The Company Chp 7-10 Flashcards

1
Q

What are the main features of a company? (six)

A
  1. Own legal personality
  2. Company, not shareholders are responsible for company’s own liabilities
  3. In Ltd Co, shareholders cannot be required to pay more money into the company, apart from un-paid amounts on their shares
  4. Perpetual succession - continues even if holders leave or die, and ends only when terminated by legal process
  5. Subject to disclosure rules
  6. Formed by legal process
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2
Q

What two cases demonstrated the full implications of a company having it’s own separate legal personality?

A

Salomon v Salomon 1897 Court permitted a one-man business to enjoy benefits of a separate legal personality, distinct from company’s owner and manager

Macaura v Northern Assurance 1925 Assets do not belong to members, insurance policies must be taken out in company name

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3
Q

What is lifting/piercing the veil?

A

Where court refuses to recognise the company and its owners as separate (separate legal personality)

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4
Q

Explain case law and decisions behind lifting the corporate veil?

A

Adams v Cape Industries 1990 clarified the circumstances in which the veil could/not be pierced (confirmed in Prest v Petrodel 2013 and VTB v Nutriek 2013)

It rejected two possible grounds:

  • “the justice of the case” - too vague
  • “single economic entity” - mere fact group companies run as one single entity (previously allowed by DHN Food v Tower Hamlets BC 1976, then doubted by Woolfson v Strathclyde RC 1978)

It CAN be pierced where company is a “façade” or sham company but ONLY where it is being used to enable the controller of the company to evade an EXISTING obligation (Gilford Motor v Horne 1933, existing non solicitation clause)

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5
Q

Which three cases set down and confirmed the circumstances in which the court would lift the veil?

A

Adams v Cape Industries 1990 clarified the circumstances in which the veil could/not be pierced (confirmed in Prest v Petrodel 2013 and VTB v Nutriek 2013)

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6
Q

When can the veil be pierced?

A

It CAN be pierced where company is a “façade” or sham company but ONLY where it is being used to enable the controller of the company to evade an EXISTING obligation (Gilford Motor v Horne 1933, existing non solicitation clause)

A company used to prevent future liabilities is not a façade

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7
Q

In which case was Adams v Cape Industries 1990 not followed?

A

Creasey v Breachwood Motors 1993 - assets from one company against which former employee was claiming unfair dismissal, were transferred to another company.

Creasey was strongly disapproved of in Ord v Belhaven Pubs 1998 which insisted that the decision in Adams should be followed in future.

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8
Q

Name the three situations having similar consequences to veil piercing

A
  1. Statutory/contractual provisions requiring a group to be treated as a single economic unit (i.e. tax statutes)
  2. Company being an agent of its shareholders - Re FG (Films) 1953 (Adams accepted this could happen but only if the owners authorise company to act as agent (unlikely))
  3. Under s214 IA 1986 directors of insolvent companies can be made to contribute to assets if guilty of wrongful trading
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9
Q

Why do claimants sometimes turn to actions in tort?

A

Due to veil piercing being difficult, some claimants turn to actions in tort, arguing directors or shareholders are personally liable.

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10
Q

When will action in tort against directors be/not be successful?

A

Williams v Natural Life 1998 - attempt to sue director in tort of negligent misstatement failed.

Director only liable for negligent misstatement if they have assumed personal responsibility (clear evidence of such) for accuracy of statement

If director sued for tort of deceit, no need to show assumed personal responsibility for truth of their statement - Standard Chartered Bank v Pakistan National Shipping Corp 2003

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11
Q

When will action in tort against shareholders be/not be successful (usually parent/sub scenarios)?

A

Chandler v Cape 2012 - action brought against parent for PI suffered by employee of sub. Succeeded.

Parent company owed its duty of care to employee of sub. But only if:

  1. Parent/sub must operate in same business (pure holding co not sufficient Thompson v Renwick 2014)
  2. Parent as knowledgeable about H&S in that industry as sub
  3. sub operations are unsafe and parent ought to/knew
  4. sub employees must rely on parent to safeguard their H&S
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12
Q

What case came after Chandler v Cape 2012 regarding shareholder tort liability?

A

AAA v Unilever 2018 - took more restrictive approach to when parent liable for injuries inflicted by subsidiary.

Parent owes duty of care to those injured by subsidiary negligence if guilty of misfeasance (making subsidiary harm someone).

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13
Q

What types of company are there?

A

Registered

  • Limited/unlimited (can change with unanimous consent of members)
  • Limited by shares or guarantee
  • Public or private (can change with special resolution). Public cannot be unlimited. £50k + share capital.

Chartered (formed by Royal Charter for non profit making bodies)

Statutory companies (formed by special act of parliament)

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14
Q

What legislation governs model articles?

A

Companies (Model Articles) Regulations 2008

Sch 1 - Private by shares

Sch 2 - Private by guarantee

Sch 3 - Public companies

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15
Q

What is a promoter?

A

One who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose - Twycross v Grant 1877

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16
Q

What are the duties of a promoter?

A

Promoters are fiduciaries.

  • They must not make a secret profit out of their position (must disclose to keep)
  • If disclosure not made, contract with company voidable - Erlanger v New Sombrero 1878
  • If company has lost the right to rescind, it can force promoter to account for profit - Gluckstein v Barnes 1900
17
Q

What are pre-incorporation contracts?

A

Contracts made by promoter on behalf of the company, but before incorporation.

18
Q

Can a promoter act as agent for the company on a pre-incorporation contract?

A

No, a promoter cannot act as agent for a company before incorporation, because the company does not exist.

Kelner v Baxter 1866

19
Q

What are the rules around pre-incorporation contracts?

A

Promoter cannot be agent as company does not exist Kelner v Baxter 1866

s51 CA 2006 - anyone who makes a contract as/on behalf of personally liable

Can be avoided by real agreement between parties to exclude personal liability Phonogram v Lane 1981

s51 also means the agent can gain rights under the contract as well as liabilities Braymist v Wise 2002

20
Q

If a person incurs personal liability as a result of s51 (pre-incorporation contracts), what might they do to escape from it?

A

Company cannot simply adopt the contract once it is formed because the other party not bound by such decision Kelner v Baxter 1866

  1. You can novate the contract
  2. Cessation of liability clause that ceases liability within a given period once the formed company offers to enter into a new contract
21
Q

Why does the problem of pre-incorporation contracts arise? What can be done to help?

A

Problem of pre-incorporation contracts arises largely because of delays in the formation of companies. The use of shelf companies can help to mitigate the risk.

22
Q

What documents must be submitted to Co House to register a company? (five)

A
  1. Application stating name, address, country and liability of members
  2. Memorandum of Association
  3. Articles of Association (unless default Model Articles)
  4. Details of first directors/co sec
  5. Statement of Capital/guarantee

If company registered but transpires for unlawful purpose, cert can be quashed - Registrar of Companies, ex parte Attorney General 1991

23
Q

How can a company change its name?

A

By special resolution or other process allowed in articles

24
Q

What are the rules around naming a company?

A
  1. Cannot be identical to one already registered
  2. Constitute criminal offence or be offensive (s53)
  3. Suggest misleading connection with local auth/suggest professional status
  4. Must end Ltd or plc (charity/non-profit exempt)
25
Q

What are the rules around publicising a business/registered name?

A

If company trades under business name diff from reg name, conditions in s41 CA 2006.

Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 - disclose at reg office, on stationery, cheques etc.

26
Q

What are the two possibilities if a company uses a name very similar to that of an existing company?

A
  1. Sue for tort of passing off if suggests carrying on another’s business Ewing v Buttercup 1917
  2. ss69-74 CA 2006 can apply to adjudicator to object to use of name (suggests connection with applicant). If adjudicator agreed, can order company to change its name MB Inspection v HI-ROPE 2010
27
Q

What does the Memorandum of Association include?

A

States that those who subscribe for first shares in the company

  • wish to form a company; and
  • agree to become members
28
Q

Will courts imply into articles other terms that would give effect to the true intentions of the parties?

A

No. The courts will not imply into the articles terms that would give effect to the true intention of the parties, if those intentions would not be obvious to a third party reading the articles

Bratton Seymour v Oxborough 1992

29
Q

What does s33 CA 2006 provide?

State two main cases

A

s33 CA 2006 provides Mem & Arts form contract between members and company (and members between themselves)

Hickman v Kent 1915 - arbitration clause enforced by company against member

Pender v Lushington 1877 - member enforced rights (to vote) against company

30
Q

In what circumstances under s33 CA 2006 can the articles be enforced by one member directly against another?

A

A quasi partnership Rayfield v Hands 1958

31
Q

Are the articles binding on an outsider under s33 CA 2006?

State case

A

No, but the provisions of the articles can be implied/express term of another contract (i.e. directors service contract)

New British Iron Co 1898

32
Q

Can members enforce articles under s33 CA 2006 which give rights to members in some other capacity, i.e. director? (“outsider rights”)

A

No, members can only enforce rights against members in their capacity as a member

Eley v Positive Government 1876

Beattie v E&F Beattie 1938

However not all cases have supported this restrictive approach

33
Q

How do you alter the articles of association?

Describe and state two cases

A

Under s21 CA 2006 articles can be changed on special resolution (75%)

Restrictions:

  • AoA can contain weighted voting provisions, giving some members enhanced voting rights
  • Under s22 CA 2006 a provision can be included to amend the articles only if conditions are met that are more restrictive than s21 (i.e. requiring 90%)
  • Power to amend must be bona fide for the benefit of company as a whole Greenhalgh v Arderne Cinemas 1950 (subjective test)
  • If shares in diff classes, alterations that are variation of member’s class rights require 75% of holders of that class
34
Q

What is the ultra vires rule?

A

A contract beyond company’s objects clause was ultra vires (beyond the powers) and was void (not capable of being ratified by the company)

Ashbury Railway v Riche 1875

Consequence did not depends on whether third party were aware of the company’s objects.

35
Q

How was the ultra vires rule relaxed? (three ways)

A

Increasingly lengthy/all inclusive objects clause Bell Houses v City Wall 1966, Cotman v Brougham 1918

Where directors exercise a power the company has but for improper purpose, does not constitute ultra vires - Rolled Steel v British Steel 1985

s39 CA 2006 a company nor third party can avoid liability on grounds that company has acted beyond its objects

36
Q

Why did s39 not abolish the ultra vires rules? What two internal consequences would still arise for companies going beyond their objects?

A
  1. Directors who made company act beyond would still be in breach of their duties to the company s171 CA 2006
  2. Shareholders may bring proceedings to prevent act that has not yet occurred s40 CA 2006
37
Q

What change regarding objects clauses was made under CA 2006?

A

s31 CA 2006, companies are no longer required to have an objects clause (deemed unlimited unless expressly imposes limit)

COMPANIES INCORPORATED FROM 1 OCT 2009