Janet Dine, Marios Koutsias. Company law CONTENTS Preface Table of cases Table of Statutes and Directives xiii xiv xxvi 1 The reasons for forming companies 1 1.1 The elements of a company 3 1.2 Outsiders 5 1.3 'Parent' and 'subsidiary' company 6 1.4 Single member companies 6 Hot Topic: Corporate governance 7 Summary 7 Case note 8 Exercises 10 2 Starting a company 11 2.1 Limited and unlimited companies 11 2.2 Public and private companies 12 2.3 Minimum capital requirements for a public company 14 2.4 Change of status from public to private company and vice versa 14 2.5 Groups 15 2.6 The memorandum of association and registration 16 2.7 Incorporation 18 2.8 Duty of Registrar 18 2.9 Off-the-shelf companies 19 Hot Topic: Community interest companies 19 Summary 19 Exercises 20 3 Corporate personality 21 3.1 The legal basis for the separate personality doctrine 22 3.2 Problems caused by the personality doctrine and exceptions 26 3.3 Statutory intervention 27 3.4 Lifting the veil 27 3.5 Fraud 30 3.6 Groups 31 3.7 The criminal and civil liabilities of companies 39 3.8 What crimes? 39 3.9 Why convict companies? 40 3.10 Identification of the company's alter ego 41 3.11 Civil liability 41 Hot Topic: Performance of Companies and Government Departments (Reporting) Bill (2004) (1) 42 Summary 43 Case notes 43 Exercises 44
4 The memorandum of association 46 4.1 Ultra vires - the old law 47 4.2 Constructive notice 47 4.3 Justification of the doctrine 48 4.4 How to determine whether an act is ultra vires 48 4.5 The new law 49 4.6 Ratification 50 4.7 The old case law 50 4.8 Objects and powers 52 4.9 Ultra vires and objects 53 4.10 Knowledge by an outsider that a transaction is outside objects or powers 54 4.11 Can borrowing ever be an object? 54 4.12 1980s cases 55 Summary 58 Exercises 58 5 The articles of association 59 5.1 The articles as a contract 60 5.2 What rights are governed by the contract in the articles? 61 5.3 Outsiders 62 5.4 Entrenched provisions 65 5.5 The articles as evidence of a contract 65 5.6 Alteration of the articles of association 67 5.7 Bona fide for the benefit of the company 68 5.8 Remedies 71 Summary 73 Case notes 73 Exercises 74 6 Power to represent the company 75 6.1 Power of directors to bind the company 75 6.2 Protection 78 6.3 Transaction and dealing 78 6.4 Decided on by the directors 78 6.5 Good faith 78 6.6 Unauthorised agents 80 6.7 Usual authority 83 6.8 Promoters 83 6.9 Who are promoters? 83 6.10 Duties of promoters 84 6.11 Disclosure 85 6.12 The loss of the right to recission 86 6.13 Actions for damages 87 6.14 Remuneration of promoters 87 6.15 Pre-incorporation contracts 87 6.16 Liability of the company 89 Summary 89 Exercises 90
7 Public issue of securities 91 7.1 Shares 92 7.2 Direct offers, offers for sale, issuing houses 92 7.3 The two regimes 92 7.4 Rights offers and public offers 92 7.5 Placing 93 7.6 Pre-emption rights 93 7.7 Authority to issue shares 94 7.8 Directors' duties 94 7.9 The structure of the rules 94 7.10 Admission to Stock Exchange Listing 95 7.11 Contents of listing particulars 95 7.12 Continuing obligations 96 7.13 Remedies for defective listing particulars 96 7.14 Prospectus issues 99 7.15 Remedies for defective prospectuses 99 7.16 Liabilities for misstatements in prospectuses and listing particulars 99 7.17 The EC Prospectus Directive 101 Summary 102 Case notes 103 Exercises 105 8 The regulation of investment business 106 8.1 Financial Services and Markets Act 2000 - 'regulated business' 108 8.2 How the range of regulatory tools is used in practice 112 8.3 Financial Services Authority: authorisation provisions 113 8.4 Complaints 114 8.5 The Investment Services Directive 116 Summary 116 Case notes 117 Exercises 118 9 Maintenance of capital 119 9.1 Fundamental rule 119 9.2 Payment of money to members 120 9.3 Distributions 121 9.4 Rules governing distributions 121 9.5 Dividends 122 9.6 Public companies 123 9.7 Members' liability 123 9.8 Other permitted payments to members 123 9.9 Reductions of capital 124 9.10 Interests of creditors 126 9.11 Procedure 126 9.12 Bonus shares 127 9.13 Redeemable shares 127 9.14 Purchase of own shares 129 9.15 Illegal transactions 130 9.16 Serious loss of capital by a public company 134
9.17 Accounts 134 9.18 Company accounts 135 9.19 FRSs and FREDs 135 9.20 The obligation to prepare accounts 136 9.21 Keeping the records 136 9.22 Duty to prepare individual company accounts and 'true and fair view' 136 9.23 Group accounts 137 9.24 Conclusion 139 Summary 140 Exercises 140 10 The balance of power inside the company: corporate governance 141 10.1 Proxy voting 142 10.2 Solicitation of proxies 142 10.3 Formality of procedure 143 10.4 Meetings 143 10.5 Management of the company 149 10.6 Appointment of directors 151 10.7 Removal of a director 155 10.8 Validity of directors' acts 157 10.9 Disqualification 157 10.10 Directors' meetings 157 10.11 Managing director 158 10.12 Relationship between the board of directors and the general meeting 159 10.13 Where the board of directors ceases to function 161 10.14 The Secretary 162 10.15 Employees 162 Hot Topic: International debate on corporate social responsibility 164 Summary 165 Case notes 166 Exercises 184 11 Directors' duties: the general duties 185 11.1 The Cadbury, Hampel and Combined Code initiatives 187 11.2 Duty owed to the company 189 11.3 What is the company? 190 11.4 Duties of care and skill 192 Hot Topic: Performance of Companies and Government Departments (Reporting) Bill 2004 (2) 196 11.5 Fiduciary duties 197 11.6 Are the prohibitions absolute? 199 11.7 The categories of duties 200 11.8 Consequences of a breach 211 Hot Topic: Performance of Companies and Government Departments (Reporting) Bill 2004 (3) 211 Summary 212 Case notes 213
Exercises 218 12 Specific duties of directors 219 12.1 Disqualification of directors 220 12.2 Insider dealing 233 Summary 242 Case notes 243 Exercises 249 13 Suing the company, suing for the company, enforcing directors' duties 250 13.1 Suing the company 250 13.2 Suing for the company (the exceptions to the rule in Foss v. Harbottle and derivative actions) 251 13.3 Ratification 252 13.4 The statutory remedy in section 994 262 13.5 Unfair prejudice 262 13.6 The relief that can be granted 267 13.7 Winding-up orders 268 13.8 When a winding-up order is likely to be made 269 13.9 Department of Trade investigations 269 13.10 When inspectors have been appointed 271 13.11 Following investigations 271 Summary 272 Case notes 272 Exercises 276 14 Shares 278 14.1 Ordinary shares 278 14.2 Preference shares 279 14.3 Voting rights 281 14.4 The exercise of voting powers 282 14.5 Variation of class rights 283 14.6 Alteration of articles to insert a variation clause 287 14.7 Statutory right to object 287 Summary 288 Exercises 288 15 Lending money and securing loans 289 15.1 Debenture-holders' receiver 290 15.2 Fixed and floating charges 290 15.3 The characteristics of fixed and floating charges 293 15.4 Crystallisation of the floating charge 293 15.5 Legal and equitable charges 294 15.6 Floating charges and other claims against the company 295 15.7 Retention of title clauses 296 15.8 Registration of company charges 297 15.9 Which charges are registrable? 297 15.10 Salient points 298 15.11 Delivery of particulars and priorities 298
15.12 Priorities under the registration scheme 299 15.13 Effect of registration 299 15.14 Duty to register and effect of non-registration 299 15.15 Payment of money secured by unregistered charge 300 Summary 300 Case note 301 Exercises 301 16 Takeovers, reconstructions and amalgamations 302 16.1 Public offers 302 16.2 Monopolies 302 16.3 The Takeover Panel 303 16.4 General principles and rules 303 16.5 Partial offers 304 16.6 Compulsory purchase provisions 305 16.7 Sell-out right 305 16.8 Reconstructions 306 16.9 Meetings 306 16.10 Approval of the court 306 16.11 Reconstruction in a liquidation 307 Hot Topic: International takeovers 308 Summary 311 Case note 311 Exercises 312 17 Insolvency 313 17.1 Voluntary arrangements 313 17.2 Proposal 313 17.3 The involvement of the court 314 17.4 Contents of the proposal 314 17.5 Meetings 314 17.6 Challenges 314 17.7 Administrative receivership 314 17.8 Liquidations 315 17.9 Voluntary winding-up 316 17.10 The liquidator 316 17.11 Order of payment of debts 317 17.12 Avoiding antecedent transactions 317 17.13 Fraudulent trading 321 17.14 Summary remedy against delinquent directors - Section 212 Insolvency Act 1986 321 17.15 Wrongful trading 321 17.16 The destination of the money 323 17.17 Dissolution 323 Summary 324 Case notes 324 Exercises 330
18 The effect of the EU on English company law 331 18.1 The making of a Directive 331 18.2 The extent of the influence of EU rules 332 18.3 Sources of EU law 333 18.4 The institutions of the EU 335 18.5 The EU Company Law Harmonisation Programme 337 Hot Topic: The European Company 338 18.6 Company Law Directives 339 18.7 Securities regulation 344 18.8 Insolvency 345 18.9 Conclusion 348 Hot Topic: Takeover Directive 350 Summary 351 Exercises 352 19 Transglobal corporations and world development 353 19.1 Development issues 354 19.2 The displacement of domestic production 355 19.3 The effects of the international money and banking systems 356 19.4 The undermining of political systems and the absence of control of transnationals 358 19.5 Environmental issues 359 19.6 Labour law issues 361 Hot Topic: Saro-Wiwa family v. Royal Dutch/Shell 361 Bibliography and further reading 364 Index 368