Legislation & Case Law

Question 1

What is the key insolvency legislation?

Answer 1

Insolvency Act 1986

Question 2

What malpractice is there before or during liquidation?

Answer 2

According to the Insolvency Act 1986:

• 206: fraud in anticipation of winding-up
• 207: transactions in fraud of creditors
• 208: misconduct in course of winding-up
• 209: falsification of company books
• 210: material omissions from statements relating to company affairs
• 211: false reporting to auditors

Question 3

When can a floating charge be invalidated?

Answer 3

Under Insolvency At 1986 s. 245(3), floating charge can be invalidated when:

(a)in the case of a charge which is created in favour of a person who is connected with the company, at a time in the period of 2 years ending with the onset of insolvency,

(b)in the case of a charge which is created in favour of any other person, at a time in the period of 12 months ending with the onset of insolvency

Question 4

Re Oceanrose Investments Ltd [2008]

Answer 4

Unanimous assent cannot apply where statute requires a decision to be taken at a meeting.

Question 5

EIC Services Ltd v. Phipps [2003]

Answer 5

Only unanimous assents where (i) members had appropriate knowledge of the matter in question; (ii) they gave their actual consent

Question 6

Secretary of State for Business, Innovation and Skills v Doffman [2010]

Answer 6

Unanimous consent cannot be used where the decision could not have been made via a resolutions (e.g. unlawful dividend)

Question 7

What legislation covers Persons of Significant Control?

Answer 7

Companies Act 2006 Schedule 1A, Part 1 states that a PSC:

• has 25% shares
• has 25% voting rights
• right to appoint or remove majority of Directors
• right to, or actually exercises, significant control over the company
• he trustees of a trust or the members of a firm that, under the law by which it is governed, is not a legal person meet any of the other specified conditions (in their capacity as such) in relation to company Y, or would do so if they were individuals, and (b) X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.

Question 8

Companies Act 2006 s. 177

Answer 8

Duty to declare interest in proposed transaction or arrangement

Civil consequences

Before entered into

Question 9

Companies Act 2006 s. 182

Answer 9

Declaration of interest in existing transaction or arrangement

Criminal consequences

ASAP

Question 10

Companies Act 2006 s. 336

Answer 10

Public companies and traded companies: annual general meeting

Question 11

Contracts (Rights of Third Parties) Act 1999

Answer 11

s.1(1) when applied, standard contract can be enforced by third parties (if purports to confer benefit)

Question 12

Trevor v Whitworth 1887 12 App Cas 405

Answer 12

Company cannot be a member of itself

Question 13

What is the legislation on LLPs?

Answer 13

Limited Liability Partnership Act 2000

Question 14

What is the legislation on Partnerships?

Answer 14

Partnerships Act 1890

Question 15

What is the legislation on Limited Partnerships?

Answer 15

Limited Partnership Act 1807

Question 16

What is the significance of Companies Act 2006 s. 33(1)?

Answer 16

Covers effect of the company’s constitution (i.e. statutory contract)

Question 17

Mutual Life Insurance Company of New York v Rank Organisation Ltd [1985]

Answer 17

There is no breach of s. 172 if favouring of company over the members.

NB - there is no authority of Directors favouring company over all of its members

Question 18

Re Yorkshire Woolcombers Association Ltd [1904]

Answer 18

Characteristics of a floating charge:

• the charge is taken over a class of assets present or future (in practice, it is common for a floating charge to be
  taken over all the assets and business of the company);
• that class of assets is one which, in the ordinary course of the company’s business, would be changing from time to
  time (e.g. stock in trade); and
• until some future step is taken by the chargeholder, the company is free to use the charged assets

Question 19

How long must records be kept?

Answer 19

Companies Act 2006 s. 355(2) - specified records for 10 years

Question 20

What governs inspection of records?

Answer 20

Companies Act 2006 s. 358(3) indicates that members can inspect records free of charge

Question 21

What is significance of Companies Act 2006 ss. 355(1) and 357

Answer 21

Decisions taken by sole member

Question 22

What governs disqualification of DIrectors?

Answer 22

Company Directors Disqualification Act 1986

Question 23

What is the consequence of Cane v Jones [1980]?

Answer 23

Company may change its articles if all the members so agree. (In addition to special resolution).

Question 24

What is the consequence of Pender v. Lushington [1877]?

Answer 24

Company and members have a personal right to sue a wrongdoer.

Question 25

What is the significance of Regentcrest plc v Cohen [2001]?

Answer 25

S. 172 is a question of whether the Director honestly believed they acted within the interests of the company.

Question 26

What is the significance of Cooks v Deeks?

Answer 26

When acting the capacity of a Director, any opportunity from dealings belongs to the company, rather than to the individual.

Question 27

What is the significance of Maheson?

Answer 27

In the case of a s. 176 breach - recovery is possible

Question 28

What is the significance of Boston Deep Sea Fishing Co. v Ansell?

Answer 28

In the case of a s. 176 breach - dismissal.

Question 29

What is the significance of Dorchester Finance Co. v Stebbing?

Answer 29

Failure to attend meetings means you fall short of s. 174(2).

Question 30

What is the significance of Re Greenhalgh v Arderne Cinemas.

Answer 30

If a proposed amendment to AoA has a neutral effect on the company, there is a focus on its effects on the members

Question 31

What is the significance of Shuttleworth v Cox Brothers & Co (Maidenhead)?

Answer 31

An amendment to AoA is valid if the members believe it will bring benefit to the company, even if the court disagrees.

Question 32

What is the significance of Allen v Gold Reefs of West Africa Ltd?

Answer 32

Power to alter articles must be exercised “bona fide for the benefit of the company as a whole”.

Question 33

What is the significance of Sidebottom v Kershaw Leese & Co Ltd?

Answer 33

Facts
The company’s articles of association were changed to allow for the compulsory purchase of shares of any shareholder who was competing with the company. One shareholder was competing with the company and challenged the alteration. He argued that a previous case, Brown v British Abrasive Wheel Co[1] where a change for compulsory share purchase was held invalid as not being bona fide for the benefit of the company as a whole, should be applied here too.

Judgment
The Court of Appeal held that the article alteration was clearly valid, and very much for the benefit of the company. The court made clear that in Brown v British Abrasive Wheel Co[2] Ashbury J had been wrong to regard good faith alterations and the company’s benefit as two separate ideas. The important question was whether the alteration for the benefit of the company as a whole.

Question 34

What is the significance of Dafen Tinplate Co. Ltd v Llanelly Steel Co.?

Answer 34

Where the provision of a proposed article change is too wide, it is invalid (too much power to the majority)?

Question 35

What is the significance of Bushell v Faith?

Answer 35

Bushell v Faith is authority for the proposition that weighted voting clauses are
enforceable