OUTLINE
- Introduction to Company Law in Kenya
- Introduction to Corporate entities and other forms of business Organization
- Outline of the Company Act 2015
- Types of Companies
- Formation of Companies
- Registration and its effects
- Foreign Companies
- Company Constitution
Section 2 of the Companies Act defines a company as an association of people for a common object or objects.
COMPANY
- association of people for a common object or objects
- Liability depends on the type of company
Company Limited by shares : Liability is limited to the extend of unpaid shares
Company Limited by guarantee : liability of the members is limited by the company’s articles to the amount the member has undertaken to contribute to the assets of the company in the event of its liquidation
- Unlimited Co. : Liability of members is unlimited.
Private Company : is not a company limited by guarantee; So?
- -Separate existence from share holders
- -has perpetual succession
- -May be more than 20 shareholders
- -Section 2 Must be formed and registered.
- Can be incorporated by 1 natural person
PARTNERSHIP
- association of people with view of profit
- Each partner is liable for the debts and liabilities of the firm without limits, except for limited partnerships.
- No Separate existence from members
- has no perpetual succession ; death, retirement or bankruptcy of a partner ends it.
- Section 389 Not more than 20 people.
- Can be informally created.
- Is contractual : exists only if it meets the elements of a valid
- Can be formalized thru articles of partnerships
- Can you have a partnership of 1 person? May you and yourself? I don’t know.
TYPES OF COMPANIES
Statutory ;
capital is raised by borrowing guaranteed by treasury,
When it is indebted it can be sued, and even its property attached
but it cannot be wound up for indebtedness.
State corporations (parastatals)
registered companies.
one natural person may incorporate a company
Types of Registered Companies
LIMITED COMPANIES.
Section 5 CA a company is a limited company if it is limited by shares of guarantee.
Section 6 provides that a company is limited by shares if the liability of its members is limited by the company’s articles to any amount unpaid on the shares held by the members.
The members in these companies contribute money into a joint stock (capital) and share profits arising from the venture
The proportion of the capital to which each member is entitled is his shares. The liability of the members for the debts of the company is limited to the extent that they have.
suitable companies for industry and commerce because they raise their working funds
LIMITED BY GUARANTEE
Provided for by Section 7 of the Companies Act.
Characteristics
it does not have a share capital. Those formed b4 2015 are not prohibited from having a SC.
liability of the members is limited by the company’s articles to the amount the member has undertaken to contribute to the assets of the company in the event of its liquidation.
certificate of incorporation of the company states that it is a company limited by guarantee.
UNLIMITED COMPANY
Section 8
there being no limit on the liability of its members
its certificate of incorporation states that the liability of its members is unlimited
PRIVATE COMPANY
Section 9
Characteristics
articles restricts the right of members to transfer shares
limits the number of members to fifty excluding present and past employees who acquired their shares while they were employees and still retain them.
prohibits invitation to the public to subscribe for shares or debentures.
is not a company limited by guarantee;
its certificate of incorporation states that it is a private company
PUBLIC COMPANY
s.10
Characteristics
the articles allows its members the right to transfer their shares in the company
does not prohibit invitations to the public to subscribe for shares and debentures of the company
its certificate of incorporation states that it is a public company.
REGISTRATION OF COMPANIES
DOCUMENTS NECESSARY FOR REGISTRATION OF COMPANIES
A person who wishes to register a company is required to lodge with the Registrar of Companies ;
section 13(1)(a). AN APPLICATION FOR REGISTRATION of the company,
must state ;
the name of the company,
the proposed locationof the registered office of the company
whether the liability of the members is to be limited, and if so whether by shares or guarantee, and
whether the company is a private or public company.
Section 14a statement of capital and initial shareholding where the company is to have a share capital.
Must state the number of shares to be taken on formation by the subscribers to the memorandum and articles.
the aggregate nominal value of the shares
for each class of shares, the particulars of the rights attached to the shares
the amount to be paid up, and the amount to be unpaid for each share
if it is a company that is to be limited by guarantee, a statement of guarantee; and (iii) a statement of the company’s proposed officers.
a statement of the company’s proposed officers ;first directors, first secretaries or joint secretaries(public co); authorised signatory of the company.
s. 13(1)(b). A MEMORANDUM OF ASSOCIATION OF THE COMPANY
must state that ;
the subscribers wish to form a company under the Act,
and agree to become members of the company.
in the case of a company that is to have a share capital, to take at least one share each
s.12must also be in the prescribed form, and
s.12 (2)authenticated by each subscriber
section 13(1)(c)A COPY OF THE ARTICLES OF ASSOCIATION
s.21When articles are not registered, the relevant model is deemed to form part of the company’s articles.
Articles are required to be contained in a single document, be printed, divided into paragraphs numbered consecutively, dated and signed by each subscriber
Section 17 provides that when the Registrar is satisfied that the application complies with the requirements of the Act he registers the company
The Registrar then issues a certificate of incorporation signed by him and authenticated by the official seal.
SIGNIFICANCE OF REGISTRATION
It becomes a body corporate meaning that it is a legal person separate and distinct from its members.
In Salomon v. Salomon &Co.[1897]A.C. 22
Macaura v. Northern Assurance Co. [1925]A.C. 619
Lee v. Lee’s Air Farming [1961]A.C. 12
property of the company belongs to the company itself and not to the individual shareholders ;macaura
can do all of the things than an incorporated company can do
it can hold property,
it can sue and be sued,
it can enter into contracts, except that in the case of a public company it cannot commence business
SIGNIFICANCE OF THE ARTICLES OF THE COMPANY
Section 30 company’s constitution binds the company and its members
the constitution forms a contract binding the members to the company.
In Hickman v. Kent or Romney Marsh Sheep-Breeders’ Association [1915]1 Ch. 881
Equitable Life Assurance Society v. Hyman [2002]1 AC 408 (HL),
The articles cannot however be supplemented by additional terms implied from extrinsiccircumstances.
it is not possible to imply into the company’s articles terms that are not therein
Bratton Seymour Service Co. v. Oxborough [1992] BCLC 693 (CA)
Wood v. Odessa Water-works Co. (1889)42 Ch 636
Rayfield v Hands [1960]Ch. 1
the constitution constitutes a contract that only binds the company and the members. Non-members are not bound.
Eley v. Positive Life Assurance Co. Ltd (1876)1 Ex.D. 88 (C.A.)
Re New British Iron Co. [1898]1 Ch. 324
When/ how can a director be retained and fired? Discuss with help of cases
TOPIC TWO : CORPORATE PERSONALITY
Limited Liability
Lifting the Veil
Role and Powers of promoters
Nature of Share Capital
Dividends and Distributions
PROMOTION AND INCORPORATION OF COMPANIES
Promotion is the process of forming a company.
A promoter is a person who forms the intention to form a company, and takes the necessary steps to carry that intention into operation.
See Lord Cockburn InTwycross v. Grant (1877) 2C.P.D. 469, 541
SeeKelner v. Baxter (1886)LR 2CP 174
A promoter is also not strictu sensu a trustee for a company that is yet to be formed. However,if he acts with the company in mind, he stands as a fiduciary towards the company.
DUTIES OF A PROMOTER
must not make secret profits out of the promotion such as a profit on a sale of property to the company. if he does he must account to the company for the same. See Gluckstein
Must disclose any material factsto the independent board of directors or to the existing or intended shareholdersrelating to a contract with the company. If co fails to agree with the K, its voidable at co’s option. See Erlanger v. New Sombrero Phosphate Co. (1878)3 App. Cas. 1218 (PC)
Remedies of the Company to promoter’s undisclosed profit
rescind the contract and recover the purchase money paid
compel the promoter to account for any profit he has made
sue the promoter for damages for breach of his fiduciary duties
Are Pre Incorporation contracts between co and promoters binding?
A promoter has no right against the company for payment of his services rendered before the formation of the company in the absence of a contract under seal, because the services would constitute past consideration.
Companies are also not bound by pre-incorporation contracts made on their behalf before they are incorporated, nor can they ratify, and enforce such contracts. See Section 44(1) of the Companies Act 2015.
Denning MR stated in Phonogram Ltd v. Lane [1982]QB 938where a person purports to contract on behalf of a c company not yet formed then however he expresses his signature he himself is personally liable on the contract.
See Kelner v. Baxter, Erle CJ stated at 1236 : “When the company came afterwards into existence it was a totally new creature, having rights and obligations.
A company cannot by adoption of ratification, obtain the benefit of a contract purportedly made on its behalf before it came into existence.
One cannot claim rights from a pre Incorp Contract. See Natal Land Co. &Colonisation Ltd v. Pauline A new contract must be made after its incorporation in the same terms as the old one. The old one is non-binding.
Persons cannot enforce any liabilities arising from PIC against the company.
It is essential that a principal for whom an agent purports to act should be in existence. seeRe English and Colonial Produce Co. Ltd [1906]2 Ch 435, solicitors, on the instructions of persons who afterwards became directors of the company PRE-INCORPORATION CONTRACTS prepared the memorandum and articles of association of the company, and paid registration fees. It was held that the company was not liable to pay their costs.
Q.Explain the legal position with respect to the payment for services provided during the promotion of the company
Where the articles provided that thedirectors may pay any person for services provided during the promotion of the company
(b) Discuss whether Kagia& Co. Advocates may successfully seek legal redress for the termination of their appointment as legal advisors.
LIFTING THE VEIL
This is the principle in Salomon v. Salomon & Co. that a company is a separate legal entity from its members may be referred to as the veil of incorporation.
However there are exceptions when the veil of incorporation can be lifted so that the law disregards the corporate entity and instead pays regard to the economic reality behind the legal façade.
is lifted whenever the Companies Act recognises the relationship of holding company and subsidiary.
can happen are either on the basis of statute or judicial interpretation.
section 33 where the Companies Act provides that
where a company carries on business for more than six months
when the number of members has fallen below the statutory minimum every person who is a member of the company during after that period and who knows the business is being carried on
is jointly and severally liable for all the debts contracted during such time.
when an officer of a company signs on behalf of the company a bill of exchange, promissory note, cheque, or order for money or goods in which the company’s name is not mentioned, the officer is personally liableunless it’s paid by the company.
where an attempt is made to circumvent statute.
Wallersteiner v. Moir [1974]1 W.L.R. 991 (C.A.)
Gilford Motor Co. Ltd v. Horne [1933]Ch. 935 (C.A.)
Jones v. Lipman [1962]1 W.L.R. 832,
s. 150. inspector of a company under sections 165 and 173tcan investigate the real owners of a company. This is an example of the veil being lifted.
S.323in cases of fraudulent trading, an order made under this section lifts the corporate veil.
OBJECTS OF THE COMPANY
section 2. must state the objects of the company
Cotman v. Brougham [1918] A.C. 514, at 520 Lord Parker observed
Significance of statement of objects in the Memorandum
it protects the subscribers who know the purposes to which their money can be applied;
it protects person dealing with the company
THE DOCTRINE OF ULTRA VIRES
protect the shareholders and those who deal with the company
a company has power only to carry out objects which are stated in the memorandum, together with anything incidental thereto.
Lord Selbourne in Att. Gen. v. Great Eastern Railway [1880]5 App. Cas. 473 at 478 said that the doctrine of ultra vires “ought to be reasonably…understood and applied.
In practice therefore it is usual to set out at length in the memorandum all the objects which the company might require.
Powers of a company are also specified as objects.
An act not authorised by the objects clause of the memorandum or by statute is thus ultra vires. Ashbury Railway Carriage v. Richie.
MAIN OBJECTS RULE
One of the objects could be held to be the main object of the company and the remainder to be merely ancillary to the main object.Anglo-Overseas Agencies Ltd. V. Green [1961]1 Q.B. 1 at 8, the rule was explained.
Cotman v. Brougham ;concluded with a declaration that every sub-clause should be construed as a substantive.
Bell Houses Ltd. v. City Wall Properties Ltd [1966]2 Q.B. 656 (C.A.) When the main object of a company fails for any reason the substratum of the company is said to have gone and it is just and equitable that the company be wound up
Re German Date Coffee Co. (1882)20 Ch.D 169 Held that the substratum had failed as it was impossible to carry out the objects
The company will not be wound up if the substratum has not gone. Re Kitson& Co Ltd
ALTERATION OF OBJECTS
A company can alter its objects by special resolution in order to
to carry on its business more economically or efficiently;
to attain its main purpose by new or improved means;
to enlarge or change the local area of its operation;
to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company.
to restrict or abandon any of the objects specified in the memorandum
to sell or dispose of the whole or any part of the undertaking of the company
to amalgamate with any other company or body of persons
section 28provides that unless the articles of a company specifically restrict the objects of the company, its objects are unrestricted
section 33 provides that the validity of an act or omission of a company may not be called into question on the ground of lack of capacity.
Section 26 provides that provisions that were previously contained in the memo become provisions of the articles.
TOPIC THREE & FOUR ; CORPORATE GOVERNANCE
Corporate Governance : Shareholders
Shareholder Decision Making
Shareholder Meetings
Majority and Minority Shareholders
Controlling members Voting
Protection of Minority Shareholders
Corporate Governance : Directors
The Board
Qualification of Directors
Directors’ Duties
Remedies for breach of directors’ duties
Derivative Actions
Global Corporate Governance Principles and Guidelines
CORPORATE GOVERNANCE
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.
Good corporate governance is not an end in itself. It is a means to create market confidence and business integrity. which in turn is essential for companies that need access to equity capital for long term investment.
This is primarily achieved by providing shareholders, board members and executives as well as financial intermediaries and service providers with the right incentives to perform their roles within a framework of checks and balances.
Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.
The quality of corporate governance affects the cost for corporations to access capital for growth and the confidence with which those that provide capital – directly or indirectly – can participate and share in their value-creation on fair and equitable terms.
As a consequence, good corporate governance will reassure shareholders and other stakeholders that their rights are protected and make it possible for corporations to decrease the cost of capital and to facilitate their access to the capital market.
COMMON ELEMENTS OF GOOD CORPORATE GOVERNANCE.
Should adhere to ensuring the rights and equitable treatment of
shareholders and key ownership functions;
Institutional investors, stock markets, and other intermediaries;
The role of stakeholders;
Disclosure and transparency; and
The responsibilities of the board
STATUTORY OUSTER OF CONSTITUTIONAL LIMITATIONS ON DIRECTORS’ POWERS
intended to ensure that a third party dealing with a company should not be disadvantaged by the possibility that the company was acting beyond its capacity
Section 34 (1) the power of the directors to bind the company, or authorize others to do so, is free of any limitation
s. 34(2).a person dealing with a company is not bound to enquire as to any limitation on the powers of the directorssee Smith v. Henniker-Major and Co. [2002]EWCA Civ. 762, the chairman of a company sought to rely on a similar provision…..denied!
Section 34(4) preserves the right of a member of the company to bring proceedings to restrain the doing of an act beyond the powers of the directors.may not be brought in respect of an act done in fulfillment of a legal obligation.
section 34 (4) and (5) In effect, have preserved the ultra vires doctrine for internal purposes.
See Re Introductions Ltd, [1970]Ch 199 the dispute concerned the validity of a secured loan.
When would a company be wound up on the grounds that the company is no longer able to undertake its core functions?
When is a company said to have deviated from its core activities?
RULE IN TURQUAND’S CASE
The principle is consistent with ostensible or apparent authority in the law of agency
Royal British Bank v Turquand; (1856) 6 E&B 327
originally mitigated the harshness of the constructive notice doctrine
Company had given bond to the tune of 2000 pounds.The bond was under the company's seal, signed by two directors and the secretary
Became insolvent.
When the company was sued, it alleged that under its articles of associations, directors only had power to borrow up to an amount authorized by a company resolution.
Held ;The bank could not be deemed to know which ordinary resolutions passed, because these were not registrable.
Sir John Jervis CJ, for the Court of Exchequer Chamber ruled that the bond was valid, so the Royal British Bank could enforce the terms.
Turquand was Endorsed by the House of Lords. In Mahony v East Holyford Mining Co(1875) LR 7 HL 869 Lord Hatherly phrased the law thus:
“ When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, those so dealing with them externally are not to be affected by irregularities which may take place in the internal management of the company.
Ernest v. Nicholls (1857)6 HL Cas 401, the House of Lords held that a person dealing with a company should be deemed to have notice of that company’s registered constitutional documents.
This is because once the memorandum and articles of a company are registered they become public documents.
Contrast with s. 34(2).a person dealing with a company is not bound to enquire as to any limitation on the powers of the directorssee Smith v. Henniker-Major and Co. [2002]EWCA Civ. 762.
These provisions effectively abolish the doctrine of constructive notice of the contents of the company’s registered documents.
WHEN WILL A CONTRACT WITH AN “AGENT” BIND THE COMPANY?
If the board of directors ratifies the contract.
If the co hasn’t ratified but one can prove that he was induced to make the contract by the agent being held out as occupying a certain position in the company.
that the representation, which is usually by conduct was made by the persons with actual authority to manage the company generally or in respect of the matters to which the contract relates.
That the K was one in which the position ‘the agent” was holding could be held out to be actual authority.
See Freeman&lockyer v. Buckhurst Park Properties(Mangal) Ltd
EXCEPTIONS TO THE RULE IN TURQUAND CASE.
Where the outsider knew of the irregularity or lack of actual authority. See Howard v. Patent Ivory Manufacturing Co. (1888) 38 Ch.D 156,
Where the outsider purported to act as a director in the transaction, that is to act for and on behalf of the company in the transaction.
Where there are suspicious circumstances putting the outsider on inquirysee A.L. Underwood Ltd v. Bank of Liverpool and Martins [1924]1 K.B. 775 (C.A.)
Where a document is forged so as to purport to be the company’s documentunless it is held out as genuine by an officer of the company acting within the scope of his authority: See Ruben v. Great Fingall Consolidated [1906] AC
PROSPECTUSES
Section 2 ;prospectus is ‘any prospectus, notice circular, advertisement or other invitation, offering to the public forsubscription or purchase any shares or debentures of a company.
It’s any document used to induce the public to purchaseshares or debentures in a company.
Can only be made in a public company; A private company raises its capital privately.
What constitutes an offer to the public?
Not restricted to the public at large but includes any section of the public, whether selected as members or debenture holders of the company or as clients of the person issuing the prospectus or in any manner. See Re South of England Gas Co ltd 1911
What does not constitute an offer to the public?
If the shares or debentures can be regarded as not calculated to result intoavailability for subscription or purchase by persons who have not received the offer.
if it is otherwise a domestic concern of the persons making and receiving it.
See Nash v. Lynde [1929] A.C. 158
CONTENTS OF PROSPECTUS
S.40
names, occupations and addressesof directors
qualification and remuneration of directors,
minimum subscription, the amount payable on allotment of each share.
particulars of the vendors of any property to be purchased and consideration to be paid.
preliminary expenses of the issue.
the rights attached to various classes of shares
and the dates, parties and the general nature of every material contract entered into.
reports by the company’s auditors setting out the profits and losses, rates of dividend, assets and liabilities.
ESSENTIAL REQUIREMENTS OF PROSPECTUS
Must bear the date of publication.Section 39
The prospectus must state on its face that a copy has been delivered to the Registrar.
FORM OF APPLICATION
Generally, it is unlawful to issue any form of application for shares or debenturesunless the form is accompanied by a prospectus containing the Third Schedule matters and reports.
exceptions
where the form of application is issued to existing shareholders or debenture -holders of the company,
Where the form of application relates to shares or debentures similar to shares or debenturespreviously issued and for the time being listed on a prescribed stock exchange;
form is issued in connection with an invitation to a person to agree to underwrite the shares or debentures;
or the form is issued in relation to shares or debentures which are not offered to the public that it need not comply with the provisions of theThird Schedule S.40(6).
LIABILITY
Company is liable for the misrepresentation of its directors and other agents within the scope of their authority.
A person induced to subscribe for shares or debentures in a company by a misrepresentationmay have a remedy against the company or the individuals responsible.
The main remedy against the company is rescission of the contract with or without an action for damages.
A shareholder cannot recover damages for fraud against the company without rescission because that would be inconsistent with the contract between him and the other shareholders.
The same is true of a claim to damages such as for breach of contract which a shareholder qua shareholder may seek to enforce against the company.
The main remedy against the individuals responsible are compensation for negligent representation under section 41 and damages for fraud.
S.41. A promoter/ director or the person authorizing the issue of prospectus is prima facie liable to pay compensation for any loss to those who subscribe in good faith.
It may also be possible to claim negligent misrepresentation under the principle in Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964]A.C. 465ieThe law places a duty of care where one party seeks information or advice from another party, trusts the other to exercise due care.
SHAREHOLDERS AS AN ORGAN OF THE COMPANY
The Act gives members certain rights and reserves to them certain important prerogatives to the exclusion of the directors.
Members must approve certain types of contracts between the company and its directors.
have the right to decide upon changes to the constitution of the company,
Have right to decide upon changes to the rights attached to their shares.
Right to remove the directors.
Sue for claims and obtain a remedy for the company
Other powers of share holders spring from the articles.
NB :The basic rule in the Model Articles is that the directors, not the members, will manage the business of the company, subject to any exceptions in the Act.
However, the shareholders may by special resolution direct the directors to take, or refrain from taking specified action.
Where the general management of the company is vested in the directors, the members have no power by ordinary resolution to give directionsor to overrule its business decisions.
See Automatic Self-Cleansing Filter Syndicate Co. Ltd. V. Cuninghame [1906]2 Ch 34 (CA),
Quin &Axtens Ltd [1909] 1 Ch. 311 (CA)
Held: that the ordinary resolution passed to acquire the premises was inconsistent with the articles and the company was restrained from acting on it.
The directors’ powers can however be alteredfor the future by an alteration of the articles in the proper way, but the articles cannot be altered with retrospective effect.
If directors are unable to exercise one of their powers because of a deadlock on the board or because their number has fallen below the number required for a quorum, the company in general meeting may exercise that power.See Barron v. Potter [1914] 1 Ch. 895.
DECISION MAKING IN COMPANIES
s. 255(2). Public Company;the preferred mode of decision making is the General meetings for all members or class meetings which only one class of members.
S255(1)Private companies. written resolutions will be the normal modeof decision making.
S.256(1) Most corporate decisions can be taken by simple majority of not less than fifty percent with each member having one vote per share unless the articles provides otherwise.
S.257(1). On matters where there is added risk however, a special majority of not less than seventy-five percent is required.
Cadre of decisions
amending the company’s articles,
disapply members’ preemption rights when shares are issued,
reduce share capital,
resolve that the company be wound up
Decisions taken by written resolution must be passed by the required percentage of all members with voting rights.
Decisions taken at meetings need only be passed by the appropriate percentage of those present and voting either on a show of hands or by poll, whether in person, by proxy or in advance.
INFORMAL DECISION MAKING: THE DUOMATIC PRINCIPLE
Re Duomatic Ltd; ChD 1969.
The principle:A company is bound in a matter intra vires by the unanimous but informal agreement of its voting members.
Payments were made by a company by way of remuneration to directorswithout complying with the company’s articles of association.
No resolution authorizing the directors to receive remuneration had ever been passed in a general meeting of the company or at all.
The liquidator of Duomaticclaimed repayment of remuneration from one of the company’s directors on the ground that the payments were not formally authorized by the company in general meeting.
Held:Where it could be shown that all the shareholders with the right to attend and vote at a general meeting had assented to some matter which a general meeting of the company could carry into effect, such assent was as binding as a resolution in general meeting. #same decision though forum could have changed.
Ordinarily, members may make decisions formally by written resolutions or by vote in general meetings.
However informal assent is also possible; a formal general meeting or written resolution is unnecessary if all the members entitled to vote on the matter informally assent to the transaction.
What type of informal consent is sufficient to trigger the Duomatic principle?
See Schoffield v. Schoffield&Re D’Jan of London Ltd [1994] 1 BCLC 561 (Ch)
The principle is that You must establish a unanimous agreement.
Apply to decisions which formally require special and extraordinary resolutions.
also to decisions formally required to be taken by a group or class of shareholders, and
decisions by members to ratify breaches of directors’ duties.
Shahar v. Tsitsekkos [2004] EWHC 2659 (Ch) the principle was extended so that the agreement of the beneficial owner of the shares is effective where the trustee can be compelled to vote in accordance with the beneficial owner’s wishes.
if shares are held for more than one beneficial owner jointlyall owners must assent.
Rolfe v. Rolfe [2010] EWHC 244 :Similarly where a person holds some shares for himself and other shares as a trustee or executor, his assent will prima facie apply only in relation to his shares
Limits to informal consent
Re New Cedos Engineering Co. Ltd [1994] 1 BCLC 797 ;nothing done informally by this sole member was equivalent to a decision of the members
Does not cover informal agreements to which the doer will not be competent to do formally at a general meeting or in other specified formal manner.
Does not cover agreements inconsistent with the company’s articles.
Re Oceanrose Investments Ltd [2008] EWHC 3475 (ChOne member did not meet the test of a valid meeting under reg. 13
SHAREHOLDER’S INTEREST
a director has a fiduciary duty to the company. He votes binding the co to take a certain course of action.
a shareholder votes in exercise of his own right of property, to vote as he thinks fit.Walton J. in Northern Counties Securities Ltd v. Jackson & Steeple Ltd [1974]1 W.L.R. 1133 at 1144.
when voting a shareholder may consult his own interests.Megarry V-C in Estmanco (Kilner House) v. G.L.C. [1982]1 All E.R. 437 at 444.
THE MAJORITY RULE
Whether by directors or members, the general rule in companies is majority rule.
Majority rule applies not only to decisions to pursue business activities and decisions not to pursue corporate wrongdoers.
Even directors can still vote in their capacity as members
Minority membersmust accept the decisions of the majority.
How does the law protect the minority?
Statutory protection is given to minorities by formalities of several kinds including -
requiring a special resolutionrather than simple majority vote. in important matters such as constitutional alteration.
requiring court’s sanction in matters like reduction of capital or scheme of arrangement
giving dissentients a right to apply to court to have a resolution cancelled where for example there is variation of class rights.
empowering the court to order alternatively that they be bought out.
Other safeguards ;dissentients must hold at least 15% in value of share capital
giving members direct access to the courts ;
for example the right to petition to have the company compulsorily wound up.
right to seek relief for unfairly prejudicial conduct.
Courts have developed rules to curb abuse of power by those in control such as the fiduciary duties of directors.
Majority members are also bound to act bona fide and in the common interest in the alteration ofarticles and variation of class rights.
Minority interests have been downplayed by courts on the following grounds.
Avoiding multiplicity of suits :the proper complainant is the company.
majority rule should prevail.
courts cannot adjudicate on matters of business policy but on matters of law.
Policy of non-intervention was established in Foss v. Harbottle
Held :that it was incompetent for the Plaintiffs to bring such proceedings, the sole right to do so being that of the company in its corporate character.
For actions against the directors, members or outsider, the proper claimant is the company itself.
if the alleged wrong is a matter which it is competent for the company to settle itselfthen no individual member may bring action. (the internal management principle).
Pavlides v. Jensen [1956] Ch 565
Held: the sale of the mine was intra vires the company and there was no allegation of fraud by the directors or appropriation of assets of the company by the majority shareholders in fraud of the minority, the action was not maintainable.
MacDougall v. Gardiner (1875)1 Ch. D. 13 (C.A.)
Held:the action could not be brought by a shareholder; if the chairman was wrong, the company alone could sue.
Devlin v. Slough Estates Ltd
Held: that the court will not grant a declaration that the accounts are not in the correct form at the instance of a shareholder.
Exceptions to the Rule in Foss v. Harbottle
One may bring a minority shareholder’s action and may join the company as a defendant.
This action is brought instead of an action in the name of the company.
Lord Denning M.R. in Wallersteiner v. Moir (No. 2) [1975] Q.B. 373 at 390
Section 221 provides that a contributory may petition that a company be wound up by the court. A member of a company is a contributory and it has been held that a holder of fully paid up shares is a contributory. Thus in appropriate circumstances even a single member can petition for winding up.
He is entitled only to rely on any circumstances of justice or equity which affect him in his relations with the company or with other shareholders.
The form of the action is always ‘A.B. (a minority shareholder) on behalf of himself and all other shareholders of the company’ against the wrongdoing directors and the company”
.
LIMITS ON SHAREHOLDER’S INTEREST
This type of action is a derivative action, i.e. the right to sue derives from that of the company.
Section 239 provides that such claims mean proceedings by a member of the company in respect of a cause of action vested in the company.
May be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or trust by a director of the company.
Only where;
the wrongdoers are in control of the Company
where the wrong complained of is a ‘fraud on the minority’ by the majority e.g. in
Daniels v. Daniels [1978]2 All E.R. 89 (fraud)
the minority shareholders of a company were allowed to bring an action
where the directors had authorized the sale of company land to one of them at a price alleged to be well below its market price.
To secure best interests of the company.see Sidebottom v. Kershaw ,Leese& Co. [1920]1 Ch. 154 (CA).
S.221 Where there’soppression of the minority.
Section 324 Misfeasance proceedings may be taken, if in winding up it appears that any promoter, or director, manager or liquidator or any officer of the company has misapplied or retained or has become liable or accountable for any money or property of the company.
NB : must be an act resulting to actual loss.
Re Etic Limited [1928] Ch.861,
a misfeasance summons was taken outby the liquidator against the secretary of a company for sums overdrawn by him on account of his salary on the instructions of the managing director.
held that this was a claim for repayment of an ordinary debt due from the secretary without any wrongful conduct on his part, and no order on the summons ought to be made.
Section 165 empowers the members of a company to apply to the courts to appoint one or more inspectors to carry out investigations and report their findings.
S. 242(1) A person may take over a derivate claim previously commenced by the company if the
company commencement of the claim amounts to an abuse of the process of the court
And the company has failed to prosecute the claim diligently.
section 242(2)Factors that the court will consider in allowing such a takeover
whether the member is acting in good faith in seeking to continue the action;
the importance that the person would attach to continuing the claim see Mission Capital Plc v. Sinclair [2008]EWHC 1339
CLAIM BY MAJORITY SHAREHOLDER
Cinematic Finance Ltd v. Ryder [2010] All ER 283
Only in very exceptional circumstances could it be appropriate to permit a derivative claim brought by a shareholder in control of the company.”
MEMBERS PERSONAL RIGHTS
Members’ claims for a personal remedy are generally based on wrongs committed in relation to contractual rights derived from the company’s constitution.
subject to the internal regularity rule in Foss v. Harbottle.
In Pender v. Lushington (1877) it was held that a member
a right to sue in the company’s name at least until a general meeting resolved otherwiseand a further right to sue in his own name.
Has Contractual rights derived from outside contracts, especially shareholder’ agreements ;Southern Foundries (1926) Ltd v Shirlaw, [1940] AC 701.
The duties owed by directors to members individually can be asserted successfully.
the entitlement inherent in the unfair prejudice claims; and
the entitlements inherent in the ‘just and equitable’ winding up provisions.
UNFAIRLY PREJUDICIAL CONDUCT OF THE COMPANY’S AFFAIRS
Scottish Co-operative Wholesale Society Ltd v. Meyer [1959] AC 324.
The conduct complained of must be both unfair and prejudicial, not merely unfair.
Re Guidezone Ltd [2000]2BCLC 321
“unfairness’ …is not to be judged by reference to subjective notions of fairness.
The test applicable is whether in applying equitable principles, the majority has acted, or is proposing to act, in a manner which equity would regard as contrary to good faith.
Prejudice can be financial or even a disregard of a member’s rights.
What may include prejudice
taking excessive remuneration-Re Cumana [1986] BCLC 430,
exclusion from the management of a company -Re RA Noble & Sons (Clothing) Ltd [1983]BCLC 273,
not paying dividends-Re a Company, ex p Glossop [1988]1 WLR 1068,
making or proposing a rights issue which the minority cannot take up-Re Cumana [1986] BCLC 430.
mismanagement but only if serious-Re Macro (Ipswich) Ltd [1994]2 BCLC 354.
misuse of fiduciary powers-Scottish Co-operative Wholesale.
dilution of a shareholder’s interest: Re Zetnet Ltd [2011] EWHC 1518.
DISCUSSION QUESTIONS
a)Equal shareholder. Majority sidelining the minority 2. Intra vires actions carried unfairly against them
Whether directors who are majority shareholders can approve and sell property of the company to another company in which they have vested interests.
What are the legal issues by the majority shareholders?
Whether the being sidelined by the majority amounted to unfair prejudicial conduct by the majority.
Whether the sale is ultra vires the articles and whether the main object has extinguished and whether therefore, winding up proceedings can stand against the company.
DIRECTORS
The management of companies is entrusted to directors
Section 3 of the Companies Act 2015 provides that a director is any person occupying the position of a director of the body by whatever name called.
APPOINTMENT OF DIRECTORS
Section 128 provides that a public company should have at least two directors, while a private company must have at least one director.
The articles typically provide that the first directors will be appointed by the subscribers to the memorandum and articles and that thereafter directors will be elected by the members in general meeting.
Articles should also provide that a proportion, such as one-third, should retire every year but be eligible for re-election.
S.132A motion for appointment of 2 or more persons as directors during a general meeting can only be moved if a prior resolution that it be moved has been agreed to by the meeting without any vote being cast against it.
s. 132(3).in public companies the board of directors cannot normally be filled by a single resolution appointing a number of candidates en bloc, unless a resolution for a single vote has first been passed without objection ; 1 of the drs must be a natural person.
s. 129. The general meeting is required to act for proper purposes in appointing a director.
Theseus Exploration NL v. Mining and Associated Industries Limited [1973] Qd R 81.
The court issued an interim injunction to prevent members of the company electing certain persons as directors, because there was sufficient evidence that those persons intended to use the company’s assets solely for the benefit of the majority member
Quoted companies &Public interest companies must establish and appoint a board nomination committee in which at least 2/3 of its members are shareholders of the company and together represent 2/3 of the share capital of the company.
section 133(4)A public interest company :a company that has the responsibility of receiving, handling or spending public funds.
s. 133(2).A person who is employed by a quoted company is not eligible to be appointed as a member of the board nomination committee:
ELIGIBILITY FOR APPOINMENT AS DIRECTORS
Over 18yrs (adult).
s. 131. Must not be an undischarged bankrupt or a person who has made an arrangement or composition with his creditor.
Must not have been a director of an insolvent company. The Insolvency Act prevents “ phoenix syndrome.”
Must be of sound mind
VACATION OF OFFICE OF A DIRECTOR.
RETIREMENT
section 183
DISQUALIFICATION
A director also vacates offices on being disqualified, and the articles usually provide for the circumstances warranting vacation by disqualification.
On age limit s.183
becomes bankrupt or makes any arrangement composition with his creditor generally;
becomes prohibited from being a director by order under section 189;
becomes of unsound mind;
resigns his office by notice in writing to the company;
is absent without permission for more than six months from meetings of directors held during that period.
REMOVAL
Section 140(1) provides that a company may remove a director before the end of his period of office by ordinary resolution, despite anything to the contrary in any agreement between the company and the director.
If there is a contract between the director and the company, then dismissal from office under section 140 may be a breach of that contract by the company where the contract is for a fixed period and it has not yet expired or if the director is entitled to a period notice.
Special notice must be given of any resolution to remove the director or to appoint another person to replace the director at the meeting at which the removal takes place.
The new director’s tenure starts running therefrom: for purposes of determining his retirement.
s. 133(4)If the vacancy is not filled at the meeting at which the director is removed, it will be filled as a casual vacancy.
s. 133(5).The person removed as director is still under a duty to avoid conflicts of interest with respect to exploitation of any property, information or opportunity that he became aware of while a director.
Such a person shouldnot accept benefits from third parties with regard to things done or committed to be done by that person before ceasing to be a director.
The Act allows director’s shares to be given special voting rights. See Bushell v. Faith [1970] AC 1099,
Facts
Bushell Court (Southgate) Ltd had three shareholders, a brother and two sisters, each holding 100 shares.
The two sisters purported to remove their brother as a director by casting 200 votes on a resolution against his 100.
The House of Lords held that the brother had not been validly removed as a director because the articles stated that any shares held by that director shall on a poll in respect of such resolution carry the right to three votes per share.
VALIDITY OF ACTS OF DIRECTORS
Ss. 191-193the acts of a director are valid even if;
S.134(1) it is later discovered that the resolution for their appointment was defective,
the director was disqualified or ceased to hold office of the director.
was not entitled to vote on the matter
The Act vests power on the articles to distribute power between the board and the general meetings.
no regulation made by the company in general meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made.
if the directors act within the powers given to them by such article, they are not bound to obey resolutions passed by the shareholders at a general meeting.
such resolutions cannot override a decision of the directors or control the exercise of their powers in the future. See Bamford v. Bamford 1970 ch 212 at 220 “ To do so, they require special resolution”….Salmon v. Quin & Axtens Ltd.
The directors’ powers can be altered for the future by an alteration of the articles in the proper way.
The articles cannot be altered with retrospective effect
Where the directors are unable to exercise their power because of ; lack of quorum or a deadlock on the board, the company may exercise that power in a general meeting. See Barron v. Potter,
Where company has no directors, the company may exercise that power in a general meeting Alexander Ward & Co Ltd v. Samyang Navigation Co. Ltd.
If the directors improperly refuse to exercise a power to initiate an action in the name of the company, a minority shareholders’ action may be brought by way of an exception to the rule in Foss v. Harbottle: Cook v. Deeks [1916]1 A.C. 554.
The directors cannot delegate their powers unless empowered to do so by the articles
REMUNERATION OF DIRECTORS
Directors are not employees of the company and accordingly have no claim to payment of their services unless there is provision for payment in the articles.
directors hold executive positions in the company such as managing director in which event they are servants of the company and receive a fixed salary.
Act requires that the accounts laid before the company in general meeting must show certain particulars of directors salaries, pensions etc.
S.189 It is unlawful for a company to make to a director any payment by way of compensation for loss of office, or in connection with retirement unless particulars of the proposed payment including the amount are disclosed to the members and the proposal is approved by the company. See Re Duomatic Ltd.
LOANS TO DIRECTORS
Section 191 renders illegal loans by a company to any person who is its director or director of its holding company, nor may the company guarantee or provide security in connection with.
Exception :
Private companies.
Subsidiaries, the director of which is its holding company.
Loans made with the approval of the company in a general meeting to provide the director with funds to meet expenditure for the benefit of the company, and
where the company’s business includes the lending of money or the giving of guarantee in connection with loans made to other persons.
POSITION OF DIRECTORS
Directors are officers of a company and sometimes also employees
owe strict fiduciary obligations to the company requiring a high standard of honesty and loyalty.
They must also exercise their powers for the benefit of the company.
They control the company’s property and must apply it for the specified purposes of the company and a misapplication of it is a breach of duty.
standards of competence.
are not the agents of the shareholders in running the business of the company.
trustees of the company’s money and property, and of the powers entrusted to them Great Northern Railway v. Turner (1872)L.R. 8 Ch. 149 at 152.
DIRECTORS AS FIDUCIARIES
Directors are strictu sensu not trustees since the company’s money and property are not vested in them but in the company
their functions are the same as those of trustees.
their duties of care are not as onerous as those of trustees
DIRECTORS AS AGENTS
“Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. In Mills v. Mills (1936)60 C.L.R. 150 Dixon J.
Like other agents directors incur no personal liability on contracts made by them on behalf of the company, within the scope of their authority.
Are liable if they exceed the power given to them by the memorandum and articles.
Their actions may however be ratified by the company in general meeting if they act within the powers in the memorandum and articles.
directors may be specifically appointed agents for the shareholders to negotiate a sale of the company’s shares, the shareholders in this case are the principle and are liable for their fraud. See Breiss v. Woolley
If directors hold themselves out as agents for the shareholders they must disclose any profit made by them to the shareholders. Allen v. Hyatt (1914)30 T.L.R. 444,
DUTIES OF DIRECTORS
Section 140 provides that the general duties are owed by a director of a company to the company.
S.142 Duty of directors to act within powers ie
act in accordance with the constitution of the company.
only exercise powers for the purposes for which they are conferred. See Re Smith and Fawcett Ltd [1942] CH 304 (CA),
S.143 Duty of director to promote the success of the company. A director should act in good faith, in a manner that would promote the success of the company for the benefit of its members as a whole.
Shall have regard to :
the long term consequences of any decision of the directors;
the interests of the employees of .the company
the need to. foster the company's business relationships with suppliers, customers and others;
the impact of the operations of the company on the community and the environment.
the desirability of the company to maintain a reputation for high standards of . business conduct.
the need to act fairly as between the directors and the members of the company
S.144. Duty of director to exercise independent judgment. This duty is not infringed by the director acting in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors or where director acts in a way authorised by the constitution of the company.
S.145 Duty of director to exercise reasonable care, skill and diligence
S.146 Duty of director to avoid conflicts of interest. director of a company shall avoid a situation in which the director has, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company.
S.147 Duty not to accept benefits from third parties if the benefit is attributable to the fact that the person is a director of the company or to any act or omission to the person as a director.
S.147(3) Where that gift does not amount to conflict of interest, it is not an infringement under S.147(1)
Conflict of interest includes conflict of duties.
This section draws a boundary on the duties of directors to shareholders, creditors, employees
directors do not generally owe their duties to anyone other than the Company, nor fiduciary duties to individual members. See Percival v. Wright [1902]2 Ch 421
DISCUSSION QUESTIONS
The articles of association provided that a document shall be executed by the company where it is signed by two directors or a director and a secretary.
The managing director of the company signed a charge over the company’s assets in favour of a bank as security for a loan
The bank was also provided with a resolution of the directors approving the borrowing,
although the articles of association require a resolution of the general meeting. The company has refused to pay back the loan arguing that the transaction did not comply with the articles.
(a) Assess the applicable legal doctrine to the dispute.
(b) Advise the bank on two exceptions to the doctrine.
THE SECRETARY
Every company must have a secretary.
section 177. A sole director cannot be a secretary,
section 178. A corporation cannot be the secretary if its sole director is also the sole director of the company:
Table A article 110 The secretary is usually appointed by the directors. for such term, at such remuneration and shall upon such conditions as they think fit.
any secretary appointed may be removed by the directors.
Role of a secretary
See Barnett, Hoares & Co. v. South London Tramways Co. (1887)18 QBD 815 at 817.
Lord Esher M.R.
A secretary is a mere servant;
his position is that he is to do what he is told,
he has no any authority to represent anything at all;
statements made by him may not be accepted as trustworthy without further inquiry.”
Held: Company was not to be liable for the acts of a secretary.
In Houghton & Co. v. Nothard, Lowe & Wills Ltd [1928]A.C. 1
The secretary has no independent authority to bind the company by contract.
The secretary cannot borrow money on behalf of the company
Cannot issue a writ in the company’s name or lodge defenses in the company’s name without the authority of the company.
cannot register a transfer until he is authorized to do so by the directors,
He cannot strike a name off the register of shareholders without authority.
He cannot also summon a general meeting on his own authority
The company secretary today
The secretary today makes regular representations on behalf of the company
enters into contracts which come within the day to day running of its business on its behalf.
signs contracts connected with the administrative side of the company’s affairs, such as employing staff and ordering cars.
See Panorama Developments(Guildford) Ltd v. Fidelis Furnishings Fabrics Ltd
The secretary is an officer of the company, and therefore the court can relieve him from liability in certain cases.
The appointment of the secretary may be terminated by giving reasonable notice.
Appointment may be terminated without notice if the secretary makes secret profit. See McKay’s Case (1875)2 Ch. D 1.
WINDING UP OF COMPANIES
Types;
compulsory winding up by the court
winding up subject to the supervision of the court
voluntary winding up.
Grounds for winding up
Section 219;
where the company has by special resolution resolved that it be wound up by the court
where default is made in delivering the statutory report to the Registrar or in holding the statutory meeting.
the company does not commence its business within a year after its incorporation or suspends its business for a whole year : winding up order will be made if company has no intention of starting business. See
TOPIC SIX SHARE CAPITAL
NB: Reseach more on this!!
Nature and Classification of Shares
Shares Issues (Private Placements, Rights Issues, and other share issues)
Public offers
Transfer of Shares
Takeovers
Arrangements and Reconstructions
Financial Assistance
MERGERS AND ACQUISITIONS
How else can the ID of a company can change.
The basic principles involved in the process of M&A.
How to facilitate a merger.
Technical skills of M&A.
S.2 Competition Act. “merger” means an acquisition of shares, business or other assets, whether inside or outside Kenya, resulting in the change of control of a business, part of a business or an asset of a business in Kenya in any manner and includes a takeover;
Forms of mergers
1.By absorption ;
2. By formation of a new company.
Acquisition :
Friendly: approved by the target corporation.
Hostile Takeover: Where it’s resisted by the target company.
Merger & Acquisitions Types
Vertical
Horizontal
Conglomeration
Market extension
Product extension
Consolidation
Vertical mergers
Acquirer and target are in same industry and focus on same …..process. E.g. where the manufacturer acquires distributor… or distributor acquires the retailer.
Horizontal mergers
Acquirer and target are in same industry.
Conglomeration
Acquirer and target are economically unrelated. Involved in different economic activities.
Market extension
Allows market to be reached to become larger.
Product extension
Two markets selling different gadgets but under the same…
Consolidation
A new co is 1st formed then two or more are combined under this new one.
WHY WOULD A COMPANY ACQUIRE ANOTHER?
Free market economy; (leissez faire) willing buyer, willing seller.
As a result of confidence in the market – one can see the opportunities to buy and make money. Return on investment.
Succession issues among private business see tuskys..
Ability to convert vision into reality (warren Bennis).
STRATEGY
Companies involved in M&A normally have a strategy/ vision for the other company.
Set out the objectives ,criteria and risk : why you want to acquire the company.
Asses the competence in capacity of managers to manage an acquisition of the scale intended.
Acquisition strategy influences organizational structures and culture in a number of ways.
For each acquisition, a team should be formed with clarity of role, responsibilities, resources and authority.
Acquisition strategy should be well understood and agreed by its board and set the framework for significant discussion relating to individual transactions.
FROM STRATEGY TO ACTION
Clear Target Criteria And Market Intelligence Reports.
Valuation.
Due diligence : Facts, investment case – providing insights to aide first acquire management.
Consider its financing right at the onset within the overall company financial strategy.
INFORMATION CHECKLIST
Market : product portfolio, key markets, market share and competitive analysis.
Operations : facilities and processes.
Research and development : Review of research in progress ; critical path analysis to revenue generation for each item.
Finance : Audited statements for the last 10 yrs, statement of balance sheets,cash flows….
Human resource : Profiles of board members and senior executives of the company together with any management board reports…3yrs.
Corporate responsibility
LEGAL ASPECTS
Specialized skills ; Competition law, pension ,employment, IP, IT,Real Property,environ..law,tax
STAGES
Due diligence. ; identify
Preparation of Docs.
See Financial Authority Bill
TOPIC SEVEN: WINDING UP, DISSOLUTION, AND ADMINISTRATIVE MEASURES
CORPORATE INSOLVENCY
The Insolvency Act introduces corporate insolvency…contrast with The repealed cap 486, Bankruptcy Act.
Liquidation
Admin receivership
Difference between an admin from a receiver and a liquidator.
See Insolvency Practitioners Act.
Can a company be put under perpetual receivership?
The law seeks to introduce a rescue plan for a company undergoing turbulence.
It proposes some new regulations which apply to insolvency practitioners: who can be a Insolvency practitioner and how practitioners may be disqualified.
It introduces admin procedures and simplifies them in relation to the company – to clarify Issues of voluntary arrangement for composition of creditors and also focuses on rescue plan for a company undergoing turbulence.
Only individuals can now be receivers.
Shall be members of an association who shall be accountable for their actions.
Who are these insolvency practitioners
Are subjected to regulations to ensure they are qualified as provided for under the Act.
An insolvency practitioner is either;
Liquidator
Administrator
Administrative Receiver
S.4.(1). A person acts as an insolvency practitioner in relation to a natural person if the person acts—
as the bankruptcy trustee or interim trustee in respect of the person’s property or as permanent or interim trustee in the sequestration of the person’s estate;
as a trustee under a deed that is—
a deed of composition made for the benefit of the person’s creditors; or
a trust deed for the creditors of the person.
(2) A person acts as an insolvency practitioner in relation to a company if the person acts as—
the liquidator, provisional liquidator, administrator of the company;
a supervisor of a voluntary arrangement approved under Part VIII; or
a supervisor of a voluntary arrangement approved under Part IX.
(3) A reference in this section to a natural person includes, except in so far as the context otherwise requires, a reference to a partnership other than a limited liability partnership.
DISQUALIFICATION TO ACT AS AN INSOLVENCY PRACTITIONER
An un-discharged bankrupt
One disqualified under corporate governance rules
Lack of mental capacity.
NB : Schemes of arrangement can be voluntary or court imposed. ; what’s the total credit line, number of creditors..
Contrast with the Re Construction of a company between creditors and owners of a companies. The scheme is not binding to other creditors.
Mergers, acquisitions, takeovers have the effect of changing the structure of a company. Any reconstruction is injurious because it changes the personality of the company. It is thus objectionable by any creditor.
A liquidator, admin or a director of a company on the realization of a possible challenge of the company can make a scheme of arrangement of its affairs. Anyone can cause a proposal seeking to settle the company’s debts. When any of these decisions are made, any creditor can challenge the decision within 28days period.
DIFFERENCE BETWEEN A RECEIVER, LIQUIDATOR AND ADMINISTRATOR
Liquidator Where there’s intention to wind up its affairs, a liquidator is appointed.
Administrator is appointed where the company is to be rescued. He acts for the benefit of crs and shareholders.
Receiver : May be appointed by the courts or contractually by the power of a debenture holder in a contract of loan.
This is an amalgamation of contract law and property law. A receiver takes possession of company and realizes the benefits of the debenture holder.
Receiver is appointed by the a specific debenture holder to protect his interest.
A receiver may take possession of only the part of fixed security.
However, if on a floating charge crystallizes, the receiver becomes an administrative receiver.
EFFECTS OF APPOINTING A RECEIVER
As soon as a receiver is appointed all floated charge become fixed
The director’s roles are superseded.
A receiver Appointed by court, the companies’ employees are automatically dismissed.
All invoices, orders for goods, all letters and business letter must contain (In Receivership).
Read on the Administrative procedures in Insolvency ; CBK Act on receivers.
TOPIC EIGHT : DEBT INSTRUMENTS
Debentures
Company Charges
Other Corporate debt Arrangements
Enforcement and Remedies
