LAW 2040: COMPANY LAW SEMINARS

2017-2018

It is expected that you will have done the reading and prepared answers to the seminar
questions when you attend seminars.

Please make also sure that you ask questions in seminars about anything you are not sure
about either in your reading or that crops up in the course of the seminar.

Cases: You should not assume that the only cases you need to know are those listed on the
seminar handouts—far from it. In order to keep on top of the cases you will need to read
them as you go along and not wait until just before the seminar.

You should acquire a basic knowledge of the cases and sections referred to in classes and/or
in the handouts. There are a lot of cases. We recognise that not all can be read meticulously
and in full. But, cases that clearly stand for important propositions of law, and which are
subject to emphasis in classes should be read in full, not from casebooks.

With respect to other cases, the reading of one of the following: the case headnote, a
casebook excerpt or an account in a text, will suffice. The case headnote is the material that
precedes the judgment in reported cases, and includes a summary of the facts and the major
points made in the judgment(s).

Remember—preparing for the lectures and seminars is the best preparation

for the exam: many seminar questions are based on past exam questions.

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 Seminar Assessment

10 per cent of your marks will be assessed on the basis of your oral contribution in the
seminars. Seminars 1 and 2 will not be assessed. The assessment process will cover three
dimensions:

i) quality of content

This refers to your knowledge and understanding of the law and the policy issues which
inform the law. The ability to synthesize and integrate your contributions with the
contributions of others is a further way of demonstrating your grasp of the issues under
discussion. Asking pertinent questions which draw out key issues or important themes is
another way in which you can demonstrate your understanding of the law.

ii) quality of expression

Clarity, fluency and conciseness of communication are the skills to be developed under this
heading. The ability to think on your feet and respond to unanticipated comments and
questions is often claimed as one of the key skills possessed by lawyers and participation in
seminar discussion will help develop this ability

iii) contribution to discussion process

Here we will be considering whether you listen carefully to others, whether you respond to
them in an appropriate, respectful and constructive fashion, and your general contribution to
the atmosphere in both smaller groups and the whole class. Listening attentively is just as
important as speaking clearly. A good seminar participant is not necessarily someone who
talks a lot.

Oral contribution does not mean attempting to dominate a seminar and talking the
whole time. If your behavior is considered to be too dominant then you will lose marks.
You need to work as a member of a team, particularly within smaller groups, and this means
allowing everyone in the group the opportunity to make a full contribution. The best marks
will be not obtained by those who talk too much and deny others in the group the opportunity
to speak.

In the case of international students we would like to reassure you that the fact that English is
not your first language is understood by us, and that those who have some difficulty
expressing themselves in English will not be prejudiced. We anticipate that you will be able
to play a full part in the course and that you will swiftly develop the confidence to engage in
the discussion.

The marks will be divided between the seminars in the following way:
Seminar 1 0%
Seminar 2 0%
Seminar 3 2%
Seminar 4 2%
Seminar 5 2%
Seminar 6 2%
Seminar 7 2%

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The following is the marking scale:

A = 80: Voluntary contributions at relevant points. Detailed and comprehensive reference to

primary/secondary sources and some evidence of reflective and insightful thought.
Demonstrates an awareness of the need to ensure the participation of other students.

B = 65: Accurate contribution at relevant points with some reference to primary/ secondary
sources. Able to respond to set questions. Demonstrates an awareness of the need to ensure
the participation of other students.

C = 55: Limited or partly accurately contributions only.

D = 30: Fails to contribute constructively.

AB = 20: Non attendance

Overall mark based on average across the assessed seminars.

Attendance at seminars

Attendance at seminars is compulsory. Please note that if you miss more than 3 seminars,
then even if you have good reasons for your absence, it will not be possible to scale up your
marks for the missing seminars.

In the case of absence from any assessed seminars you must inform your seminar tutor in
writing why you could not be present. Provided that you have a good reason we will scale up
your marks in line with your performance in other seminars.

Please make sure you either attend or have a good reason (which you tell us about) for not
attending otherwise this will affect your overall grade in the subject. Do not throw away
marks—it can really make a difference.

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 LAW2040: COMPANY LAW

SEMSTER 1
2017–2018

SEMINARS

Four seminars will be held for all students. They are to be held in Teaching Weeks 4/5, 6/7,
8/9, and 10/11. The first two seminars will not be assessed.

SEMINAR 1

Learning Outcomes

By the end of this seminar you should be able to:

• Distinguish between the concepts of limited liability and separate legal personality;
• Critically analyse the nature of the concept of separate legal personality, its function
and significance;
• Identify the circumstances in which the corporate veil will be pierced by the courts;
• Critique the operation of separate legal personality in the group context;
• Apply the relevant law to a problem question.

Reading

1) Kershaw, pp. 30–77.

OR

Hannigan, pp. 41–67.

2) Pey Woan Lee, The Enigma of Veil-Piercing, 26(1) INTERNATIONAL COMPANY AND
COMMERCIAL LAW REVIEW 28 (2015). Available via Westlaw

3) P.T. Muchlinski, Holding Multinationals to Account: Recent Developments in English

Litigation and the Company Law Review, 23(6) COMPANY LAWYER 168 (2002), but
only pp. 173–175 (although the rest of the article makes interesting reading).
Available via Westlaw

You must read the following cases:

1) Salomon v Salomon [1897] A.C. 22.

2) Lee v Lee’s Air Farming [1961] A.C. 12.

3) Adams v Cape Industries [1990] Ch. 433 (see advice at question 4 on reading this
case).

4) Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 A.C. 415.

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Additional reading (not compulsory for the seminar but nevertheless recommended for
revision)

Separate legal personality, and the limited liability of shareholders, are seen as particularly
problematic in two contexts: with small owner-managed businesses and in groups. This
article examines its operation in the first context.

Andrew Hicks, Corporate Form: Questioning the Unsung Hero, JOURNAL OF BUSINESS LAW
306 (1997). Available via Westlaw

Questions

A. Corporate Personality

1. Why was the decision in Salomon v Salomon considered revolutionary? What does it
establish?

2. The Court of Appeal in the Salomon case thought that by incorporating a company Mr.
Salomon had acted contrary to the true intent and meaning of the Companies Act 1862, and
that his company was a fraud or sham. Why did they think this? What were they taking
exception to? What sorts of companies would the Court of Appeal not have considered to be
shams? (See for example the judgment of Lord Lindley in the Court of Appeal decision in
Salomon v Salomon [1895] 2 Ch. 323 at pp 338-339)

3. What was the major importance of the decision in Lee v Lee’s Air Farming [1961] AC 12
(PC)? What primary aspect of company law does it demonstrate?

B. The Corporate Veil

1. What does lifting the corporate veil entail?

2. If the veil had been pierced in Petrodel Resources Ltd v Prest, what exactly would have
been the consequences? Who would have been liable for whose obligations?

3. In the light of Petrodel Resources Ltd v Prest, on what ground(s) will courts be prepared to
pierce the veil?

4. Read the headnote for Adams v Cape Industries [1990] Ch. 433 (available in hard copy and
on-line through Westlaw). The headnote is situated just before the beginning of the judgment
and it contains a summary of the facts and the main points raised in the judgment. Then read
an excerpt of the case from a cases and materials book, such as Sealy, L. S., and
Worthington, S. Cases and materials in company law. Any cases and materials book will do
as they will post-date Adams v Cape. You should note that the company NACC was placed
in liquidation. This is a process we deal with at the end of Semester 2, but essentially it
means that the company ends trading activities, its assets are sold and distributed to the
creditors. The majority of companies who are liquidated are insolvent and cannot, therefore,
pay off their creditors in full (or at all, in many cases).

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Why wasn’t the veil pierced in Adams? Can the Adams decision be reconciled with the
decision in Gilford Motor Company v. Horne for example?

5. Why does Muchlinski criticise the Adams decision? On what basis can the outcome be
justified, given the consequences for the claimants in that case?

6. On what basis other than veil piercing will a court hold a shareholder liable for the
company’s activities?

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 LAW2040: COMPANY LAW

SEMSTER 1
2017–2018

SEMINAR 2

Learning Outcomes

By the end of this seminar you should be able to:

• Explain the various theories concerning what the company is, and its nature;
• Explain key concepts in corporate theory;
• Understand what is meant by the company’s constitution;
• Critically analyse the law governing changes to the constitution;
• Critically analyse the nature of the statutory contract and the restrictions on its
enforcement;
• Apply the relevant law to a problem question.

Reading
For seminar questions 1–4:

Lowry and Reisberg, Pettet’s Company Law (3rd ed), pp. 55–57 and 72–77.

It is not intended that you understand every concept and nuance that is included in the
readings, but that you might obtain a general understanding the most important issues that
exist in corporate theory discussion.

This reading has been digitalised and is available at:

https://vlebb.leeds.ac.uk/bbcswebdav/xid-607654_4 (on the VLE)

For seminar questions 5–7:

1) Kershaw, pp. 79–96; 655–667 (stop before Section 2).

OR

Hannigan, Chapter 5.

2) Companies Act 2006: ss. 21 and 33.

You must read the following case:

Hickman v Kent & Romney Marsh Sheepbreeders’ Association [1915] 1 Ch. 881.
On the link between questions 1-4 and questions 5-6 see Marc Moore, Private Ordering and
Public Policy: The Paradoxical Foundations of Corporate Contractarianism, (2014) 34
OXFORD JOURNAL OF LEGAL STUDIES 693 (2014). Available via Library Electronic Resources

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Questions

A. Corporate Theory

1. What are the various theories addressing the issue of what is the company? Explain them
briefly.

2. There are two primary theories concerning the origins of the company, namely concession
and contractarian theory. What are they? In what major ways do they appear to differ?

3. What does law and economics emphasise?

4. What is meant by the nexus of contracts in company law?

B. The Constitution of the Company

1. What is the function of the articles of association? What types of provisions are set out in
the model articles referred to in The Companies (Model Articles) Regulations 2008?

2. Discuss how changes can be made to a company’s articles of association. How does the
law restrain the exercise of voting rights in relation to changes in the articles of association?
How, if at all, can this restraint be justified?

3. In 2005 Design Ltd was incorporated by Nelly and Simon in order to conduct a business
providing advice on interior design. Nelly was the holder of 80 per cent of the issued shares,
and Simon held the balance. Both were directors. The company adopted the Table A articles
of association (this was a pre Companies Act 2006 company) with the following additions:

1. Simon is to be the chief designer of Design Ltd for life, or until he decides
to resign.
2. The company shall not engage a second designer unless shareholders
consent to such an appointment by ordinary resolution.

Nelly died in late 2006 and her sons, Fred and Charlie, each inherited 40 per cent of the
issued shares. They were also appointed to the board of directors.

Fred and Charlie have felt for some time that Simon’s designs are out of date and do not
market well. As a result they employ a new chief designer. Advise Simon. (based on a past
exam question)

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 LAW2040: COMPANY LAW

SEMSTER 1
2017–2018

SEMINAR 3

Learning Outcomes

By the end of this seminar you should be able to:

• Identify the protections that have been put in place to protect third parties dealing with
the company;
• Understand the effect of sections 39–41 Companies Act 2006;
• Analyse when third parties will be able to rely on these sections and when they will
not;
• Understand the concepts of actual and apparent authority and apply this knowledge in
a problem scenario;
• Explain, and distinguish between, the concepts of shareholder primacy and
stakeholderism;
• Critically analyse arguments for and against each of these theories;
• Understand and answer the question of in whose interests companies ought to be run.

Reading

For question 1

1) Kershaw, pp. 105–132.

OR

Hannigan, pp. 182–210.

2) Companies Act 2006: ss. 39–41.

You must read the following case:

Freeman and Lockyer v Buckhurst Properties (Mangal) Ltd [1964] 2 Q.B. 480.

For questions 2-4

1) Andrew Keay, Shareholder Primacy (available under readings on Blackboard).

2) Andrew Keay, Stakeholder Theory (available under readings on Blackboard).

It is not intended that you understand every concept and nuance that is included in the
readings, but that you might obtain a general understanding the most important issues that
exist in corporate theory discussion.

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Questions

A. Corporate Capacity and Agency

1. Batley Furniture Ltd, a furniture manufacturer and retailer, has articles of association
which include the following clauses:
(i) Only the board of directors may enter contracts for the purchase
and sale of interests in land, and only with the prior authorisation from the
shareholders in general meeting.
(ii) The board of directors may authorise any employee to make
contracts for the purchase or sale of other assets where the price is below
£10,000.
(iii) Only the board of directors or any director who has been
previously authorised by the board may make contracts for the purchase or
sale of any other asset for £10,000 or more.

Discuss the validity of the following agreements:

(a) An agreement under which Smith sells a plot of land to Batley Furniture Ltd. The board
of directors voted to enter into the agreement, but did not receive prior authorisation from the
shareholders.

(b) Would it make any difference to your answer if Smith knew of the need for shareholder
approval of land purchases? Explain.

(c) An agreement for sale of a lounge suite for £2,000, to Mary. The agreement was made by
George, a sales assistant in one of the company's shops. The ordinary retail price for the suite
is £2,500 and it was not marked as a sale item, but George told Mary that she could have it
for half price “because you are such a good customer”. Mary had regularly frequented the
shop and has purchased from George a desk for £800 when the price tag was £999, and a set
of coffee tables for £200 when the price tag stated £250.

(d) An agreement to purchase a car from West Yorkshire Car Sales Centre Ltd for the use of
Jane, the managing director of the Batley Furniture Ltd, in connection with company
business. The purchase price is £12,000. No authorisation was received from the board.

(e) What would be your answer if the agreement to buy the car in (d) was made by Jane with
Fiona, the wife of a director of Batley Furniture, Bill?

B. The Corporate Objective

1. What is meant by the shareholder primacy model of the company?

2. By the stakeholder model?

3. Which do you find more persuasive and why?

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 LAW2040: COMPANY LAW

SEMSTER 1
2017–2018

SEMINAR 4

Learning Outcomes

By the end of this seminar you should be able to:

• Identify and critically analyse the nature of shareholder rights in the company;
• Identify the ways in which companies can raise capital;
• Explain and critically analyse the doctrine of capital maintenance;
• Understand and differentiate between the advantages and disadvantages of loan and
share capital;
• Understand and differentiate between the concepts of fixed charges and floating
charges.

Reading

1) Kershaw, pp. 709–752 (stop before Section V).

OR

Hannigan, Ch 21, 597–599, 621–647, Ch 23.

2) Hannigan, pp. 648–671 (stop before Section E).

3) Companies Act 2006: s. 168.

4) Andrew Keay, Company Directors Behaving Poorly: Disciplinary Options for

Shareholders, JOURNAL OF BUSINESS LAW 656 (2007). Available via Westlaw

5) Lowry and Reisberg, Pettet’s Company Law (3rd ed), pp. 57–61, 74–77. This reading
has been digitalised and is on the VLE.

You must read the following cases:

1) Agnew v IRC (Re Brumark) [2001] 2 B.C.L.C. 188 PC.

2) National Westminster Bank plc v Spectrum Plus Ltd [2005] 2 B.C.L.C. 269.

Additional Reading (not compulsory)

1) John Armour, Share Capital and Creditor Protection: Efficient Rules for a Modern
Company Law, 63 MODERN LAW REVIEW 335 (2000), but only pp. 363–368.
Available via Wiley Online Library

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 2) Iris H-Y Chiu, Stewardship as Investment Management for Institutional Shareholders,
32(3) COMPANY LAWYER 65 (2011). Available via Westlaw

3) K.W. Wedderburn, Shareholder Rights and The Rule in Foss v Harbottle,

CAMBRIDGE LAW JOURNAL 194 (1957), but only pp.194–198, 207–215. Available via
Hein Online

Questions

A. Shareholder Rights and Corporate Governance

1. What is meant by the separation of ownership and control?

2. What potential problem(s) does this create?

3. What rights do shareholders have to control what occurs in a company? What problems are
there with the exercise of these rights?

4. What is a Bushell v Faith clause?

B. Company Finance: Share Capital and Loan Capital

1. When is it permissible to pay dividends to shareholders? What are the consequences

for shareholders and directors if the law governing when dividends can be paid is
breached?

2. What purpose are the rules governing distributions to shareholders meant to serve?
How effective are the rules in achieving this purpose?

3. What is the difference between a floating charge and a fixed charge? Why might a
fixed charge be preferred by a lender?

4. What is crystallisation? When will it occur?

5. Carolls Ltd needs to raise capital for a new business venture and obtains a loan from the
Lyddon Bank in the sum of £500,000. On 15th March 2011 Carolls Ltd entered into a
debenture with the Lyddon Bank which stated that Carrolls Ltd granted Lyddon Bank a fixed
charge over its factory and over its book debts. Clause 5 of the debenture stated that:

5. With reference to the book debts, Carolls Ltd shall pay into its account with
Lyddon Bank all moneys which it may receive in respect of such debts and
shall not without the prior consent in writing of the bank sell factor discount
or otherwise charge or assign the same in favour of any other person or
purport to do so but subject to this Carolls Ltd shall be entitled to draw on the
monies in the account in the normal course of business.

Lyddon Bank’s charges were registered on 25 th March 2011. On the 26th March 2011 Bob
Farley registered a fixed charge over the factory to secure the sum of £400,000. Carrolls Ltd

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had granted this to Bob on 14th March 2011 but Lyddon Bank had known nothing about it.
Bob had consented to the grant of later fixed charges over the factory.

After several years the company becomes insolvent, still owing the full amount of £500,000
to Lyddon Bank, £400,000 to Bob Farley and £80,000 to unsecured creditors. The factory is
worth £600,000. There is £150,000 in the bank account. Advise Lyddon Bank whether it is
likely to recover any of the monies owing to it. (past exam question)

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