directors retire every 3 years 2)Or they can be removed before expiration of his period thru ordinary resolution (special notice req - 28 days before GM)

Question 27

Bushell v Faith

Answer 27

Weighted voting rights can protect directors In this case Director had provision in AOA granting his shares triple voting power

Question 28

7 duties of a director + name sections of legislation

Answer 28

CA 2006 s171: a duty to act within powers (abide by AOA,special resolution + other company agreements) s172: a duty to promote success of company (act in good faith + consider long term consequences of decisions n how they affect shareholders + stakeholders) s173: a duty to exercise independent judgement (making their own decisions as opposed to following third party advice or delegating roles unnecessarily against rules in AOA) s174: a duty to exercise reasonable skill,care + diligence (based on the standard of a reasonably diligent person) s175: a duty to avoid conflicts of interest (it’s not a breach if it’s declared + approved by board) s176: a duty not to accept benefits from a 3rd party (not breached if it won’t have negative effect, I.e conflict of interest) s177: a duty to declare interest in transactions or arrangements (must declare nature + extent of interest to other directors)

Question 29

Eclairs Group Ltd v JKX

Answer 29

‘A duty to act within powers’ Established proper purpose rule Directors weren’t satisfied with EG (shareholder) coz didn’t have co’s best interests at heart, so JKX prevented EG from voting at AGM. EG sued for improper purpose , so court ruled disenfranchisement of EG was invalid

Question 30

Mutual life insurance v rank organisation

Answer 30

A duty to promote success of company Directors didn’t breach this duty when they excluded American + Canadian shareholders from new rights issue, RO expect equal proportion for all shareholders constantly

Question 31

Re Barings PLC

Answer 31

A duty to exercise reasonable skill,care + diligence Gov tried to get 3 directors disqualified under Directors Disqualification Act 1986, allegedly they were so incompetent to be concerned with co management. Court ruled they should be disqualified

Question 32

Bhullar v Bhullar

Answer 32

A duty to avoid conflicts of interest Established corporate opportunity doctrine - prevents directors from taking business opportunities for this own personal benefit 2 brothers were directors of company + had a falling out. Brother set up new company n bought car park next to shop w/o telling brother. Court ruled conflict of interest as it should’ve been disclosed

Question 33

Corporate opportunity doctrine

Answer 33

Legal principle prohibiting directors from diverting potential business opportunities to himself Court considers 4 factors: -if opportunities in same line of business as corporation -if corporation has interest in opportunity -if taking opportunity would create conflict of interest/breach directors duties -if corporation can financially afford opportunity

Question 34

Consequences of breaches of duties

Answer 34

-repay losses -surrender secret profits -voidable contracts -property unlawfully taken returned to innocent 3rd party -injunctions to ongoing breaches -if more than 1 Director breaches, liab is joint n several

Question 35

Grounds + penalties for disqualification of directors

Answer 35

Company’s Director Disqualification Act 1986 Grounds: general misconduct, unfit behaviour, fraudulent trading Penalties: 2 to 15 years disqualification

Question 36

What is liquidation?

Answer 36

The final step before dissolution Assets r sold, liab paid + surplus goes to entitled persons

Question 37

What’s the legislation associated with liquidation

Answer 37

Insolvency Act 1986 and Insolvency Rules 2016

Question 38

Compulsory winding up, who can petition + grounds? What can court do?

Answer 38

‘Locus standi’ - court ordered winding up , court appointed liquidator Who can petition: -company itself -directors -creditors -contributors (inc members) Grounds: -special resolution -inactivity for a year -no trading certificate -inability to pay debts -court thinks it’s ’just + equitable’ Court can: -deny/allow application upon discretion -call meeting with creditors/persons liable to contribute to assets when company wound up -creditors might contradict each other

Question 39

Voluntary winding up, what is is and what are 2 types?

Answer 39

Directors make a declaration of solvency (states directors made full enquiry into company’s affairs + formed opinion that it can pay debts in full, not exceeding 12 months from winding up date) 2 types: members voluntary liquidation + creditors voluntary liquidation

Question 40

Members voluntary liquidation

Answer 40

For solvent companies Part of company restructuring Creditors likely paid in full

Question 41

Creditors voluntary liquidation

Answer 41

-for insolvent companies -can be done by shareholders -must pass special resolution station co can’t continue coz of liab -once passed co must cease trade + call creditor meeting within 2 weeks -creditors decide who to appoint as liquidator

Question 42

What is a liquidator

Answer 42

Sells assets , collects + settles debts They can apply for court order to req directors to make contribution if there’s been wrongful/fraudulent trading Part of their job is to investigate internal operations and reason for financial failure, particularly conduct of directors

Question 43

Distribution of assets in liquidation process?

Answer 43

1) fixed charge holders (creditors who have priority over certain assets) 2)liquidation expenses 3)preferential debts 4)floating charge holders (creditors who can claim assets as a security measure till debts r paid off) 5)unsecured creditors (creditors w/o specific claims over assets to secure their debt) 6)members (owners or shareholders)

Question 44

Fraudulent trading

Answer 44

-Trading with intent to defraud creditors of company or any other person - hard for liquidator to prove beyond reasonable doubt so wrongful trading was introduced -Fraudulent trading is a criminal offence under CA and a civil offence under IA 1986 -Convicted ppl liable to fine/imprisonment up to 10 years -Convicted directors liable to up to 15years disqualification under CDDA 1986

Question 45

R v Grantham

Answer 45

Established fraudulent trading req intent to defraud (actual dishonesty and moral blame)

Question 46

Wrongful trading

Answer 46

-Director knew/ought to have knew that company could go into liquidation and failed to minimise potential loss to company’s creditors -found guilty if liquidator can prove Director knew it might’ve gone into liquidation n didn’t take reasonable steps to minimise potential loss to creditors -court can order directors to contribute to assets if found liable (for benefit of unsecured creditors) -court can also disqualify directors under CDDA 1986 up to 15 years

Question 47

Re produce marketing consortium

Answer 47

Wrongful trading Fruits import case