Max's Legal Refresher - Corporate Law (I)

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Definition of "partnership"?
Relationship between persons carrying on business in common with view of profit. Excludes cos / associations under CA 2006, or formed by other Act of Parliament or letters patent, or by Royal Charter (s 1 Partnership Act 1890)
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Liability of partners in general partnership?
Each P has unlimited liability, jointly & severally w all others, for debts incurred by Pship while P (s 9), which liability survives P's retirement (s 17(2)), and for debts incurred by Pship after P's retirement, unless proper notice given (s 36)
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What is prima facie evidence of Pship according to s 2(3) Pship Act 1890?
Receipt by a person of a share of the profits of a business (though does not of itself make recipient a P)
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First two rules for determining existence of Pship under s 2 Pship Act 1890?
1) Co-ownership of property doesn't of itself => P, whether or not share profits. 2) Likewise sharing of gross returns, whether or not co-ownership of property
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Four main effects of Pship?
Unlimited, joint & several liability, Ps agents for other Ps (s 5), fiduciary relationship created, Pship Act 1890 implies terms into Pship agreement which apply unless varied
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Doctrine of "separate legal personality"?
"[O]nce the company is legally incorporated it must be treated like any other independent person with its rights and liabilities" (Salomon v Salomon) + Companies within group also separate legal persons (Adams v Cape)
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"Limited liability" in private ltd co limited by shares?
Members liability limited to amount, if any, of unpaid shares (MA2), though shares in MA co must be fully paid (MA21), so 0. Dirs not generally personally liable as agents & Ts of co
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In what five circumstances might corporate veil be pierced?
1) use of co = deliberate evasion/frustration of legal req; 2) fraud & deliberate breach of trust; 3) to give purpose to certain statutes, e.g. POCA 2002; 4) criminal context; 5) when all other remedies exhausted
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Group concept: Co = “Sub” of “Holding Co” where latter (s 1159 CA 2006):
1) Holds majority of voting rights in sub; OR 2) Is SH and can appoint/remove majority of sub's board; OR 3) Is SH + controls majority of voting rights via SH agreement
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Companies enjoy which convention rights under ECHR / HRA 1998?
1) Protection of private property (art 1 of 1st protocol); 2) Right to fair trial (art 6); 3) Freedom of expression (art 10)
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Appointment of dirs in MA co?
Either 1) SHs appoint via OR in GM; or 2) Existing dirs appoint via BR in BM (MA 17)
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Removal of dirs in MA co?
Dirs removed under CA 2006 (MA 8), i.e. SHs can remove via OR (s 168 CA 2006)
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What powers do SHs have over dirs, beyond appointment & removal?
SHs can 1) Direct dirs to take specific action, via SR (MA 4); 2) Veto certain dir actions, e.g. SPTs under s 190 CA 2006; 3) Remove powers from board by amending articles via SR (s 21 CA 2006)
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How to call BM in private MA co?
One dir may call BM, giving reasonable notice (need not be written) to each other dir giving details (MA 9)
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Quorum for BM in private MA co?
Min 2 dirs, otherwise dirs can only appoint more dirs / call GM st SHs can appoint (MA 11)
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Voting threshold for BR at BM?
Simple majority, & chair casts deciding vote in deadlock
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Voting threshold for dirs' WR?
Unanimous among "eligible" dirs (i.e. all dirs who could have voted at BM)
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How to call GM in private MA co?
Dirs may call (s 302 CA), via BR (Browne v La Trinidad), giving 14 clear days' notice to all SHs, dirs & auditors w GM details (** 307, 310, 360 & 502)
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Quorum for GM in private MA co?
If 1 SH -> 1 SH. If > 1 SH; 2 SHs (s 318)
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What is the "Duomatic" principle re GMs?
No need for GM at all if all SHs who can attend & vote unanimously and demonstrably assent to some decision w full K of relevant facts (Re Duomatic)
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Voting thresholds at GMs?
Min 51% OR, min 75% SR, 1 vote per SH (s 284(2)), unless poll vote demanded -> 1 vote per share. If deadlock, chair CANNOT pass casting vote
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Who can demand poll vote at GM?
Chairperson, Dirs, min 2 SHs, min 1 SH having 10% of voting rights (MA 44)
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Nature of articles of association?
Constitutional doc & statutory contract btwn co & SHs, & btwn all SHs (present & future) (s 33 CA 2006) - not binding on 3Ps
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Definition of "unfair prejudice" ("UP")?
Statutory remedy (s 994–999) by which min SH who is victim of 'unfairly prejudicial' conduct by co (via maj SHs) can obtain relief from court
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Scope of "conduct" in UP claim?
1) Must be both unfair and prejudicial (objective test); 2) Can be past, present or anticipated future events (“proposed” conduct); 3) Incl acts & omissions; 4) Incl acts done on behalf of co by agents
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Scope of "unfairness" in UP claim?
1) Essential element = breach of agreement btwn SHs as to how co is to be run (O’Neill v Phillips), i.e. normally breach of articles; OR 2) breach of dir duties; OR 3) majority have acted inequitably in a way prejudicial to the minority (O’Neill)
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Scope of "prejudice" in UP claim?
1) Not necessarily decrease in value of shares; 2) SH must show has been “affected” as SH; 3) Can be prejudicial to all SHs, or only some or one
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Typical remedy in UP claim?
Usually ct order that majority purchase the minority’s shares at a value determined by the court (s 996)
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Definition of "derivative action"?
Claim brought or continued by a SH on behalf of the company in relation to a breach of duty by a dir, based on s 260(3) CA 2006, & exception to rule in Foss v Harbottle
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Rule in Foss v Harbottle?
1) If co injured, must generally only be the co that sues; 2) Ct will generally not interfere with w "internal management" of co
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When should a derivative action be pursued?
1) Where co prevented from bringing claim itself, e.g. by maj SHs; 2) Not when wrong is against SH himself -> instead sue for breach of statutory contract; 3) Remedy for misconduct, as opposed to relief from mismanagement (where UP is better)
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Key elements of a derivative action?
1) Actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by dir (also economic torts such as conspiracy); 2) No need to demonstrate any actual loss by co; 3) No need to show 'wrongdoer control'
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Remedy in a derivative action?
Same remedy as would be awarded in substantive (non-derivative) claim, & awarded to co itself (not SH)
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Director duty under s 171 CA 2006?
(a) Act in accordance w ‘constitution’, i.e. articles, resolutions, etc.; & (b) exercise powers for purposes for which conferred
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Director duty under s 172 CA 2006?
Act in way dir considers, in good faith, promotes success of co for benefit of SHs as whole, having regard to: LT consequences, employees, suppliers, customers, community, environment, reputation, fairness btwn SHs
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Director duty under s 173 CA 2006?
(1) Exercise independent judgment; (2) Not infringed if acting in accordance w agreement entered into by co / authorised by constitution
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Director duty under s 174 CA 2006?
(1) Exercise reasonable care, skill & diligence; (2) standard = reasonably diligent person w K, skill & experience dir (a) should have & (b) actually has
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Director duty under s 175 CA 2006?
Avoid situation in which dir has / can have, direct / indirect interest that conflicts, or possibly may conflict, with co's interests
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Director duty under s 176 CA 2006?
Not accept 3P benefits given by reason of being a dir / doing something / refraining from doing something as dir (where likely to give rise to a conflict)
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Director duty under s 177 CA 2006?
Declare dir interest (direct / indirect) in transactions arrangements co proposes to enter into (where likely to give rise to a conflict & other dirs unaware))
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Remedies available to co for breach of dir duty?
Account for profits, return of property, equitable compensation, rescission of contract, injunction, & common law compensation (if s 174)
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Avoiding liability for breach of dir duty?
SH ratification via OR / WR (s 239), authorisation by dirs of s 175 conflict, relief by ct where dir acted honestly & reasonably, & should excuse in circs (s 1157), D&O insurance (s 233), indemnity by co for dir's costs of successful defence
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Dir liability beyond breach of dir duty?
Wrongful trading, fraudulent trading, misfeasance (IA 1986), personal guarantees, duty to prep full & accurate accounts
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Which transactions btwn co & dir need SH approval?
SPT, loan from co to dir, LT service contract, loss-of-office compensation
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Cash flow test for insolvency?
Co solvent if can pay its debts as they fall due (no matter state of balance sheet) (s 123 IA 1986)
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Balance sheet test for insolvency?
Co that can pay its debts as they fall due may be insolvent if liabilities (incl contingent) > assets (s 123 IA 1986)
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Deemed evidence of insolvency?
1) Statutory demand & no payment / arrangement to pay after 3w; 2) Successful debt action against co & judgment not executed
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Implications of insolvency for co?
Insolvency proceedings can be brought; past transactions can be set aside; buy-back out of capital no longer possible; co to be run in interests of CRs over SHs
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Implications of insolvency for dirs?
IA duties arise & personal liability + disqualification if breached; potential personal liability re guarantees; powers & appointments cease if co liquidated
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Wrongful trading?
Where dir knew (or ought to have concluded) that co was insolvent, & from that point (the insolvency point) failed to take every step to minimise future losses (s 214 IA 1986)
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Fraudulent trading
Where business of insolvent co carried on with intent to defraud (s 213 IA 1986)
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Misfeasance?
Breach of dir duties when co insolvent (s 212 IA 1986)
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Compulsory liquidation?
Ct orders liquidation following winding-up petition from CR
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Creditors' voluntary liquidation?
Dirs recommend -> SHs pass SR to effect -> CRs hold meeting to approve liquidator
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Members’ voluntary liquidation?
If give ‘statutory declaration’ that solvent, w reasonable grounds -> all funds distributed to CRs, & surplus to SHs
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Waterfall of payments in liquidation?
Fixed charges, liquidation expenses, preferential debts (incl HMRC from 1 Dec 2020), floating charges (after ring-fencing for unsecured CRs), unsecured CRs, interest post-winding up, postponed debts, SHs
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Alternatives to liquidation?
1) Trading out, 2) Refinance / restructure debt, 3) Company Voluntary Arrangement (CVA), 4) Administration
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Company Voluntary Arrangement (CVA)?
Ct-approved contract between co & unsecured CRs to pay less / over longer period, w moratorium (i.e. freeze) on CR actions
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Administration?
Independent insolvency practitioner runs, reorganises & possibly sells co as going concern, either via ct order or out-of-court process (Sch B1, IA 1986)
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Claw-back transactions?
Transaction at under value (s 238), Preference (s 239), Automatically invalid floating charge (s 245)
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Other cards in this set

Card 2

Front

Liability of partners in general partnership?

Back

Each P has unlimited liability, jointly & severally w all others, for debts incurred by Pship while P (s 9), which liability survives P's retirement (s 17(2)), and for debts incurred by Pship after P's retirement, unless proper notice given (s 36)

Card 3

Front

What is prima facie evidence of Pship according to s 2(3) Pship Act 1890?

Back

Preview of the front of card 3

Card 4

Front

First two rules for determining existence of Pship under s 2 Pship Act 1890?

Back

Preview of the front of card 4

Card 5

Front

Four main effects of Pship?

Back

Preview of the front of card 5
View more cards

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