summary of facts
- briefly state case facts |
- mention issues at hand |
- topics to which question relates |
general introduction
before continuing further, we denote a company to be a seperate legal entity (SLP) with its own corporate persoanlity, divorce from that of its shareholders and directors (Saloman v.Saloman). The operation of such are trascribed within the Companies Act, 2006 (CA, 2006) where subcribers to a company undertake a supervisory role by becoming shreholder and in appointing directors; transfer executive powers onto them so as to oversee conduct business |
key management powers in Model Articles
Rag3. gen. authority to manage company's business bestowed upon directors (Ds) |
BoDs are primary weilding organ of company |
Howard Smith v. Ampol Petroleum - BoD can take decisions agianst majority SH's wishes |
HOWEVER, SH can remove D though simple majority (ordinary resolution of 51%) |
decide whether to give SH dividends during general meeting of SH |
key member powers in Model Articles
Reg4. shareholders (SHs) reserve power to direct Board via special resolution of 75% majority |
general meeting - supervisory role (election/removal of Ds, share issuance, D renumeration) |
usually call by Board BUT SH with 5% holding to requisition meeting (s.303) |
COurts empowered to order gen. meeting (s.306) - mostly used where minority seeks to use qorum req. to prevent majority from passing resolutions (Union Music v. Watson) |
alteration to AoA via special resolution of 75% majority (s.21 CA, 2006) |
quorum requirement - generally, at least 2 people (s.318 CA, 2006) but may be changed through AoA ammendment |
Re Duomatic - unanimous informal consent of SH in decision making is as good as formal resolutions |
section 21 (CA, 2006)
articles can be amended upon SH's discretion through special resolution |
Re Duomatic - informal amendments to AoA are valid |
ammendements shouldn't benefit majority at minority's expense |
Allen v. Gold Reefs - should be exercised bona fide for company's benefit |
a) qualified subjective test: judge's opinion not considered | view of reasonable SH in situation condsidered |
b) Greenhalgh - 'company's benefitas a whole'= was alteration 'discriminatory b/w SHs (VERY HARD TO PROVE) |
- 1 area where Courts readily stike down alterations- SHARES COMPULSORILY BOUGHT (Brown v BAW) [b/c infringement of property rigths] |
alternatively, minority SH can seek statutory minority protection u/s. 994 CA, 2006 |
HOSTILITY IN COMPANY |
valid gen. meeting requires at least 2 SH (s.318), but minority SH may not attend where company only has 2 SH |
- here, majority can ask Courts to order a valid meeting where quorum req. isn't met (s.306) |
Union Music v. Watson - HOWEVER, where SH agreement where voting rights are mentioned is present, no such grant by Courts |
RESTRICTION TO ALTERATIONS |
1. alteration not made 'bona fide' in company's interest, minority can apply to courts & have it overturned (Allen v. Gold Reefs) |
rarely succeeds |
2. class rights as a SH |
Cumbrian Newspapers - class rights= rights not attached to shares || provided to SH by name via AoA || right only enjoyed by subset of SH & isn't an outsider right |
3. provisions for entrenchment |
provisions within AoA incapable of alterations later |
usually occur proviso articles requiring unanimous resolution to pass for change to be enforceable |
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section 33 (CA, 2006)
AoA is a contract b/w members and the company |
- can be amended w/o unanimous consent (only special majority required) |
- AoA binds future members of company as well |
ENFORCEMENT OF ARTICLES |
1. by company on SH → yes, s.33 (CA, 2006) |
2. by SH on company → only where PERSONAL RIGHTS (PR) are affected |
- including voting rights, protection of class rights, share transfer, pre-emption, claim declared dividend, appoint Ds |
however, enforecement of such is still contradictory |
MacDougall v. Gardinaer - right to poll upheld |
Pender v. Lushington - right to vote in general meeting upheld |
3. by SH on another SH (Interse contract) - unclear |
Wood v. Odessa - contract b/w SHs is valid |
Salmon v. Quinn - contract b/w SHs unenforceable |
Rayfield v. Hands - AoA is directly enforceable b/w members |
involved quasi-partnership & breach of pre-emption right in AoA, rights were enforced |
4. by outsider (D or Creditor) - no |
Salmon v. Quinn - if rights of SH have TANGENTIAL effect n his rights as D |
SHAREHOLDER'S AGREEMENT |
due to uncertainity of AoA enforcement b/w SH, they enter seperate SH agreements |
benefit from ease of enforcement - Puddenphatt v. Leith |
company is also party to these agreements BUT can't agree to limit its constitutional rights |
Punt v. Symons - company can't contract out of its right to alter AoA |
Rusell v. N. Bank- agreement can't be enforced against company |
section 39 (CA, 2006)
- objects (principal line of business) of the company |
HISTORY |
- companies originally viewed as public bodies , acting beyond conferred powers was ultra vires |
- ultra vires doctrine served to protect SH & creditors via objects limitation |
- BUT doctrine proved problamatic for Courts (dynamic nature of companies leads to diversyfing portfolio BUT altering objects was limited + interplay with constructive notice left 3rd party contract unenforceable) |
- originally, Courts approach was strict(Ashbury Railway) but gradually got more lax (Bell Houses) |
approch shows acknowledgement of companies as a private entity |
REFORMS |
- reform via s.39, replacing s.35 of 1985 Act (read with s.31) allows companies to now have unlimited objects clause or not mention it at all |
- Company's Act, 1985, s.3A & 4 allowed changes to + widening of objects clause |
CURRENT LAW |
- obligations of UK to European Community led to replcaing constructive notice with 'good faith' requirement |
- objects can also be altered proviso s.21 |
- issue of company's powers reduced to whether decision was undertaken by proper authority (s.40) |
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section 40 (CA, 2006)
signing of contact without proper internal authority |
- previously doctrine of constructive notice upheld - now indoor management (RBB v. Turquand) enshired u/s. 40 |
2 requirements for principle to be satisfied |
action undertaken via actual or apparent authority of D |
contract achieved by 3rd party in 'good faith' |
ACTUAL AUTHORITY |
- expressly or impliedly conferred via AoA or the individual's poistion (as a D) |
- could be i mplied through the position one occupies within the corporate structure (HH v. Brayhead) |
APPARENT AUTHORITY |
criteria laid out in Freeman v. Buckhurst |
4. representation that agent had authority on behalf of company |
5. authority granted by person with actual authority |
6. contractor (3rd party) induced by such representation to enter into contract |
other attribution issues
VICARIOUS LIABILITY UNDER TORT |
Campbell v. Paddington - Courts accepted VL for civil liability only (company liable for employee's acts) |
PREVIOUSLY, organic thoery was followed - liable individual & company considered a single entity (Asiastic Petroleum) |
incompatible with Saloman principle + difficulty in attributing fault upon 1 individual |
CURRENT LAW follows control theory - attribution of liability by considering who controllers of the company were (Meridian Global Funds) |
compatible with Saloman principle + advantage of holding lower-rung employees accountable (McNicholas) |
regardless, organic theory still holds ground (Moore Stephans) |
CORPORATE MANSLAUGHTER |
PREVIOUSLY organic theory was applied here too |
corporate structre too complex to attribute MR onto one person (Jenkins v P&O) |
CURRENTLY, 'corporate manslaughter' introduced by Government through seperate act in 2007 |
is based around 'management failure' - management fall far below standard reasonably expected in such circumstances (R v. Cotswald) |
removal of directors
s.168 CA, 2006 - D can be removed by SH by passing ordinary resolution |
- employement contract specifiying time-span for employement will not prevent enforcement of removal (s.168(1)) |
} HOWEVER, if removal in breach contract then Ds have right to compensation (s.168(5)) |
LONG-TERM SERVICE CONTRACTS REQUIRE SH APPROVAL FOR THEM TO BE VALID* (by simple majority) |
i.e.; more than 2 years (s.188) |
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