SCHOOL OF LAW, POLITICS & SOCIOLOGY

SUSSEX LAW SCHOOL

Company Law (LLB)

Module Handbook 2016/2017
Faculty:
Name: Dr Femi Amao (Convenor)
Name: Dr Ahmad Ghouri
Module Code: M3004

INTRODUCTION
(A)

Choosing Books for studying Company Law

Company Law has a long tradition in common law and statute law. The 2006
Companies Act has had significant impact in this area. Owing to the speed at
which the Act made the statute book, which fact came as a surprise to many
academics, responses in the form of academic texts for Company Law have
taken some time to manifest although a number of major texts have now been
revised. As a result, there is a reasonable selection, which is reflected in the
choices below.
1.

Collection of Statutes book to choose from: Company Law is partly

heavily statute based. Examples of useful statute books which are
updated regularly are: Derek French, Blackstones Statutes on Company
Law, OUP and Cowan Ervine, Core Statutes on Company Law, Palgrave
Macmillan. These will contain the Companies Act 2006. You should get
into the habit, right from the start of the year, of reading the legislation
itself. Avoid simply adopting a paraphrase provided by lectures or books.
As we will be considering many of the statutory provisions during the
course, it is strongly advisable that you bring a copy with you to both
lectures and seminars. You will also be allowed to take your own
statute book into the examinations at the end of the year. For that
reason, it is important that you do not annotate your copy.

2.

Text, Materials and Commentary: Because Company Law is also a

heavy case-based subject, the recommendation is that you get a cases
and materials book, such as Len Sealy and Sarah Worthington, Cases
and Materials in Company Law, 11th ed., OUP, 2016 or David Kershaw,
Company Law in Context: Text and Materials, 2nd ed., OUP, 2012.

3.

Textbooks: Generally, there is no single recommended text for this

subject and references on the course would be made to a number of
leading texts in the field, including: Paul Davies and Sarah Worthington,
Gower & Davies Principles of Modern Company Law, 9th ed., Sweet
and Maxwell, 2012, Brenda Hannigan, Company Law 4th ed., OUP,
2015, Stephen Mayson, Derek French and Christopher Ryan, Mayson,
French and Ryan on Company Law 2016-2017, OUP, 2016, Nicholas
Bourne, Bourne on Company Law, 7th ed., Routledge, 2016; John Lowry
and Arad Reisberg, Pettets Company Law: Company Law & Corporate
Finance, 4th ed., Pearson, 2012 and Alan Dignam and John Lowry
Company Law (Core Text Series), 9th ed., OUP, 2016.

5.

Other books of interest: There is a seminal text by Brian Cheffins,

Company Law: Theory, Structure and Operation, OUP, 1997, which is
an innovative book that remains, despite its considerable age, of interest
because of its interdisciplinary perspective on company law. It uses
economic principles to dissect the subject and points to considerations
other than the purely legal that may motivate the various participants in
corporate life. In the corporate governance field, the book by John

Parkinson, Corporate Power and Responsibility: Issues in the Theory of

Company Law, OUP, 1993 remains very influential for the authors
perspective on the political relationships within corporate life.
6.

So what should you choose to buy?

For the moment, the recommendation is that you should certainly have a
statute book and a cases and materials text. For a main text, consider
any of the following:
a. Brenda Hannigan, Company Law (4th ed., OUP, 2015).
b. Alan Dignam and John Lowry Company Law - Core Text Serie), (9th ed.,
OUP, 2016).
c. John Lowry and Arad Reisberg, Pettets Company Law: Company Law
& Corporate Finance, (4th ed., Pearson, 2012).

(B) Library Resources

SLS is keen to ensure that the law library collection meets the needs of
a high quality law school. To this end, the Library currently spends over
80,000 each year on law materials. This includes subscribing to the four
major electronic databases: Westlaw; LexisNexis; HeinOnline; Lawtel,
providing a wide range of law journals in electronic and paper form,
subscribing to law report series and purchasing monographs and other
high level legal texts. All of these sources are vital to enable students to
gain maximum benefit from their legal studies and to develop the skills
in legal research important for both the academic study of law and to
legal practice.
In addition, SLS aims to ensure that the Library has in stock a reasonable
supply of student textbooks, purchased in accordance with university
policy. For textbooks categorised as essential reading this means that
the Library will purchase roughly one copy per 10-20 students
(depending upon the size of the cohort) and smaller numbers of copies
for textbooks categorised as recommended reading. Further details
regarding relevant library resources and recommendations for textbook
purchase will be provided by each module team.
(C)

Further Reading and other Research Tools

1. You are expected to read the main periodicals such as MLR, CamLJ,
LQR, OJLS, ICLQ and LS, while for current developments NLJ will be
useful. Ensure you know what the initials stand for and where to locate
the journals concerned. Of direct relevance to the subject, you should
certainly become acquainted with Company Lawyer (Co Law), the
Journal of Business Law (JBL), Lloyds Maritime and Commercial Law
Quarterly (LMCLQ), Journal of Corporate Law Studies (JCLS) and keep
an eye on the parts as they arrive in the library. Some of these journals
are also available via the electronic databases. Further some relevant
journals are only available via the electronic databases, examples of
which include International Company and Commercial Law Review

(ICCLR) and the European Company and Financial Law Review

(ECFLR). These journals will also provide a valuable source for case
commentaries and articles on topical subjects and cases.
2. Although the course deals primarily with the core principles and topics
of company law, further valuable insights into the wider issues generally
can be found in texts dealing with corporate governance, corporate
finance, corporate social responsibility, security law and insolvency law.
A number of texts covering these subjects are stocked in the Library.
3. Much that is contemporary in the subject, together with projected reforms
and their impact on business, may often be found in the pages of
newspapers such as: the Financial Times, the Guardian, the
Independent and the Telegraph. These newspapers have on-line
editions that may be read on a daily basis.
4. Specialist Law Reports and Journals: Two specialist Company Law case
law reporters should be noted: Butterworths Company Law Cases which
has been running since 1983 (abbreviated [1990] BCLC) and Sweet and
Maxwells (formerly CCHs) British Company Cases also running since
1983 (abbreviated from 1983 to 1989 as (1983) 1 BCC etc. and from
1990 as [1990] BCC).
5. Web Sites and Legal Research Tools: There is an increasing range of
internet sources to you to supplement the traditional sources. Websites
you might find of direct relevance to this course include:
Bank of England http://www.bankofengland.co.uk/
Blog of Corporate Law and Corporate Governance
http://corporatelawandgovernance.blogspot.co.uk/
Companies House http://www.companieshouse.gov.uk/

Institute of Chartered Accountants http://www.icaew.co.uk/

Insolvency Lawyers Association http://www.ilauk.org/
Institute of Directors http://www.iod.com/
Institute of Legal Executives http://www.ilex.org.uk/
Law Commission http://www.lawcom.gov.uk/
Ministry of Justice http://www.justice.gov.uk
Parliament (UK) http://www.parliament.uk/

Stock Exchange http://www.londonstockexchange.com/

In addition, there are three electronic resources for which the Library has
subscriptions: Westlaw, Lawtel and Lexis. These will be available to
students via the campus network. Apart from keeping up to date with
legal developments in the subject, it is possible to locate articles
published both in journals to which the Library subscribes as well as
those published elsewhere.

(D)
Learning, other Desirable Outcomes and Skills
Learning Outcomes
By the end of this course, you should be able to:
1. Demonstrate a methodical and systematic understanding of key
aspects of the rules, principles and concepts of company law from case
law and statute.
2. Show a coherent and detailed knowledge of particular areas of
company law, including problems and controversies and possible
solutions.
3. Show the ability to apply the law to hypothetical situations
4. Show the ability to present critical and cogent written arguments which
evaluate company law
5. Show the ability to conduct independent research into a particular topic
in Company Law

Desirable Outcomes and Skills

In addition to the above, it would be most desirable if you can apply any
of these skills elsewhere in your law studies. While Company Law is, like
most other law courses, quite specific in content, it is very useful in
introducing you to the economic and political context in which it develops
and can, therefore, enable you to extend this understanding when
studying principles and institutions in your other law optional courses.
Obviously, the more effective you are in deploying these various skills
and showing a real grasp of Company Law, its context and the nature of
its principles, the higher will be your achievement in the marks awarded
for the written and unseen assessment exercises. Essentially there are
three opportunities for you to show your progress, first in the fortnightly
seminars where your participation is paramount, secondly, in the essay
assessment which counts for 50% of your final grade in Company Law
and the unseen examination which counts for the other 50%.

Hopefully, your interest in Company Law and your grasp of the

opportunities for you to show your progress will also have the effect of
assisting in you the development of what we consider very important
skills in your future career, whether in law practice or elsewhere, namely,
the ability to analyse, synthesise, critically appraise and evaluate legal
and associated texts, in problem solving exercises, debate and
discussion in seminars.

(E)

Course Content and Teaching Timetable

PLEASE NOTE: You are strongly advised to attend all lectures. The
lectures are designed to be interactive. Comprehensive PowerPoint
slides shall be provided BUT lectures shall not be recorded.
ALSO NOTE: Please download the POLL EVERYWHERE APP to your devices
(IPhone, Android, Laptops etc.) and register as a participant. This will enable
you to participate when the system is used in the lectures/seminars. Dont worry
if you are unable to download it, you will still be able to participate in other ways.
The app is FREE (the University is a subscriber) and it is available at
https://www.polleverywhere.com/?ref=PIgRulAJ
The following outlines the range of topics we will be looking at during the course:
Teaching Block 1
Week
1
Introduction to Company Law
2
Separate Personality & Limited Liability
3
Lifting the Veil of Incorporation (Part 1)
4
Lifting the Veil of Incorporation (Part 2)
5
Company Constitution
6
Shareholders and Directors (Control)
7
Transactions with outsiders (Part 1)
8
Transactions with outsiders (Part 2)
9
Directors duties (Part 1)
10
Directors duties (Part 2)
11
Directors duties (Part 3)
12
Term 1 revision

Tutor
OA
OA
OA
OA
OA
OA
AG
AG
AG
AG
AG
OA

Teaching Block 2
Week
1
Minority Protection: The Rule in Foss v. Harbottle
2

Minority Protection: The New Statutory Derivative

Action
Minority Protection: The Principle of Reflective Loss,
Restrictions on Majority Voting and Class
Rights
Minority Protection: Just and Equitable Winding up

5
6
7
8
9
10

Minority Protection: Unfair Prejudice (Part 1)

Minority protection: Unfair Prejudice (Part 2)
Corporate Governance
Takeovers
Stakeholders/Corporate social responsibility
Term 2 revision.

Tutor
AG
AG

OA
OA
OA
OA
OA
OA
OA
OA

Seminars:
Teaching Block 1
Seminar 1 Introduction to Company Law etc. - AG
Seminar 2 Separate Personality & Limited liability - OA
Seminar 3 Lifting the Veil of Incorporation - OA
Seminar 4 Company Constitution/ Shareholders - OA
Teaching Block 2
Seminar 5 Transactions with Outsiders - AG
Seminar 6 Directors Duties - AG
Seminar 7 Minority Protection - AG
Seminar 8 Minority Protection - OA
Seminar 9 Stakeholder Debate - OA
Seminar 10 Takeovers - OA
(F)

Seminars
The course reading is predominantly set out with the emphasis being on
the seminars, with worksheets, reading suggestions and questions for
discussion included in this booklet so that you can prepare for the
fortnightly meetings in advance.

Everything you study is part of the course, and therefore examinable. As

with much of your legal studies there is an inevitable degree of overlap
and inter-relationship between the topics considered in the course.
Equally, it should be borne in mind that there are important connections
and similarities between the content of this course and what you have
already studied in the Core Courses, especially Contract and Equity and
Trusts.
It is important that you do everything possible to ensure that you derive
as much value from seminar time as possible. Whilst tutors are keen to
assist you and your group to spend the time productively, the level of
success achieved may largely depend upon the quality and quantity of
your preparation and participation. Please prepare with care and be
ready to play a full and active part in class.
It may be that there will not always be enough time to discuss all the
questions in class. One reason for this is that it can often take time to
explore properly the techniques of answering questions. It may help to
remember that the discussion questions are not an exhaustive reflection
of the syllabus. Nor will all groups work at the same pace. This is why
the number of questions is not intended to be prescriptive. It is always
acceptable for you to ask your tutor for help with any questions that have
not been covered in class.
(G)

Assessment
Much of the work for and during seminars is designed to provide learning
opportunities for you to practice the key skill of problem-solving. In
addition, the written work during the course and in the unseen
examination will comprise a blend of problem type questions and essay
titles.
Students are assessed by a combination of one assessed coursework
essay (50%) and an unseen examination (50%).
Formative Assessment
Students are encouraged to participate and engage with the formative
assessment essay that will be provided in Autumn Term.
Note:
A variety of assessment modes are used to develop and test different
types of knowledge, skills and aptitudes. The assessment modes have
been approved to test the course and module learning
outcomes. Written submissions usually form part of the assessment at
all levels. Written submissions include essays, reports, logs etc
as appropriate to the module and the skills that you are being expected
to develop. Examinations may focus more on your ability to use your
knowledge of the subject, rather than simply testing your memory for
facts. Feedback is provided to support you in future assessments.

Unseen examinations are sometimes used to assess your level of

knowledge and/or understanding of the discipline without the support of
textbooks, notes or internet resources, unless these have been
specifically permitted by the examination rubric. When, in accordance
with the academic judgement of the School, an unseen exam has been
approved for a module to assess competence standards and any
accreditation requirements, an alternative mode may not be approved
as a Reasonable Adjustment for a student registered with the Student
Support Unit.
(H)

Student Feedback
Students will be invited (and encouraged) to express any views on the
way the course is taught and its content. The primary mechanism for
such an evaluation is the end of course online questionnaire. Tutors will
discuss the points raised as one of the means of determining what if any
changes to make to the course for the future.

SEMINAR 1: INTRODUCTION TO COMPANY LAW

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS
1. What is a company?
2. How does the company differ from other business vehicles?
3. Comment on the role of the joint stock company in the emergence of
modern Company Law.
4. What are the sources of Company Law and what is the relevance of
each source to the regulation of companies?
5. What is meant by registration of a company under the Companies Act,
2006 and what is the effect of registration?
6. What is a public company and how does this differ from a private
company?
7. Advise on the following cases. Which corporate form is appropriate,
give your reasons:
i.

ii.
iii.

iv.

Mark and John are firework manufacturers. The fireworks they

produce are so explosive that they cannot get reasonable
insurance. They are concerned about their potential exposure.
Bill, Cormac, Ann and Maureen would like to start a charity: Save
the Goats.
Sinbad and Merlin have a brilliant business idea and they would like
to form a business organization as an investment vehicle to exploit
a substantial property, which is ripe for possible redevelopment.
They have approached several banks to raise the finance but have
been turned down. The idea is so good, even better than the
Bluewater development, and they are sure that the public would
invest.
Four dentists, employed by Brighton City dental hospital, decide to
leave and to set up a business offering professional dental services.

Seminar debate: Is Company Law important?

Essential reading: L Talbot, What is the company law and is company law
important? in L Talbot Company Law (Palgrave Great Debates in Law, 2014)
Seminar group shall be divided into two groups: One to argue yes and the
other to argue no. The groups shall have fifteen minutes to discuss their
brief, prepare their line of argument and select one of the group to present
their arguments. Each group will have 10 minutes each to make their
presentation. The seminar/leader will be the judge and shall declare a winner
and also summarise key points.

10

SEMINAR 2: SEPARATE PERSONALITY AND LIMITED LIABILITY

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.

SEMINAR QUESTIONS
1. Read: Salomon v. Salomon & Co Ltd [1897] AC 22 and answer the
following:
a) What arguments were used to try to get round Salomons
debenture?
b) Did the House of Lords like Aron Salomon? Was this relevant?
c) Which side possessed the strongest moral argument?
d) What principles can one derive from the case?
e) Is the principle of agency necessarily inconsistent with the case?
2. Jeremy, a DIY enthusiast, developed a new pillow that feels more
comfortable than conventional pillows two years ago. He named his
invention JC Pillow. He was selling the pillows on Amazon and on eBay
websites and he has been very successful. Last year, he bought a house
and a car for his personal use. This year, there has been a substantial
increase in the demand for his pillows. To meet these demands, he
needs to expand the business. He needs loan capital to rent a suitable
premises for production, to buy more material and to hire additional
workers. He has approached you for advice on the best business form
for his business. He is keen to protect his personal assets in the event
that his business fails. Advice Jeremy.
3. What consequences flow from an entity being recognised as having a
separate legal personality?

4. Discuss the proposition that the Salomon principle should most definitely
apply to groups of companies.
5. Seminar debate: Limited Liability is not generally necessary or
appropriate for small businesses, but separate personality is
indispensable

Essential reading:
Salomon v. Salomon & Co Ltd [1897] AC 22
Riche v. Ashbury Railway Carriage Company (1874) LR 9 Ex 224
Ashbury Railway Carriage Company v. Riche (1875) LR 7 HL 653
Macaura v. Northern Assurance Company [1925] AC 619
Lee v. Lees Air Farming Ltd [1961] AC 12

11

Additional reading:
Otto Kahn-Freund, Some Reflections on Company Law Reform [1944] MLR
54.
Lonrho Ltd v. Shell Petroleum Co Ltd [1980] QB 358
Adams v. Cape Industries plc [1990] BCLC 479

12

SEMINAR 3: LIFTING THE VEIL OF INCORPORATION

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS:
1. What is meant by piercing the veil of incorporation? In what
circumstances will a court pierce the veil?
2. How would you evaluate the recent case law on piercing the veil of
incorporation? (Prest v. Petrodel Resources Ltd; VTB Capital Plc v.
Nutritek International Corp.)
3. Consider whether the doctrine might be applicable in the following
circumstances and what other facts might be relevant:
a. Bigco Ltd has a subsidiary Toyco Ltd. Toyco initially has no assets
but borrows money on the strength of a guarantee from Bigco in order
to build a factory to manufacture toys. The toys are defective and
cause injury. Toyco cannot satisfy its liabilities to the injured parties.
b. Largeco Ltd has a subsidiary, Medico Ltd, which manufactures and
sells medicines that were developed in Largecos research and
development laboratory. A government subsidy is introduced for
companies that manufacture and sell medicines, but only for
companies that have developed the medicines through their own
research and development. Largeco and Medico together apply for
the subsidy.
Essential reading:
Prest v Petrodel Resources Ltd [2013] UKSC 34
VTB Capital Plc v Nutritek International Corp [2013] UKSC 5; [2013] 2 W.L.R.
398 (SC)
Additional reading:
Lee Aitken, Piercing the corporate veil and the remedial constructive
contract (2013) 129 (Jan) Law Quarterly Review 21
Rob George, The veil of incorporation and post-divorce financial remedies
(2014) Law Quarterly Review (2014) 130(Jul) Law Quarterly Review 373-377
D Vlasov, To pierce or not to pierce: Supreme Court answers in the negative
in VTB Capital v Nutritek International (2013) 34(8) Company Lawyer 248-252
Adrian Walters, Corporate Veil (1998) 19 Company Lawyer 226
S Ottolenghi, From Peeping Behind the Veil to Ignoring it Completely (1990)
53 MLR 338

13

SEMINAR 4: THE CORPORATE CONSTITUTION/ SHAREHOLDERS

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS
1. What is the role of the companys constitution, and what is meant by
the statutory contract?
2. Does the statutory contract operate just as if it were a contract between
the shareholders at common law?
3. What are the roles of the general meeting and the board meeting?
4. What does it mean to say that the board of directors is an independent
organ rather than an agent or delegate of the general meeting? What
means are available to the general meeting to control or override the
board of directors?
5. Are Bushell v Faith and Ebrahimi v Westbourne Galleries consistent
with s.168 (previously s.303 CA 1985)?
Essential reading:
In this seminar we are going to cover a number of issues relating to the
companys constitution that are dealt with in various places in Hannigan, so
that the reading will seem rather disjointed. (Some of it overlaps with and
provides an introduction to later topics.)
Hannigan, Ch 5; Ch 7 in outline; Ch 9, pp 183-186, pp 201-208; Ch 16, pp
395-398; Ch 16 in outline.
Companies Act 2006, ss17-22, s31, s33
Model articles for private companies limited by shares, arts 2, 3-5
http://www.companieshouse.gov.uk/about/modelArticles/model_articles_privat
e_ltd_by_shares.doc
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Bushell v Faith [1970] AC 1099
Automatic Self-Cleansing Filter Syndicate v Cunninghame [1906] 2 Ch 34
Additional reading:
S Satish, The alteration of the articles of association: tracing the trajectory
from Allen to Citco (2014) 35(9) Company Lawyer 275-282
A.O Nwafor, The unending debate on the contractual effect of the company's
constitution - a comparative perspective (2013) 24(7) International Company
and Commercial Law Review 261-272

14

SEMINAR 5: TRANSACTIONS WITH OUTSIDERS

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS
1. What is the function of the rules governing capacity and agency?
2. What is meant by authority in relation to agency? Distinguish between
different types of authority.
3. What are the particular difficulties that arise in applying the doctrines of
actual and apparent authority where the principal is a company rather
than a natural person?
4. Explain the effect of s.40 of the Companies Act 2006.
5. One paragraph of the objects clause of the Articles of Association of
Olympus Ltd states as follows:
The company shall not purchase or sell tobacco or alcohol for use or
consumption by directors or employees or for any other purpose
Articles 72A and 89 of its Articles are, respectively, as follows:
The company secretary shall not be authorised to enter into any
transaction on behalf of the company exceeding 5,000 in value
The quorum for the conduct of business by a meeting of the directors
shall be five
At a meeting of the board of the company at which four directors are
present, the directors decide to adopt a new scheme offered by Carhire
Ltd for providing company cars to employees, and pass a resolution
authorising the company secretary to negotiate and conclude an
agreement with Carhire. Hermes is the present company secretary, and
in accordance with the boards directions, he enters into negotiations
with Carhire. In the course of these negotiations, the Carhire manager
dealing with Hermes acquires and reads a copy of Olympuss Articles. A
contract is agreed for a one year period, at a cost to Olympus of 10,000.
Dionysus, a recently appointed director, decides to hold a party for the
employees who work in his department, and orders several cases of
wine from the local off-licence, Alkies. The bill made out to the company
is sent to Hermes, who refuses to pay it.
Advise Alkies and Carhire whether their respective contracts are binding
on Olympus.
6. Mick, manager of a branch of Piggy Bank plc, receives a request from
Terry, the junior finance manager of Straw Ltd, for a loan of 10,000 for
his company, to enable the company to contribute to a local community
centre as a means of enhancing the companys image. Mick asks for

15

confirmation that the loan is authorised, and receives a letter from Straw
Ltds company secretary, Barry, stating that Terry is authorised to borrow
on behalf of the company. Mick also obtains and reads a copy of Straw
Ltds Articles, without fully understanding them. The objects clause of
Straw Ltds Articles simply states that Straw Ltd has the object of
carrying on business as a general commercial company, and Regulation
31 of its Articles contains a provision precluding the company from
borrowing more than 5,000.
The contract is made, Terry signing on behalf of Straw Ltd. Advise Mick
whether the loan contract is enforceable by Piggy Bank plc against
Straw Ltd.
Would the position be different if:
a. Regulation 31 stated that the company could not borrow more
than 5,000 without the authority of an ordinary resolution?
b. Authorisation were given not by Barry but by Max, who, although
never having been formally appointed, acts as the managing
director of Straw Ltd?
Essential reading:
Hannigan, Ch 9
You may also like to consult a contract or agency textbook for a discussion of
agency.
Freeman & Lockyer v. Buckhurst Park Properties [1964] 2 QB 480
Hely-Hutcheson v. Brayhead & Richards [1968] 1 QB 549
Panorama Developments v. Fidelis Fabrics [1971] 3 WLR 440
British Bank of the Middle East v. Sun Life [1983] BCLC 78
Smith v. Henniker-Major [2002] 2 BCLC 655
Additional Reading:
J Payne & D Prentice, Company Contracts and Vitiating Factors: Developments
in the Law on Directors Authority [2005] LMCLQ 447
A Walters, Section 35A and Quorum Requirements: Confusion Reigns (2002)
23 Company Lawyer 325
C Twigg-Flesner, Sections 35A and 322A revisited: who is a person dealing with
a company? (2005) 26 Company Lawyer 195
E Ferran, The Reform of the Law on Corporate Capacity and Directors' Authority
Pt 2 [1992] Company Lawyer 177
J Poole, Abolition of the Ultra Vires Doctrine and Agency Problems [1991]
Company Lawyer 43
Ian Brown, The Agents Apparent Authority [1995] JBL 360

16

SEMINAR 6: DIRECTORS DUTIES

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS
1. What duties does a director have and to whom are such duties owed?
2. Are the three principles enunciated by Romer J in Re City Equitable
[1925] Ch 407 still valid for assessing what standards of care and skill
are to be expected of a modern company director?
3. Read: Freeman and Lockyer (a firm) v. Buckhurst Park Properties
(Mangal) Ltd [1964] 2 QB 480; [1964] 1 All ER 630, and answer the
following:
I.
II.
III.
IV.

What was the plaintiffs (claimants) claim?

Why was Kapoor held not to have actual authority as managing
director?
Is this right in the light of the latter case Hely Hutchinson v.
Brayhead [1968] 1 QB 548?
In the Freeman & Lockyer case, why was the company held
liable?

4. In s172 Companies Act, 2006, the duty to act in good faith and have
regard to the factors listed in clauses (a) to (f) constitute only one duty
as a whole, i.e., the duty to promote success of the company, which is
an overriding duty and the listed factors are subordinate to that
overriding duty. Discuss

5. Trevor, Bill and Cormac are directors of Truck Co (1985) Ltd and Lord
Pete of the Wirral is the chairman. Truck Co (1985) Ltd manufactures
small toy lorries, which it then sells through its 102 high street shops,
Trucks R (B)us. The business is reasonably successful, although they
have been facing tough competition from the Asian manufacturer,
Twonka recently. One sunny evening, Bill is approached by Ernest
McSwindle, the finance director of Wagon Ltd, a rival toy manufacturer.
He offers Bill a non-executive position on the board of Wagon Ltd, which
Bill accepts on the condition that his remuneration will be 100,000 per
year. Bill undertakes this new position with gusto, even taking minutes
of Truck Co (1985) Ltds board meetings with him to show to the other
directors of Wagon Ltd.
That same evening Lord Pete of the Wirral is at a cocktail party in
Stevenage, where he mentions to Roger that he doesnt really do
anything at Truck Co (1985) Ltd, and for the 30,000, he receives in
remuneration, he is surprised that more people do not become company
chairman. For instance, he tells Roger that he has fallen asleep during
the last board meeting of Truck Co (1985) Ltd and that he only woke up
because his soggy digestive fell onto his lap scolding him. He also told

17

Roger that he didnt really care about the Twonka threat and that as long
as his pay kept coming he would still be a lazy chairman.
Trevor and Cormac meanwhile have been making roller skates out of
the toy trucks, using them as wheels and bits of card as the platform.
The companys law firm Jumble, Tat and Egit, are worried that these
contraptions might give rise to negligence claims, but Cormac has
assured the solicitors that he will take all the blame if anything goes
wrong.
Advise Truck Co (1985) Ltds shareholders, creditors, employees and
the new board as to any action they should take against the directors.
Essential reading:
Hannigan, Chapters 8,9.10
Re City Equitable [1925] Ch 407
Freeman and Lockyer (a firm) v. Buckhurst Park Properties (Mangal) Ltd [1964]
2 QB 480
Hely Hutchinson v. Brayhead [1968] 1 QB 548

Additional reading:
Ernest Lim, Directors duties: Improper Purposes or Implied Terms (2014)
Legal Studies 395-418
S Worthington, Reforming Directors' Duties (2001) 64(3) Mod. L.R. 439
P Goldenberg, IALS company law lecture, Shareholders v Stakeholders: the
bogus argument (1998) 19(2) Company Lawyer 34
Parker Hood, Directors Duties under the Companies Act 2006: Clarity or
Confusion? (2013) 13 Journal of Corporate Law Studies 1
D Kershaw, Lost in Translation: Corporate Opportunities in Comparative
Perspective (2005) 25 Oxford Journal of Legal Studies 603
A Keay, Directors duties and creditors interests (2014) 130(Jul) Law
Quarterly Review 443-472
E Lim, Directors' fiduciary duties: a new analytical framework (2013) 129(Apr)
Law Quarterly Review 242-263
SS Churk, Avoidance of loss, Regal Hastings and the no conflict rule (2013)
34(3) Company Lawyer 73-78
M Alotaibi, Regulating conflicts of interest in the post-CA 2006 era: a triumph
of disclosure over honesty and good faith (2013) 24(1) International Company
and Comparative Law Review 1
CA Riley, The Company Directors Duty of Care and Skill (1999) 62 MLR 697

18

SEMINAR 7: MINORITY PROTECTION

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS
1. Discuss the assertion that: despite being dubbed by Sealy as 140 years
of procedural codswallop, Foss v. Harbottle remains fundamental to
English Company Law, albeit our law has slowly allowed for a
shareholders derivative action . The principle, say the English judges
is not merely a tiresome procedural obstacle placed in the path of a
shareholder by a legalistic judiciary. The rule is a consequence of the
fact that a corporation is a separate legal entity. (Wedderburn)
2. Read: Foss v. Harbottle (1843) 2 Hare 461, and answer the following
questions after you have read Wedderburn, KW. Shareholders Rights
and the rule in Foss v. Harbottle (1957) CLJ 194:
I.
II.
III.
IV.

How does Wedderburn trace the sources of the rule?

How does Wedderburn classify the types of available minority
action?
What exceptions does Wedderbrun see to the rule? Do you agree
with his rationale?
How does Wedderburn seek to reconcile the question of personal
rights and the internal management rule?

3. What elements are making the voting rights of shareholders not

perfectly enforceable?
4. Jack, Dan, Susan and Perry are members of Bodyworks Ltd. The
company was formed to purchase a health and leisure club. Jack agreed
to become a member of the company on the basis that his own company,
FitFun Clothing Ltd, would provide security services for the Club. The
Articles were duly amended to make reference to this effect. In May
2002, the directors of Bodyworks Ltd, Susan and Perry, advised Jack
that there would be a 25% cut in the salaries of the directors and the fees
paid to FitFun Clothing Ltd to enable a fee to be paid to Dan, who had
recently become the third director. In September 2002, Jack was
informed that the contract with FitFun Ltd was to be terminated.
Although Jack had known, prior to becoming a member of the company,
that Susan and Perry had no previous experience in managing a health
and leisure club, he has now uncovered increasing evidence of their
managerial incompetence. He planned to raise these matters at the
annual general meeting in November but the meeting did not take place.
In a recent telephone conversation with Nathan, he was advised that
there were no plans for a meeting as there was nothing to discuss.
Advise Jack as to the remedies that may be available to him

19

Essential reading:
Foss v. Harbottle (1843) 2 Hare 461
Hannigan, Chapter 19 & 20
Additional reading:
D Kershaw, The Rule in Foss v Harbottle is Dead; Long Live the Rule in Foss
v Harbottle LSE Law, Society and Economy Working Paper Series, 5/2013.
C A Rilley, Derivative claims and ratification: time to ditch some baggage
(2013) Legal Studies 1
A Keay J & Loughrey, Something Old, Something New, Something
Borrowed: an Analysis of the New Derivative Action under the Companies Act
2006 (2008) 124 LQR 469

20

SEMINAR 8: MINORITY PROTECTION

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS:
1. Outline the effect of the unfair prejudice provision now in s.994 (s.459
of the Companies Act 1985), and identify some examples of unfair
prejudice. Has the unfair prejudice provision solved the problem of
minority protection?
2. The most common remedy sought in a petition for unfair prejudice is a
share purchase order. How should the shares be valued for the
purpose of an order to buy out a minority shareholder?
3. Sam, Cliff and Norman were partners in a building firm. In 2009 they
decided to incorporate the business as Boston Ltd., each taking 10
shares in the company. Each was appointed a salaried director.
Subsequently Diane was persuaded to buy 5 shares in the company as
an investment, without becoming involved in the management of the
company, and 5 shares were issued to her.
However, a dispute developed between Sam and Diane on the one hand
and Norman and Cliff on the other, leaving the two sides distrustful of
each other and unwilling to co-operate. Now Sam has been removed as
a director by Cliff and Norman by ordinary resolution. No dividend has
been paid out of available profits, and instead Cliff and Norm are to
receive larger salaries as directors. Cliff and Norman have offered to buy
Sam's and Diane's shares at a price to be determined in accordance with
the procedure laid down in the articles, which provides for an
independent auditor to be appointed to determine a market value for the
shares.
Advise Sam and Diane what remedies are available to them, if any.
4. Andrew, Barry and Chris decide to go into business together making
printed T-shirts and other garments. Andrew is a wealthy cloth
manufacturer, and Barry and Chris are designers. They agree that
Andrew will provide most of the initial capital, while Barry and Chris will
provide the expertise and manage the business. They form a company,
which they call Pattern Ltd. Andrew puts in 30,000 and receives 60%
of the issued share capital, and Barry and Chris each put in 10,000 in
return for 20% of the issued share capital. Barry and Chris are made
directors of the company. Andrew does not become involved in
managing the business, but he enters into a five year contract to supply
the company with cloth from his manufacturing business at a very good
price.
However Andrew's cloth manufacturing business suffers a decline in
fortunes, and Andrew decides he can no longer afford to supply the
company at the agreed preferential rate. He asks Barry and Chris to

21

release him from the contract. Barry and Chris refuse, and so Andrew
passes an ordinary resolution at a general meeting of Pattern Ltd
directing them, as directors of the company, not to enforce the contract.
Barry and Chris inform Andrew that they do not consider themselves
bound by the direction. Andrew responds by calling a further general
meeting, at which, in accordance with the articles of the company, he
appoints Samuel and Thomas, who are business associates of his, as
directors of Pattern Ltd, and passes an ordinary resolution to remove
Barry and Chris as directors.
Samuel and Thomas allow Andrew to withdraw from the contract, and in
consequence Pattern Ltd falls into financial difficulties. No dividends are
paid on its shares, although Samuel and Thomas pay themselves
generous salaries. Barry and Chris threaten legal action. Andrew offers
to buy each of them out for a price equal to 20% of the current value of
the company's assets. Andrew tells Barry and Chris that if they do not
agree he will issue more shares to himself and pass a special resolution
altering the articles to empower the company to expropriate minority
shareholders.
Advise Chris.
Essential Reading:
Read: Hannigan, Chapters 19 & 20
Insolvency Act 1986, s122(1)(g)
Companies Act 2006, s994 (previously s495 CA 1985)
Ebrahimi v. Westbourne Galleries [1973] AC 360
Re Saul Harrison [1995] 1 BCLC 14
ONeill v. Phillips [1999] 1 WLR 1092
Re Guidezone Ltd [2000] 2 BCLC 321
Additional reading:
SS Churk, Avoidance of loss, Regal Hastings and the no conflict rule (2013)
34(3) Company Lawyer 73-78
E Lim, Unfair prejudice and judicial ingenuity (2013) 34(4) Company Lawyer
115-116
Milman, Protection of minority shareholders in the post-Companies Act 2006
era (2012) 323 Company Law Newsletter 1
B Hannigan, Drawing boundaries between derivative claims and unfairly
prejudicial petitions (2009) 6 Journal of Business Law 606
Stephen Acton, Just and Equitable Winding Up (2001) 22 Company Lawyer
134
A J Boyle, Unfair Prejudice in the House of Lords (2000) 21 Company Lawyer
253
K Reece-Thomas & C Ryan, Section 459, Public Policy, and Freedom of
Contract (2001) 22 Company Lawyer 177 & 198

22

SEMINAR 9: Stakeholder Debate

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
Seminar debate:
The stakeholder theory is wrong in principle and in any case impracticable.
Students shall be divided into two groups two weeks prior to this debate session
to allow for in-depth preparation for this session. One group will be in favour of
the proposition while the other shall be against it. Each group shall have two
speakers. The first speaker shall speak for 20 minutes while the second
speaker shall have 10 minutes.
The seminar leader will be the judge and shall declare a winner and also
summarise key points.
Article Review: (It is important to read the following article and note the main
arguments, their strengths and weaknesses)
L Talbot, Trying to save the world with company Law? Some problems (2016)
36 (3) Legal Studies 513-534

Essential reading:
L Talbot, Trying to save the world with company Law? Some problems (2016)
36 (3) Legal Studies 513-534
Dodge v. Ford Motor Co. (Michigan Supreme Court, 1919)
A.R, Keay, Stakeholder Theory in Corporate Law : Has It Got What It Takes?
(2010) 9 (3) Richmond Journal of Global Law & Business. 249-300
Additional reading:
M Yan, "Why not stakeholder theory? (2013) 34(5) Company Lawyer 148-158
M Sweeney-Baird, The role of the non-executive director in modern corporate
governance (2006) 27 Company Lawyer 67

23

SEMINAR 10: Corporate Governance & Takeovers

Note: Use the lecture slides and the seminar questions as a guide to what to focus
on.
SEMINAR QUESTIONS

1. What is meant by the separation of ownership and control, and what are
its perceived dangers?
2. The discipline of the market for corporate control is a necessary and
desirable means of promoting efficient management given the
separation of ownership and control in large companies. Discuss.
3. What are the general principles underlying the City Code on Takeovers?
4. What power do the courts have over the interpretation and enforcement
of the City Code and the acts of the Panel?
5. What is the role of the Takeover Code in corporate takeovers or
acquisitions?
6. Are you in favour of self-regulation of takeovers or do you think should
there be direct legal regulation enforced through the courts?

Essential reading
Hannigan, Ch 6, Ch 25.
R v. Panel on Takeovers and Mergers ex p Datafin [1987] 1 QB 815
Additional Reading:
B Clarke, Articles 9 and 11 of the Takeover Directive and the Market for
Corporate Control (2006) Journal of Business Law 355
W Wan, Takeovers and countering short-termism in target boardrooms: Part
1 (2013) 34(2) Company Lawyer 43-48
W Wan, Takeovers and countering short-termism in target boardrooms: Part
2 (2013) 34(3) Company Lawyer 68-72
Von Prittwitz und Gaffron, Break fees in public takeovers (2014) 35(1)
Company Lawyer 1-9
Lord Alexander Takeovers:The Regulatory Scene (1990) Journal of Business
Law 203
C Bradley, Corporate Control: Markets and Rules [1990] MLR 170

24

END OF TEXT

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