Sealy's Cases and Materials in Company Law

Transcription

1 Sealy's Cases and Materials in Company Law Professor Emeritus of Corporate Law of Cambridge and Solicitor (New Zealand) Worthington QC (he), FBA essor ef taw ik School 01 Economics and Political Science i M ^ W 3/ 4 South Square, Gray's Inn

2 Contents List of abbreviations Table of statutes Table of secondary legislation Table of cases Table of origins and destinations for CA 1985 and CA 2006 provisions xvii xix xxxi xxxiii lv 1 THE COMPANY AND ITS INCORPORATION 1 Introduction 1 Companies in action: special attributes and key parties 1 Sources of company law 3 UK Companies Acts 4 Case law 6 European law 7 Human rights legislation 15 Self-regulation 16 The process of company law reform 16 The purpose of company law: enabling or regulatory? 19 Classification of companies 19 Limited and unlimited companies: CA 2006 s 3 20 Companies limited by shares and companies limited by guarantee 20 Public and private companies: CA 2006 s 4 20 Change of company status 21 Charitable and community interest companies 21 European public limited-liability companies (SEs) 21 Classifications based on size 21 Companies and partnerships 22 Incorporation, registration and the role of the registrar 22 Incorporation 22 Memorandum of association 23 Constitutional documents: articles of association and the company's objects Company names 25 The registrar's decision to register 25 2 CORPORATE PERSONALITY AND LIMITED LIABILITY 32 General issues 32 The company as a separate legal person 40 Limited liability of members and 'lifting the corporate veil' 52 The meaning of 'lifting the corporate veil' 53 The process of 'lifting the corporate veil' 53 Statutory lifting of the corporate veil 55 A note of caution 55 Limits to the idea of a company as a 'person'? 73 Particular illustrations of a company's separate personality 75

3 x Contents 3 CORPORATE ACTIVITY AND LEGAL LIABILITY 77 Introduction 77 Rules of attribution: how does a company act? 77 Contractual liability: general issues 78 Corporate capacity 78 Authority of the company's agents 79 Binding contracts between the company and third parties 80 Capacity: what is a company legally entitled to do? 80 The company's statement of objects: current position 82 Interpreting objects clauses and denning corporate capacity 85 Protecting third parties (outsiders) against the consequences of limitations on corporate capacity 98 Agency and authority in corporate contracting 100 Actual and ostensible or apparent authority of corporate agents 100 CA 2006 s 40: statutory deeming provisions to avoid constitutional limitations on directors' authority 113 The 'indoor management rule' 116 The interaction between the indoor management rule and agency rules 121 Constructive notice and its abolition 122 Summary of agency principles 124 An amendment of the company's articles will not excuse a breach of contract Contracts and the execution of documents 127 Pre-incorporation contracts 128 Corporate gifts 135 Tort liability 137 Criminal liability 145 Mental state, mens rea and criminal liability 147 What does a company know? 157 Application of knowledge attribution rules 163 Litigation: procedural issues SHAREHOLDERS AS AN ORGAN OF THE COMPANY 177 General issues 177 Dividing corporate power between members and directors 178 Orthodox constitutional division of powers 180 Articles and the rules governing their interpretation 181 Practical consequences of the constitutional allocation of powers 184 Formal decision-making by members 191 General issues 191 Voting majorities: ordinary and special resolutions 191 Who can propose a written resolution? 193 What are the essentials of a 'meeting'? 193 The role of the chairman 196 Who can call a meeting? 198 What sort of notice must be given if a meeting is proposed? 201 Who can propose a resolution (or circulate a statement) at a meeting? 201 Are members' meetings compulsory? 202 How must meetings be conducted? 202 'Voice' in decision-making 203 Reform of the law relating to general meetings 204

4 Contents xi Informal decision-making the 'Duomatic' principle 205 Limitations on the free exercise of members' voting rights 212 General issues 212 Alteration of the articles 217 Variation of class rights 235 Members' decisions concerning directors' breaches 235 Summary of limitations on members' voting 242 Shareholders' agreements 243 Members' personal rights THE BOARD OF DIRECTORS AS AN ORGAN OF THE COMPANY 260 General issues 260 Corporate governance and the UK Corporate Governance Code for listed companies 261 Regulation of listed companies by the UK Corporate Governance Code 262 Appointment of directors 264 Eligibility for appointment as a director 267 Defective appointments and the validity of acts of directors: CA 2006 s Publicity and the appointment of directors: CA 2006 ss 162 and Directors' service contracts 268 Remuneration of directors 269 Acting as a board of directors: meetings and decisions 275 Removal of directors 276 Removal by the members 276 Dismissal by the board 279 Directors acting after their office is vacated 279 Rights of directors on termination of appointment 279 Compensation claims for loss of office 279 Other payments for loss of office 285 Directors' disqualification DIRECTORS' DUTIES General issues ^99 Additional rules 30 Directors' duties are owed to the company 301 Directors' duties are rarely owed to individuals within or associated with the company 303 Directors' "duties' to creditors 307 Directors' 'duties' to employees 309 Scope and nature of directors' general duties: CA 2006 s Duty to act within powers: CA 2006 s Failure to act in accordance with the company's 'constitution' 311 Failure to act for proper purposes 3 *' Duty to promote the success of the company: CA 2006 s The crucial elements of s The duty to act in good faith for the success of the company 322 Duty to exercise independent judgement: CA 2006 s Duty to exercise reasonable care, skill and diligence: CA 2006 s The old subjective test "

5 xii Contents The subjective/objective test 334 Problems in bringing successful claims based on care, skill and diligence 337 Duty to avoid conflicts of interest: CA 2006 s Statutory changes to the equitable rules 339 Conflicts of interest and 'corporate opportunities' 340 Prior authorisation by the directors will excuse a potential breach 341 Ratification of breaches of duty 341 Conflicts of duty and duty 341 Illustrations of the rules 342 Which corporate opportunities are caught by the no conflict rule? 349 Resigning to take up a corporate opportunity 364 Conflicts of duty and duty: competing directorships 382 Duty not to accept benefits from third parties: CA 2006 s Duty to declare an interest in a proposed or existing transaction or arrangement: CA 2006 ss 177 and Remedies for breach of general duties: CA 2006 s General issues 390 Further issues on remedies 406 Relief from liability 406 Consent, approval or authorisation by members: CA 2006 s Ratification of acts of directors: CA 2006 s Relief from liability granted by the court: CA 2006 s Contracting out of liability: CA 2006 ss Special rules on notice requirements and members' approval for certain transactions: CA 2006 ss Declarations of interest in existing transactions or arrangements: ss Transactions with directors requiring the approval of members 414 Remedies: indemnities 415 Shadow directors, de facto directors and 'connected persons': CA 2006 ss Secondary liability (liability of third parties associated with directors' wrongs) COMPANY AUDITORS AND PROMOTERS 432 Introduction 432 Auditors and their relationship with the company 432 General policy and regulatory issues 432 Auditors' liability 434 Promoters and their dealings with the company THE RAISING OF CAPITAL 456 Company 'capital' and its importance 456 Attracting and protecting shareholders and creditors 457 Terminology associated with legal capital 458 The legal nature of shares 461 Minimum capital requirements for company formation 463 Limiting access to shares: directors' allotment rights and shareholders' pre-emption rights 463 Allotment 463 Pre-emption rights 464 Offers to purchase shares and remedies for misleading offers 464

6 Contents xiii Misrepresentation 465 Loss of the remedy of rescission 467 Availability of the remedy of damages 468 Collecting in the company's capital: payment for shares 469 Issue of shares at a discount 469 Issue of shares at a premium 472 Issue of shares in exchange for property DISTRIBUTIONS AND CAPITAL MAINTENANCE 478 Controls over a company's distribution of capital 478 Permitted reductions of capital 479 Analogous transactions 486 Redemptions and repurchases of shares 486 General exceptions to the prohibition in CA 2006 s Redeemable shares 488 Repurchase of shares 488 Protection of shareholders 489 Financial assistance by a company for the acquisition of its own shares 490 The meaning of 'financial assistance" 492 Exceptions to the statutory prohibition 498 Consequences when a transaction breaches the prohibition 501 Dividend distributions 506 Permitted distributions 506 Requirement to pay dividends 508 Payment of a dividend 508 Distributions in kind 509 Consequences of an unauthorised distribution 509 Disguised returns of capital SHARES 518 The nature and classification of shares 518 Classes of shares and class rights 518 Variation of class rights 525 Statutory requirements 52S Additional common law requirements 525 Meaning of 'class right' 526 Defining a 'variation' of class rights 526 Right of dissenting member to object to court 526 Transfer of shares Share certificates, uncertificated shares and dematerialised securities 533 Transfer of certificated securities 534 Transfer of uncertificated shares 534 Restrictions on transfer: directors' approval and pre-emption rights 535 Forged and fraudulent transfers 537 Competing claims to shares 545 Disclosure of substantial interests in shares 549 Valuation of shares -"49 11 BORROWING, DEBENTURES AND CHARGES 553 General issues 553

7 xiv Contents Debentures 555 Secured debt: mortgages, fixed and floating charges 557 Mortgages 557 Charges 557 Debenture holders' remedies and the protection afforded by charges 559 Different protections afforded to fixed and floating charge holders 559 Requirement to register charges 560 Statutory requirements 560 Certificate of registration 560 Effect of failure to register 561 Extension of the registration period and rectification of the register 561 Registration, priority and constructive notice of registered charges 561 Company's own register of charges 562 Reform of the registration system 562 Fixed and floating charges: definitions 563 Floating charges: creation and effect 566 Creation of floating charges and impact of failure to register 566 Limitations on the assets which may be made subject to a floating charge 568 Dealings with assets subject to a floating charge 570 Crystallisation of floating charges 572 Treatment of floating charges on the company's liquidation 577 Distinguishing between fixed and floating charges 581 Avoiding the statutory regime for company securities 590 Retention of title agreements REMEDIES FOR MALADMINISTRATION OF THE COMPANY 593 General issues 593 Pursuing claims for maladministration 593 Majority rule: principles and problems 595 Restricting litigation: the rule in Foss v Harbottle 597 The general rule in Foss v Harbottle 597 Reforms to the rule in Foss v Harbottle introduced by CA Operation of the rule in Foss v Harbottle 598 Ensuring the company is acting legitimately in litigating in its own name 604 Exceptions to the general rule in Foss v Harbottle 609 Meaning of 'fraud on the minority' and 'wrongdoer control' 620 Conditions which must be met to bring a common law derivative action 627 The statutory derivative action: CA 2006 ss 260ff 630 The statutory rules 630 Grounds for bringing a derivative claim 632 Court permission to continue a derivative claim 632 Personal claims by members 635 The sources of members' personal rights 635 The procedural form of members' personal claims 636 Problems of litigating both derivative and personal actions together 636 The "no reflective loss' principle 638 Unfairly prejudicial conduct of the company's affairs 646 The scope of CA 2006 s

8 Contents xv Basic principles 651 Legitimate expectations and equitable considerations 661 Valuing shares in buy-out orders 668 Unfair prejudice and other remedies PUBLIC DISCLOSURE, MARKET REGULATION AND PUBLIC INVESTIGATIONS OF COMPANIES 675 Public disclosure and the disclosure philosophy 675 General disclosure obligations 675 The Registrar of Companies 675 Publication in the Gazette 676 Publicity at the company's own registered office 677 Specific provision of information to members 677 Publicity on business documents 677 Enforcement of the disclosure regime 678 Listed companies and the Stock Exchange 678 Public regulation of securities markets 678 Transparency obligations: investigation and notification of major voting shareholdings in certain public companies 679 The Transparency Directive 679 Company investigations into share ownership and the disclosure register 681 Disclosure and public offerings of shares 682 History 682 Securities markets 683 Official listing 684 Prospectuses 684 Market abuse: insider dealing and market manipulation 687 Controlling market abuse 687 Insider dealing 687 Market abuse 689 Public investigation of companies 689 Powers of investigation 689 Conduct of the investigation RECONSTRUCTIONS, MERGERS AND TAKEOVERS 698 General issues 698 Schemes of reconstruction under IA 1986 ss Arrangements and reconstructions under CA 2006 ss Defining the classes for member or creditor meetings 704 Proposals for reform of the law 710 Takeovers 711 Regulation of takeovers 712 The Panel on Takeovers and Mergers ('the Panel') 712 Restricting barriers to takeovers 717 Disclosure requirements 717 Mandatory offer rules 717 Position of minority members following a takeover 717 Directors' role in a takeover 720 Enforcement 723

9 xvi Contents 15 RESCUE AND INSOLVENCY PROCEDURES 724 General issues 724 Insolvency and rescue 725 Statutory framework 725 Company voluntary arrangements (CVAs) 726 Administration 727 Purpose of administration 727 Appointment of the administrator 728 Powers and duties of the administrator 730 Effect of appointment on directors 733 Termination of administration 733 Priority of expenses of administration 734 Receivership and administrative receivership 734 Receivership generally 734 Administrative receivership 735 Duties of administrative receivers 738 Distribution of assets subject to the receivership 743 Liquidation or winding up 744 Voluntary winding up 744 Compulsory winding up generally 745 Permitted petitioners for a compulsory winding up 745 Grounds for compulsory winding up 748 The courts' discretion to order a compulsory winding up 759 The functions, powers and duties of the liquidator 760 The conduct of the liquidation 760 Assets available for distribution by the liquidator 772 Application of assets by the liquidator 773 Investigating and reporting the affairs of the company 776 Dissolution of the company 777 Restoration to the register 778 Index 779