COMPANY LAW

INTRODUCTION
History Law that is applicable to companies. Concept of company started in England. First real companies that were created were created in the mid19th century. Idea of company, making business together appeared during the Middle Ages guilds of merchants that were groups of persons that exercised the same business. These guilds were not companies: no legal personality, no limited liability and no registration in a special place. Word company appeared at the beginning of the 17th century. Theses companies were created by the crown in order to perform a special activity for the kingdom: East India Company for example. These companies were sort of public companies created by a charter (by the king). 19th century: started to take the name of company even if no legal frame. 1st part of 19th century, government tried to restrain these activities. Companies were necessary so lots of laws were created: 1867 1st Companys Act voted by Parliament. 1st time company is defined as a legal entity, personality from its members Company law is a law based not on a code, but on statute law. Same processes as in France. After 1867, several important laws voted in UK. Very important Companys Act of 1985 and 1986s Insolvency Act. Last law about companies: Companys Act 2006. Different types of companies No distinction such as in France. Two entities that exist: - Partnership: structure that is made to perform an activity which we would call in France civil. Does not give a limited liability. Since 2006: Limited partnership. Not made to perform a big commercial activity. - Companies: regulated by the Companys Act 2006. * Private companies: small company. name of the company ltd. * Public companies ( tablissement public in France): big company, needs 2 shareholders and a capital of a certain amount. name of the company plc. Sometime company law inspired by European law. Corporate veil Most important aspect of the company is the fact that a company is legal entity (=personne morale) different from the entity of its members. This was always the case since the first companys Act. Salomon v Salomon: since the company is registered and acquired the legal entity, no matter the distribution of the shares, the

company has existed so M. Salomon cannot be sued personally: cannot lift the veil of incorporation. When can you lift the corporate veil? Impossible. New tendency when there is a group of companies: if subsidiary fails (does not pay his debts) normally other companies do not have to pay for it. In certain occasion, the courts may condemn another company for the debts of its subsidiary, that causes to left the corporate veil.

1. PROMOTERS
A promoter is a person that wants to create a company. Before the company exists and has a legal personality, the promoter may perform certain acts (sign a lease, buy certain things, hire employees). Question is to know whether these promoters had duties. And if so, to whom are they owed?

a. Promoters duties
Court said promoters have duties toward the person with whom they are contracting and also towards the company even if the company does not exist at the time these duties appear. It means that they must act in the interest of the company: if they enter into certain contracts for the company they must be careful that these contracts are in the interest of the company. Can promoters make contracts as promoters with their company? First, courts said it was impossible because there was a conflict of interests, these contracts are not valid. Rapidly courts changed their minds but there are certain conditions: the promoter must act in the interest of the company, the contract must be disclosed and the contract must be transferred to the company when the company is created. These rules apply more particularly to private companies.

b. Pre incorporation contracts

Contracts made by the promoters on behalf of the company. When the company is created (registered) the contracts must be transferred to the company. Problem when the company is never created. These contracts cannot be considered as having been signed by the company. Rule is that if a promoter signs a contract on behalf of his company and if company never formed then the contract is valid and the party to the contract is the promoter personally.

2. COMPANY REGISTRATION
Company is a legal entity when registered. It is the registration of a company that gives the company its existence as a legal person. Rules for registration of a company are defined by the companys Act 2006. The steps under which a company is registered are the same as in France.

a. The name

The company must have a name. The name will be followed by ltd (limited) or by plc (public). Chose a name not used by another company in the same branch of activity. You can use your name for your company (except if it is famous or already used).

b. Registered office
It is the address of the company. It must be distinguished from the principle place of business. It is not always the principle place of business. In GB not really important. It may be a real address, or a mail box. Rules are flexible for mail box: you can register the company at a solicitors address.

c. The objects of the company

Any company must have objects that must be described. Show the activity of the company. Not as important as it used to be. Before 1968 (European directives) the company had to perform acts that were within its object (if contract is ultra vires: contract is void). The objects of a company must be legal. And the company may change the objects or ad certain activities.

d. The capital
Company must have a capital. Amount of money you put in the company when it is created. No minimums if the company is a private one. Public company must have a minimum capital of 50 000. For private company only one shareholder is needed. If public company only two shareholders are needed. Promoters must appoint a director: one if private and 2 if public company. The director must be appointed and can be changed later on.

e. Articles of association
2 documents: memorandum of association and articles of association. Memorandum just contains very little information: form of the company (private/public), situation (England / Wales), capital of the company, objects of the company. Articles of association are a document that contains the internal rules of the company. These rules are exactly the same from one company to the other. Contrary to France, the name of the director is not inscribed in the articles of association and memorandum.

f. Registration formalities
Everything is centralised in Cardiff in the companies House (=Registerer of the companies). Once the company is registered it has a number and becomes a legal entity. It obtains a certificate of incorporation (=extrait Kbis).

Fiche n1

1897 Salomon v. Salomon & Co M. Salomon was a shoe manufacturer who exercised his business alone (family business). First he exercised individually (commerant). He wanted to change the way he would perform his activity: he wanted to create a company. At this time to create a private company you needed 7 shareholders. So he gave shares to his wife and children to reach that number of 7. needed a capital of 40000. He transferred his business to the company so he received 30000. The company was called wound up (liquidated by the court). Liquidator was appointed and had to try to pay the debts of the company. Liquidator decided to bring an action against M. Salomon. So plaintiff was the company and the defendant is M. Salomon. Liquidator asked M. Salomon to pay the company to enable it to pay its debts. The liquidator said that the company was a fraud: the company was only M. Salomon and family so that in fact it was M. Salomon alone that exercised the business so the transfer of the business to the company was fraudulous. HL reversed the decision of the CA and said that no payment could be asked to M. Salomon. 1866 Kelner v Baxter promoters decided to create a company. Company was to run a hotel. Members of the company wanted to buy wine so they made a contract with M. Kelner. The contract was made when the company was being formed. Promoters signed the contract on their name on behalf of the company. After the contract was signed the company was formed but then it was put into liquidation. The company and the promoters did not pay the wine. So Kelner brought an action against the promoters personally. Question is whether the promoters were personally liable for a contract signed on behalf of the company? When the contract was formed the company did not exist as a legal entity. The contract is valid because it is signed by the promoters personally. So they are personally liable even if the company was formed later on. Promoter is discharged from its liability if the contract is duly transferred to the company. 1954 Newborn v Sensolid contract was made between Newborn and Sensolid. Newborn sold tin ham to Sensolid. When the contract was signed the company Newborn ltd was not created so M. Newborn signed on its behalf. Later the company was created. But Sensolid breached the contract. Should Newborn bring the action on his own behalf or on behalf of the company? He brought the action on his own behalf. Courts said that the contract is not valid: void because the party that has signed the contract since the company did not exist there was no contract. Could have brought an action on behalf of the company. So he could not get his money back. 1904 Natal Land v Pauline Colliery syndicate case from the privy council. Fact took place in south Africa. Coal mining rights are concerned. Different contract were signed. First agreement is signed by Mrs De Carrey acting on behalf of the company Pauline Colliery that was not incorporated yet and Rycroft the agent of Natal Land. Company is incorporated two months later. Then natal Land informed Pauline colliery that Rycroft was no more its agent. Another agreement between Colliery and natal Land. Pauline Colliery asked for specific performance of the contract and natal land refused the performance of the contract saying that the 1st contract was not valid. Problem of the first contract: Pauline Colliery was not incorporated yet when the contract was formed. Contract is void because the party to the contract did not exist.

The second contract either was not valid because Rycroft could not represent natal land anymore. So Pauline Colliery had not right to act against Natal Land. 1982 Phonogram ltd v Lane Phonogram decided to produce a group of music. A contract was signed between Phonogram and the manager of the group who signed on behalf of the production company. The company was never formed but Phonogram had paid to the manager the money. Phonogram brought an action against the manager. Was he personally liable for the contract he had signed on behalf of the company? European directive concerning this type of problem. Judge decided apply European law. The defendants lawyer tried to interpret the directive: said that if the company is never created it is not a socit en formation so the directive does not apply. But Denning disagreed. Manager is condemned to reimburse the money to Phonogram.

3. Shares and capital

When a company is created it must have a share capital. This capital is of a minimum of 1 if private company and 50 000 if it is a public company. Purpose of the capital of a company: first idea was a security for the creditors, but also investment in order to develop the company. Capital is not a security for creditors. a. Definition Capital of a company is the investment that the shareholder brings to their company. Money that is paid by the shareholders to their company and they receive shares in exchange. Capital may be paid after the company is formed, during the existence of the company. It may be increased during the companys life. Possible to reduce it under certain conditions. Issued capital: capital that is issued when the company is created. When capital is issued, you do not have to pay all the capital: you can pay certain percentage of the capital and pay the rest later on. Owned by the shareholders (who created the company or new investors). If the company is listed on the stock exchange you know that the capital is hold by shareholders. b. Shares Capital is divided into shares. Actions ou parts sociales in French. A share is a piece of property. A share gives a share holder two fundamental rights and one obligation: - Right to vote resolutions at the general meeting. Minimum period: every year. Has to vote on the accounts of the company, appointment of the directors - Right to claim dividends whici is a part of the profits of the company. Profits of the company is the difference between the turnover of the company and its expenses. If the turnover is lower than the expenses there is a loss. A company that has a profit is not always obliged to distribute the dividends. The shareholders decide if they will of not receive a dividend. Nowadays these rights do not always exist: some shares are with nor right to vote. - Only obligation is to pay your shares. No other obligations as a shareholder.

In the 19th century there was only one type of shares. After the WWII new types of shares appeared: - preference shares that give the shareholder a preference right (preference right to dividends: you may have more dividends or if the company does not distribute dividends you may have some). - Redeemable shares: shares that the company has the right to buy to the shareholder. - Companies may have types of shares: some with no right to vote, or no right to dividends. Instead of issuing shares the company can issue debentures: it is a loan that is made by the company which needs money. If youre the owner of a debenture it means you have lent money to the company, you will be reimbursed at a special interest totally from dividends (=obligations). US name: bounds. The shares are created when the company is incorporated. Capital is issued when the company is formed: issued capital. The shares created have a nominal value. But it is not the real value of the shares. When the capital is increased it means that you increase the number of shares. Shares are transferrable. They can be sought. If you owe shares, you can sell them. But there may be restrictions in the articles of associations. Pre-emption right : if a shareholder wants to sale his shares or part of them, the other shareholders have the right to buy them before a third party. If they renounce to this right then you will be able to propose them to someone else. When you buy or sell shares it is a contract. Transfer of share depend if the company is listed or not on the stock exchange. If not, the transfer of shares can be made by a simple contract: you buy or sell share on a specific price fixed in accordance with the value of the shares. If listed on the stock exchange, the shares have a value that change every second. 1st way to become a shareholder is to subscribe a capital (increase of capital or creation of a company). 2nd way is to buy shares to a shareholder. When you subscribe shares: you must buy them at their nominal value. Shares at a discount is not allowed (pay less than the nominal price). A premium means that when you issue new shares you will ask the shareholder to pay a higher price than the nominal value. Made not to discriminate the former shareholders. The capital does not increase. And the rest of the money goes in a special account. Consolidation of capital = to change the nominal value of the shares by dividing the shares, it is not an increase of capital. Reduction of capital = used to be forbidden in the 19th century. Nowadays possible to reduce the capital of a company. How? By reducing the nominal value of the shares, the shareholders renounce to certain rights. Or by reducing the number of shares: the company buys the shares. c. Dividends One of rights the shareholders has according to the shares he owns. Certain shares do not give a right to dividends. Certain shares give a specific right to dividend (preference shares).

Part of the profit made at the end of the tax year and that is distributed to the shareholder. Distribution of profit is decided by the shareholders at the GM. The dividends that are paid to the shareholders are not a salary. d. Financial assistance It is possible to give financial assistance to a person/company in order to allow this person/company to buy the shares of the company. Prohibited for a company to give financial assistance to someone which purpose would be to acquire its own shares (for public companies). No restrictions for private companies. If the companys object is to give loans there is no such restriction (bank). Criminal sanction if this law is not respected.

Fiche n2: The capital

1897 Re Wragg ltd Wragg and Martin had a business and an omnibus. They created a company and evaluated their business at 46 300 and decided to have a capital of 20 000. The shares of the company were given to Wragg and Martin in exchange of the business and added debentures. Company failed and a liquidator was appointed. He said that the business had been over evaluated. The business was worth 28 000 so the capital had not been completely paid. So they had to pay the difference. He also said there was a fraud. No rules concerning evaluation in private company. In a public company you must have an independent evaluation made by a third party (auditor). Private company in this case. Judge said that Wragg and Martin had the right to evaluate their business as they liked and even if they over evaluated it they did not commit any fraud or any violation of company law. 1892 Ooregum Gold Mining co of India ltd v Roper Company issued capital. Nominal value of the shares was of 1 but the company decided to sell shares at a discount (you had to pay 25 pence). Is it possible? Court said that no. shareholders had to pay the difference. 1968 Selanger United rubber Estates ltd v Cradock Selanger was under the direction of 2 persons. They took a decision: advance money to the company Woodstock (a company owned by M. Cradock). This company lend the same amount to M. Cradock. He paid to the shareholders of Selanger the money in order to buy the shares. He became Selangers majorit shareholder with the money lent by Selanger. Selanger was liquidated, Cradock left England and a procedure was brought by the Board of Trade against the directors, the Woodstock company and M. Cradock. Directors are assimilated as trustees: duty towards their company. So the directors could be personally condemned for the used of the companys fund against the interest of the company. Cradock: not a director so not a legal trustee. Judge condemned him saying that he was not a trustee but had participated to a process made in fact to take away money from the company contrary to its interest. So he is considered as a constructive trustee (assimilated to a trustee).

1980 Belmont Finance Corp v Williams Furniture the company City has a subsidiary called Belmont. Belmont wanted to acquire the shares of City so they had a transaction that included that a property was sold to Belmont and in order to pay the sale the share in Belmont were sold by city to the vendors. The case also talks about this idea of constructive trustee. City is the shareholder of Belmont and is condemned as a constructive trustee. 1897 Andrews v Gas Meter a company had a capital divided into 600 shares of 100 each. Articles of association gave power to increase the capital. Issue of preference shares was not authorised. To change that, there must be a resolution to change the articles of association. That is what they did: voted a resolution to allow the issue of preference shares. They then issued the preference shares and increased the capital. Action was brought by a minority of shareholders who did not agree: they said that it was not possible to issue these shares and to change the articles of association. Court of appeal said it was the right to change the articles of association and that this change must be the same for all the shareholders so the minority shareholders were not discriminated against.

4. Company meetings
a. Annual general meetings Company is made of 2 organs: shareholders and direction of the company. In the beginning of company law, the idea was that the company was a sort of democracy so all the power was given to the shareholders. And role of director is to enforce the decision taken by the GM of the shareholders. In fact the situation is very because most of the time the direction of the company takes the decision and shareholders are only asked to approve them after they have been taken. Recently the idea is changing. They exercise their power and their right in the company meeting: annual general meetings. Any company must hold at least one meeting every year. Delay of 6 months to establish its accounts after the end of the period of the tax year. The procedure has been simplified for private companies: they do not need to have a real meeting. They can in fact just have a document that will be signed by all the shareholders every year. Can be made only if there is a consensus (if the decisions are taken unanimously). If one of the shareholders disagrees you need to have a real meeting. Public companies must have a real annual GM. Procedure: must be organised by the direction of the company. Annual GM is the minimum that exist. In addition to the annual GM there may be other meetings during the 12 months period: extraordinary GM. The shareholders may decide to take decisions that will not be made at the annual GM. The object of the EGM is from the AGM. AGM has one main object: approve the accounts of the company and decide distribution of dividends. Shareholders are given a presentation of the accounts. In public companies there are auditors: independent accountants that will make a report every year on the accounts of the

company. Other subjects can be decided at an AGM: appointment of revocation of the directors of the company. EGM: all the other subjects can be voted. Any increase of capital will be voted at an EGM The votes: the shareholders when they take a decision they vote. Decision that is taken by the shareholder is called resolution. 3 types of resolution: - Normal resolution: any resolution voted at the AGM. Voted at a simple majority: more than 50% of the shareholders that are present of represented at the GM. To vote the accounts of the company, appoint or revoke directors - Extraordinary resolutions voted at EGM. Need majority. - Special resolution: special majority b. Organisation of meetings You must decide a date and send a notification to the shareholders (15 days before the meeting). Criminal offense for a director not to have the AGM. No limitation to the right of the director to hold GM. At any moment the director may decide to hold a GM. A minority shareholder has no right to decide an extraordinary GM. Possible for a majority shareholder to decide a GM? No the power is in the directors. If directors do not call for a meeting: - When shareholders represent more than 10% of the voting control of the company wan ask the directors to have a EGM. If director refuses possible for shareholders to go to court and ask the judge to decide for a GM and decide the subject of the GM. Question of the quorum (minimum number of shareholders that must be present in order to take a decision): need to have at least 2 shareholders in public companies and 1 in private companies. At the GM the shareholders will appoint chairman of the GM. Resolution are submitted by the directors and voted by the shareholders. Can be made in an informal manner like raising hands (most of the companies) but can be more formally: poll secret vote. Proxies: power that is given by a shareholder to vote for him at a general meeting. Can be strict or general. Can be given to any person. Records of the GM: minutes of the GM are taken by the secretary of the company.

5. Directors
En France, cest selon type de socit: grants, directeur gnral, conseil de surveillance/directoire, prsident de SAS In England, a company is managed by directors. Whether private or public: no in the name. only is that in private company you may have only one director and in a public company there must be at least 2 directors. a. Appointment, revocation and disqualification Director is appointed by shareholders at a simple majority by an ordinary resolution. When the company is created the directors are designated at the register house. Any public company has a board of directors. To be director of a company you need to be 16 years old to be director, if you are foreigner you may reside outside UK. No

specific qualification required. Must not have been disqualified. When you are appointed you may be appointed either for a specific period or without any specific term. No need to be a shareholder to be director. GM has also the power of revocation. Ordinary resolution with a simple majority. No need for a cause for the revocation of a director. Not supposed to ask for damages but sometimes directors have a special clause in their contract that allows them money in case of revocation. Such clauses are valid. In a company two types of directors. Some are appointed directors to vote the important decisions at the board of directors and thats all. And others are directors who vote but are also working effectively for the company managing/executive directors. These directors have a daily presence in the company. They have certain duties. Distinction not contained in the law, its the practice. Those who are not managing directors have no remuneration, they have a specific remuneration for each board of directors decision (=jetons de presence). Those who exercise a real function have a real remuneration: they are employee+director. When they are revoked: pb the revocation as director does not mean they will be dismissed as an employee. Shadow director: person who is not a director from a legal point of view but exercises the powers of a director. Disqualification: Directors disqualification Act 1986. Means that the director will be condemned by a court not to be director for a certain period. Can be pronounced for general misconduct in company. Remuneration: decided by the board of directors. Can also be voted by a special comity. Remuneration is disclosed to the shareholders. If private company: acts alone. In public company: directors act in a board. The board is presided by the chairman. He is a director who has been appointed by the other directors as chairman. A few years a ago the real power was in the chairman. Nowadays it changes a bit; the chairman is the one who makes the general orientation. No rule: the board of directors meet whenever they want. Decisions made at a simple majority. b. Powers Powers are contained in the articles of association and contained in the law. Manage the company to exercise all the executive power in the company. Control on the power of directors: they exercise them in the limit of the articles of association. But generally they say: he has all the power necessary to manage the company. Some powers are specifically granted to the shareholders: they cannot change the articles of association for example. If the shareholders disagree with the decisions, they can revoke the directors. They can sue them. But they have very little power concerning the restriction of the directors powers. c. Duties Duties of the directors: do the directors have duties? No definition of the directors duties. Courts had to define them: tried to compare them to other situation that already existed in other areas trustees.

They have fiduciary duty: to act in good faith in the interest of the company. They have a duty of skills: you need certain skills to be a director. Re City equitable fire 1925: court defined the duty of skills of the directors: they need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. Directors have a duty of care. But it seems to be limited: can director be sued if decision wasnt good or if he never comes to the board? Judges in this decision said a director is not bound to give continuous attention to the affairs of his company. And also if he has delegated his powers he cannot be responsible for th acts committed by the other person or other directors in the absence of grounds of suspicion. The director is not bound to attend the board of directors so cannot be sued on the ground of duty of care. These duties are now in the company laws Act. Fiduciary duty: to act in the companys interest. The director acts for the company, he represent it. When you act in the interest of the company you do not act in your own interest. Director cannot make a profit due to his position of director. Is it possible for a director to be interested (be director in 2 companies that make a contract)? First courts said no there is a conflicting interest. But then they said that such contracts are valid if it has been approved by the board of directors before the contract is made. Corporate opportunity: where a company is offered a contract and if the company refuses the contract, can a director take the contract for himself alone? Court said there was a conflicting interest. d. Liability Directors have a personal liability related to the acts they may commit as directors. Shareholders have no personal liability. Liability may be contractual or tortuous (torts dlictuelle). Contractual liability if they make a contract for the company when they do not have real authority. Then they will be personally liable for the contracts they have made. Contractual liability is not a liability owed to the company but tot the persons with whom he is contracting. When they act on the company they act on behalf of it so they have to have the power: the chairman ahs the authority. The other directors must have the authorisation given by the board of directors. Liability based on torts: toward the company and towards the shareholders. When the directors have duties: if the director does not respect these duties, there is a civil liability owed to the company: eg. If the director commits a fraud. Director also has a duty to the shareholders taken individually: if he causes damage to the shareholders. Criminal offenses may be committed (fraud,): liability. Possible to limit liability? Act 2006 said that any clause contained in the directors contract or article of association that is made to exclude or limit their liability is void. e. Insider dealing Concept created in the US in the 1960s/70s. It appeared in Europe in the 80s. Fact that certain person in a corporation or in a company make personal profit because of the information they have on their own company (confidential information). These information have some consequences on the value of the shares of the company.

It was normal until the 60s in the USA. But then considered as contrary to the interest of the company and to moral policy. Laws voted on insider dealing. Last one is the criminal justice act 1993. Its now a criminal offense. Insider dealing is not considered as a civil wrong: if directors and shareholders commit insider dealing, normally they cannot be sued in civil court by minority shareholders. So a shareholder could bring an action on the ground of breach of fiduciary duty. Directors owe fiduciary duty to the company. So if breach of fiduciary duty, minority shareholders must bring an action in the name of the company (majority shareholders wont bring it against themselves). To commit insider dealing you must be an insider and dealing with shares. Insiders: - directors, - shareholders of a company - but also someone who is not a director, or shareholder but has access to confidential information on the company because of his functions, duties (solicitor) - someone who has heard the information from an insider - any person who has search or looked for confidential information (journalist) When you are an insider any transaction on equity (shares, bounds) is illegal. This prohibition stops when the information is public. You can be condemned to jail, to pay a fine (it is unlimited). Problem is that less than 1% of the persons committing insider dealing are caught. In a criminal offense one of the elements is the intent. Is intent needed in insider dealing? Intent is presumed: it is the person who is prosecuted that must prove that he had no intention to make a profit. When there is a condemnation: money goes to the state as it is a fine and not to the company. Not automatically revoked if you commit insider dealing. f. Corporate governance Appeared in the 1990s first in the US and then in Europe at the end of the 1990s. Still in evolution. It is something to have governance more moral, more democratic, more in favour of the shareholders. Not defined by the law. Some countries in which the concept is more developed (Belgium). Last text elaborated in the UK: combined code on corporate governance. It contains certain principles that should be applied in company law. They concern the board of directors: company should be managed by an effective board of directors which collectively responsible for the success of the company. There should be a distinction between the chairman of the board and the chief executive. The appointments should be made on constructive and real criteria, appoint on their merits. Remuneration of directors: code contains no precise rule on this. Must be decided by an independent committee, it should be reasonable. It bonus given, it should be granted on independent and real criteria. Concerning the accounts of the company: also lots of recommendation.

Fiche n3: Directors

Automatic Self cleansing Filter syndicate Co ltd v Cunninghame 1906

Articles of association gave to the directors the power that they normally have (management of business and control of the company). But shareholders decided to sell the companys undertaking. Directors refused to carry out the sell. So shareholders went to court: brought their action for ?? Quin & Axtens v Salmon 1909 ?? Marshalls valve Gear vs. Manning Warlde 1909 To exploit his invention Marshall created a company. He was the majority shareholder and did not have the majority in the board of directors. Other directors created another company and which infringed the patent that Marshall had created. Marshall wanted to bring a court action against this other company. But the victim being his company the court action had to be brought by it. But pb is that Marshall did not have the majority in the board of directors who refused to bring the action. He decided to bring an action on behalf of his company but without any authorisation of the other directors. the other party contested the action. The judge should have said that once the board has refused, Marshall could not bring the action by himself. As he was majority shareholder no need to recall a GM and could bring an action without nay authorisation. Bamfort vs Bamfort Bamfort was under a takeover bid. But the directors did not agree and wanted to favorise another company and prevent the takeover bid. So they issued new shares and gave to a friend to render the takeover mode difficult. Also asked for a GM and asked it to vote on this decision. GM approved the decision. But a group of shareholders went to court and the group contested the ratification made by the GM saying that the increase of capital was made for an improper purpose and could not be ratified by the GM. Judge held that there was a proper purpose and that the ratification was also valid. Decision contestable. Baron vs Potter 2 directors. They had a personal conflict and did not talk to each other. So no board meetings. One of the directors asked for a GM and voted for an additional directors (even if power to appoint in this company is given only to directors). Judge said the decision of the GM was valid to put an end to the situation.

6. Minority Protection
Concept that appeared in the US in the 1930s with the idea that minority shareholders must be protected. It appeared in Europe in the 60s-70s. Minority shareholders have so duties and so rights and have to be protected.

1st Protection: give them the possibility to bring actions. a. Different actions When a civil wrong is committed by a director (breach of fiduciary duty) the company is allowed to bring an action against the director or majority shareholders. Foss v Harbottle 1893 if a damage is suffered by the company that must be the company which must be the plaintiff. Board of directors act on behalf of the company. But pb: if breach of fiduciary duty it is unlikely that the board of director will bring an action against themselves. So possibility for minority shareholders to bring an action on behalf of the company. This type of action is possible if the board of directors refuses to bring the action. Its a derivative action. Damages will be received by the company. Minority shareholders may also in other cases have a personal damage that may be caused by an act committed by the majority shareholders, directors or the company. Not a derivative action because the minority shareholder brings the action in his own right, its a personal action. Class action: comes from the US. Same ground of action, same complaint, same defendant but the amount of damages can be from one person to another. They join in the same action in order to avoid cost and be more efficient. Ask for a global amount then divided between all the plaintiffs. Same idea as personal action. In the US: regulated. In UK and France: each shareholder will have to ask for his own claim. Class action doesnt exist in UK and France because punitive damages do not exist. The interest of this action relies only on punitive damages. b. Statutory protection of minority shareholders Protection provided by statute law. Were given a protection by case law before that. Idea appeared that the majority shareholders had certain duties (shareholders have rights but no duties so some of them must have duties: majority shareholders). They had the same duties as a director: fiduciary duty towards the company (when a majority shareholder votes, he must vote in the companys interest and not in his own interest) and towards minority shareholder. Fraud on the minority is created: decision is taken by the majority shareholders that is contrary to the interest of the minority shareholders. Such a resolution is not valid. Minority shareholders can go to court to contest the resolution. If minority shareholder goes to court to cancel a resolution: derivative action. If he can prove that he has suffered a personal damage because of the resolution: personal action. Limit of this concept is that it gives minority shareholders a certain power, but only applies if a resolution is voted. If directors take decisions that are contrary to the interest: minority cannot bring an action to contest it because it is not a resolution, they may bring an action for breach of fiduciary duty. So to help minority shareholder protecting their own rights dispositions were taken. Article 122 Companys Act: allows any shareholder to petition the court if it would be just inequitable to wind up the company (put the company into liquidation). But difficult to use so rarely used. Article 994 Companys Act 2006: a member of a company may apply to the court by petition for an order on the ground that the companys affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members or

of some part of its members including at least himself or that any actual or proposed act or omission of the company is or would be so prejudicial. Gives the power to any member when he considers that the affairs of the company are made in a way that is unfairly prejudicial for him. This section doesnt contain a special type of remedy so they can ask anything to the court (except damages). c. Department of Trade Public institution that depends on the ministry of trade and whose function is to control companies in UK. It has powers. It has powers of investigation for any type of company (public or private): inspectors can investigate into the affairs of a company. It decides to investigate on a company by itself, or it may be ceased by shareholders but they need to have 10% of the voting right, may also be ceased by a judge or a prosecutor. It cannot make any civil of criminal action. If investigations are made, it will make a report that will be transmitted to the court or the prosecutor. It is a control body.

7. Others functions
a. Auditors Only certain types of companies need auditors: private companies do not need them. He is an accountant registered on a special list. Independent persons or companies. His function is to control the accounts of the company, to verify they are duly made. The auditor does not make the accounts (they are made by the accountants). Power is important, and they must be independent from the company and from the companys accountants. Auditors are appointed by the shareholders by ordinary resolutions for a certain period. They are remunerated by independent persons and are not employees of the company. They are summoned to GM (most of the time they do not come). And each year they make a report. Auditors also may have other functions in certain cases: -if there is non cash consideration (if shares are issued to a shareholder in compensation of a property, the value of the property must be evaluated) - when contract between director and his company (director must disclose his interest before the contract is made): every year report is made by auditors to show this contracts were made regularly. They have almost the same duties as directors: act in good faith, in the interest of the company, must be careful when they draft their report. The auditors have an obligation if they find any criminal offense: disclose this act to the prosecutor in order to enable eventual criminal proceeding. b. Company secretary Function of secretary is a function that does not exist in French law. Only public companies must have a secretary. The secretary can be a person or a company specialised. He may be an employee of the company or an independent person or firm.

Function: make all the administrative work concerning company law. It is him who prepared the GM, drafts the minutes of the GM Not a director, not always a shareholder. Its a legal function. Special qualification to be secretary: performed by a solicitor or someone who has a legal law diploma and be registered on a special list.

8. Reorganisation
Different ways to terminate a company. 2 categories of procedures: voluntary arrangements and liquidation. a. Voluntary arrangements 2 categories: the voluntary arrangement made to terminate the company because of the shareholders decision and voluntary arrangements that are made because of the companys financial problems. - Voluntary dissolution: similar as in France. Shareholders decide to stop the company for personal reasons. Decision taken by a special resolution and it is procedure under which the company will pronounce its own dissolution. Company will pay all its debts, will have to end all the procedure that are pending if any. At the end of this dissolution procedure a special account is made and most of the time there will be money that will remain and will be distributed to the shareholders. - Voluntary arrangements due to financial problems: insolvency Act 1986 amended in 2002. For companies that are not in a state of insolvency but have financial problems. Arrangement made with the creditors of the company. This arrangement is to pay the debts most of the time within a certain delay. The arrangement will be supervised by an independent person who is called a nominee. The nominee is a sort of negotiator, he has special qualifications. Very flexible procedure made to face temporary problems without being a strict procedure of insolvency. But also a second procedure in English law. It is also considered as a voluntary arrangement: procedure of administration. Created in 1986 and considerably amended in 2002. Idea is to appoint an administrator who will have very important powers and will make certain decisions in order to help the company to face the different problems and has also certain powers to impose certain conditions to the creditors. Also the administrator may take certain decisions concerning the employees of the company. Appointment: - by the directors but very rare. - by the creditors. Especially creditors who have a floating charge: special guarantee. Administrator has a period of 12 months during which he will make any decision that could be necessary to help the company to continue its existence. He has the power to make negotiations with creditors b. Liquidation

When a company is in a state of insolvency and where the company is not able to pay its debts and when the company had not been able to settle a voluntary arrangement. - Winding up procedures (liquidation): compulsory winding up or voluntary winding up. Compulsory: situation where the company will be put into winding up by someone else than the company (creditors, board of trade, shareholder). Voluntary: the procedure is initiated by the company itself. Procedure is made in a special court. So procedure must start by a petition in court that will issue a winding up order (this suspends all the execution procedures that are pending against the company). The court appoints a receiver whose function is to take the management of the company and to examine the possibilities in order to pay the debts. At the end of the procedure: either the company will be reorganised or the company will be liquidated (will lose its legal personality). Consequences: the directors liability may be questioned and prosecuted if there are any criminal offenses that are committed. Liability exists only if there are breaches of their duty. But there are civil sanctions that may exist: disqualification, damages. If the company is liquidated the debts remain unpaid. Shareholders do not have to pay the debts and the directors as well. c. Take-overs Process under which a company acquires the control of another company. Concerns companies that are listed on the stock exchange. Always starts with the take over bid Its an offer that is made to the shareholders of the target company. Offer made to acquire the shares of the shareholders. In order to make the offer attractive the price normally will be higher than the market value. This take over bid is public and contains the description of the offer: the number of shares, the price and a delay. Bid is successful if the shareholders accept it. The take-overs are not regulated in company law. No real dispositions that exist concerning take-overs. 2 sources of law: European law (directive of 2004 introduced in English law in may 2006) and the city code on take-overs and mergers. It is not a code as we understand in France. It is in fact a document that contains several rules but has been made by the city in London (stock exchange organisation: especially the Panel). It has no value as a law and is not normally something that is compulsory or enforceable by the courts. It contains principles that companies respect. These sources contain general principles. Ex: when take over bid is made, there is an obligation for the directors of the company that makes the bid to make a report both to describe the terms of the offer but also to give the offerees information on the company and on the objectives of the offer. In 2006 new criminal offense was created for failure to comply with the rules related to take-overs. Ex: if directors give false information than they can be prosecuted on a criminal point of view. Also there are rules that exist in order to force shareholders to disclose their interests in the company. When you become shareholder in a company once you acquire a certain number of shares you must disclose your interests in the company. Goal: prevent certain persons from acquiring shares slowly, secretly in order to obtain the control of the company.

Certain dispositions exist: take over defences. The company object of the take over may want to fight against it. So there are procedures under which a company wants to fight against it. One of the defences is to increase the capital.

Fiche n4 Powers and duties of directors

Contracts made by a company Aberdeen Rly vs Blaikie Bros 1854 Contract valid since directors was in both parties? HL considered that since there was a person who was director in both companies, there was conflict of interests and it rendered the contract void. So the company could not enforce the contract. First decision rendred on the subject. North West transportation vs Beatty 1887 Henry Beatty is a shareholder. Company had lost one of its boats and absolutely needed one. One of the directors James Hugues Beatty had one so he sold it to the company at a normal price. Shareholders of the company brought an action against the company and against JH Beatty in order to have the sell declared void. After the contract was made it was ratified by the GM. Since the sale was in the interest of the company, the price was normal and the interest of the director had been disclosed then the court considered the contract valid. Change in the jurisprudence. Director can be concerned by a contract made in 2 companies but there are the 3 conditions that must be fulfilled. Hely Hutchinson v Brayhead 1968 If no authorisation of the board of directors: director can be prosecuted, its a criminal offense. The contract is voidable (pas nul de plein droit, juge determine si le contrat doit tre appliqu). Fiduciary duty Percival v Wright 1902 Directors of the company were negotiating the sale of the company but shareholders were not aware of that. These negotiations were made to sell the company at a price. Certain shareholders of the company for a reason completely different of the negotiation, they proposed to the directors to sell them their shares cheaper. The directors accepted the sale without saying anything about the negotiations. The shareholders sold the shares. But later on the negotiation fell. The shareholder discovered the negotiation. They went to court against the directors on the ground of breach of fiduciary duty: the directors should have refused to buy the shares or should have told them about the negotiation price. Did they have a fiduciary duty? Yes but to the company no to the shareholders so no obligation to disclose. No unfair dealing. Nowadays minority shareholders could act on the ground of insider dealing. Allen v Hyatt 1914 Directors were making negotiations for an amalgamation (= merger). They told the minority shareholders that they were making a negotiation but did not disclose all the

details. Said it would be useful if the minority shareholder could give them options to buy the shares at a nominal value. So they did it. Amalgamation was successful and the majority shareholders decided to exercise the option and bought the shares and made the profit immediately. Minority shareholders went to court on the ground of breach of fiduciary duty. Court took a view because situation : the directors had asked the shareholders to sell the shares. When the directors asked for this option they became agent of the shareholders so they acquired duties toward them. They did not respect it so they are liable. Corporate opportunity Regal Hastings vs Gulliver 1942 Regal owned a cinema. The directors wanted to acquire 2 other cinemas so they created a subsidiary whose purpose was to lease the 2 other cinemas. Made negotiations with the landlords. Company had a capital of 5 000. But no sufficient fund to have that capital. 4 directors paid 500 each to increase the capital and the mother company paid 2000 and the rest paid 1000. Instead of doing the lease another agreement was made: all the shares in the 2 companies were sold to the landlord of the 2 cinemas. As the shares were sold at a higher price. So all the persons who had contributed made a profit. Company who bought the shares started an action against the former directors for breach of their fiduciary duties. Court said that this profit was due to their positions of directors, they breached their fiduciary duty to the company and had to reimburse. Creation of the corporate opportunity. Peso Silver mines vs Cropper 1966 Company Peso Silver Mines was contacted by a person who proposed to sell to the company prospecting claims on mining territory. The board of directors refused the sell. Certain directors decided to create a syndicate, they made the contract and took the claims. C was one of these persons. Peso decided to bring an action against Cropper saying he had breach fiduciary duty because he took this contract for himself and made a profit. Court decided differently: since Peso had refused the contract then one of the directors could take the opportunity for himself. Doctrine of improper purpose If director acts in good faith and in the interest of the company: is it enough or shall we look at the purpose of directors when taking decisions? Punt v Symons & co (1903) Directors did not want their company to be acquired. They decided to increase the capital. Decision taken in good faith and believe it is not in the interest of the company to be acquired by another company. They acted in their power and in their fiduciary duty but the court said that even if it is in the interest of the company, they abuse heir power. Court considered the decision as invalid. Hogg v Cramphorn (1967) Same situation: directors made increase of directors in order to prevent a take over bid. The court did not look at the decision it self but at the purpose of the directors: decision made to favorise certain shareholders so the intention of the directors is not proper, so decision is not valid. New criteria: improper purpose. It is a subjective criteria. If the intention is not valid then the decision is not valid as well, even if it is

made for a reason they thought in the interest of the company, in good faith and within their power. Fiduciary duty = good faith+interest of the company+proper purpose Harlowes nominees Pty ltd v Woodside Oil co 1968 Australian court. Court said the decision is made within their power, in what they believe the interest of the company so the court does not have to look at the purpose of the directors. Rejection of the improper purpose.

Fiche 5: The controlling members duties

Cook v Deeks 1916 4 main shareholders. 3 of them wanted to stop their relation with one of them. New contract that was being negotiated: 3 directors made the negotiations. Once successful they created a new company and it took the contract. They called a GM of the 1st company at the same time and voted a resolution under which the company said it renounce to the contract, the 4th director disagreed and brought an action against the 3 directors and the company on the ground of fraud on the minority. Said the this resolution was a breach by the majority shareholders of their duties towards the company and its a fraud on the minority. Court said it was a fraud on the minority since the object of the resolution was not in the interest of the company and was against the minority.