23. Liquidation, dissolution, and restoration

This concluding chapter explores the different types of liquidation, the powers of a liquidator, and the ways in which a company can be dissolved and restored. The Insolvency Act 1986 (IA 1986) provides for two types of liquidation: voluntary winding up; and winding up by the court. A voluntary winding up occurs where the members voluntarily wind up the company by passing a special resolution. Meanwhile, compulsory winding up occurs where a person petitions the court for an order of winding up the company, and the court grants such an order. The liquidator's role is to gather, realize, and distribute the assets of the company to its creditors and, if there is a surplus, to persons so entitled. Ultimately, the process by which a company's existence is ended is known as ‘dissolution’. A dissolved company can be restored in certain circumstances.

22. Corporate reconstructions and takeovers

This chapter looks at the legal framework that regulated takeovers, as well as discussing corporate reconstruction via a scheme of arrangement and a scheme of reconstruction. A reconstruction under s 110 of the Insolvency Act 1986 involves all or part of a company's business or property being transferred or sold to one or more new companies, and the original company is then voluntarily wound up. A s 110 reconstruction binds all members and creditors who are affected by it, even those who did not vote for it. Meanwhile, a scheme of arrangement, under Pt 26 of the Companies Act 2006 (CA 2006), is a compromise or arrangement between a company and its creditors, or any class of them; or its members, or any class of them. Takeovers are regulated by the Panel on Takeovers and Mergers, who are responsible for drafting and updating the City Code on Takeovers and Mergers.

16. Share capital

This chapter assesses what share capital is. A share is an item of property that confers upon its holder rights as set out in the Companies Act 2006 (CA 2006) and the constitution. A public company must have an allotted share capital of at least £50,000, while private companies are not subject to a minimum share capital requirement. Who has the power to allot shares depends upon the type of company, the class of share being allotted, and how many other classes of shares the company has. However, shareholders generally have a right of pre-emption meaning that, when a company issues new shares, they have to first be offered to the existing shareholders. Meanwhile, a transfer of shares occurs where a shareholder sells or gifts his shares to another, while a transmission of shares usually occurs where shares pass from one person to another due to the operation of law.

15. Members’ remedies

This chapter explores three remedies that aim to protect a company's members: the derivative claim; the unfair prejudice petition; and the petition to wind up the company. Where a company has sustained a loss, a member may be able to bring a derivative claim on behalf of the company. In order to continue a derivative claim, the member must obtain permission from the court to continue the claim. A member can also petition the court for a remedy where the company's affairs have been conducted in a manner that is unfairly prejudicial to that member's interests as a member. In unfair prejudice cases, the most common remedy is a share purchase order. Lastly, a member can petition the court for a winding-up order, with the relevant ground here being winding up where the court thinks it is just and equitable to do so.

14. Meetings and investor engagement

This chapter examines the role and importance of general meetings, the significant body of procedural rules by which general meetings are run, and the extent to which a company's members actually engage with general meetings. Members make decisions in one of two ways: through a resolution or by unanimous assent. A resolution is simply a vote that requires a specified majority vote in its favour in order to be passed. The resolutions of public companies must be passed at meetings, whereas resolutions of private companies can be passed at meetings or via a written resolution. Two forms of general meeting existed: the annual general meeting and extraordinary general meetings. In some cases, however, companies are required to hold a class meeting in which only one class of member is entitled to attend. To encourage institutional investors to engage more, the Financial Reporting Council (FRC) has published the UK Stewardship Code.

3. Incorporation

This chapter examines the various ways by which a company can be created and the different types of company that can be created. The process of creating a company is known as ‘incorporation’. There are four principal methods of incorporating a company: by royal charter; by Act of Parliament; by delegated authority; or by registration. The general rule is that the Companies Act 2006 (CA 2006) only applies to registered companies. However, in order to prevent unregistered companies being under-regulated and having an unfair advantage over registered companies, the CA 2006 provides that the Secretary of State may pass regulations that set out how the CA 2006 is applied to unregistered companies. There are a number of different company types that can suit a wide array of businesses. These include public and private companies. Companies can change their status by a process called re-registration.

20. Debt capital and security

This chapter discusses why companies borrow money, the various sources of debt capital, and the rules relating to secured and unsecured borrowing. An obvious reason why companies borrow is because the company is struggling financially, and so other forms of capital will prove insufficient to meet the company's debts or liabilities. In such a case, debt capital may be the only obtainable form of capital. Like shares, debt securities are tradeable financial instruments that a company can issue in order to raise finance. The principal form of security is a charge, which can be either fixed or floating. When determining whether a charge is fixed or floating, the courts will focus not on how the charge is labelled, but on the rights and obligations which the parties intended to grant each other. A failure to register the charge will render the charge void against a liquidator, administrator, or creditor.

19. Corporate transparency

This chapter describes the UK's corporate transparency regime, including the statutory registers, the annual accounts and reports, the role of the auditor, and other notable disclosure obligations. Companies are required to keep a number of statutory registers, but private companies may instead elect to have Companies House keep the relevant information on its central register. Meanwhile, all companies are generally required to prepare accounts for each financial year, and these are known as ‘individual accounts’. Parent companies, in addition to preparing individual accounts, must also prepare group accounts. The annual reports consist of the strategic report, the directors' report, the auditor's report, and the directors' remuneration report. The role of a statutory auditor, which must be independent of the company, is to report on whether the company's accounts represent a fair and true view of the company's finances.

18. Public offers of shares

This chapter studies the sources of securities regulation, the rules relating to offering shares to the public, the various UK stock exchanges, and the process by which securities are listed. There are several types of public offer, including offers for subscription, offers for sale, placings, and rights issues. The London Stock Exchange is the principal UK stock exchange, and its two principal markets are the Main Market and the Alternative Investment Market. The principal domestic rules relating to public offers of shares are found in the Financial Services and Markets Act 2000, the Listing Rules, the Prospectus Rules, and the Disclosure and Transparency Rules. Companies that offer securities to the public or seek to admit securities to a UK regulated market must first publish a prospectus. Meanwhile, listed companies must comply with a range of continuing obligations for as long as their securities remain listed.

12. Vacation of office and disqualification

This chapter looks at the various ways in which a director can cease to be a director: resignation; vacation of office in accordance with the articles; retirement by rotation; removal; and disqualification. A director can resign at any time by giving notice to the company, which must accept his resignation. A company's articles can specify what circumstances will cause a director to vacate office as well as require its directors to periodically vacate office and, if they so wish, seek re-election. Section 168 of the Companies Act 2006 (CA 2006) provides that a director can be removed from office by a company passing an ordinary resolution at a meeting. Meanwhile, under the Company Directors Disqualification Act 1986, a director can be disqualified from acting as a director, either by the court imposing a disqualification order; or by the Secretary of State accepting a disqualification undertaking from the director in question.