Company Law Course Wrap Up

MGMT3046 familiarity right mark interlace Up November 2012 We countenance come to the end of formal instruction in Company Law, so it is useful at this point to review the main learnings from the course. This entrust be close to long unit of measurement1 Salomon v Salomon and the embodied veil. This is a foundational circumstance in friendship lawfulness which enunciated the principle of the severalty of companionship and its sh atomic number 18s (sh be waitingers and officers). The principle makes it quite clear that the separation of the smart set from its members depart always have got it is entirely in exceptional reasons that the corporate veil go forth be lifted, such as in instances of joke or other illegality.This means that a teleph angiotensin converting enzymer whitethorn contr symbolize in its make come across and, too, be held apt(p) for bruisees committed in its name. As mentioned before, shareholders and officers of the company result non usu each(prenominal)y be held credible for acts committed by the company. This leads orderly to the c erstpt of especial(a) financial obligation. Since a company is a disperse legal entity, it follows that its members leave behind not be liable for its debts. As a distinct legal entity, a companys assets belong to it and not its members its liabilities belong to it and are not the responsibility of the members.In the flatt of the company becoming insolvent or bankrupt, a shareholders loss would only if be limited to the amount of unpaid shares he has outstanding in the company. In this way, a shareholder is afforded limited liability. Conversely, eternal liability companies impose unlimited liability on its members. Ultra Vires. Ultra vires describes acts undertaken beyond (ultra) the legal powers (vires) of those who bring in purported to undertake them.The three main applications of ultra vires were o whether the company acted outside is capacity o whether the companys agents acted in excess of authority and o whether the companys act was contrary to statutory provisions. This proved to create great difficulties for creditors as they might provide goods and services to companies which, when they refuse or were unable to pureness payment, were protected by the fact that contracts were deemed null and void and in that respectfore unenforceable.Creditors had no recourse in the facet of this issue. See Ashbury Railway Carriage & Iron Co Ltd v Riche. Ultra vires has since been abolished by statute such that, even though companies and its members may not be authorised to act in a particular(prenominal) way or to make authorized decisions, they may still be liable for such unauthorized acts as against third parties. This concept will return again in other units. unit 2 Lifting the Corporate Veil.The corporate veil does not provide blanket protection to the members and officers of a company. It will once they give way acted carefully, honestly an d in good confidence. In cases of illegality and negligence, the veil may be lifted to bankrupt the offending member to liability. Both statute and common law provide for the lifting of the corporate veil in such instances. This Session discussed the statutory exceptions to limited liability which include 1 MGMT3046 Company Law Course Wrap Up November 2012 eduction of number of members (it is to be noted that while a company may be operated with only one film director under UK statute for up to six months, the same does not hold for Trinidad and Tobago) imposterulent and wrongful trading (these apply only during the winding up process to be dealt with in hike detail in Unit 8 wrongful trading may be inferred from reckless shorten as found in s 447(1)(b) and (c)) disqualified directors (a director may be disqualified any during the course of normal operations of the company or during the winding up process) abuse of company name (this usually involves the transfer of com pany assets at an undervalue to the new company) and other named umbrages relating to documentation. While the veil of internalisation usually affords protection to a companys members and officers, the Court will lift it in cases of statutory br apiecees w present strict liability attaches to those found responsible for the breach.The Responsible Corporate Officer Doctrine, which holds the decision- make officer liable, operates very similarly in other legislation but is held to be separate from lifting the veil. At common law, the court will be prepared to lift the corporate veil under very limited circumstances. While there are no clearly defined categories, the court will lift the veil where somebodys are implicated in instances of using the corporation as an agent (based on the degree of control exercised by the shareholders everyplace the operations of the company) or where there is deceit or impropriety. In the case of corporations as shareholders, the court will lift the veil in cases where it can find an implied agency family and a group of companies playacting as a single entity.It is generally held that the court will lift the veil in parent-subsidiary relationships where the march shows that the subsidiary is but an agent of the parent (based on the degree of control exercised by the latter everyplace the former) statutory or contractual provisions dictate that it should be lifted or the subsidiary is schematic as a sham. A company will be deemed to be acting fraudulently where it is open up to avoid a court order or other legal obligations this usually applies where the shareholders are individuals. In such cases, the court will lift the veil to expose the companys members to liability. Unit 3 Directors of a Company. A directors behaviour is governed largely by the Companies Act, specifically by member 99. A directors responsibilities and liabilities are very clear and simple.He must exercise the powers of the company direct the managem ent of the company (s 60) declare any in the flesh(predicate) quests (s 93) act honestly and in good combine and exercise care, diligence and skill a reasonable someone would exercise under similar conditions. every breach of these requirements will lead to personal liability on the directors part. The company may choose to indemnify a director for any liabilities incurred where he acted honestly and in good faith and in the vanquish interest of the company (s 101). Particular attention should be paid to the words used in section 99 and their meaning. 2 MGMT3046 Company Law Course Wrap Up Unit 4 November 2012 Directors of a Company. A directors behaviour is also governed by common law which reflects, in large part, section 99 of the Companies Act.They owe a fiduciary commerce to the company to act in the best interest of the company, lawfully, honestly and in good faith, otherwise, they will be in breach of their fiduciary duties owed to the company. Pardy v Dobbin is an excel lent case on point. Shareholders are able to indemnify a directors acts or decisions if they so choose where there is disclosure by the director of his interest. obscure from the duties owed, a director may be held personally liable in tort or for illegal activity, especially in cases of fraud or negligence, and will not save the protection of the corporate veil. It is meaning(a) to note that where the tortious conduct of a director is motivated by self-interest or personal benefit, then the director may be liable (Blacklaws v Morrow, 2000 ABCA 175 (CanLII), paragraph 137).Personal liability will only attach, therefore, where it can be proven that the acts of the director are separate from the interest of the company or where such acts have been expressly directed by him. Fraud is proved when it is shown that a fraudulent illusion has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, carelessly whether it be true or false. A director will be hel d liable where any of these is proved. With respect to criminal liability, a director will usually be held criminally and personally liable where he acted in fraud on the employer, for his own benefit, or contrary to instructions.In other cases of criminal liability, the company will be held to be vicariously liable, unitedly with the officer in question. Under the directing mind or identification principle, a corporation may be held vicariously liable for the criminal acts of its directing mind. In mens rea criminal intent offences, if the Court finds the director to be a vital organ of the company and virtually its directing mind in the sphere of duty assigned him so that his feats and intent are deemed the march and intent of the company itself, the company can be held criminally liable even where the criminal act was performed not wholly for the benefit of the company. He must, however, have been acting within the scope of the area of the work assigned to him.In the case of f raud, where the benefit accrues only to the director and is not intended to be for the benefit of the company, the corporate entity may be able to escape liability. early(a) Officers of a Company. Their behaviour, too, is governed by section 99 of the Companies Act. Unit 5 Shareholders. A shareholder is a member of a company, usually someone who has invested in the company and is considered an owner or part-owner. At law, the shareholder is not the incorporated entity they are distinct entities, where the company is deemed a separate, legal person with rights, privileges and liabilities, 3 MGMT3046 Company Law Course Wrap Up November 2012 in like manner as a shareholder. Their rights, privileges, liabilities, immunities and procedures for holding meetings are all covered by the Companies Act.In addition to the Companies Act, shareholders relationship with each other and the company are further governed by the terms of the shareholders obligation, which may place restrictions on th eir behaviour. It should be noted that there are definite fundamental changes that may only be effected by the shareholders. Unit 6 Status of the minority Shareholder. The bulk rules. This is enshrined in law, both common and statutory law. This makes it very difficult for minority shareholders to protect the interest of the company. This principle has its roots in the foundational case of Foss v Harbottle 1843 67 ER 189 which addresses the heavily circumscribed view of the minority shareholder.Section 37(c) of the Interpretation Act further compounds this issue as it also reinforces this principle. In addition to the majority rules principle, another important issue that arose is the proper plaintiff rule. The court held that if the majority is committing wrongs against the company, it is the company itself that should take action to protect itself. Nevertheless, the law has taken into consideration the underprivileged position of the minority shareholder and allows him to tak e actions as exceptions to the rule in Foss v Harbottle. As the company is an inanimate entity, it cannot take action on its own, then the relaxation of the proper plaintiff rule to allow the minority to act on its behalf.Obviously, the majority would be the entity to allow or disallow any such action and they will not permit the minority to take action against them. The minority shareholder(s) will have a right of action against the majority shareholder(s) in specific situations. He may be allowed to take derivative action an action brought by a shareholder (or director) of a company in the name and on behalf of that company in very comical circumstances. This means that any benefit accrues to the company only and not to the benefit of the shareholder. at that place are certain acts that a majority may not legally undertake and for which the minority may initiate such action.The minority has a common law right of derivative action where the majority attempts to o o o Con debau ched an act which is ultra vires or illegal Confirm an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the company Confirm an act which can only be validly done or sanctioned, not by a simple majority but by some special majority otherwise, a company could de facto do by simple majority something which indispensable a special majority or Affect qualified minority rights. o Where his personal rights are affected, he may take action in his own name. Any benefit here accrues at one time to the shareholder. The minority shareholder also has rights under the Companies Act to protect the interests of the company against the will of the majority. As in the common law, the act also allows for derivative action pursuant to section 240. The procedure in 4 MGMT3046 Company Law Course Wrap Up November 2012 s 240 must be followed prior to making a claim based on any of the four common law rights of derivative action mentioned.With respect to personal rights of action, minority shareholders may dissent to shareholder resolutions seeking to make fundamental changes to the corporate entity (s 227) or may seek to restrain oppressive behaviour on the part of the majority that is unfairly prejudicial to or unfairly dismissive of the interests of shareholders or other members or officers of the company (s 242). In this way, the minority shareholder is offered the right under law to protect his own interest or the interest of the company. Unit 7 Insider Trading. This relates to trading in public companies. An insider is someone who breaches a fiduciary duty owed to his employer to act honestly and uses unpublished, price-sensitive study to trade in securities or communicates such information to someone else who trades. The information he has will be considered material if it will help an investor determine whether or not to purchase or look at shares.Where an insider uses such information for his personal benefit to avoid a loss or make a profit, he will be in breach of the Companies Act, the Securities Industry Act and common law principles relating to o Access to confidential information o Breach of fiduciary duty or other relationship of trust o Material confidential information and o Using material confidential information for ones benefit. Unit 8 Winding Up and Dissolution. Winding up is the process of liquidating a company and its assets and then distributing the proceeds while waste is the cessation of the company. The most important issue here is trading while insolvent. This is regulated by s 447(1) of the Companies Act.This section raises the issue of fraudulent trading, where it is discovered during the village process that the company continued carrying on business, despite knowing or being unconcerned that it would have been unable to honour its debts and liabilities. Liability under this section is usually triggered when the court is satisfied that a person has not taken every possible s tep with a view to minimising the potential loss to the companys creditors as he ought to have taken. Several important words and phrases are used in this section intent to defraud reckless disregard debts and liabilities knowingly and personally responsible. The Central Bank case provides an excellent exposition into s 447(1) and the eaning of these terms. The use of such words and phrases make it clear that anyone guilty of this offence must have purposely or carelessly undertaken these acts despite knowledge or care of the companys inability to cover the debts and liabilities incurred by it. Any person so guilty will be held personally responsible without any limitation of liability. It should be noted that this is not restricted to directors and officers anyone, such as an accountant who may have audited the accounts and been aware of the dire financial situation, for example, who was knowingly involved would be held liable as well. It also applies to past officers and directors . 5MGMT3046 Company Law Course Wrap Up Unit 9 November 2012 Corporate Governance. Corporate governance has assumed great prominence within the last twenty years. There are many definitions, but they all revolve around good management practices which encompass accountability, foil and honest. Several financial scandals, resulting from a lack of these traits, led to the promulgation of codes of conduct for companies. These codes focussed on salary for directors, the role of the non-executive director, reporting functions of the board, and the role of auditors and audit committees. An ultimate combined code was created that encompassed the main points of each individual code.While none of these codes have the force of law, they provide a moral barometer specifically for public companies to engage in good management practices. Private entities are welcomed and encouraged to follow these guidelines as well. The wide range of stakeholders in effect(p) might ensure that these non-bindin g codes are adhered to, as companies, public and private, are required to act in the best interest of the company and society at large. The threat of damage to the companys reputation may also advocate in this regard. Of course, where companies fail to do so, they will be subject statutory and common law sanctions, even where the codes lack the ability to penalise.Section 99 of the Companies Act, in particular, and common law fiduciary duties apply here. Unit 10 coalitions. What is a confederacy? They are unincorporated entities, known as firms, comprising any combination of deuce or more individuals, or one or more individuals and one or more corporations, or two or more corporations (s 4, Companies Act). The relation which subsists between persons carrying on a business in common with a view of profit (s 3(1), alliance Act) How is a helpership different to a Company? Unincorporated entities establish on the law of agency Partners bear equal benefits and liabilities Formal esta blishment not necessary slight statutory responsibilities What does not needfully constitute a Partnership? oint ownership sharing of gross returns Cox v Coulson no agency and sharing of profits Stekel v Ellice employment contract vs partnership agreement. Creation of a Partnership Persons who invest monies to open a company prior to its incorporation or to commence a partnership will not be deemed to be partners during the period before the company or partnership comes into existence. This was the case in Spicer Ltd v Mansell. 6 MGMT3046 Company Law Course Wrap Up November 2012 Partnership at Will Partnerships that are not subject to any formal agreement. No fixed duration. May be terminated with immediate effect by any partner at any time. Refers to continued partnerships as well.Relations of Partners to Persons Dealing with Them (Higgins v Beaucham 1914 3 KB 1192 Mann v DArcy and Others 1968 1 WLR 893) Partners are deemed to be agents of each other and, therefore, have the aut hority to take unilateral decisions which will bind the firm, save in cases of fraud or other illegality. Joint liability Liability may continue post retirement An agreement may discharge a retiree from liabilities Liability and Holding Out (Tower Cabinet Co Ld v Ingram 1949 2 KB 397) Anyone who represents or allows himself to be represented as a partner of a firm will be held liable where the firms creditors seek payment. Liability of New and Retired Partners (Bilborough v Holmes (1877) 5 Ch D 255 Rolfe v Flower (1865-67) LR 1 PC 27) Partners liability begins upon admission to the firm and ceases upon demission under fair circumstances. An agreement may discharge him from any liabilities.A former partner may still be liable for any breaches even after he has left where no such agreement is made. Relations of Partners to hotshot Another (In re Barber (1869-70) L. R. 5 Ch. App. 687) The terms of a partnership agreement may only be varied by the consent of all partners. Partnership Property (Davis v Davis 1894 1 Ch 393) Partnership property is property that is utilised for the purposes of the partnership. Title to partnership assets may be in the names of all the partners, as in a co-ownership arrangement, or in the names of some partners or one partner. Rights and Duties among Partners (Tann v Herrington 2009 EWHC 445 (Ch)) 26. a) share equally in benefits and liabilities (b) indemnify every partner for payments made and personal liabilities incurred by him in the ordinary and proper conduct of the business of the firm or (ii) in or about anything necessarily done for the preservation of the business or property of the firm (g) no person may be introduced as a partner without the consent of all existing partners (h)no change may be made in the nature of the partnership business without the consent of all existing partners Any liability to a third party is recoverable against the partners jointly and severally. 7 MGMT3046 Company Law Course Wrap Up November 20 12Tann v Herrington duty of care, duty to act in good faith, skill Where this is disproved and some fraction of culpability is also proved, the individual partner only may be held liable. Expulsion of a Partner (In Re A Solicitors Arbitration 1962 1 All ER 772) The concept of majority rule is ordinarily alien to partnerships, especially where expulsion of a partner is the issue. How does expulsion work? All partners must have unanimously agreed at the creation of the partnership to expel the offending partner. Expulsion does not hold where there are only two partners the partnership will be mechanically dissolved should one leave. This power of expulsion is one that must be exercised bona fide and in the general interests of the partnership.Dissolution of Partnerships Ordinarily, a partnership is automatically dissolved at the expiration of any fixed term, the completion of an undertaking which was the reason for the creation of the partnership, or the death or bankruptcy of a pa rtner. An application may be made to the court for a decree of dissolution in the case of insanity, incapacity, or misconduct of a partner where the business is caterpillar tread at a loss or where it is just and equitable for the partnership to be dissolved. Problems associated with dissolution department and distribution of the firms assets and liability Continuation of partnership Pathirana v Pathirana General vs technical dissolution Green v Harnum 8