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re Yorkshire Woolcombers
Illustrated the three part steps to determine whether a charge over assets was a floating charge or a fixed charge
re Yenidje Tobacco
Deadlock on the board of directors is a just and equitable ground for the Court to grant a compulsory liquidation order
Watteau v Fenwick
In the context of agency, an agent who exceeds his authority may nevertheless bind the principal in contracts where the agent could be held to have ostensible / apparent authority
Victoria Laundry v Newman Industries
The extent of damages is restricted to that amount which could have been reasonably foreseeable at the time of the breach
The Wagon Mound
The extent of damages is restricted to damage which was reasonably foreseeable
Sidebottom v Kershaw Leese
Where a director is found to be competing against the company it is allowable to amend the constitution to enable the removal of that director
Shuttleworth v Cox Brothers
Where a director is defrauding the company it is allowable to amend the constitution to enable the removal of that director
Southern Foundries v Shirlaw
A person who loses their position as a director automatically loses their position as chief executive – but compensation for breach of contract may then become payable
Salomon v Salomon
The grand-father of company law cases which confirmed the principle that a company, when properly incorporated, is a separate legal entity distinct from those who are beneficially interested in the success or failure of the company and from those who manage its affairs
Rose and Frank v Crompton
Where a contract specifies that “it shall not be subject to the jurisdiction ….” then it is specifically excluding resorting to legal action to resolve a subsequent dispute
R v Oll
Lifting the veil to determine the person who made the decision in a situation involving corporate manslaughter
Pender v Lushington
The constitution of a company acts as a contract binding the company to its members and its members to the company
Daniels v Daniels
Negligence on the part of the directors resulting in a personal profit for those directors is a ground for action against them to recover profits lost through their negligence
Pavlides v Jensen
Negligence on the part of the directors is not a ground for action against them to recover profits lost through their negligence
Panorama developments v Fidelis Furnishing Fabrics
A company secretary has the apparent / ostensible authority to bind the company in contracts of an administrative nature
Jubilee Cotton Mills v Lewes
The date on a certificate of incorporation is CONCLUSIVE proof that that is the date the company was incorporated
JEB Fasteners v Marks Bloom
Loss suffered as a result of reliance on a negligent auditor’s statement – to be successful in a claim against the auditor it is necessary to show that the whole loss suffered was CAUSED by the reliance and was not due to any other cause
IDC v Cooley
Directors should not take personal advantage of opportunities which “belong” to their company
Howard Smith v Ampol Petroleum
Directors allotting shares to prevent a takeover bid, even though acting in their minds bona fide in the interests of the company, were found to be not acting in the interests of the majority and the allotment was held to be invalid
Hickman v Kent or Romney Marsh Sheepbreeders
The constitution of a company acts as a contract between the company and its members. Where a constitution says that disputes are to be settled by arbitration, then the Court will refer the case to arbitration
Greenhalgh v Arderne Cinemas
Proposed alterations to the constitution must be for the benefit of the company as a whole
re German Date Coffee Company
When the substratum of a company has disappeared, that is a ground for the Court to grant a compulsory liquidation order
Freeman & Lockyer v Buckhurst Park Properties
Where a person is ( wrongly ) held out as a director of a company by the real directors, the real directors are estopped from denying the authority of the “wrong” director
re F G Films
An example of the Court lifting the veil of incorporation – American film company set up to take advantage of British Government’s grants to British film companies
Ewing v Buttercup Margarine
An example of the tort of passing off – using a name for a company which is similar to an existing company name in a similar business such that confusion is likely to result in the minds of the public
Erlanger v New Sombrero Phosphate Mining Company
Promoters must disclose profits made by them in the course of promoting a company to the first INDEPENDENT board of directors
Eley v Positive Government Life Assurance Company
The constitution of a company creates a contract between the company and its members, but only in their capacity as members and not in any other capacity
Ebrahimi v Westbourne Galleries
In a quasi-partnership company, where a director / quasi-partner is deprived of the right to take part in management, that is a just and equitable ground for the Court to order a compulsory liquidation
Dorchester Finance Company v Stebbing
Directors should act with such degree of skill, care and diligence as could reasonably be expected of a person of that age, experience and qualification
DHN v Tower Hamlets
An example of the Court lifting the veil of incorporation – to determine the commercial reality of a group of companies
Gilford Motor Company v Horne
An example of the Court lifting the veil of incorporation – husband sets up a sham company to get round a perfectly reasonable restrictive covenant not to compete
Dafen Tinplate v Llanelli Steel
An alteration to the constitution of a company will only be allowed if the “individual hypothetical member of the future will be equally likely to benefit as be burdened by the alteration“ – an alteration allowing the majority to compulsorily buy out a minority was not allowed
Cook v Deeks
A minority shareholder can sue the directors on behalf of the company to recover a profit which rightly belongs to the company but which has been diverted by the directors to themselves
re City Equitable Fire Insurance Company
Established the fiduciary duties owed by directors to their company:- 1) must act with reasonable skill and care,
2) should devote such time as is necessary to fulfil their duties, and
3) may delegate so long as there are no grounds for believing the delegate is not capable
Caparo v Dickman
Auditors owe their duty to the members of the client company as a whole and not to individual members
Bushell v Faith
Weighted voting rights may be written into the constitution of a company effectively preventing alteration ( 2 sisters and little brother )
Bamford v Bamford
Directors should use their powers for a “proper purpose” – shareholders ratified the allotment of new shares to defeat a takeover is valid. Even though the allotment was itself a breach of fiduciary duty, the ratification validated the allotment
Ashbury Railway Carriage and Iron Co v Riche
It doesn’t matter if ALL the shareholders in a company agree to a course of action; if it is prohibited by the company’s constitution then the company cannot pursue that course of action ( it is ultra vires )
Allen v Gold Reefs of West Africa
The Court WILL allow an alteration to the Articles even though it may adversely affect just one individual shareholder. So long as the alteration is for the benefit of the company as a whole, the Court will allow it
ADT v BDO
In tort, auditors are not liable in negligence when someone, unknown to the auditor, relies on the audit opinion to make an investment decision. However, if they rely instead on the oral opinion of the auditor, then the auditor IS potentially liable.
Adams v Cape Industries
Companies are separate legal entities
What happens if I fail properly to plan my answers in the exam?
My answers will be disjointed and lack professionalism
How much time should I spend planning each answer in the F4 law examination?
Six and a half minutes to try and think of 10 correct, relevant, markable points
What is meant by “fraudulent trading”?
“Fraudulent trading” involves establishing a company with the intention of defrauding creditors
What is meant by the expression “wrongful trading”?
“Wrongful trading” is when directors allow the company to continue trading without there being a realistic prospect that it will be able to avoid an insolvent liquidation in the foreseeable future
“The punishment for money laundering is a prison sentence of up to 14 years and / or a fine”
Is this statement true?
Yes, the punishment for money laundering is a prison sentence of up to 14 years and / or a fine
There are three offences involved in the criminal offence of Money Laundering.
What are the three offences?
The three offences in money laundering are:
* laundering
* failure to report
* tipping off
Money laundering is a three step process. What are they?
* Placement
* Integration
* Layering
If you were given investment advice by a director to “Get out of equities and invest in Government bonds”, would that qualify as passing on unpublished price- sensitive information?
No, to be an offence, the information needs to be specific and not just general investment advice
Is unpublished price-sensitive information which is greater than 6 months old really price-sensitive?
No, the information should be less than 6 months old
What constitutes “unpublished price-sensitive information”?
Unpublished price-sensitive information is information about a company which is not in the public domain but which, when published, is likely to have a material affect on the market price of the company’s securities
If an insider in possession of unpublished price-sensitive information sells shares and avoids a loss but claims that the sale was to raise money to repay a private debt, is he guilty?
Probably not, if he can persuade the Court that the sale was for reasons other than the avoidance of a loss
“A person who receives inside knowledge about a company from a director and who deals and makes a profit is guilty of the criminal offence of insider dealing”
Is this statement true?
It is true if the person knew (or should have known) that the informer was an insider. If they didn’t know (or suspect) , then the person is not guilty of the offence
“It is an offence for a person who is an “insider” to use inside knowledge about a company and avoid buying shares in the company where they fear the price of the company’s shares will fall.”
Is this statement true?
No, the offence of insider dealing refers to deals. It does not refer to non-dealing
“Insider dealing is a civil offence and is punishable by a fine”
Is this statement true?
No, insider dealing is a criminal offence and is punishable by a term in prison and / or fine
In an FTSE 350 company, for what period of time are directors appointed before they must seek re-election (if they wish to be re-elected!)?
In an FTSE 350 company, all directors must retire each year and seek re-election (if they wish to be re-elected)
To what does the expression “comply or explain” refer within the UK Corporate Governance Code?
The expression “comply or explain” refers to public quoted companies which must state within the financial statements that they have complied with the Code or, if not, why not.
To which body of people does a whistle-blower turn in the event that the whistle-blower has concerns over alleged breaches of regulation / internal controls?
A whistle-blower would refer their concerns over alleged breaches of regulation / internal controls to the Audit Committee
“It is a requirement of the UK Corporate Governance Code that directors should be remunerated in part based on their performance”
Is this statement true?
Yes, it is a requirement of the UK Corporate Governance Code that part of the directors’ remuneration should be performance related
A person who is to be appointed as administrator must hold a specific qualification.
What is that qualification?
A person who is to be appointed as administrator must be a “qualified insolvency practitioner”
A person who is to be appointed as liquidator must hold a specific qualification.
What is that qualification?
A person who is to be appointed as liquidator must be a “qualified insolvency practitioner”
Where a company is in financial difficulties, there may be a way other than liquidation by which a company could be rescued.
What is that process called?
A way other than liquidation by which a company could be rescued is called an Administration
What is a Special Manager?
Special Manager is a person appointed on application to the Court by the Official Receiver to take control of the company’s property during the liquidation process
Where does the Official Receiver fit into company law on liquidations?
The Official Receiver will be appointed by the Court as Provisional Liquidator in the event of the Court granting a compulsory liquidation order
In a relatively recent case, the Court granted a compulsory liquidation order on the grounds that the company was a “quasi-partnership”
What was that case?
The case where the Court determined that the company was a “quasi-partnership” was Ebrahimi v Westbourne Galleries
What was the case when the Court granted a liquidation order on the grounds that there was deadlock on the board?
The case when the Court granted a liquidation order on the grounds that there was deadlock on the board was re Yenidji Tobacco
Re German Date Coffee Company is a case where the Court granted a liquidation order.
Why did the Court make that order?
The Court made the order on the grounds that it was just and equitable – the sub-stratum of the company no longer existed
There are two main grounds under which the Court may grant a liquidation order. What are they?
The Court may grant a liquidation order:
* on the grounds that it would be just and equitable
* on the grounds that the company is unable to pay its debts as they fall due
Which type of liquidation requires the directors to prepare a declaration of solvency?
A members’ voluntary liquidation requires the directors to prepare a declaration of solvency
Is it possible for the members of a private company to pass a written resolution to place their company into liquidation?
Yes, provided a majority of 75% vote in favour, a private company can be put into liquidation by passing a written resolution
What sort of resolution is required to be passed by the members to put their company into liquidation?
A special resolution requiring a 75% majority voting in favour
Is it true that the Court may, on application, direct that a public company be liquidated where the company has failed to obtain a trading certificate within 12 months of incorporation?
Yes, it is true. It’s one of the six grounds for which the Court may make that compulsory liquidation order
What is the essential and fundamental difference between a members’ voluntary liquidation and a creditors’ voluntary liquidation?
In one word, SOLVENCY
If a members’ voluntary liquidation is a voluntary action of the members, a creditors’ voluntary liquidation is a voluntary act of which group of people
The members! It’s called a creditors’ voluntary liquidation because the creditors are not likely going to be paid their debts in full
There are two types of voluntary liquidation.
What are the two types?
A members’ voluntary liquidation and a creditors’ voluntary liquidation
In the case of A Large Company plc, how many members represent a quorum at a general meeting?
It’s whatever it says in the Articles
“A director who has reached the age of 70 is disqualified from continuing to hold office as a director of a private company”
Is this statement true?
No, there is no upper age limit applied to directors of private companies
“A director who has reached the age of 70 is disqualified from continuing to hold office as a director of a public company”
Is this statement true?
No, but the director must seek re-election every year after attaining the age of 70
Whose responsibility is it to call / convene a general meeting of the members of a company?
It is the directors’ responsibility to call / convene a general meeting of the members of a company, but they normally delegate that duty to the company secretary
A special resolution requires how many days’ notice if it is to be validly passed?
A special resolution requires 14 days’ notice if it is to be validly passed
Is it possible to hold an annual general meeting of a public company with only 2 days’ notice?
Yes, it is possible to hold an annual general meeting of a public company with only 2 days’ notice provided short notice has been approved by the holders of 100% of the votes
An annual general meeting requires a notice period of how many days?
An annual general meeting requires a notice period of 21 days
Where the directors of a company always act upon the advice of their auditor, is it the case that the auditor would be classed as a shadow director?
No, a person acting in a professional capacity (auditor, legal advisor, banker) shall not be classed as a shadow director
What, by statutory definition, is a “shadow director”?
A shadow director is defined as “a person in accordance with whose instructions the directors are accustomed to act”
Where a private company chooses to appoint a company secretary, is it possible for the sole director also to be the company secretary?
No, where a private company chooses to appoint a company secretary, it is not possible for the sole director also to be the company secretary
“In a private company, any resolution may be passed as a written resolution”
Is this statement true?
No, a resolution to remove a director or an auditor cannot be passed as a written resolution but any other resolution may be.
“It is the members’ right in a general meeting to determine the level of the auditors’ remuneration”
Is this statement true?
Yes, but it is normal that the members will authorise the board to negotiate the level of the auditors’ remuneration
“Anybody may be appointed as the auditor of a private company”
Is this statement true?
No, if a private company wishes to have an auditor, that appointee shall be appropriately qualified
“Where a private company wishes to appoint a company secretary, that appointee should, by law, be appropriately qualified”
Is this statement true?
No, where a private company wishes to appoint a company secretary, it is not statutorily necessary that that appointee should have any qualifications. It could be your grand-mother!
A public company must hold an annual general meeting every calendar year.
What other type of general meeting may a public company hold?
A public company MAY hold general meetings which are not annual general meetings. These are called “other general meetings”
“Full disclosure of interests in contracts and transactions of a company should be made by directors to a sub-committee of the board at the earliest opportunity”
Is this statement true?
No, full disclosure of interests in contracts and transactions of a company should be made by directors to the full board. It is not enough to disclose only to a sub-committee
Is it reasonable for a director to claim that she could not be expected to promote the interests of the company?
No, it is a statutory duty of directors to promote the interests of the company
In company law what is the literal translation of “ultra vires” in the context of directors’ actions
“Ultra vires” literally translates as “beyond the powers”
“Directors should act with such degree of skill, care and diligence as could reasonably be expected from a person of that age, experience and qualification”
Is this statement true?
Yes, directors should act with such degree of skill, care and diligence as could reasonably be expected from a person of that age, experience and qualification
Is it true that directors have a statutory duty to avoid a conflict of interest?
Yes, it is true that directors have a statutory duty to avoid a conflict of interest
In company law, what does the abbreviation CDDA mean?
In company law, the abbreviation CDDA stands for the Company Directors Disqualification Act
Is it allowable for a director who has recently declared herself to be bankrupt to continue in office as a director of a company?
No, it is not allowable for a director who has recently declared herself to be bankrupt to continue in office as a director of a company
Within how many months after incorporation must a private company hold its first annual general meeting?
It is not a statutory requirement that private companies should have an annual general meeting
A public company must hold its first annual general meeting no later than how many months after incorporation
A public company must hold its first annual general meeting no later than 6 months after its first year end ie a maximum of 18 months after incorporation
At the first annual general meeting of a public company, what proportion of the directors must retire and (may) seek re-election
At the first annual general meeting of a public company, all the directors must retire and (may) seek re-election
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