Running Head: COMPANY LAW

Company Law

[Name of Author]

[Name of Institution]
 Company Law 2

Company Law

Question (a)

In every company, there are certain duties given to the directors so that all the internal

matters concerning the performance of the directors can be handled in an appropriate way. In

other words, it can be said that when a director is given the power to perform certain tasks within

a company to continue the business matters, there are several duties provided which every

director has to fulfil while performing his/her function1. In the United Kingdom, there are certain

rules provided under the Company law and every director is supposed to abide by all the rules2.

Considering the provided case study it can be contemplated that Tracey as a director of Wolf

Roast Limited ("Roast") has to abide by the provided rules under the Company law that are

related to the duties of the directors.

Bhullar v Bhullar [2003]

A leading case law in the United Kingdom with respect to duties of the directors has been

Bhullar v Bhullar [2003]3. In this case, it was decided by Lord Jonathan Parker J that all the

directors should avoid all the actions that might create conflict of interest between other directors

of the companies in order to carry on the business of the company4. On the contrary, the decision

provided by other two judges named Brooke LJ and Schiemann LJ were not in favour of

Jonathan Parker LJ5.

1
Hanrahan, Pamela F., Ian Ramsay, and Geofrey P. Stapledon. "Commercial applications of company
law." Commercial Applications of Company Law, CCH Australia Ltd, (2013).
2
Bilchitz, David, and Laura Ausserladscheider Jonas. "Proportionality, Fundamental Rights and the Duties of
Directors." Oxford Journal of Legal Studies (2016): gqw002.
3
Bhullar v Bhullar [2003] EWCA Civ 424.
4
Bhullar v Bhullar [2003] EWCA Civ 424.
5
Bhullar v Bhullar [2003] EWCA Civ 424.
 Company Law 3

Subsequently, it can be noticed that when the directors do not perform their duties

efficiently and breach the duties in respect of the shares in the company or in respect of the

debenture, then that very director can be held liable to pay the compensation to the company6.

Thus, considering Tracy’s situation, it can be said that Tracy was authorized to check the

legal matters that were related to the issuance of the debentures and it was her duty to ensure that

all the directors are aware of the debenture that was taken out by Roast over the assets of Houses.

Moreover, as Tracy has knowingly issued the debenture without considering the consent of other

directors of the company. If there would be any duties provided in the Memorandum or Articles

of Association and the director commit a breach of the very duties, the company can claim the

damages from the very director who has breached his/her duties. In the provided case study, it

has been provided that Roast authorized Tracy to check the documentation as she was the Legal

Director of Roast.

Therefore, she has a duty to ensure that the drafts and registration of the documentation is

done adequately. The company may held Tracy solely liable for the breach of the duty.

Moreover, the facts provided in the case study illustrates that Nancy who was a part time law

student was given the responsibility by Tracy to draft the debentures and register the important

documentations that were related to the very debentures.

Fons Hf v Corporal Ltd and another [2014]

There has been a case in which the proper explanation was provided with respect to the

debentures, the case was known as Fons Hf v Corporal Ltd and another [2014]. It can be

contemplated that Tracy’s case can be deemed in the similar way as the case Fons Hf v Corporal

6
Crane, Daniel. "Excessive Compensation Without a Remedy." Ariz. St. LJ45 (2013): 281.
 Company Law 4

Ltd and another [2014] was considered by the courts7. There is an issue that can be raised at this

position that if a director has been given the authority to draft important documents for the

company that are related to the issuance of shares and debentures, then the director should not

involve any other person who has not been given the authority to shares and debentures8.

But in the provided case study, Tracy gave all the responsibility to draft and register the

documents on Nancy which can be deemed a controversial point according to the provided

company law. Subsequently, it can be contemplated that there has been a breach of duty

committed by Tracy in respect of the debenture taken out by Roast over the assets of Houses.

Section 178 of the Companies Act 2006 would be applicable here in this situation in which the

consequences for the breach of duties has been provided.

Howard Smith Ltd v Ampol Petroleum Ltd [1974]

Howard Smith Ltd v Ampol Petroleum Ltd [1974] has been known as a significant case in

which the issueance of the shares and debentures by the director was considered by Lord

Wilberforce and thus the allotments of the shares by the directors were declared to be set aside if

the director has no interest in issuance of the debentures9.

As there are certain duties of the directors provided in Section 171- Section 177 under the

Companies Act 2006 and in consequence of the breach of such duties, there are certain

obligations imposed on the directors under the common law and the specific company law10. The

remedies that are provided as a result of the breach of the director’s duties include:

● declaration or injunction
7
Fons Hf v Corporal Ltd and another [2014] EWCA Civ 304.
8
Jhunjhunwala, Shital, and B. Deepa. "Corporate Governance Law in India: An Update Comparative Analysis of
Companies Act 2013 and Companies Act 1956." Indian Journal of Corporate Governance 6, no. 2 (2013): 52.
9
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.
10
Bruno, Sabrina. "The'Enlightened Shareholder Value'in UK Companies Ten Years Later: What the European
Directive N. 2014/95/EC Can Do." (2015).
 Company Law 5

● Compensation or damages

● Contract recession

● Property restoration of the company

Considering Tracy’s position, it can be said that it depends on the company what remedy

it would want to avail. Most of the companies prefer injunctions against the director whereas

there are other companies that claim damages for the loss suffered by the company due to the

breach of the director’s duties11.

Towers v Premier Waste Management Ltd [2011]

In Towers v Premier Waste Management Ltd [2011] the decision was provided by three

judges Mummery LJ, Wilson LJ and Etherton LJ in which they held that without approval or

disclosure to other directors, if any director of the company accepts a free loan from any of the

customer of the company for equipment that might be used for business purposes by the

company, such a director might be deemed as in breach of his duties as a director12.

Question (b)

In the business world, it is required that every company should register the debentures

over the assets of its subsidiaries13. Moreover, in Section 741 of the Companies Act 2006 the

points related to the allotment of debentures and its registration has been provided. It has been

required under Section 741 (1) that a debenture must be registered by the company as soon as it

11
Mamutse, B. and Fogleman, V., Environmental Claims and Insolvent Companies: The Contrasting Approaches of
the United Kingdom and the United States. Brit. J. Am. Legal Stud., 2. (2013). p. 579.
12
Towers v Premier Waste Management Ltd [2011] EWCA Civ 923. (2011).
13
Sealy, L. and Worthington, S., Sealy & Worthington's Cases and Materials in Company Law. Oxford University
Press. 2013.
 Company Law 6

is practicable, specifically two months period has been provided after the allotment of the

debentures on a particular date. Furthermore, it has been mentioned in Section 741 (2) that if any

company has failed to abide by the sub section (1) of Section 741, then it would be deemed as an

offence to be committed by the company itself and all the officers responsible for the default

would be deemed as equally liable for the failure to the registry.

Considering the position of Wolf Roast Limited ("Roast"), it can be contemplated that

Roast has failed to comply with the provided requirement under the law on the registration of the

Debenture over the assets of Houses at Companies House. Therefore, there might be several

consequences faced by Roast due to the failure to not register the Debenture within 21 days of its

creation. The main consequence that can be faced by the Roast is that there would be a certain

amount of money that would be required to be paid by the company due to the failure of

registration of the Debenture.

Secondly, another consequence that might be faced by the company is that the Debenture

that would not be registered by the company within a prescribed time then such Debenture would

be deemed as unenforceable14. Moreover, such debenture would be declared as void with respect

to any creditor, administrator or liquidator of the company. Furthermore, the company would be

deemed as liable for complete repayment of the debt that has been taken by the company for its

subsidiaries. Subsequently, such debt of the company would not be secured as the Debenture

would not be registered15.

Besides the registration of the Debenture, it has been provided in the Section 741 (3) that

any company or individual who might be guilty of the offence of not registering the Debenture

14
Foreman-Peck, J. and Hannah, L. UK Corporate Law and Corporate Governance before 1914: a Re-
interpretation. 2015.
15
Foreman-Peck, J. and Hannah, L. UK Corporate Law and Corporate Governance before 1914: a Re-
interpretation. 2015.
 Company Law 7

would be held liable for a summary conviction with a fine that is not exceeding the standard

scale’s level 3. Therefore, it can be said that if a company would fail to register the Debenture

over the assets of Houses at the Companies House, such Debentures would be deemed as not

rectified because the company or any of the Debenture holder cannot claim from the court the

registration or charge of the Debentures.

Question (c)

It has been provided in the case study that Caspar received a phone call from Tony Delle

who is a local businessman and Tony asked Caspar about selling his business to Roast or its

subsidiary Houses if they are interested in acquiring his cafes. Caspar without sharing this

information with other directors of the company decided that he would alone accept Tony

Delle’s offer and after some meetings he purchased business of Tony Delle. Considering these

facts, it can be ascertained that Caspar being a director of the company has to fulfil certain duties

as mentioned in Section 176 of the Companies Act. It is provided in Section 176 (1) that if a

director is offered a benefit from a third party, being a director of the company he should not

accept the offer16.

There are three main cases that have been related to the duties owed by the directors

towards any particular group or towards the shareholders17. These include:

 Percival v Wright [1902]

 Peskin v Anderson [2001]

 Williams v Natural Life Health Foods Ltd [1998]

16
Goulding, S., Principles of company law. Routledge. 2013; Arden, J.M., Companies Act 2006 (UK): A New
Approach to Directors’ Duties’. Australian Law Journal, 81. (2007). pp. 162-167.
17
Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. (1998); Percival v Wright [1902] Ch 401; Peskin v
Anderson [2001] 2 BCLC 1.
 Company Law 8

It has been decided in these cases that although the directors do not owe any of the duty

towards a group or any of the shareholders of the company but when a tort case is brought in the

court for claiming the damages, then directors might be held liable for the duties that have been

owed by him/her towards the group of customers or any of the shareholder18. This principle has

been mentioned in the Section 170 of the Companies Act 200619.

In other words, it can be said that the director has a duty to not accept the offers from a

person other than the company or its associates. But it has been mentioned in Section 176 (4) that

this very duty of the director would not be deemed as infringed if to its acceptance, there is no

conflict of interest raised within the company and among its board of directors. Considering

Caspar’s position, it can be asserted that Caspar’s decision to purchase Tony Delle’s business

does not affect Roast or any of its subsidiaries. Therefore, Caspar’s decision cannot be deemed

as a violation of his duty that is imposed on him under Section 176 (1), as Section 176 (4) would

be applied herein20.

On the contrary, if Caspar’s decision to purchase Tony Delle’s business would be deemed

as a breach of any of his duties that are imposed on him as a director, then there are certain

remedies that might be available against Delle Cafes Ltd. and Caspar. Firstly, the company can

show the loss that has been suffered by it due to the breach of duties by the director. For

example, if there is any profit made by Caspar from Delle Cafe's Ltd then such gain can be asked

by the company from Caspar to pay the gain to the company. Moreover, there is another remedy

that can be availed by the company that is related to the agreement that might have been signed

18
Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. (1998); Percival v Wright [1902] Ch 401; Peskin v
Anderson [2001] 2 BCLC 1.
19
Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. (1998); Percival v Wright [1902] Ch 401; Peskin v
Anderson [2001] 2 BCLC 1.
20
Arden, J.M., Companies Act 2006 (UK): A New Approach to Directors’ Duties’. Australian Law Journal, 81.
(2007). pp. 162-167.
 Company Law 9

by the director in breach of any of his duties that are imposed on him to perform for the benefits

of the company.

However, such arrangement or agreement would be deemed as void and would have no

effect in legal terms. But the company is given the choice to ratify the agreement if it is willing

to do it. Thus, it can be said that if the company would reject the agreement from getting it

ratified then the director would be required to pay all the damages to the company. Furthermore,

there are other remedies which the company might seek. For example, the company might seek

an injunction so that the director can be stopped from continuing breach of his duties21.

If the court would grant the company an injunction to restrain the director from further

actions that might be carried out by him for business purposes. In addition to this, there is

another remedy which the company might seek such as the company can seek from the director,

who is in breach of his duties assigned to him under the company law, the restoration of the

property that is owned by the company but has been used by the director for his own profits.

More significantly, there is a remedy of rescission of the agreement that might be signed by the

director in which there is any interests undisclosed by the director22.

Therefore, it can be asserted that when the director is in breach of his duties, then the

company itself can bring a claim for the breach of the duties and there is no right given to any of

the shareholder to bring a claim against the actions or breach of the duty by the director that there

has been some loss suffered by them due to the breach. But the shareholders can compel the

company to seek the redress from the very director who has committed the breach23.It has been

provided under the Companies Act 2006 that a claim can be brought in the courts by the
21
Clark, G.L. and Knight, E.R. Implications of the UK Companies Act 2006 for institutional investors and the
market for corporate social responsibility. U. Pa. J. Bus. L., 11. 2008. p. 259.
22
Arden, J.M., Companies Act 2006 (UK): A New Approach to Directors’ Duties’. Australian Law Journal, 81.
(2007). pp. 162-167.
23
Arden, J.M., Companies Act 2006 (UK): A New Approach to Directors’ Duties’. Australian Law Journal, 81.
(2007). pp. 162-167.
 Company Law 10

companies due to compelling of the shareholders and such types of claims are called as

'derivative claims' under the Companies Act 200624.

Question (d)

The injuries that have been suffered by Ronnie whilst working in Houses (subsidiary

company) can be claimed by hi m from Roast (Parent company). The damages would be

provided by Roast to Ronnie because there has been a landmark decision of the court provided in

Chandler v Cape plc [2012] in which the employee of the subsidiary company was injured and

he claimed damages from the parent company which the court accepted and granted damages to

the claimant. Subsequently, it can be ascertained that there has been an appropriate law provided

with respect to the compensation of the workers who are injured while working at the workplace.

Considering the facts provided in the case study, it can be contemplated that when an employee

of the subsidiary company is injured, and a claim is brought in the courts related to the damages

that are claimed by him from the parent company, such damages can be granted to the employee

according to the case law provided in the legal system of the United Kingdom25.

Table of Cases

 Howard Smith Ltd v Ampol Petroleum Ltd [1974]

 Fons Hf v Corporal Ltd and another [2014]

 Chandler v. Cape Plc. [2012]

 Bhullar v Bhullar [2003]

24
Arden, J.M., Companies Act 2006 (UK): A New Approach to Directors’ Duties’. Australian Law Journal, 81.
(2007). pp. 162-167.
25
Devinney, T.M., Schwalbach, J. and Williams, C.A. Corporate social responsibility and corporate governance:
Comparative perspectives. Corporate Governance: An International Review, 21(5). 2013. pp. 413-419.
 Company Law 11

 Towers v Premier Waste Management Ltd [2011]

 Williams v Natural Life Health Foods Ltd [1998]

 Percival v Wright [1902]

 Peskin v Anderson [2001]

 Company Law 12

References

Arden, J.M., Companies Act 2006 (UK): A New Approach to Directors’ Duties’. Australian Law

Journal, 81. (2007). pp. 162-167.

Bhullar v Bhullar [2003] EWCA Civ 424

Bilchitz, David, and Laura Ausserladscheider Jonas. "Proportionality, Fundamental Rights and

the Duties of Directors." Oxford Journal of Legal Studies (2016): gqw002.

Chandler v. Cape Plc., 2012 E.W.C.A. Civ 525. (2012).

Clark, G.L. and Knight, E.R. Implications of the UK Companies Act 2006 for institutional

investors and the market for corporate social responsibility. U. Pa. J. Bus. L., 11. 2008. p.

259.

Devinney, T.M., Schwalbach, J. and Williams, C.A. Corporate social responsibility and

corporate governance: Comparative perspectives. Corporate Governance: An

International Review, 21(5). 2013. pp. 413-419.

Fons Hf v Corporal Ltd and another [2014] EWCA Civ 304.

Foreman-Peck, J. and Hannah, L. UK Corporate Law and Corporate Governance before 1914: a

Re-interpretation. 2015.

Goulding, S., Principles of company law. Routledge. 2013.

Hanrahan, Pamela F., Ian Ramsay, and Geofrey P. Stapledon. "Commercial applications of

company law." Commercial Applications of Company Law, CCH Australia Ltd, (2013).

Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.

 Company Law 13

Jhunjhunwala, Shital, and B. Deepa. "Corporate Governance Law in India: An Update

Comparative Analysis of Companies Act 2013 and Companies Act 1956." Indian

Journal of Corporate Governance 6, no. 2 (2013): 52.

Mamutse, B. and Fogleman, V., Environmental Claims and Insolvent Companies: The

Contrasting Approaches of the United Kingdom and the United States. Brit. J. Am. Legal

Stud., 2. 2013. p. 579.

Percival v Wright [1902] Ch 401.

Peskin v Anderson [2001] 2 BCLC 1.

Sealy, L. and Worthington, S., Sealy & Worthington's Cases and Materials in Company Law.

Oxford University Press. 2013.

Towers v Premier Waste Management Ltd [2011] EWCA Civ 923. (2011).

Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. (1998).