Scenario 1.

Johnson, who was the sole owner of a piece of land, after knowing that such a piece of land would be
recovered by the local government to build a road, sold the land to Somerset Ltd - his solely owned
company. The land was then recovered by the government with a small amount of compensation.
Somerset Ltd.'s creditors take legal action against Johnson. Can they succeed under UK law? Will
your answer be different if Vietnamese law applies?

Main problem: sold the land to the company (knew that the land would be recovered by the local
government to build a road) => Johnson gains benefits from selling land to Somerset Ltd. He wants to sell
his land at a good price. Company is facing a financial loss.

Main purpose of Mr.Johnson: To secure his own interests related to the land → Mr. John is abusing the
company

Company’s action: using doctrine: lifting the corporate veil (using the case Jones v. Lipman)

=> The result: the company and Mr. Johns will be treated as one, and all the rights, activities and
obligations of the companies are also the rights, activities and obligation of the shareholders.

Lifting the company veil: The company is deemed to be nothing more than an "alter ego" of the owners: a
shareholder (or shareholders) dominates a company, and misuses it for improper purposes, includes (1) the
com was formed or used to facilitate the evasion of legal obligation (sometimes tort obligations).

a. Can they succeed under UK law?

Somerset Ltd. 's creditors cannot succeed in taking legal action against Johnson under the UK laws. This is
due to the fact of Somerset being a private limited company. A private limited company in the UK is once
which is a distinct legal entity separated from its owners or shareholders. In other words, the company in its
own right is treated as an individual entity that has its own profits, liabilities, and business assets all
belonging to the company itself. It also means the liability of its members is limited by its constitution. It
may be limited by shares or limited by guarantee (Section 3.2 Companies Act 2006). In other words, the
owners, directors, or shareholders of a private limited company are not at all responsible personally for any
debts that the company may incur.

Somerset Ltd has its own legal personality, has independent assets and Johnson doesn't need to be personally
liable for its insolvency. So when Johnson sold the land to Somerset Ltd, it became Somerset’s asset and if
any problems arise with the company's solvency, it’s a problem of the company first. Somerset Ltd.'s
creditors cannot take legal action against Johnson.

Hợp đồng vì mục đích tư lợi

Scenario 2.

Megaholdings PIc is the parent company of a large corporate group. Its various subsidiaries operate in a
number of different industries, including house, building. Arnold, a director of Megaholdings, learns that a
large piece of vacant land in London is about to be sold by auction. The land is suitable for house-building,
but houses can only be built if the Local Authority gives its permission. The Local Authority says it will give
permission, but only on condition that the company building the houses carries out very expensive
landscaping works once the houses have been built. Arnold calculates that carrying out these works will
make building houses on the land unprofitable.

To get around this problem, Megaholdings incorporates a wholly-owned subsidiary, Shellbuild Ltd, with a
share capital of £1. Shellbuild Ltd purchases the land and, in return for being given permission to build
houses on the land, enters into an agreement with the Local Authority to carry out the landscaping works.
Shellbuild quickly builds, and sells, the houses for a substantial profit, which is immediately paid to
Megaholdings as a dividend and as ‘management charges’. Shellbuild has now informed the Local Authority
that it is insolvent, and does not intend to carry out the landscaping works.

During the construction of the houses, Megaholdings told Shellbuild's sole director, Lorraine, that she must
keep costs to an absolute minimum.

Megaholdings was aware that Shellbuild was using a number of very dangerous work practices in order to
cut costs, but Megaholdings did nothing to stop this. Cecilia, a bricklayer employed by Shellbuild, was badly
injured as a result.

Advise:

(a) the Local Authority whether it can force Megaholdings to pay for the costs of carrying out the
landscaping work.

Lifting the company veil -> Can force

[MNhuw] Shellbuild is liable for its own depth debts and obligations under Salomon and the relationship
between parent and subsidiary company. Therefore, the liability to the Local Authority for carrying out the
landscaping is Shellbuild. Otherwise, its shareholder, Megaholdings, is not liable and cannot lift the veil due
to the justice of the case.

[MHP] Shellbuild is a private limited company, with Separate legal personality and limited liability (of
owner – Megaholdings). the legal personality of a company in some cases is abused by the shareholders for
wrongful or unjustifiable purposes -> lifting the company veil: The company is deemed to be nothing more
than an "alter ego" of the owners: a shareholder (or shareholders) dominates a company, and misuses it for
improper purposes, includes (1) the com was formed or used to facilitate the evasion of legal obligation
(sometimes tort obligations); (2) the com is used as a means to perpetuate a fraud; (3) separateness has not
been maintained btw the com and its shareholders.

-> Examine that if Megaholdings as the owner deceives by using Shellbuild to make wrongful acts -> if yes
-> lift the veil -> the LA can force Megaholdings to pay for the costs. If not -> otherwise -> the LA cannot
force Megaholdings.
-> Megaholdings as the only shareholder dominates a company, and misuses it for improper purposes.
Shellbuild only has share capital of £1. Shellbuild’s profit is immediately paid to Megaholdings as a
dividend and as ‘management charges’.

[Nlan] Shellbuild, as a subsidiary incorporated by Megaholdings Plc, is a private limited company (Ltd) and
has its own separate legal personality to its owner. The purchasing and carrying out landscaping works
between Shellbuild and Local Authority has no relation to Megaholdings Plc as Shellbuid’s limited liability
separates from Megaholdings’. But if the Local Authority could verify that Megaholdings had incorporated
Shellbuild in order to breach the law or to make wrongful act then the Local Authority can force
Megaholdings to pay for the costs of carrying out the landscaping work. On the other hand, if Local
Authority cannot prove that the liability of continuing carry out landscaping works is of Megaholdings then
the Local Authority cannot force Megaholdings to pay for the costs, Shellbuild still have to pay
Megaholdings as a dividend and as “management charges”.

(b) Cecilia, whether she can claim damages from Megaholdings for the injuries she has suffered.

Can claim because Shellbuild has been lifted its veil

[NLan] In circumstance of the Local Authority can verify and lifting the company veil, the Local Authority
can also force Megaholdings to compensate for the injury of bricklayer Cecilia, as Megaholdings told
Shellbuild’s sole director to keep the costs as minimum and also was aware that Shellbuild using a number
of very dangerous work practices to cut costs.

Scenario 3.

Acorn Plc was formed 2 years ago. At the time of formation, Acorn Plc issued 1,000 shares to 130
different shareholders. Three shareholders each hold 200 shares; the remaining 127 shareholders hold
the other 400 shares. The stated business purpose of Acorn Pic is to ‘purchase new computers for
resale to consumers and to conduct all business incidents to the purchase and resale of new
computers’. Justin, Jessica, and Jeremy, the three shareholders of 200 shares each, were the promoters
of the company and were intended to be the initial members of the board of directors. The articles of
the company were properly filed, and a certificate of registration was received a short time later.

Justin was named as the registered agent in the articles of association. Justin, Jessica, and Jeremy
assumed the duties of running the company, but never held a shareholder’s meeting. They have run
the company for 3 years, and none of the other shareholders has objected to the fact that the
shareholders’ meeting was not held. The business had been quite successful until last year. In the last
year, Justin, Jessica, and Jeremy have made some changes in the business.

They have begun accepting used computers as trade-ins, and have begun offering computer-training
classes. In addition, they have been offering word-processing services and have also been buying and
selling used office equipment other than computers. All of these additional operations have been
unprofitable thus far. A group of the other shareholders has sued in an effort to stop the carrying on of
these other businesses. Do they have a basis for such a suit, and if so, what remedies would they have
in accordance with UK Law?
In this case, they have a basis for such a suit. BOD breaches the duty to act within powers (s171). 2 reasons
why BOD doesn't act within powers: AGM and change the business activities. -> Commit crime (s336).

1. The first legal issue is: “Whether the Board of directors’ not holding any organizational
meeting was done in compliance with law?”.

According to Article 336 (1) UK Companies Act 2006, to a public company, an annual general meeting must
be held in each period of six months “beginning with the day following its accounting reference date (in
addition to any other meetings held during that period)”. Therefore, because Marshall is a public company,
there must be an annual general meeting within six months of the end of its financial year. However, in 3
years, there weren’t any organizational meetings. → committed a criminal offense

Despite no objection from other shareholders, pursuant Clause 3: “If the company fails to comply with
subsection (1), an offense is committed by every officer of the company who is in default”. Because “every
officer who is in default” will have to take the responsibilities, a criminal offense is committed by every
director and the company secretary.

As the remedy for not holding shareholder’s meetings for more than 3 years, the shareholders can call a
general meeting of the company under section 303 CA 2006 with member’s power to require directors to
call a general meeting.

→ They did not act within their power. (violated S171)

2. The second legal issue is: “Whether the Board of directors violates the Duty to act within
powers?” (s171 CA 2006)

Section 250 CA 2006 defines the meaning of director: “director includes any person occupying the position
of director, by whatever name called and they have assumed duties of running the company”. Therefore,
Justin, Jessica, and Jeremy can be perceived as the directors of the company. After these promoters have
made some changes in business such as accepting used computers as trade-ins, and offering
computer-training classes, word-processing services and have also been buying and selling used office
equipment other computers but of these additional operations have been unprofitable thus far.

Justin, Jessica and Jeremy are members of the board of directors so they have a duty to “act in accordance
with the company's constitution, and only exercise powers for the purposes for which they are conferred”
(Section 171).

They fail to organize annual meeting → They also committed a criminal offense.

They decided to change the business activities from purchasing new computer to used computer + offered
computer-training courses.
Remedies:
(i) compensation because BOD has violated the duty and caused damages for the company.
(ii) JJJ be removed from the BOD, the shareholders could establish a new BOD, it depends on the AOA.
NOTE:
Directors violate the duty to act within power doesn’t mean directors violate the duty to promote the
success of the company (they truly believe the new businesses would bring success to the company)
→ They have not stopped considering the success of the company.
Scenario 4.
Biztec Plc designs and installs computer software. Recently, the board has passed resolutions:
- to reject a proposed contract with Wintelli University to install a new computer system in its library.
The board did not see that there was enough profit in the contract to make it commercially viable.
After the meeting, Derek, a director of the company, approached Wintelli University and has been
offered the contract in his personal capacity which he intends to accept.
Whether or not Dereck breaches any of the director’s duties?
- to purchase some new computer equipment from Kitech Plc. This contract was negotiated by Lucas,
one of the company's directors, who, unknown to Biztec Plc, has been paid a £5,000 commission for
recommending Kitech ple to the company.
For the 1st resolution, whether or not Derek has breached any of the Director duty?
Bài tham khảo
- Res 1:
Concerning the first resolution, it can be seen that the director, upon discussing the contract with the Board
of Directors, has known certain information, which he himself can derive personal interest from. This is an
opportunity that the company (Biztec) could have had. Although Mr Derek didn't join the contract, that
doesn't mean Mr Derek can use that info for himself. In other words, he intended to make use of the
opportunities that company considered they should not have exploited for their own benefit (especially when
he is a director and he has certain impacts on the decision-making process of the company). Hence, he
should be held in breach of this duty (the duty to avoid conflict of interests). [s175(2)].
The reason why Mr Derek violated the duty to avoid conflict of interest, because he could have enter the
contract, he was trying to take the opportunity that was supposed for the company. Mr Derek intentionally
said no because he wants this opportunity for himself, mr Derek can offer the same service as the same as
company. (xét 1: hđ của cty là gì, 2: ông Derek lợi dụng cơ hội để lấy cái hđ đó, 3: ông cung cấp dịch vụ
tương tự muốn chiếm lợi riêng cho bản thân nên ông mới say no)
- Res 2:
Unless provisions in the Article of Assoc permits, third party benefits must be approved by the shareholders
if a director is to avoid liability. This power of the shareholders to approve receipt of third party benefits is
preserved by s 180(4)(a). However, Mr. Lucas received the commission £5,000 from Kitech plc to
recommend to Bitez company without notifying the shareholders, hence, he violated this Duty not to accept
benefits from third parties (S176). Legal valid khi công ty có quy định
Remedies: It should also be noted that Lucas can avoid personal liability by seeking for approvals from the
shareholders pursuant to s 180(4)(b) of CA2006. By that way he will be free from any potential liability.
Bài làm:
* First resolution: Has Derek breach/violated any of the director's duties ?
Concerning the first resolution, it can be seen that the director, upon discussing the contract with the Board
of Directors, has known certain information, which he himself can derive personal interest from. This is an
opportunity that the company (Biztec) could have had. Although Mr Derek didn't join the contract, that
doesn't mean Mr Derek can use that info for himself. In other words, he intended to make use of the
opportunities that the company considered they should not have exploited for their own benefit (especially
when he is a director and he has certain impacts on the decision-making process of the company). Hence, he
should be held in breach of this duty (the duty to avoid conflict of interests). [s175(2)].
The reason why Mr Derek violated the duty to avoid conflict of interest, because he could have enter the
contract, he was trying to take the opportunity that was supposed for the company. Mr Derek intentionally
said no because he wants this opportunity for himself, mr Derek can offer the same service as the same as
company. (xét 1: hđ của cty là gì, 2: ông Derek lợi dụng cơ hội để lấy cái hđ đó, 3: ông cung cấp dịch vụ
tương tự muốn chiếm lợi riêng cho bản thân nên ông mới say no)

→ Violated the duty to avoid conflict of interests (subsection (2) s175) -> this is the opportunity that
company can get, but he signed it himself to get the property for himself.

SỬA:

Have to examine the nature of power of Derek. Derek did not act beyond his power → did not breach
the duty to act within power.

Bitez has already rejected the transaction → Derek did not have to declare any interest of the
transaction → did not breach the duty to declare interest in the transaction (this duty is irrelevant to
the first resolution).

Can employ case law Canadian Aero Service Ltd v O’Mallym [1973] 40 DLR (3d) 371

* Second resolution:

Lucas is a director. He must not get paid 5000 pounds of commission for recommending Kitech to the
company. The reason for Lucas receiving 5000 pounds is to recommend Ktech to Lucas’ company. → He
violated the Duty NOT to accept benefits from third parties (s176). Lucas must not accept benefits (a
£5,000 commission) from Kitech (third parties) in order to recommend Kitech to company. Mr. Lucas
received the commission £5,000 from Kitech plc to recommend to Bitez company without notifying the
shareholders, hence he violated Duty not to accept benefits from third parties (S176).

Base on the reason that Lucas will do sth to act with his directors power => he breached the duty above.
Kiztech is the third party

Do we need to examine any violation of management duties among these 2 resolutions?

- Don't know how many directors in the BOD, only talk about Mr Derek → Derek could have seen the
potential of making profit out of that contract. However, somehow he agrees with the Board that the contract
would not make any profit. He then signs a contract secretly → shows that he actually saw a profit raised
from the contract → Derek may have also breach the duty to promote the success of the company (S172)
→ JUST A POSSIBILITY BECAUSE NOT ENOUGH INFORMATION OF THE NUMBER OF DIRECTORS
OR DECISION-MAKING PROCESS OF THE BOARD OF DIRECTORS.

Scenario 5.
Paradise Plc's board of directors has proposed that the company will employ Summerset Ltd to carry
out an efficiency study (an evaluation service of Summerset Ltd to Paradise Plc: đánh giá hiệu suất
hoạt động công ty). The principal shareholder/major shareholder and managing director of
Summerset Ltd is Mary; she is married to Smith, a director of Paradise Plc. Smith fails to mention the
connection. Advise Smith of the legal situation?
A director, who is interested in a proposed or existing transaction or arrangement with the company must
declare the nature and extent of that interest to the other directors1. These duties apply to an indirect, as well
as a direct, interest. So if a director`s spouse or other connected person is to enter into a transaction with the
company, the director must disclose that interest.
Mary is a major shareholder in Summerset Ltd → Mary is the director connected with the body corporate
s254.22, since Smith and Mary are family members. So according to s252.2(a)3 Smith is a connected person
to Summerset Ltd.
⇒ Hence, this transaction is between a director and a body corporate that such director indirectly connects
with.
→ Smith must declare interest in transactions or arrangements (S177).
A ‘substantial property transaction’ is an arrangement under which: a company acquires or is to acquire
(directly or indirectly) a substantial non-cash asset from a director of that company or that company’s
holding company or a person connected with such a director4. So according to S190 then this arrangement
must be approved by a resolution of the members of the holding company.
Advices to Smith are:
1. Declare interest in this arrangement.

1
S177: Duty to declare any interest in proposed transaction (s177)
2
(2) A director is connected with a body corporate if, but only if, he and the persons connected with him
together are interested… (s252.2.b)
(a) are interested in shares comprised in the equity share capital of that body corporate of a nominal
value equal to at least 20% of that share capital, or
(b) are entitled to exercise or control the exercise of more than 20% of the voting power at any general
meeting of that bod
3
(2) The following persons (and only those persons) are connected with a director of a company—
(a) members of the director’s family (see section 253);
4
https://www.lexisnexis.com/uk/lexispsl/corporate/document/391387/55YB-2GD1-F186-H3CR-00000-00/Transacti
ons_with_directors_overview
2. Aside from declaring interest, if this arrangement is beneficial to him, he must try to get this
arrangement to be approved by a resolution of the members of the holding company in order for the
arrangement to be approved.
—
Read S252 → 254.2.
B1: Mary liên hệ với Smith 252.
B2: Mary là major shareholder of company. It's a married relationship → It's related to the company → s
254.2 → this is a transaction between paradise và body corporate related to “indirect” in S 177 Ngoài ra liệu
đây có cần phải shareholders approval không thì examine S190. Because Mary is the wife of Smith also the
principal shareholder in Summerset
Paradise plc can employ summerset ltd? Is the biggest question. Give advice to Mr Smith.
Use S177 tells him to declare direct interest or indirect interest to all of paradise.

Bài sửa:
Efficiency study is a service provided for Paradise Plc.
The duty to declare interest: Mr. Smith must declare interest to the board of dir of Paradise if he has any.
Is this the contract of the companies and the person who has close connection to the director of the
company? (this is the contract between Paradise and Summerset, not between Paradise and the wife - a
person). We have to prove that Summerset is an actual person who has a close connection with Mr. Smith
(thuc chat la HD giua cong ty Paradise va nguoi co moi lien he mat thiet voi GD la ong Smith).
- Prove summerset ltd is the person who is connected to Mr. Smith, and
- Is this a substantial property transaction (s.190)? We dont have enough info to evaluate. (S.190
applies to a substantial property transaction btw the company and a person who is connected to the company
(s252, 253)). 252.2.b, 253.2.b and 254.2
If we can prove these points, the transaction must be approved by the shareholders.
- S 252.2.b => S 254.2.a:
- The crucial point: Whether Mr. Smith and Mary are together interested in the shares held by Mary in
Somerset Ltd.? Make presumption:
- Điều 254: một công ty mà connect với GĐ nếu như: chứng minh liệu ông GĐ và người liên hệ mật
thiết với ổng => cùng có lợi ích từ số cổ phần mà vượt quá 20%
Mary is a principal shareholder → she must hold >50% shares (hold voting rights).
- Can’t use 254.2b because Mr. Smith does not have any control over Mary’s company.
🚨🚨🚨🚨🚨🚨🚨🚨🚨CHỐT VẤN ĐỀ + ADVICE 🚨🚨🚨🚨🚨🚨🚨🚨🚨
Advice:
- He should declare all his interest (S 177)
- Mr. Smith should make sure whether or not this is a transaction between Paradise and a person
connected with him. (S 252: a person connected with the Director can be a body corporate)
- If Mr Smith and his wife - Mary (his wife is also a person connected w him S253), if they together
are interested in the number of shares held by Mary in Somerset Ltd => Somerset ltd is the body corporate
connected to Mr. Smith.
- The transaction between Paradise and Somerset is indeed A transaction between Paradise and a
person connected with Mr. Smith.
→ Must be approved by shareholders if this a substantial property transaction (vì nếu là HĐ thông
thường chỉ cần tuân thủ Điều lệ)
Sửa tiếng Việt:
- Thực chất vẫn là HĐ của Para với Somerset (để còn đưa ra cho shareholders vote để pass). Nhưng nó
chỉ được pass nếu Somerset là 1 person connected with…
(Đề cho đây là HĐ giữa Paradise và người có mqh mật thiết với Smith. Phải chứng minh somerset là người
connected với Mr. Smith
- Xem xem hợp đồng có phải là giữa 2 công ty hay là giữa công ty và người có mối liên hệ mật thiết
với công ty.
- Đọc 252 vì định nghĩa những người nào được xem là mật thiết với GĐ. 1 cty thoả mãn Đ254 thì cũng
được xem là người có mqh mật thiết với GĐ.
+ Đ254: người… với GĐ nếu như: bà vợ là người có mối liên hệ mật thiết
→ Phải chứng minh 2 người này cùng có lợi ích từ số cổ phần vượt quá 20%. Bà Mary vốn dĩ đã là 1
principal shareholder → 2 NGƯỜI NÀY CÓ CÙNG CHIA SẺ LỢI ÍCH LIÊN QUAN ĐẾN CỔ PHẦN TẠI
SOMERSET hay ko?
Lúc này Summerset sẽ được xem là a body corporate with the director.
Scenario 6.
Donna formed a private company several years ago by issuing 500 shares in the UK. There are 10
shareholders, with the smallest shareholder owning 25 shares, and Donna holding the most at 100
shares. The company needs additional cash, but the current shareholders do not wish to have any
additional shareholder. What are their options and what additional factors should the current
shareholders consider in raising the additional cash based on the general rules on financing of a
company?
[PA, Giao] If the company needs additional cash, but the current shareholders do not wish to have any
additional shareholder, they can raise money by issuing corporate bonds or getting a bank loan.
Maybe the current shareholders don't want to divide their power within the corporation, so maybe Donna can
convince them to issue preferred stocks (cổ phiếu ưu đãi) which do not give the new stockholders voting
rights.
Preference shares are shares of a company's stock with dividends that are paid out to shareholders before
common stock dividends are issued. If the company is in a winding up, preferred stockholders are entitled to
be paid from company assets before common stockholders.
Step-by-step explanation
In the case above, they could issue additional common stock to themselves, preferred stock, or borrow the
money.
Absent an agreement from the shareholders, additional shares may not be issued on the company.
There are a few ways to raise capital. The articles of incorporation are important to ensure any method of
acquiring additional capital is legal for the corporate entity and not something that is "ultra vires".
Further state laws will dictate what type of actions are appropriate for corporate capital raising.
Some of the options available are loans to the company from the shareholders, setting up an investment trust
with the company, having the company issue investment certificates, and you can also have the company sell
its receivables, or take out loans.
The loans can be guaranteed by the shareholders in part or in whole without altering voting rights or the
balance of the shares.

[MHP] The existing stockholders can exercise their pre-emption rights to increase the capital of the
company. Pre-emption rights are the rights of existing shareholders to be offered new equity shares first, in
proportion to their existing equity share holdings (s 560-577 CA 2006). Pre-emption rights help preserve the
existing shareholders’ rights and benefits in the equitable share cap of the company. Statutory pre-emption
rights apply only to the issue of ordinary shares. Statutory pre-emption rights also do not apply to the issue
of:
• bonus shares (s 564);
• shares wholly or partly paid up otherwise than in cash (s 565) -> if the company wants to allot new
shares using statutory pre-emption rights, the new shares must be paid by cash;
• shares to be held under an employee share scheme (s566).
Consideration: Because there is no payment obligation when allotting new shares -> if the company wants
more cash, it must have its shares paid (partly or fully paid in cash - s.565 above).

Sửa bài:
- Can issue shares (non-voting shares), corporate bonds, bank loans
- 2 Methods to financing a com:
+ Debt financing (share capital will not increase → number of shareholders stay the same)
+ Equity financing. ( The company must issue new shares → share capital will increase → a chance for
new members to join the company = still a chance for outsiders entering the company)
=> For Donna’s company, Debt financing is more ideal than Equity financing.
=> The company can issue corporate bonds or loans from a bank.
(Issue non-voting shares is a good solution, because shareholders contribute capital to the company but can’t
not take part in the decision-making process of the company).

Scenario 7.
Five years ago Bolus plc, a pharmaceutical manufacturing company bought premises (real estate) in
Smallville, as part of the town's regeneration program. Bolus currently employs two thousand local
people, many of them in lower paid semi skilled jobs, and its business has thrived. It has a good
reputation in the locality as a responsible employer and it sponsors the local football team. The factory
is adjacent to farmland on the edge of the town. Apply UK law, discuss the legal issues concerning the
directors' and company secretary's duties arising from the following scenarios:
Nhiệm vụ: Chỉ ra những vấn đề pháp lý liên quan đến trách nhiệm của giám đốc
a) Bolus’ premises are rapidly becoming too small to accommodate anticipated growth in the next five
years. At the last general meeting, the shareholders authorized the directors to “decide, after further
research, whether to expand the existing site, or relocate to Oldcastle” (an industrial city 100 miles
away).
- Duty to act within powers, have to make sure they have to act within this power S171
→ For the duty to act within powers, the directors have to make sure they act for the purpose given to them.
- Duty to promote the success of the company, have to consider which way is the best S172. They should
consider the success of the company.
→ For the duty to promote the success of the company, the directors should do enough further research to
make sure the decision of relocating to Oldcastle is a good choice for the future.
- Duty in S174 to exercise diligence, care and skill to come up with the best decision.
→ In order to make a good choice, the Director needs to use their diligence, care and skill to make a good
decision (because the BOD is given the authority to make decisions)
b) The board has commissioned a feasibility study (evaluation for business performance and management
performance) for the new development from Make-It-Happen Ltd, a small company owned by Arthur
Tansy, stepson to Basil Pepper who is one of the directors of Bolus. This cost Bolus £10,000.
Bài sửa:
S177: promote transaction → Apply it Duty to declare interest in proposed transaction or arrangement -
Basil has to declare interest.
Trong trường hợp này phải xem xét mối quan hệ giữa Basel và stepson của ổng, chia 2 trường hợp:
- If MIHLtd is body corporate related to Basil then it will need approval của shareholders if it is a
substantial property transaction. If it is not a substantial property transaction then it doesn't need approval.
- If MIHLtd is not a body corporate related to Basil then he doesn't have to declare interest and the
transaction does not need approval of the shareholders.
However, have to examine the relationship between Mr. Basil and… (S252, S254)
If Mr. Basil completely does not have any interests related,... -> MIHLtd is not related to him
Have to examine the relationship between Mr. Basil and… (S252, S254)

S177: promote transaction → Apply it Duty to declare interest in proposed transaction or arrangement
Nhận diện bản chất hợp đồng: it`s proposed, service transaction
- Duty to declare interest.
- Legal issue:
- Coi S252 –
Prove that MIHLtd là body corporate related to Basil → S254 → substantial → need an approval
shareholders. However, and this case the facts was not enough to involve.
That`s the reason why we have create some assumptions:
- Case 1: MIHiLtd is a body corporate related to Basil → S254 → substantial → need declare and
have approval of shareholders (coi trong handout)
- Case 2: If we don't have enough evidence to prove it, we have to say this is S175
Have to decide whether or not it is a direct or not
c) Cedric Smeek, Bolus’ company secretary, ordered a computer from Crash Ltd costing £1000 in
Bolus name. He then sold it on to his daughter in law for £1,300. The transaction was discovered by
Prudence Hope, the head of Bolus accounts department, and she has refused to issue payment to
Crash Ltd.
→ Transaction between Cedric and his daughter is not a valid contract, because Cedric is not the owner
of the company. Party in this contract is Bolus and Crash Ltd, Cedric buy “in the name of Bolus” → at
Bolus is a party to that transaction. Even if this man violates, it does not mean that this transaction is invalid
→ Bolus is obliged to pay for that computer. Prudence cannot refuse the payment.
- About Cedric:
+ The contract between Cedric and his daughter is not valid because he is not the owner, the computer
is the property of the company → this contract is voidable → everything needs to be restored back to the
beginning-> the daughter must return to the company and he has to pay for his daughter.
+ This guy violates duty to act within power (S171). But ATTENTION the fact that he used his power
in the improper purpose is not because he did not have it.
Bài sửa:
- Company’s secretaries owe the same duties as the directors.
- The computer is the property of Bolus because Cedric uses the name of the company to enter the
transaction of buying the computer.
=> this contract not valid
- The director duty: even though mr Cedric is the company’s secretary but he still has the same duty as
the director.
- So did Mr. Cedric breach any director duty ????
→No need. Base on the basic rules of Contract law, for invalid contract, the 2 parties will have to
return what they receive from each other.

Scenario 8.

In a shareholders’ meeting of Summer Holidays PLC (SHP) the following issues have been raised:

Provide your resolution with sufficient explanations to resolve the above issues according to CA 2006
(UK). Would your answer be different if VNese Law applies?

a. One director of the company set up his own company.

In VietNam: point c clause 1 A.165 Law Enterprises 2020.

In CA of UK law:

Yes, as long as the director makes sure that he shall avoid conflict of interest (s175). Thus, the company
should be in another different category. Because we don’t know about the Summer Holidays operation.

If the new company has similar business activities to Summer Holiday → obviously a conflict of
interest.

If the director wants to set up a new company which has similar business activities as Summer Holidays
PLC → obviously a conflict of interest. Must the director not have established his own company?

- If the director here can have the approval from the board of directors

→ He can set up his own company

What if the director doesn't get the approval from the board of directors?

Crucial point: Can “setting up a new company” be considered a breach of duty to conflicts of interest?
→ focus on 3 words “possibly may conflict” (s175)

- He is prohibited. Because he must act to maximize the profit of the company. If he wants to
maximize the interest of his own company, there is no way he can maximize the profit of the company
→ not able to do it for 2 companies at the same time
- The only way for him to do it is get the approval from the Board of directors.
Vd: so if the director want to enter into a contract=> duty promote success of the company (172) - VN:
Điều 151 Luật Doanh Nghiệp Việt Nam
b. Directors of the company decided to divide a current ordinary share into two (2) ordinary shares.
- The purpose of share split is to bring the nominal value of the share to decrease, and to make the
shares more approachable to investors.
First: have to find out the share split
Second: Should look into the article association that gives the authorities to the BOD to do a share split this.
If the specific article allows BOD to do a share split. If not they must hold the approval from the
shareholders. Because when they do share split the interest of share split
ð The duty to act within power (S171) -> have to check the AOA if they are authorized to do so.
ð Then the duty to promote the success of the company. (172)
and also s174 duty to exercise skill care diligence…
Share = $10 (nominal value) => expensive, it's unattainable, the investors do not want to invest, so it`s
divided to $5, and $5 (each of them is just $1). It's more approachable to the investors.
Doing share split → Share of the company has to be reissued.
c. Directors of the company decided to transfer 500.000 pounds to Harry, a director of the company, as
compensation for loss of office
According to s217(1) CA 2006, only if the 500.000 pounds compensation for loss of office of the company's
director was approved by a resolution of the shareholders of the company, then the directors of the company
can execute it. Furthermore, based on s217(3), it demands that a memorandum setting out particulars of the
proposed payment had been sent to all of the members of the company whose approval is sought before
carrying out the resolution.
Sửa:

It have 4 types in handout. Payment for loss of office (S215) is one in 4 types. Before
doing 1 in 4 types, needing shareholder`s approval.
S217.1 Payment by company: requirement of members' approval (1) A company may not
make a payment for loss of office to a director of the company unless the payment has
been approved by a resolution of the members of the company. Hence, shareholder
approval is required for this type of transaction between the director and the company.

Scenario 9.

Mr. A is a director of Mega Co. Ltd which operates in the hospitality industry.
Explain whether Mr. A breaches his duty as a director in the following cases and if so, what duties
have been breached? Discuss any defense which may be available to A in cases he breached his duty
(Note that Companies Act 2006 (UK) is the applicable law):

a. Mega Co. Ltd signed a contract with Peter Electronic Co. Ltd. in which Mr. A holds 35% of share
capital for the provision of services.

Legal issue: Whether Mr. A has breached his duty under s177 (declare interests in proposed transaction)?
177. Duty to declare interest in proposed transaction or arrangement
(1) If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or
arrangement with the company, he must declare the nature and extent of that interest to the other directors.
In this situation, Mr. A has to declare that he is a person connected with the director of Peter Electronic Co.
Ltd before signing a contract with this company.

Use s175 duty to avoid conflict of interests only. However, if the conflict is approved by the BOD, A is
free from the duty (he should disclose his ownership in Peter Ltd).
Can s254 be applicable?
The case is not similar to scenario 5. S254.2 requires 2 people (he and the persons connected with him, and
they together) → does not fit in the scope of S254.2
→ S254.2 cannot be applied in this scenario.
He is the owner of the company → He is much more than “a director connected with the company”.

S180 (additional information → irrelevant) => stop at the duty to disclose

S175 (5): should inform before the transaction concluded. => can move on with the solution

If there is no damage already happened (can approve after concluding the transaction)

S177 and s182 are not direct to the interest. Muốn xử lý conflict of interest thì phải dùng s175. S177
(disclose trước khi ký kết) và S182 (disclose sau khi ký kết) chỉ đang đề cập đến mọi thông tin của GĐ có
liên quan đến HĐ thì cần được disclose, nhưng giải quyết vấn đề trực tiếp về conflict of interest thì phải
dùng s175.
S182 là tại thời điểm ký kết GĐ ko có lợi ích liên quan, sau khi ký kết mới phát sinh lợi ích liên quan.

b. Mr. A failed to attend the meeting of directors of Mega Co. Ltd. due to his illness.

This is acceptable. The reason is there is no legal ground covered in the CA 2006, especially when Mr. A
was only absent from one meeting of directors. However, if he has many absences, he could be responsible
for a legal ground (normally capital association or rules)

In summary, no director’s duty has been breached if Mr.A failed to attend one meeting.

If he fails to attend all meetings of the BOD due to his illness → fail to perform the role of directors (cannot
fulfill his duty). In this case, we don’t have to care about his reason, he is not qualified as a director anymore
→ removed from BOD.
(Model Article of UK’s companies usually have a provision saying that “If a director is absent from
meetings for a period of 6 months, he will be removed from the BOD”).

c. Mr. A made the investment decision that resulted in Mega Co. Ltd.'s loss of profits by 20%.

Mr. A violated "the duty to promote the success of the company" (s172). Because Mr. A's duty is to promote
the success of the company for the benefit of the shareholders whereas his investment caused a loss of
profits by 20%. (legal based on Section 172).
A presumption has been made: At the time he made a decision he acknowledged all the risk, however he was
not sure whether the company can avoid the risk, but eventually he still made that investment decision
→ He violated Duty to promote the success of the company (s172) and also violated Duty to exercise
reasonable care, skill and diligence (s174).
Must examine A’s belief at the time he made the decision. If he acts in good faith, Mr. A does not violate that
duty (dimension test) → showing evidence of his belief.

d. Mr. A bought a majority share in a travel company.

Mr. A as a director of Mega Co. Ltd which operates in the hospitality industry must avoid a situation in
which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the
interests of the company (S175 CA 2006). By buying a majority of shares in a travel company, he had
breached the Duty to avoid conflicts of interest.

There are two types of conflict5:

- Situational;
- Transactional.

Situational conflict refers to where a director is under a duty to avoid a situation in which they have, or
possibly may have, a conflict of interest, whereas transactional conflict refers to where conflict arises in
relation to a transaction or arrangement between the director and the company6.

Mega Co. Ltd operates in the hospitality industry. The hospitality industry comprises various sectors that
house, feed, transport, and entertain visitors. Each sector covers a broad range of fields, providing a distinct
variety of goods and services. While the hospitality industry covers several different services, in the United
Kingdom it can be defined through four different sectors. The UK hospitality industry is structured into four
categories: the Food and beverage sector, including restaurants, bars, cafes, and pubs; the Travel and tourism
sector; the Lodging sector, including hotels, motels, and hostels; and the recreation sector as entertainment
sectors7. They can also be defined as these sectors:8 Food & Drink; Hotels & Accommodation; Attractions &
Leisure; Wedding Venues & Events and Supplier.
5
https://www.thegazette.co.uk/insolvency/content/100694
6
https://www.davidsonmorris.com/directors-conflict-of-interest/
7
Hospitality Industry in the UK: Mondelez International Inc, page 4.
8
https://www.ukhospitality.org.uk/
When Mr. A bought a majority of shares in a travel company, he became a shareholder of that company.
Traveling and tourism is one of the sectors in the UK hospitality industry, by becoming a shareholder of this
travel company, Mr. A had put himself in a situation in which the travel company that he is a shareholder of
is in conflict with the interests of Mega Co. Ltd. This is a breach in his duty as a director, specifically S175
Duty to avoid conflicts of interest.

In this case, the duty is not infringed if the matter has been authorized by the directors (S175.4(a) CA 2006)
and because Ltd is a private company so if nothing in the company’s constitution invalidates such
authorisation, then authorisation may be given by the directors (S175.5(a) CA 2006).

According to S175.6 the authorization is effective only when any requirement as to the quorum at the
meeting at which the matter is considered is met without counting the director in question or any other
interested director, and the matter was agreed to without their voting or would have been agreed to if their
votes had not been counted.

It can be understood that the board of directors can authorize conflicts of interest (a director is not liable for
the breach of this duty if the conflict of interest is approved by the board). The director having the
self-interest is not allowed to vote at the meeting of the board.

So Mr. A should try to get the conflict of interest approved by the board of directors in order not to be held
liable for the breach of duty.

-> Have to make presumption:

e. Mr. A received a commission of 5% of the room rates from the company which wants to hold a
clients' conference in one of the hotels that Mega Co. Ltd operates.

According to S176 CA 2006, Mr. A as a director of Mega Co. Ltd which operates in the hospitality industry
must not accept a benefit from a third party conferred by reason of—

(a) his being a director, or

(b) his doing (or not doing) anything as director.

A third party means a person other than the company, an associated body corporate or a person acting on
behalf of the company or an associated body corporate (S176.2).

In this case, it could be said that Mr. A received a commission of 5% of the room rates from the company
which wants to hold a clients' conference in one of the hotels that Mega Co. Ltd operates means that Mr.A
did receive benefit from a third party (the company).

However, this duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to
give rise to a conflict of interest (S176.4).

So in the case of Mr. A, if he could not prove that the benefit he received is not likely to give rise to a
conflict of interest, then he will be breaching his duty as a director. Vice versa, if he could prove that the
benefit he received is not likely to give rise to a conflict of interest then he won’t be breaching his duty as a
director
Scenario 10.

Rustic Timbers Ltd makes low-price furniture, which it sells through supermarkets. The company has
three directors, Archie, Bella and Charles. Archie is a qualified accountant, and the company's
chairman. Bella, who has a full-time job as a presenter of television programmers on furniture design,
has not attended any of Rustic Timbers' board meetings for over a year.

Rustic Timbers has been running at a substantial loss for many months. Archie calls a board meeting
to discuss the company's financial problems. Bella does not attend the meeting. Charles argues the
company should cease trading immediately. Archie disagrees. He says the company might just survive
if it opens its own furniture store, selling its products directly to the public. He admits the scheme is
very risky, but argues the risk is worth taking to protect the jobs of its current employees. He tells
Charles he knows of a suitable store to purchase for £105,000, which is currently owned by his
daughter, Paula.

Charles objects to this, but Archie uses his casting vote as Chairman to pass a resolution purchasing
the store. Charles storms out of the board meeting, and has since refused to speak to Archie. After six
months it is clear Archie's strategy has failed, the company's losses have increased, and the company is
now being wound up. Joan has been appointed as the company's liquidator. She has discovered that,
although the price paid for the store at the time was quite reasonable, it has since fallen in value.

Discuss the possible breaches of duty or potential liabilities by any of the directors.

[MHP]

Archie violates:

- Duty to act within power (s.171): a director must: (i) act in accordance with the com’s constitution,
and (ii) only exercise power for the purpose for which they are conferred.

Charles objects to Archie’s idea of purchasing an independent store (which is currently owned by Archie’s
daughter, Paula) for the company to sell on its own. And Archie uses his casting vote as Chairman to pass a
resolution purchasing the store. Meanwhile, ordinary resolutions must be passed by not less than a simple
majority 50% + 1 vote (s.282). Archie used his casting vote to pass a resolution, without Bella’s and
Charles’s approval vote.

- [Possible] Duty to exercise reasonable care, skill and diligence (s.174): Archie is a qualified
accountant. His decision of purchasing a store to sell the products of the company has led to the result after 6
months: Archie’s strategy has failed, the company’s losses have increased, and the company is now being
wound up. So it is clear that Archie’s decision wasn’t a right and suitable plan to rescue the company from
the verge of collapse. But since he is an accountant, not a businessman or a genius strategist, he could not
foresee the potential risks that his decision could bring to the company (even though he did admit that the
plan was risky but his good faith was to protect the employees and save the company).
-

Bella violates:
- Duty to act within power (s.171): a director must: (i) act in accordance with the com’s constitution,
and (ii) only exercise power for the purpose for which they are conferred.

Bella is a director, so he/she has the duty to participate in the BOD’s meeting. But Bella has not attended any
of Rustic Timbers' board meetings for over a year, and even the most recent one when Archie calls a
meeting.

- [Possible] Duty to promote the success of the company (s.172). If the court can examine Bella’s
beliefs. Bella has not attended any of the BOD’s meetings for over a year. So does Bella really have a good
faith to care about the success of his/her company where he/she is a director? Especially in an event that the
company has been running at a substantial loss for many months and a director didn’t mind to join any of the
meetings of the managers.

Charles:

[TP]

Archie violates:

- Duty to promote the success of the company (s172) by his expansion scheme. He admitted the
scheme was very risky, but argued the risk is worth taking to protect the jobs of its current employees.
However, he was supposed to focus on the company when deciding what to do, not the employees because
the company is on the verge of insolvency and the creditor interests are relevant. If not, then shareholders.
Either way, his focus on employees could have been seen as inappropriate.
- Duty to exercise reasonable care, skill and diligence (s174). As a chartered acountant, he will be
judged against the higher subjective test reflecting his expertise. His decision to expand, rather than
terminate, the business suggests he has not demonstrated the care and skill reasonably expected of someone
with his expertise and qualifications.

Bella violates:

- Duty to exercise reasonable care, skill and diligence (S174). She absenced from Rustic Timbers'
board meetings for over a year. And more than that, if Bella had attended the meeting that Archie called, her
vote may change the board’s vote which makes Archie’s plan impossible to succeed.
- Bella should be remove from BOD

Charles:

Sửa:

Bella: fail to perform the role of a director -> should be removed from the BOD

Archie:
- He could see the risk but he still let the company enter into that transaction and take that risk.
- Transaction between the company and Paula is not valid: because this transaction is between a person
connected with the company and another person (must be approved by other shareholders) → substantial
property transaction
- Violated Duty to declare interest in transactions (s177), Duty to promote the success of the company,
duty to act within power (not get approval from shareholders to perform the transaction), duty at 174 (skill,
diligence)

Charles

- Charles: see the com was in deep crisis. Charles didn't do anything to stop Archie -> duty to promote
the success of the com because C could see the risk but he just left the com there for Archie.
- There is no evidence suggesting that Charles did not stop to consider the success of the company
- He should have done sth to stop that contract from being signed.
- He also violated the duty to exercise reasonable care, skill and diligence (S174)

Scenario 11.

A is a shareholder of X Joint Stock Company (JSC) (having its head office in Vietnam) of which he holds
500 ordinary shares, 200 voting preference shares and 50 dividend preference shares. Determine the
number of votes that A is entitled to in order to elect members of the Board of Management. Note that
X JSC proposes to elect five members for the Board of Management and according to the Charter of the
company, each voting preference share shall have two votes. Would your answers be different if these were
written-resolutions?

GIAO, PA

A written resolution is based on the voting rights of all shareholders eligible to vote. According to the
Charter of the company, each voting preference share shall have two votes.
→ A holds 200 voting preference shares → A has 400 votes.
Ordinary shares carry the basic rights of shareholders (including voting-right) - one share carries one vote.
→ A holds 500 ordinary shares → A has 500 votes
X JSC needs to elect five members. Owner of the dividend preference shares cannot vote with respect to that
amount of share. Hence, pursuant to Article 144.3 of Law on Enterprise, the number of votes A has is
5*(500+400)=5*900=4500.