19. Acting for a company: agency and attribution

This chapter deals with the legal relationship of agency that exists between the company and the agent, explaining the process involved in an agent’s authentication and the execution of documents for the company he or she represents. It then considers two ways in which a company may become contractually bound to another person (a ‘contractor’) under the provisions of the Companies Act 2006: through a written contract to which the company’s common seal is affixed, or when someone has made a contract on behalf of the company. It also discusses the company’s capacity to enter into contracts, with emphasis on the ultra vires rule, and attribution by a court so as to impose criminal liability on a company. A number of court cases relevant to the discussion are cited.

18. Remedies for maladministration

This chapter considers the remedies available when maladministration occurs, with emphasis on the existence of the company as a separate person. It examines circumstances where a wrong has been done to the company or to individual members, focusing on the proper claimant principle established in Foss v Harbottle (1843) 2 Hare 461, and the possible action that can be taken against company officers who have committed a wrong. It also explains the causes for which a member can file derivative claims; the right of a member to petition the court for relief under the Companies Act 2006 (CA 2006), part 30 (ss 994 to 999); the concept of winding up; the irregularity principle; and when the Secretary of State can intervene in maladministration cases. The chapter cites relevant legislation (Companies Act 1985, Insolvency Act 1986 and CA 2006) and a number of particularly significant court cases.

14. Shareholders

This chapter focuses on the members or shareholders of a company and the way in which they take decisions on the company’s affairs by written resolution using a statutory procedure. It begins by considering the rules which determine who is a member of a company and the information on the members which a company must record. It then describes the mandatory rules of company law that allow members to participate in decision-making with regards to a company’s affairs; members’ class rights and the alteration of such rights; and the definitions of holding company, subsidiary and wholly owned subsidiary. Relevant provisions of the Companies Act 2006 governing written resolutions of private companies, meetings and annual general meetings, voting, adjournment of meetings and authorisation of political donations by companies are also discussed. The chapter analyses a number of particularly significant cases.

11. Borrowing and security

This chapter considers borrowing as an important method of financing a company’s activities, and security as a right of recourse against company property if the loan is not repaid on time. It begins by discussing security for financial obligations, paying particular attention to security contracts, the redemption or discharge of security and the realisation of security. It then turns to the registration of non-possessory security contracts, the priorities of legal and equitable charges and floating charges as a form of security and their crystallisation. The extent to which the assets of a company to which anyone is considering extending credit are already charged as security is also explained. The chapter considers three particularly significant court cases: Evans v Rival Granite Quarries Ltd [1910] 2 KB 979; Re Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680; and Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284.

8. Share transfer and company control

This chapter discusses some of the procedures to be followed when transferring some or all of a company member’s shares to another person, for sales on and off the London Stock Exchange, transfers of all or a part of a member’s holding and transfers of certificated and uncertificated shares. After describing share certificates and uncertificated shares, the chapter considers the problem of who should bear the loss when a transfer of shares is forged or fraudulent. It also explores transmission of shares on death or bankruptcy. Transferring shares may result in a change of control of a company. The chapter considers takeovers, the City Code and compulsory acquisition of remaining shares. There is full discussion of the provisions for disclosure of significant holdings both to warn of potential takeover moves and to disclose in the public interest who has significant control of a company.

7. Offering shares to the public

This chapter focuses on public offering of shares as a source of finance for companies, with emphasis on the legal requirements to provide the necessary information to prospective investors. It also considers the importance of a marketplace for selling shares at the best possible price, as well as the regulation of the financial services industry by the Financial Services and Markets Act 2000. In addition, it discusses two controls on share offers to the public under the Companies Act 2006 with respect to payment of underwriting commission and repayment of subscribers’ money if a share offer is not completely successful. The chapter examines the regulatory regimes for securities markets, some of the main reasons or advantages for going public, the prospectus requirement and any exemptions to it and how the law deals with misleading statements and omissions in prospectuses.

6. Shares

This chapter considers one way of becoming a shareholder of a company with a share capital: by taking shares from the company in exchange for a contribution of capital. The number and class of shares of the company that the member holds determines the extent of the member’s undertaking to contribute capital, and of entitlement to share in distributions and vote at meetings. Share allotment in exchange for a capital contribution is explained, and the need for public companies to have a minimum contributed capital is emphasised. The chapter also looks at possible remedies available to a person who has been induced to take an allotment of shares by a misrepresentation, including rescission of contract. Finally, it examines ways of altering a company’s share capital. The principles of financial accounting are briefly addressed in order to appreciate the subjects discussed.

15. Directors

This chapter explores the role of directors in corporate governance, beginning with a discussion of the principles of corporate governance as set out in the UK Corporate Governance Code. Rules on appointment and removal of a company’s directors are considered next, followed by public disclosure of the names of directors and their work as a board, their remuneration and their powers of management. The chapter also considers the legal categorisation of directors, whether as fiduciaries, agents or trustees; the distinction between executive directors and non-executive directors; the relationship between directors and shareholders of public companies; the issue of the separation of ownership and the control of a company; transparency; and general legal principles regarding the board of directors. Relevant legislation such as the Companies Act 2006 and the UK Corporate Governance Code, as well as particularly significant court cases, are mentioned.

1. Introduction

This chapter provides an overview of the work’s contents: overview of English company law, the context in which it has developed, its purpose and history, controversy over company law and its fundamental nature. Introduces the idea of a company as a separate, artificial person capable of owning property, being a party to contracts, and being a claimant or defendant in legal proceedings. Discusses other main themes that recur in the book, including ownership and control of a company and corporate governance, corporate finance, transparency and disclosure, the distinction between public and private companies, and picking up the pieces after things go wrong. Deals with the nature of corporations in general and companies in particular; differences between incorporated companies and two other legal forms used by businesses, partnership, and sole proprietorship; the sources of company law in statute, case law, and European law; and the purposes company law should serve.

20. Company insolvency and liquidation

This chapter deals with procedures and legislation governing the insolvency and liquidation of a company and who are qualified as insolvency practitioners. It first discusses insolvency procedures such as administrative receivership, administration, voluntary arrangement, creditors’ voluntary winding up, winding up by the court and the appointment of a provisional liquidator. It then considers the effect of insolvency and liquidation procedures on floating charges, court control of insolvency and liquidation procedures and liability for wrongful trading. The legal principles underlying disqualification orders against a company’s directors, the use of an insolvent company’s name, the order of the application of assets in liquidation and the dissolution of a company are also examined.