Department of Law, Criminology and Community Justice Company Law Module Manual 2013-2014 Level & Level Module Team: Mark Edwards, Jeremé Snook © SHU All rights Reserved 2013 CONTENTS Section Module Calendar (lecture & seminar plan) Module Descriptor Teaching Staff and Contact Details Student Support and Student Admin Contact Details Student Responsibility Assessment and Feedback Textbooks and Materials Guidance to Referencing and Citations Page no 10 16 17 Lecture Programme: LECTURE – Methods of Trading; Formation; incorporation LECTURES & – Separate legal personality & ‘lifting the veil’ of incorporation LECTURE & – Promoters and Pre-Incorporation Contracts LECTURE & – The Constitution of a Company LECTURE – Directors LECTURES & 10 – Directors’ Duties LECTURE 11 - Disqualification of Directors LECTURE 12 – Final Coursework briefing, Revision & Coursework Technique LECTURE 13 – Shares and Shareholders (an overview) LECTURE 14 – Shareholders’ Meetings and Voting LECTURE 15 & 16 –Shareholders’ Rights and Remedies LECTURES 17 & 18 – Maintaining and Raising Capital & Charges LECTURES 19 & 20– Insolvency and Liquidation LECTURES 21 & 22 –Vulnerable Transactions in Insolvency &Directors’ Liabilities LECTURE 23 & 24 – Revision, Exam Preparation and Technique 28 31 35 38 44 47 50 54 55 59 62 65 69 73 76 Seminar Programme: Seminar - Introduction and Forming a Company Seminar - Companies and Separate Legal Personality Seminar - Separate Legal Personality and Lifting the Veil of Incorporation Seminar - Promoters and Pre-Incorporation Contracts Seminar - Company's Constitution, Article clauses & Shareholder Agreements Seminar - Directors' Duties Seminar – Feedback from the Coursework Seminar - A Shareholders’ Meeting and Voting Seminar - Minority Shareholder Protection Seminar 10 - Charges: Fixed and Floating Seminar 11 - Liquidation and vulnerable transactions 78 79 80 82 84 86 88 89 91 93 95 Appendix 1: Sample previous Examination Paper (May 2013) 97 MODULE CALENDAR – LECTURE AND SEMINAR PROGRAMME 2013/14 Wk No W/C Date Lectures Seminars 10 30th Sept Methods of trading; Company Formation; Consequences of Incorporation Introduction to Company Law and Forming a Company 11 7th Oct 12 14th Oct & – Separate Legal personality and ‘Lifting the veil’ (2 lectures this week) Promoters and Pre-Incorporation Contracts Introduction to Company Law and Forming a Company Companies and Separate Legal Personality 13 21st Oct Promoters and Pre-Incorporation Contracts 14 28th Oct Constitution of the Company 15 4th Nov Constitution of the Company 16 11th Nov Directors Generally Companies and Separate Legal Personality Separate Legal Personality and Lifting the veil Separate Legal Personality and Lifting the veil Promoters and Pre-Incorporation Contracts 17 th 18 Nov th Reading Week 18 25 Nov Directors’ Duties Promoters and Pre-Incorporation Contracts 19 2nd Dec 10 Directors’ Duties The Constitution of a Company 11 Disqualification of Directors The Constitution of a Company 12 Final Coursework briefing and technique Directors’ Duties 20 th Dec th 21 16 Dec 22 23rd Dec 23 24 Student Vacation th Student Vacation th Student Study Week 30 Dec Jan 25 13 Jan SHU Exam Period – 13th – 17th Jan 26 20th Jan SHU Exam Period – 20th – 24th Jan 27 27th Jan 28 th rd Feb th 13 Shares and Shareholders – an Overview Directors’ Duties 14 Shareholders’’ Meetings and Voting Coursework Feedback 29 10 Feb 15 Shareholder Rights and Remedies Coursework Feedback 30 17th Feb Shareholders’ Meeting and Voting 31 24th Feb 32 3rd Mar 33 10th Mar 16 Shareholder Rights and Remedies 17 Maintaining and Raising Capital and Charges as Security 18 Maintaining and Raising Capital and Charges as Security 19 Insolvency and Liquidation th Shareholders’ Meeting and Voting Minority Shareholder Protection Minority Shareholder Protection 34 17 Mar 20 Insolvency and Liquidation 10 Charges: Fixed/Floating 35 24th Mar 36 21 Vulnerable Transactions in Insolvency 10 Charges: Fixed/Floating st 22 Vulnerable transactions in Insolvency 11 Liquidation th 23 Revision and Exam Technique 11 Liquidation 31 Mar 37 Apr 38 14th Apr 39 40 4144 2-3 Student Vacation st 21 Apr th 28 Apr 5th – 30th May 4th -15th Aug Student Vacation 24 Revision and Exam Technique 12 Blackboard Revision exercises (all groups) SHU Exam Period Refer/Defer Assessment Period MODULE DESCRIPTOR MODULE TITLE SI MODULE CODE CREDITS LEVEL JACS CODE SUBJECT GROUP DEPARTMENT MODULE LEADER NOTIONAL STUDY HOURS BY TYPE Company Law 24-5005-00L & 24-6015-00L 20 5&6 M221 LAW Law, Criminology and Community Justice Mark Edwards Tutor-led Tutor-directed Self-directed 30 100 70 Total Hours 200 MODULE AIM(S) The module is designed to introduce you to the legal structure of a company as an economic mechanism of conducting business and to develop your knowledge, understanding and appreciation of topics central to company law The aim is to enable you to identify key legal issues in relation to company law and propose coherent solutions to practical, hypothetical situations, through the use of case law, statute and regulatory practice MODULE LEARNING OUTCOMES By engaging successfully with this module you will be able to – Level Identify, explain and apply legal principles and concepts in relation to company law Evaluate and critically analyse the relevance and significance of facts presented, by coherently synthesising a line of legal argument, justified by relevant legal authority Demonstrate research skills by distinguishing between the range of legal and academic sources that are relevant Use and explain specific terminology in relation to company law Solve legal problems by identifying solutions and critically evaluate aspects of law, in a written form, to accepted academic and legal conventions Level Identify, explain and apply legal principles and concepts in relation to company law in sufficient detail for the purpose and identify uncertain, ambiguous, contradictory or limited legal aspects Evaluate and critically analyse the relevance and significance of facts presented, by coherently synthesising a line of legal argument, justified by relevant legal authority and make defensible judgements and arguments Demonstrate research skills by identifying a broad range of sources and distinguishing between the range of legal and academic sources that are relevant Use and explain specific terminology in relation to company law Solve legal problems by identifying focussed contemporary solutions and critically evaluate and comment on aspects of law, in a written form, to accepted academic and legal conventions INDICATIVE CONTENT The learning outcomes will be met by covering the following general topics in the module: Company formation Separate Legal Personality and lifting the veil Promoters and Pre-incorporation contracts Company Constitution Management of a Company – in particular roles and responsibilities of directors Company Ownership – in particular shares and shareholders Raising of Capital Insolvency and liquidation Vulnerable transactions in insolvency and directors’ liabilities LEARNING AND TEACHING METHODS You will be supported in your learning, to achieve the learning outcomes, in the following ways: Contact sessions Lectures: The module is delivered via a weekly one-hour lecture designed to introduce a particular topic area and to concentrate on the key aspects of that part of the law The lecture is delivered via a PowerPoint presentation, slides for which are provided via Blackboard (see VLE below) Seminars: Seminars are delivered fortnightly to timetabled classes of a maximum of 20 students Typically seminars are based on hypothetical company law problem scenarios that require adoption of an ‘enquiry-based’ learning approach to study You are required to come prepared to discuss preprepared solutions to the problem Learning occurs through the collective contributions of students and is guided and corrected by the seminar tutor The learning in the seminars feedsforward to subsequent seminars and learning is directly aligned to the assessment tasks in the module The approach to the subject matter is broadly incremental, each lecture building on the knowledge gained in the earlier lectures The role of the seminars is to reinforce legal and academic content and to provide opportunities for you to apply, discuss and reflect on your learning Module Manual Learning is supported by a Module Manual (this document) that contains a full lecture and seminar schedule, details on the aims and objectives, the learning, teaching and implementation strategy, an overview of assessment and feedback on the module, student resources required, details of the module delivery team, details of student support staff, the role of the student within the module, summative assessment feedback criteria, lecture outlines, seminar questions with preparation tips and a sample prior year assessment paper Virtual Learning Environment (VLE) Blackboard The delivery of the module is aided by a bespoke “Blackboard” site to which all students are enrolled Blackboard is the main communication device with students outside contact sessions The Blackboard site includes an electronic version of the Module Manual and all the material within that Manual (detailed above) can be accessed electronically In addition, the Blackboard site includes: links to PowerPoint slides for all lectures access to formative assessment in the form of multiple choice questions that support and supplement each seminar links to some key cases and statutes assessment guidance guides to using legal databases (e.g Westlaw and LexisLibrary) guides on how to reference for the assessment task using the Oxford Standard for Citation of Legal Authorities external links to key Government and legal profession web sites assessment details, criteria and guidelines on-line submission of coursework feedback on grades attained in formative and summative assessment a Blackboard ‘help’ content area rules and regulations in relation to the University’s cheating procedure On-line Multiple Choice Questions and Feedback Learning is supported outside contact sessions with a set of formative assessment questions through a series of on-line “Multiple Choice Questions” (MCQ’s) that support and supplement each seminar Each question provides the opportunity for additional information to supplement knowledge, whether the question is answered correctly or not This will give you immediate feedback on how you are progressing on the module The use of this Computer Assisted Leaning (CAL) will help you develop and broaden research skills as well as “forcing” the use of IT in your learning As these questions support the seminar preparation, it also aids time management skills Weekly surgery/Meetings/Drop-in sessions Each tutor has a formal weekly ‘surgery’ time that students can arrange to meet their seminar tutor in order to support their learning You can also contact tutors via-e-mail and arrange mutually convenient times for meetings At specific times throughout the module, drop-in sessions may be timetabled to offer feedback or guidance Students can e-mail or call tutors for advice or guidance Peer Support Groups e-learning is further built into the module, with the ability of students to use a discussion board to act as a method of peer support Additionally you can optionally work in peer groups to collaborate on seminar preparation work via a WIKI Please contact the Module Leader, Mark Edwards, if you would like this to be set up for you and your peers Teaching Staff and Contact Details Teaching Staff The members of staff teaching on this course are: Mark Edwards (Module Leader) Dr Jeremé Snook Mark Edwards has overall administrative responsibility for the module Students will be allocated to seminar groups It is essential that you keep to these groups and changes will be agreed only in exceptional circumstances Please note that attendance at seminars is compulsory and registers are kept Staff Contact Details Mark Edwards (Module Leader) Office: Southbourne, Room 243 Tel: 0114 225 5454 e-mail: mark.edwards@shu.ac.uk Dr Jeremé Snook Office: Southbourne, Room 240 Tel: 0114 225 2285 e-mail: j.snook@shu.ac.uk Details of ‘surgery’ times or other times when students can arrange to see tutors can be found on Blackboard Contact Details for Student Support and Student Administration Staff HELPDESK Helpdesk is often the best first point of contact as they can help directly, or put you in contact with the relevant section that can assist with your query Tel: 0114 225 2543 e-mail: - fdsenquiries@shu.ac.uk Other staff supporting students are: Student Support Tel: 0114 225 2543 (best accessed via Helpdesk) e-mail: - Southbourne@shu.ac.uk Staff: Howard Mitchell – Student Support Officer Seyi Junaid – Student Support Administrator Nicola Pearson – Student Support Administrator Student Administration Tel: 0114 225 2559 e-mail: - Carl.Green@shu.ac.uk Staff: - Carl Green – Student Administrator Contacts during periods of staff absence If staff are not contactable (usually because of being on leave, or away from the Campus on University business) they will have an out-of-office reply set up on their e-mail directing you who to contact Invariably you will be re-directed to a colleague or the helpdesk (details above) and to information on the Blackboard site Always check out Blackboard and ShuSpace for information as most questions can be answered on there Students' Role within the Module We assume that you will take responsibility for your own learning and we expect you to attend ALL lectures and seminars, as learning is a shared experience and you have a part to play in promoting both individual and collective understanding Many of the legal concepts and terminology will be new to students (it has its own unique language in parts) so attendance in lectures and seminars is mandatory Attendance is essential to: gain understanding of the relevant legal principles and their application help you test your understanding of the material with your module tutor help you develop your knowledge and skills help you prepare for all your assessments receive information about the module receive feedback on your understanding and progress Preparation for seminars We want you to feel comfortable attending seminars as these are vital to your development and overall results Therefore, it is essential that you prepare the seminar material as indicated in the module handbook in advance of attending However, this does not mean we expect students to know all of the answers all of the time - far from it Students learn by getting things wrong, as well as right, and our seminars are such that we encourage students to have a go! That said, we know students benefit by doing sufficient work in advance of the seminar, as then they really gain the maximum benefit from it This approach works as it prevents students 'sponging' off the work of others It also prevents the seminar becoming a second lecture, which is fruitless for everyone Absence If you are absent, which should be because of an emergency or serious illness only, then please be courteous and let your tutor know as soon as you can, preferably in advance If you are absent for a significant period of time you must also inform the law student support staff in Southbourne If the absence is due to illness or other personal problems, which may affect your assessments(s), you may need to submit an Exceptional Extension Request Form or an Extenuating Circumstance Form These are available on shuspace or from Southbourne Helpdesk Please see the submission of exceptional extension requests and the submission of extenuating circumstances for more information Plagiarism We actively have systems that detect plagiarism, so please familiarise yourself with the SHU assessment and plagiarism regulations These can be found on both ‘shuspace’ and the Company Law Blackboard site Important points there is a direct correlation between attendance, seminar preparation and good results in this module students who always attend very well in the module - Company law historically boasts a high level of 2:1 and 1st class student marks! students who don't attend regularly very badly - poor attendees struggle with the legal concepts in company law and invariably fail ASSESSMENT Task No TASK DESCRIPTION SI Code Essay – Problem question Examination – (Pre-Seen) CW EX Task Weighting % 50% 50% Word Count / Duration 2,000 hours ASSESSMENT CRITERIA The learning in the module is measured by two separate summative assessment tasks: coursework and an exam, marks from which count towards the overall module mark It is also formatively assessed by a series of separate on-line ‘tests’ in the form of multiple choice questions Formative The series of multiple choice questions, comprising between 10 and 20 questions each, are set to supplement most seminar topic areas These are completed after the lecture on the topic area, but before the seminar, however, are not linked to the overall module marks Summative Task – Coursework This task is a 2,000 word answer to a company law based problem question on semester one delivered materials It is due in after the end of semester one (see Assessment Manager for exact date) and is weighted at 50% of the module marks The coursework will be available to view on Blackboard just before reading week Please note that staff are not allowed to comment on draft assignments in advance of submission Please refer to further key information on this task on page 13 onwards below Task - Examination This task is a pre-seen exam where you are required to answer the questions set, within a two hour period The assessment comes at the end of the academic teaching year in May This task is also weighted at 50% of the module marks The Criteria for Assessment You are assessed based on the following criteria, in both summative assessment tasks, in order to calculate whether the learning outcomes (above) have been met based on the question(s) set: Identification of the main legal issues raised Identification of the facts creating legal issues Coverage of the relevant law Application of the law to the facts Legal conclusions drawn Understanding of the topic Effective conclusion drawing together key themes Presentation of references Spelling, grammar and syntax Structure and Presentation 10 Seminar - Directors' Duties Q1 Lesley, Kim and Claire are the three directors and equal shareholders of Bronx Ltd (“the company”) a well established company in Old Town The company, a boot manufacturer, has unlimited objects but the articles limit the power of a director to enter into contracts in excess of £50,000 Recently Claire placed an order with a leather supplier for £100,000 to take advantage of a significant discount being offered for bulk purchase The leather was delivered last week As part of the special offer Claire personally received a £2,000 cheque which she gave to charity Recently Kim sourced for the company a much needed industrial leather press from Machines Ltd for £30,000 and this was delivered last week Kim holds a 25% shareholding in Machines Ltd Within the last year Lesley arranged sourced an alternative insurance provider for the company and prepared the relevant documentation As she was so busy, she rushed completing the forms Unfortunately the company has just experienced a serious fire resulting in the destruction of stock valued at £150,000 The insurance company have refused to pay the claim as the documentation submitted by the company contained inaccurate information Lesley accepts that the insurance claim is invalid and, as a result, the company has become insolvent and has now gone into voluntary liquidation Advise Lesley, Kim and Claire if they are likely to have any personal liabilities once the liquidator becomes aware of the above facts Pto for Seminar Preparation notes 86 Some Sources for Seminar Preparation Lectures Refer to textbook, lecture notes in the manual and PowerPoint slides for lectures 8, 9, 10 & 11 Some key Case Law Aberdeen Railway Co v Blaikie Bros [1854] Macq 461 (HL) Attorney General of Hong Kong v Reid [1994] AC 324 (PC) Re Barings (No.6) [2001] BCC 273 (CA)[ Bray v Ford [1896] AC 44 (HL) Bristol & West Building Society v Mothew [1998] Ch (CA) Cook v Deeks [1916] AC 554 (PC) Re D'Jan of London Ltd [1993] BCC 646 (Ch) Re Duomatic Ltd [1969] Ch 365 (Ch) Hogg v Cramphorn [1967] Ch 254 (Ch) Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 (PC) Percival v Wright [1902] Ch 421 (Ch) Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 (CA) Statute Companies Act 2006 ss 170-177 (in particular) also ss 31, 39, 40, 41, 180, 239, 1157 Company Directors Disqualification Act 1986 s.6, Sch.1 Insolvency Act 1986 s 143 Learning Outcomes: An understanding of the role of directors and specifically their general duties The ability to identify potential breaches of duty and remedies Awareness of the contractual position for a company for contracts made on their behalf by directors Potential remedies available for breaches and the implications for companies and directors individually The basic role of a liquidator The risks of disqualification for directors and the circumstances they arise Further development of clear advice required in structured problem questions 87 Seminar – Feedback from the coursework In addition to the individual feedback you will receive on your coursework papers and marksheet, there will be a seminar to go through the coursework This seminar is designed for a number of reasons: To go though indicative content to the coursework question itself o You can then see what bits you got right and wrong! To discuss an indicative structure that could/should have been adopted To discuss technique issues from the coursework o What was done well and what was done not so well To feed-forward into other assessments in this module and others o This is key – by attending this session you will find out more on how to better next time in the next assessment(s) you undertake on the course, not just the module 88 Seminar – A Shareholder Meeting and Voting This seminar is a little different in that during the seminar we will be conducting a mock shareholders’ general meeting, with you as students playing the parts of individual shareholders You will be given a briefing at the seminar, by your tutor, with further information To prepare for the seminar you need to be familiar with the company in Old Town that you will be either a shareholder or director of Details of the company are listed below and further important facts appear on the next page Company Name Issued shares Nominal value of shares Sentia Limited 100,000 £1 each Shareholders Shareholder ‘A’ Shareholder ‘B’ Shareholder ‘C’ Shareholder ‘D’ Shareholder ‘E’ – the Chairman Remaining other shareholders No of Shares 3,000 2,000 26,000 10,000 10,000 49,000 between them Directors Shareholder ‘E’ – the Chairman Shareholder ‘D’ Director ‘X’ No of Shares 10,000 10,000 (i.e not a shareholder) Date board of Sentia Limited gave written 3rd June notice of the general meeting Date of the general meeting 7th July Resolutions to be voted on at the meeting a) A special resolution to change the name of the company to Krios Limited b) An ordinary resolution to increase the capital of the company to £150,000 and subdivide shares into 300,000 at 75p each c) An ordinary resolution to remove Director ‘X’ as a director Note - Can you identify a potential error here prior to the seminar? This resolution was added and notified to all via the company website 8th June Articles: The Companies (Model Articles) Regulations 2008, Schedule Pto 89 Other issues to be aware of and areas to research: At the shareholders meeting an amendment to a resolution will be proposed The Chairman will be casting the votes of proxies Shareholder ‘D’ was not notified of the meeting because the Secretary thought their shares had been sold on to another party Shareholder ‘D’ attends as they were told about it by Director ‘X’ Shareholder ‘A’ and shareholder ‘B’ wrote to the Chairman, after receiving the original notification of the meeting, requesting to add the resolution c) that was not on the original notice The Chairman instructed the Secretary to add the resolution to the website on 8th June and the Secretary called to inform Director ‘X’ to look on the web for full details that day After holding the shareholders’ meeting the group will: Advise on the validity of the meeting and the resolutions Some Sources for Seminar Preparation Lectures Refer to textbook, lecture notes in the manual and PowerPoint slides for lecture 14 Some key Case Law Baillie v Oriental Telephone & Electric Co Ltd [1915] Ch 503 (CA) Clemens v Clemens Bros Ltd [1976] All ER 268 (Ch) Re Fenner plc (11th June 1990) unreported (CC) Foss v Harbottle (1843) Hare 461 Greenhalgh v Arderne Cinemas Ltd [1946] All ER 512 (CA) Re Moorgate Mercantile Holdings Ltd [1980] WLR 227 (Ch) Musselwhite v CH Musselwhite & Son Ltd [1962] Ch 964 (Ch) Tiessen v Henderson [1899] Ch 861 (Ch) Statute Companies Act 2006 77, 78, 168, 169, 260 – part 13 ss 281-361 – in particular 282, 283, 301-302, 307, 309-315, 324-325, 360 382, 617, 618, 994, 1147, 1168 The Companies (Model Articles) Regulations 2008, Schedule Learning Outcomes The basic principles surrounding shareholders’ meetings The law surrounding the calling of shareholders’ meeting, with key focus on notice issues The law surrounding the inclusion and amendment of resolutions An understanding of the power of majority shareholders Remedies for invalid meetings and resolutions 90 Seminar – Minority Shareholder Protection SME Ltd (‘the company’) is a company in Old Town’s commercial district It was formed in October 2011 to run a business previously carried on in partnership by Neil, Steve and Melanie They sold their business to the company, in exchange for shares, and became equal shareholders and directors of the company on incorporation They were joined on the board of directors by David A clause in articles states that any shareholder wishing to transfer their shares must offer them for sale to the other shareholders In January 2012 Steve died leaving his shares to his wife, Joan, who was also appointed to the board to replace him The company is a Sports Management company who have many famous sports stars on their books During 2012 Neil, the managing director, proposed that the company sell its premises to raise capital to set up a sports TV channel Joan thought it was too risky but David and Melanie supported the plan which went ahead Joan was subsequently voted off the board A few months ago, Joan received indisputable evidence that David was taking some clients, who would otherwise have become clients of SME Ltd, for his own, small private sports management business When she raised it with Neil and Melanie, they did not want to anything about it as David is a former, high profile, football star who still continues to bring large amounts of clients and profits to SME Ltd The company has grown since incorporation, and is highly profitable, but Joan is unhappy that no dividend has been declared All profits have been reinvested in the company, except for the remuneration fees of the directors which are high due to the company’s performance Advise Joan of the potential remedies she may seek as a minority shareholder Pto 91 Some Sources for Seminar Preparation Lectures Refer to textbook, lecture notes in the manual and PowerPoint slides for lecture 15 & 16 in particular but also an understanding of lecture 13 and 14 Some key Case Law Re a Company (No.004475 of 1982) [1983] Ch 178 (Ch) Re a Company (No.000789 of 1987) Ex p Shooter [1990] BCLC 38 (Ch) Re a Company (No.00330 of 1991) Ex p Holden [1991] BCC 241 (Ch) Cooke v Cooke [1997] BCLC 28 (Ch) Re Cumana Ltd [1986] BCLC 430 (CA) Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) Re Elgindata [1991] BCLC 175 (Ch) Foss v Harbotte (1843) Hare 461 (V-C) (Major case) Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] MLJ 227 (PC) Larvin v Phoenix Office Supplies Ltd [2002] EWCA Civ 1740 Re London School of Electronics Ltd [1986] Ch 211 (Ch) Moodie v W&J Shepherd (Bookbinders) [1949] All ER 1044 (HL) Re National Savings Bank Association (1865-66) LR Ch App 547 (CA); O’Neill v Phillips [1999] WLR 1092 (HL) (Major case) Oak Investments Partners XII Ltd Partnership v Boughtwood [2009] EWHC 176 (Ch) Re Sam Weller & Sons Ltd [1990] Ch 682 (Ch) Re Saul D Harrison & Sons Ltd [1994] BCC 475 (CA) Smith v Croft (No 2) [1988] Ch 114 (Ch) Statute Companies Act 2006, ss 168, 172, 175, 239, 260 to 264; 282, 283, s.582 & ss 994 to 996 Insolvency Act 1986, ss 74(2)(d), 125(2), s.122(1)(g) Partnership Act 1890, s.35(f) Learning Outcomes The implication of the basic principle in Company Law – majority rules! How the ‘proper plaintiff [claimant] rule’ in Foss v Harbottle operates against the minority What the most effective exception to the rule in Foss may be available The hurdles to be overcome in bringing a successful derivative claim How a personal petition for unfair prejudice may be applied The likelihood of bring a successful winding up petition on just and equitable ground The importance of statute as well as case law in authority to support legal outcomes How to structure an answer to the problem question in the time allowed 92 Seminar 10 – Charges: Fixed and Floating Since seminar 1, New Blooms Ltd has ‘blossomed’ into a significant business, now growing plants, fruits and vegetables, and distributing this produce and garden supplies across the county A few months ago, Holmes, Watson and Moriarty went to see Harry, at local solicitors Dewy, Cheatham and Howe LLP, as they were wishing to expand significantly They wanted to know the following: Q1 How they could raise money through borrowings and, specifically, what was meant by a “floating charge” and how can it be distinguished from a “fixed charge” Q2 (a) What steps a Bank will take to ensure a floating charge is valid? Q2 (b) Under what circumstances will the security become enforceable? What will Harry have advised on the points above? Q3 On 1st January, New Blooms Ltd created a floating charge over its assets in favour of Hallam bank plc as security for a loan of £100,000 The charge was not registered On 1st February, New Blooms Ltd created a second floating charge in favour of Credit Bank plc as security for an existing overdraft facility of £25,000 The charge contained a term prohibiting New Blooms Ltd from creating subsequent charges that would rank in priority to that of Credit Bank plc The Credit Bank plc charge was duly registered On 1st March, New Blooms Ltd purchased computer equipment from Hightech Ltd at a price of £75,000 New Blooms paid £10,000 in cash, and created a fixed charge over its book debts in favour of Hightech Ltd to secure the balance of the purchase price This charge was duly registered Homes, Watson & Moriarty are back to see Harry to discuss the legal position of the above charges What will Harry advise? Pto for Seminar Preparation notes 93 Some Sources for Seminar Preparation Lectures Refer to textbook, lecture notes in the manual and PowerPoint slides for lecture 17 and 18 Some key Case Law English & Scottish Mercantile Investment Trust v Brunton (1892) QB 700 (CA) G and T Earle Ltd v Hemsworth Rural District Council (1928) 44 TLR 605 (KBD) Re Hamilton Windsor Ironworks Co Ltd (1879) LR 12 ChD 707 (ChD) Levy v Abercorris Slate and Slab Co (1888) LR 37 ChD 260 (ChD) Re Spectrum Plus Ltd (In Liquidation) [2005] AC 680 (HL) Yorkshire Woolcombers Association Ltd [1903] Ch 284 (CA) - & [1904] AC 355 (HL) For the historical development of the law relating to charges on book debts see: Agnew v Inland Revenue Commissioner (Brumark Investments Ltd, Re) [2001] AC 710 Re New Bullas Trading Ltd [1994] BCC 36 (CA) Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] Lloyd’s Rep 142 (ChD) Spectrum Plus Ltd (In Liquidation), Re [2004] Ch 337 (CA) Statute Companies Act 2006, ss 738, 859A-Q Enterprise Act 2002, 251 Insolvency Act 1986, ss 175, 176A, 176ZA, s.245 Articles: Look on the Blackboard site in seminar 10 for a selection of articles on book debts Learning outcomes How companies raise money through borrowing and its implication The difference between fixed and floating charges and why this is important for lenders Registration requirements relating to charges and the impact of non-registration The legal position on borrowings, in particular the importance of registration and the priority given in law to payment The impact of negative pledge clauses and the rules surrounding actual and constructive notice 94 Seminar 11 – Liquidation and vulnerable transactions Tough economic times have seen the demise of one of Old Town’s longest established companies, Hanbury Ltd These are the events leading up to its liquidation Q1 In May 2010, Hanbury Ltd (“the company”) borrowed £30,000 from Jim, the brother of one of the directors; the loan was expressed to be repayable on demand In August 2012, the company created a floating charge over the company’s assets and undertakings, in favour of Nat East Bank plc, to secure the company’s overdraft of £100,000 The floating charge, which was duly registered, prohibited the company from granting a further floating charge over all or any part of its assets or undertakings without first giving notice to Nat East Bank plc The floating charge further provided that the granting of a subsequent floating charge entitled the Bank to give notice to Hanbury Ltd, which notice would crystallise the bank’s charge On 3rd December 2012, the company borrowed £70,000 from Eric The loan was secured by a fixed charge over the company’s factory and the charge was duly registered In January 2013, Jim threatened to recall his loan unless it was secured The company repaid the loan to Jim, who then lent the same amount of money to the company; the loan was secured by a floating charge, which was duly registered On 1st June 2013, Her Majesty’s Revenue & Customs (HMRC), which was owed £20,000 in unpaid PAYE contributions, presented a petition to wind up the company At that date the company’s overdraft stood at £105,000, the extra £5,000 over the agreed limit having been borrowed to pay staff wages The company’s factory is worth £90,000 and the other assets are likely to realise about £45,000 The liquidation costs are estimated at £6,000 Advise the liquidator on the validity of the charges and transactions in this scenario Pto for Seminar Preparation notes 95 Some Sources for Seminar Preparation Lectures Refer to textbook, lecture notes in the manual and PowerPoint slides for lectures 19, 20, 21 and 22 Some key Case Law Re Barleycorn Enterprises Ltd [1970] Ch 465 (CA) Destone Fabrics, Re [1941] Ch 319 (CA) General Auction Estate and Monetary Co v Smith [1891] Ch 432 (ChD) MC Bacon Ltd (No.1), Re [1990] BCC 78 (CA) Re Patent File Co (1870-71) LR Ch App 83 (CA) Re Produce Marketing Consortium (In Liquidation) Ltd (No.2) (1989) BCC 569 (Ch) Statute Companies Act 2006 – 738, 860-867, 869-877 Enterprise Act 2002 - s.251 Insolvency Act 1986 – Part IV – Chapter VI (ss.120-162) – covers winding up Key sections:-, ss 115, 122, 123, 175, 176ZA, 213, 214, 238, 239, 240, 245, s.249, s.423, 435 & Sch para 11 Learning Outcomes What the role of the liquidator is in winding-up procedures How to establish validity of charges in liquidation How to establish the legitimacy of transactions leading up to liquidation The basis upon which a liquidator may seek to set aside charges or transactions in liquidation The hierarchy of payments to be made to creditors on liquidation and how to apply these The importance of understanding and applying statutory conditions to vulnerable transactions and charges 96 PREVIOUS YEAR’S EXAM PAPER SEMESTER TWO EXAMINATION - MAY 2013 MAIN FACULTY: Development and Society DEPARTMENT: Law, Criminology and Community Justice MODULE TITLE: Company Law MODULE LEADER: Mark Edwards TIME ALLOWED: hours (plus 10 minutes reading time) (SEEN PAPER) _ EXAM REGULATIONS: The University Regulations on academic conduct, including cheating and plagiarism, apply to all examinations The normal examination regulations of the University apply (see script answer book) INSTRUCTIONS TO CANDIDATES Please NOT start writing until told to so by the Invigilator Candidates must NOT use red ink on the script answer book Answer ONLY TWO questions from any of the choice of three questions available This is a CLOSED BOOK exam No material may be taken into the exam room Start each new question on a new page Each question carries equal marks _ STATIONERY REQUIREMENTS PER STUDENT: x 16 Page Answer Booklet _ 97 Q1 Harry is a solicitor in Old Town at the legal firm Dewy, Cheatham and Howe LLP The clients below require his advice on the following: a) The directors of Amber Ltd Amber Ltd turns steel coils of wire into nuts and bolts Its corporate director, Calcite Ltd, used its contacts in the industry to gain a 50% discount on purchases of steel coils of wire from ASR plc, although the value of the order exceeded the limit contained in the articles of association of Amber Ltd Amber Ltd has massive stocks of coil wire, so have refused to accept delivery, but ASR plc is threatening legal action on the contract b) The owners of Parkland LLP Parkland LLP owns the land that is the home to Old Town Rugby Club Ltd The directors of the Rugby Club have agreed to support Parkland’s development plans for the site, and Parkland has paid the Club £3m as part of that agreement Parkland is now worried that this agreement may be invalid as a fetter of a director’s discretion c) Asif and his son, Raj, both directors of Trojan Ltd, an art shop Raj, a student, took very little part in the company’ affairs and left the running of it to Asif Following severe flooding, that caused a significant loss of stock, the company has just been wound-up as the company was negligent by forgetting to renew its property insurance The company owes considerable sums to creditors Both Asif and Raj are concerned about the implications to them individually, as they both wish to start up another company d) Tom, a director of a banking software company, Infobank Ltd Last year, Tom resigned his position as a director with Dataserve plc and, after serving full notice, took up a position on the board of rival company, Infobank Ltd Recently Tom invited some former clients to an industry exhibition of new software at Earls Court, where Infobank Ltd signed up a number of Dataserve’s clients Tom had no restraint of trade clause in his previous contract but wants to know if he has breached any duty as a director e) The directors of Monash Ltd Monash Ltd has recently become insolvent The board of directors want to continue trading as they are confident of their ability to turn the company fortunes around However, they are unsure of any personal liability, if any, should any creditor successfully apply to have the company wound up Using case law and statute discuss the advice that Harry should be giving to his respective clients on each of the issues detailed above 98 Q2 Last year, five friends; Cheryl, Kimberley, Nadine, Nicola and Sarah, formed a small ladies fashion business, called Milano Ltd, in an upmarket part of Old Town On incorporation, they took 20 of the 100 shares each in the new company and became directors They included in the company’s articles of association, a clause stating that “on a resolution to remove a director, the votes attached to shares held by that director shall be multiplied by five” A short period after incorporation, Cheryl and Sarah began exploring other ventures and have ploughed all their remaining finances into those projects As a consequence, the pair have neglected their duties to Milano Ltd Kimberley, Nadine and Nicola want to remove the weighted voting clause from the articles so as to be able to remove, separately, both Cheryl and Sarah as directors However, they know Cheryl and Sarah would use their votes to block such a move As a consequence, the three directors, Kimberley, Nadine and Nicola, plan to allot 60 new shares in the company, through a rights issue They know Cheryl and Sarah not have the finances to take up their entitlement of new shares This will allow Kimberley, Nadine and Nicola to acquire another 20 shares each Using relevant legal authority, give advice on the following: a) The ability of directors to create a rights issue in a private company with one class of share b) Based on the law, and their expected new shareholding, will Kimberley, Nadine and Nicola be able to alter the articles of association to remove the weighted voting clause? c) What would give Kimberley, Nadine and Nicola the legal right to remove a director, and how would this be done? d) How likely is it that Cheryl and/or Sarah will be successful in using the relevant protection offered to minority shareholders to: i challenge the rights issue ii challenge the alteration of the articles iii challenge their removal as directors iv achieve a personal remedy of selling their shareholding v seek to have the company wound-up 99 Q3 Despite the directors of Attire Ltd taking every step to minimise potential loss to creditors, the company has just been wound-up, on the 1st of April 2013, following a successful petition by a creditor, the HMRC Attire Ltd operated from a large distribution centre in Old Town, and was a wholly owned subsidiary of Garb plc, which continues to trade profitably Previously Garb plc provided Attire Ltd with direct financial support, as well as letters of comfort, in which Garb plc pledged its continued financial support These letters were sent to banks which supplied credit to Attire Ltd These pledges have also been referred to in Garb plc’s accounts for the last three years Three months ago Garb plc refused a request from Attire Ltd for further finance A liquidator has now been appointed and he now knows of the following in respect of Attire Ltd a) Hallam Bank plc, owed £40,000 by Attire Ltd, wishes the liquidator to pursue Garb plc for the money as it fears Attire Ltd will not have sufficient funds to pay it b) Xenon Investments plc is owed £75,000 from a debenture loan, secured in June 2012 by a validly registered fixed charge over Attire Ltd’s book debts At the time, Xenon had insisted on being granted a fixed charge as a condition of the loan Attire Ltd’s book debts, when paid, are paid into Attire Ltd’s general account c) A £10,000 debenture loan from Fred, who is the father of one of the directors When Garb plc refused to continue financing Attire Ltd, Fred was granted a validly registered fixed charge against the company’s premises d) Attire Ltd has a special account, worth £50,000, containing money paid in advance by customers, for goods not yet received The liquidator is receiving calls from these customers for the money held in this account to be returned to them e) The premises that Attire Ltd owned and operated from were transferred to Garb plc three years ago for £25,000 less than its then market value Using relevant case law and statute, advise the liquidator on the company law issues above, and conclude by advising how these impact upon the priority of payments made to creditors in liquidation END 100 ... Period MODULE DESCRIPTOR MODULE TITLE SI MODULE CODE CREDITS LEVEL JACS CODE SUBJECT GROUP DEPARTMENT MODULE LEADER NOTIONAL STUDY HOURS BY TYPE Company Law 24-5005-00L & 24-6015-00L 20 5&6 M221 LAW. .. and John Lowry, Company Law (7th edn, OUP 2012) Brenda Hannigam, Company Law (3rd edn, OUP 2012) Charles Wild and Stuart Weinstein, Smith & Keenan’s Company Law (16th edn, Longman 2013) Stephen... rule in company law Core Text Books: Alan Dignam and John Lowry, Company Law, (7th edn, OUP 2012) Ch &12 Charles Wild and Stuart Weinstein, Smith & Keenan’s Company Law (16th edn, Longman 2013)