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Recent developments 2014
LA3021 Company law
Current edition of the subject guide
The current edition of the subject guide is the 2009 edition.
The following developments should be noted
Essential reading
Primary textbook
Dignam, A. and J. Lowry Company law. Oxford: Oxford University
Press, 2012 seventh edition ISBN 9780199643226.
Updated references for this textbook are given at the end of this Recent
developments.
Other texts to consult
Dignam, A. Hicks and Goo’s cases and materials on company law.
Oxford: Oxford University Press, 2011 seventh edition ISBN
9780199564293.
Davies, P. And S. Worthington Gower and Davies Principles of
Modern Company Law. London: Sweet & Maxwell, 2012 ninth
edition ISBN 9780414022720.
Kershaw, D. Company law in context: Text and materials. Oxford:
Oxford University Press, 2012 second edition ISBN
9780199609321. This book places the study of company law in its
economic, business and social context. This makes the cases, statutes
and other forms of regulation that make up company law more
accessible and relevant.
Mayson, S., D. French and C. Ryan Mayson, French & Ryan on
company law. Oxford: Oxford University Press This book is revised
annually so the latest edition is always current. If you use this book,
make sure it is the latest edition. Check the Oxford University Press
website www.oup.co.uk for details.
Sealy, L. and S. Worthington Cases and materials in company law.
Oxford: Oxford University Press, 2013 tenth edition ISBN
9780199676446.
Company law reform
As from the 1 October 2009 the Companies Act 2006 is now fully in force.
It forms the single principal Companies Act for the UK.
In previous years, as there were two Companies Acts in operation, the
Chief Examiner had agreed that students could answer questions on the
examination paper using either the 1985 Act or the 2006 Act.
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As the 2006 Act is now fully in force, you must use this Act in your
examination answers.
You should also, as in previous years, be up to date with the company law
reform process, of which the 2006 Act forms a substantial part.
The law on company charges has been reformed. The Companies Act
2006 Amendment of Part 25 Regulations 2013 repeal ss.860–892 of
the Companies Act 2006. In their place, the Regulations insert new
s.859A–Q into the Act. The new provisions largely repeat the old
registration scheme, but with a more streamlined registration process.
One change of substance worth noting, however, is that a company’s
failure to register a charge is no longer a criminal offence.
The law on share buy‐backs has also been reformed and simplified. The
changes were introduced by the Companies Act 2006 Amendment of
Part 18 Regulations 2013. Under the new rules, a small buy‐back the
value of which does not exceed £15,000, or 5 per cent of the company’s
share capital if less can now be paid for out of capital, without the
company having to satisfy the complex procedures which ordinarily
apply to buy‐backs out of capital. At least, that was certainly the
Government’s intention, although unfortunately some doubts have been
expressed over whether the new rules achieve this result. Further, the
new rules make it easier for private companies to buy back their shares
as part of an employee share scheme. Finally, for both private and
public companies, off‐market buy‐backs can now be approved by an
ordinary resolution previously, a special resolution was required.
BIS has also consulted on proposals to simplify the ‘filing requirements’
for companies, as part of the UK Government’s broader policy of cutting
‘Red Tape’ on business by removing unnecessary regulatory burdens.
See www.gov.uk/government/consultations/company‐filingrequirements
On share capital reform see also:
www.bis.gov.uk/Consultations/companies‐act‐2006‐statements‐ofcapital‐
consultation?catclosedawaitingresponse
The UK’s Financial Services Authority FSA has now been replaced by two
new regulatory bodies. The first is the Prudential Regulation Authority
PRA, which is a subsidiary of the Bank of England, and is responsible for
promoting the stable and prudent operation of the financial system
through regulation of all deposit‐taking institutions, insurers and
investment banks.
The other regulatory body is the Financial Conduct Authority FCA. It is
responsible for regulation of conduct in retail, as well as wholesale,
financial markets and the infrastructure that supports those markets.
The FCA will also have responsibility for the prudential regulation of
firms that do not fall under the PRA’s scope.
See www.fsa.gov.uk/about/what/reg_reform/background
The FSA, prior to its replacement by the FCA, had already become more
active in pursuing insider dealing activities See:
www.fsa.gov.uk/pages/Library/Communication/PR/2010/052.shtml.
In March 2010, for example, the FSA coordinated raids involving 143
police officers and FSA investigators on the homes of senior employees
of financial services companies. Six arrests were made in what was
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described as the biggest ever crackdown on insider dealing. See:
www.guardian.co.uk/business/2010/mar/23/six‐arrested‐over‐insiderdealing
Finally, the Government has embarked on a much wider‐ranging
consultation into the transparency of ownership of companies and the
accountability of corporate directors. In July 2013, it issued a discussion
document entitled ‘Transparency and trust: enhancing the transparency
of UK company ownership and increasing trust in UK business’.
Suggested reforms included:
making it easier to identify the beneficial owners of company
shares
introducing greater transparency around ‘nominee directors’,
and possibly abolishing ‘corporate directors’
amending say by strengthening the statutory duties on
directors in some specific business sectors such as banking
amending the rules governing the disqualification of directors
including by extending the time limit for bringing proceedings
from two to five years in the case of insolvent companies.
As of Feburary 2014, the Government is still reflecting on the feedback it
has received from the public on its discussion document.
See: www.gov.uk/government/consultations/company‐ownershiptransparency‐
and‐trust‐discussion‐paper
Corporate governance reform
There have been a number of important initiatives taken in recent years
to address aspects of the corporate governance regime for larger,
especially quoted, companies.
The Walker Review
In November 2009 Sir David Walker unveiled his report on corporate
governance in the financial services industry. Having reviewed the
problems within the UK financial industry, he considered that:
a. the boards of big banks didn’t understand the scale of the risks
their organisations were running
b. non‐executive directors NEDs of big banks did too little to rein
in the excesses of the executive directors
c. shareholders in banks also failed to curb reckless gambling by
financial institutions, and that owners didn’t ‘exercise proper
stewardship’
d. that bankers were paid in a dangerous way which encouraged
them to speculate imprudently.
Walker suggested a number of changes to the governance regimes of
financial institutions. These included:
i. Financial institutions should form a risk committee, separate from
the audit committee, to monitor all substantial transactions and
stop the transaction if it was deemed too risky. The committee
should be chaired by a NED.
ii. Increase the training of NEDs, increase their oversight by the FSA
now the FCA, and increase the amount of time NEDs should be
expected to spend each year performing their duties.
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iii. Ensure that the Chairmen of financial institutions have significant
and relevant ‘financial industry experience’, face re‐election by
shareholders every year and devote two thirds of their time to the
company.
iv. Ensure greater rigour and transparency in setting the
remuneration of ‘high end’ individuals. ‘High end’ individuals are
those ‘who as executive board members or other employees
perform a significant influence function for the entity or whose
activities have, or could have, a material impact on the risk profile
of the entity.’
v. Bonuses or any element of performance pay should have time
delays of up to five years, or enough time to assess that the
transactions that engaged the bonus or performance pay did
indeed benefit the bank in the way intended.
vi. Institutional shareholders and fund managers should be more
engaged with the companies they invest in. To encourage this they
should comply, or explain non‐complaince, with a ‘stewardship
code’ overseen by the Financial Reporting Council in the same
manner as the Combined Code now the UK Corporate
Governance Code.
The full review can be found at:
www.audit‐committeeinstitute.
be/dbfetch/52616e646f6d4956f9ed6cb8ae5277dbec35c2
33bab54a5b/walker_review_consultation_160709.pdf
The Stewardship Code
As noted above, Walker’s final recommendation called for greater
shareholder involvement in banks and other financial institutions.
However, this concern about ‘shareholder apathy’ was a longstanding
one, and had been made in respect of larger, publicly traded, companies
in general. As early as 2002 a body called the ‘Institutional Shareholders
Committee’ ISC had issued a very brief document which called on
Institutional Shareholders to become more actively engaged with the
companies in which they invested, but the impact of this document was
very doubtful. Walker recommended that the Financial Reporting
Council the body which is responsible for the UK Corporate Governance
Code – see below should have responsibility in this area, and should
produce a more detailed and formal code based on the work of the ISC.
The Financial Reporting Council published the first Stewardship Code in
2010, and it has since been updated in 2012. It applies to ‘institutional
investors’ generally. This group covers not only institutional
shareholders themselves such as pension funds, or insurance
companies, but also those firms of ‘asset managers’ which typically look
after the shareholdings of such institutional shareholders. Like the UK
Corporate Governance Code, enforcement is on a ‘comply or explain’
basis only. Thus, asset managers are legally required to disclose how
they comply with the Code. Institutional shareholders, however, are
only recommended to make such disclosures, but are not required by
law to do so.
The Code is composed of seven principles. These recommend that
institutional investors should:
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‘1. publicly disclose their policy on how they will discharge their
stewardship responsibilities.
2. have a robust policy on managing conflicts of interest in relation to
stewardship which should be publicly disclosed.
3. monitor their investee companies.
4. establish clear guidelines on when and how they will escalate their
stewardship activities.
5. be willing to act collectively with other investors where appropriate.
6. have a clear policy on voting and disclosure of voting activity.
7. report periodically on their stewardship and voting activities.’
The Stewardship Code can be found at:
https://frc.org.uk/Our‐Work/Publications/Corporate‐
Governance/UK‐Stewardship‐Code‐September‐2012.pdf
The UK Corporate Governance Code
To reflect wider concerns about UK corporate governance a new version
of the Combined Code on Corporate Governance was produced in May
2010, and updated in 2012. It is now called the UK Corporate
Governance Code:
www.frc.org.uk/corporate/ukcgcode.cfm
One change introduced in the 2012 version of the Code is a
recommendation that the company’s annual report should ‘include a
description of the board’s policy on diversity, including gender, any
measurable objectives that it has set for implementing the policy, and
progress on achieving the objectives’. This follows on from the Review
undertaken by Lord Davies into the proportion of women on company
boards, which can be accessed at:
www.gov.uk/government/news/women‐on‐boards
Executive remuneration
The pay of top executives including directors within larger companies
has continued to generate much controversy in the UK: see, for example,
the various reports of the ‘The High Pay Centre’ at:
http://highpaycentre.org/
Since 2002, UK quoted companies have been required to prepare a
‘remuneration report’, providing details of the company’s remuneration
policies, and its implementation of those policies. This report had to be
put to a vote of shareholders. However, the vote was only ‘advisory’, so
that boards might lawfully choose to ignore a negative vote by
shareholders. As a result of ss.79–82 of the Enterprise and Regulatory
Reform Act 2013, the shareholders’ vote is now binding, so far as the
company’s policy on directors’ remuneration is concerned.
Long termism and the Kay Review
In October 2010 BIS launched a review of ‘corporate governance and
economic short‐termism’; see: www.bis.gov.uk/Consultations/a‐longterm‐
focus‐for‐corporate‐britain?catopen. One major concern was
whether UK equity markets in particular contributed towards the alleged
‘short‐termism’ of UK companies. To explore this issue further,
Professor John Kay was appointed to examine key issues related to
investment in UK equity markets and its impact on the long‐term
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performance and governance of UK quoted companies. In February 2012,
Kay and his colleagues produced an interim review, which provided a
wide range of evidence that British companies were indeed subject to
damaging short‐term pressures, particularly from shareholders.
Kay’s final report appeared in July 2012. See www.bis.gov.uk/kayreview
It listed 17 specific recommendations for addressing these short term
pressures. The bulk of these focused on investors both shareholders
and asset managers and included:
developing the Stewardship Code to ‘incorporate a more
“expansive” form of stewardship, focussing on strategic issues as
well as questions of corporate governance’
establishing an ‘investors forum’ to facilitate collective
engagement by investors
providing that those involved in the investment chain who had
discretion over the investments of others e.g. asset managers
or who gave investment advice to others, should be subject to
fiduciary standards
increasing transparency over the costs charged by asset
managers
ensuring that the structure of asset managers’ pay encouraged
long termism.
Other recommendations focused on companies themselves, and
included:
ensuring companies engaged more with long‐term investors
over major board appointments
ensuring the structure of directors’ remuneration rewarded
long‐term performance
discouraging companies from trying to manage shareholders’
‘short‐term earnings expectations’.
To support some of the above recommendations, Kay also proposed a set
of three ‘Good Practice Statements’, aimed at directors of companies,
asset managers and institutional shareholders. These statements would
highlight the responsibilities of these different actors for encouraging
more stewardship and more long‐term decision making.
In November 2012 BIS released its response to the Kay Review. This can
be viewed at:
www.gov.uk/government/consultations/the‐kay‐review‐of‐ukequity‐
markets‐and‐long‐term‐decision‐making
BIS largely accepted Kay’s analysis of the role which equity markets
played in encouraging short‐termism, and also agreed with almost all of
Kay’s specific recommendations. Of course, many of the
recommendations were aimed at investors, or companies, rather than
Government. But one practical response BIS made immediately was to
publish Kay’s three proposed ‘Practice Statements’ for directors, asset
managers and shareholders. These statements can be found in Annexes
A–C of the BIS response. However, these practice statements are not
legally binding on directors, shareholders or asset managers, and no
additional mechanisms have been developed to ensure that those to
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whom they are addressed follow them. It must remain to be seen, then,
whether they have any impact on the behaviour of their addressees.
Useful websites
The following are helpful websites about the implementation and
operation of the 2006 Act.
legislation.gov.uk
www.legislation.gov.uk/ukpga/2006/46/contents
This link provides full text of the Act itself, as well as explanatory notes
and tables of destinations and origins for the Act.
The Department for Business, Innovation and Skills BIS
This department of state now has responsibility for Company Law. In
June 2007 the DTI Department for Trade and Industry, the DfES
Department for Education and Skills and the Better Regulation
Executive became the Department for Business Enterprise and
Regulatory Reform BERR. It was then reformed as the Department for
Business, Innovation and Skills BIS in June 2009. Thus, over the course
of the reform act, it has been dealt with by the DTI, then BERR then
finally BIS.
This page contains links to a great deal of information about the
Companies Act 2006:
www.gov.uk/company‐and‐partnership‐law‐‐2
Recent case law
By forming a company and placing his business assets in the company in
return for shares in the company, the individual no longer has any legal
interest in the assets. See:
Hashem v Shayif 2008 EWHC 2380 Fam.
For an application of the rules on veil lifting in the context of matrimonial
proceedings, see:
Petrodel Resources Ltd v Prest 2013 UKSC 34.
On an important development in veil lifting in tort cases see:
Chandler v Cape Plc 2012 EWCA Civ 525.
On veil lifting in the group context see:
Linsen International Ltd v Humpuss Sea Transport PTE Ltd
2011 EWHC 2339 Comm
Gramsci Shipping Corp v Stepanovs 2011 EWHC 333 Comm,
2011 1 Lloyds Rep 647.
For an example of lifting the corporate veil on the ‘façade’ ground, see:
Anglo German Breweries Ltd in liquidation v Chelsea Corp Inc
2012 EWHC 1481 Ch.
On remedies, see:
VTB Capital plc v Nutritek International Corp 2013 UKSC 5.
On the test for ‘de facto director’, see the decision of the Supreme Court
in:
HM Revenue & Customs v Holland; Re Paycheck Services 3 Ltd
2010 UKSC 51.
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For an important case which may significantly extend the duties of
shadow directors, see:
Vivendi SA v Richards 2013 EWHC 3006 Ch.
On the meaning of ‘unfitness’ for the purposes of s.6 CDDA 1986, see:
Re AG Manchester Ltd in liquidation; Official Receiver v
Watson 2008 1 BCLC 321.
See:
Hawkes v Cuddy No 2 2009 EWCA Civ 291
where the Court of Appeal examined the relationship between a nominee
director and his nominator.
See:
West Coast Capital Lios Limited 2008 CSOH 72
where the Court of Session considered the proper purposes doctrine
under s.171.
On the scope of s.172, see:
Re Southern Counties Fresh Foods Ltd 2009 EWHC 1362 Ch
Stone & Rolls Ltd v Moore Stephens 2009 UKHL 39
R on the application of People & Planet v HM Treasury 2009
EWHC 3020 Admin.
Two recent cases have addressed the duty, recognised in s.1723, to
consider creditors’ interests when the company is insolvent or on the
verge of insolvency. The duty is to consider the interests of the creditors
as a general class:
GHLM Trading Ltd v Maroo 2012 EWHC 61 Ch
and see also:
Re HLC Environmental Projects Ltd 2013 EWHC 2876 Ch
where the court noted the objective elements in this duty.
See:
Gregson v HAE Trustees Ltd 2008 EWHC 1006 Ch
in which the court confirmed that s.174 codifies the pre‐existing law.
See also:
Lexi Holdings plc in administration v Luqman 2008 WLR D 1
and
Eastford Ltd v Gillespie 2010 CSOH 132.
On the scope of the corporate opportunity doctrine, see:
Berryland Books Ltd v BK Books Ltd 2009 EWHC 1877 Ch
and
O’Donnell v Shanahan 2009 EWCA Civ 751.
On remedies see:
Sinclair Investments UK Ltd v Versailles Trade Finance Ltd in
administration 2011 EWCA Civ 347.
On the new statutory procedure CA 2006, Part 11 for bringing a
derivative claim, see:
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Mission Capital plc v Sinclair 2008 EWHC 1339 Ch
Franbar Holdings v Patel 2008 EWHC 1534 Ch
Kiani v Cooper 2010 BCC 463
Langley Ward Ltd v Trevor 2011 EWHC 1893 Ch
Kleanthous v Paphitis 2011 EWHC 2287 Ch
Phillips v Fryer 12 June 2012
Bamford v Harvey 2012 EWHC 2858 Ch
Re Singh Brothers Contractors North West Limited 2013
EWHC 2138 Ch.
On the link between s.1221g IA 1986 and s.994 CA 2006, see:
Hawkes v Cuddy No 2 2009 EWCA Civ 291
McKillen v Misland Cyprus Investments Ltd 2012 EWHC 2343
Ch
Maresca v Brookfield Development and Construction 2013
EWHC 3151 Ch
and further on s.994 see:
Oak Investment Partners XII, Limited Partnership v Boughtwood
2009 EWHC 176 Ch
Fulham Football Club 1987 Ltd v Richards 2011 EWCA Civ
855.
On excessive director’s remuneration and s.994 see:
Re Tobian Properties Ltd 2012 EWCA Civ 998.
Similarly on dividends and unfairly prejudicial conduct see:
Sikorski v Sikorski 2012 EWHC 1613 Ch.
On valuation see:
Re Home & Office Fire Extinguishers Ltd 2012 EWHC 917 Ch.
Harborne Road Nominees Ltd v Karvaski 2011 EWHC 2214
Ch.
On the meaning of a subsidiary see:
Enviroco Ltd v Farstad Supply A/S 2011 BCC 511.
On corporate attribution see:
R v St Regis Paper Co Ltd 2011 EWCA Crim 2527.
On pre‐emption rights see:
Cream Holdings Ltd v Davenport 2011 EWCA Civ 1287.
On illegal returns of capital see:
Progress Property Co Ltd v Moorgarth Group Ltd 2010 UKSC
55.
On book debts see:
Re Harmony Care Homes Ltd 2009 EWHC 1961 Ch.
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Updated references for Dignam and Lowry
All references remain the same in the new edition except the following:
Section Reference in subject
guide
Reference to new
edition
Activity 4.3 3.33‐3.51 3.33‐3.53
Activity 5.3 4.13‐4.20 4.14‐4.21
Chapter 11: Dignam and Lowry Ch.10 is called ‘Derivative claims’,
not ‘The principal of majority rule’. This is the case in both editions.
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