English Company Law Research Articles

Rethinking Directors’ Statutory Fiduciary Duties in the Commonwealth Caribbean: Should Sequana be Followed?

The scope and nature of directors’ duties has been the subject of much judicial and academic debate. In the recent BTI 2014 LLC v. Sequana SA decision, the UK Supreme Court firmly established the creditor duty in English company law. This paper proposes to examine the basis and nature of the duty including its Commonwealth origin. The focal point of this paper is to determine the question of whether such a creditor duty would be accepted as existing by courts in the Commonwealth Caribbean. In providing the answer to that question, this article makes reference to numerous Canadian cases in which the question was answered and many scholarly works which advocate against the creditor duty. Commonwealth, Commonwealth Caribbean, Directors’ Fiduciary Duty, Creditor Duty, BTI 2014 LLC v. Sequana, Companies Act

Part II: Parent Company Liability and the Idea of Statutory Due Diligence

Recent case law in the UK courts has established the possibility for the parent companies of multi-national corporations to hold liability in tort negligence for harms caused by their foreign based subsidiaries. The UK’s approach – a general duty of care for cross-border torts – is noteworthy in that it has developed organically through the common law. One possible tension this duty raises, may be with established principles of company law, affirmed at common law. By comparison, European neighbours such as France, Switzerland and Germany, have addressed the same issue of corporate accountability by developing statutory regulatory regimes which utilize due diligence obligations reflective of the recent trend toward international accountability standards, such as the UN Guiding Principles for Business and Human Rights (UNGPs) of the late John Ruggie. This work serves as an in-depth investigation for scholars of tort law, company law, private international law, and human rights, who are interested in understanding this rapidly developing area of practice from an English perspective. This work is offered in two parts. This second part offers an overview of UK statutory and case law as it may relate to parent company liability. A critical analysis of recent case law, seeks to understand the characteristics of parent company liability, as developed by the Courts in securing fair remedy for corporate misfeasance. With reference to comparative regimes observed in the aforementioned neighbouring European countries, this work further considers what limitations the current law has, and what benefits could be realized through the introduction of reporting requirements. Parent Company, Corporate Groups, English Company Law, Human Rights Due Diligence, UNGPs, Okpabi, Vedanta, Mass Torts, Supply Chain Liability, Limited Liability

Parental Corporate Liability as Tort in the United Kingdom Part I: How the Past Informs the Challenge of Contemporary Regulation

Recent case law in the UK courts has established the possibility for the parent companies of multinational corporations (MNCs) to hold liability in tort negligence for harms caused by their foreign-based subsidiaries. The UK’s approach – a general duty of care for cross-border torts – is noteworthy in that it has developed organically through the common law despite conflicting with established principles of company law. By comparison, European neighbours such as France, Switzerland and Germany have developed statutory regulatory regimes which utilize due diligence obligations that appear more reflective of recent international accountability standards, such as the UN Guiding Principles for Business and Human Rights (UNGPs) of the late John Ruggie. This work serves as an in-depth investigation for scholars of tort law, company law, private international law and human rights, who are interested in understanding this rapidly developing area of practice from an English perspective. This work is offered in two parts. This first part contextualizes the current law within contemporary academic discourse and offers a historically informed explanation for the conceptual underpinnings of the unique approach currently taken within English jurisprudence and their coherence with the broader principles of domestic UK company law. The second part offers an analysis of UK law as it stands including the caselaw that builds the corpus of parent company liability in England and Wales. It analyses how effective the current liabilities identified by the Courts are in securing fair remedy for corporate misfeasance. It identifies and categorizes its key features and contrasts them with comparative elements of statutory due diligence approaches adopted by France and Germany or pursued as in the case of Switzerland. It will finally consider whether they offer any concepts worthy of consideration for the regulation of parent company liabilities in future. Parent Company, Corporate Groups, English Company Law, Human Rights Due Diligence, UNGPs, Okpabi, Vedanta, Mass Torts, Supply Chain Liability, Limited Liability

A comparative analysis of derivative action in Cypriot company law: Comparison with English company law and the prospect of statutory reform

This article provides a comparative analysis of derivative action in Cypriot company law and submits some proposals for statutory reform on the basis of English company law. The derivative action in Cyprus company law is based on common law and is not codified into the text of Cyprus Companies Law-Chapter 113. Regarding the derivative action, the Courts of Cyprus refer to pre-1960 English cases as authorities. However, as this article explains, Cypriot Courts have not followed all developments with regard to the derivative action in English company law, despite the original and elaborated solutions given to many difficult issues by English cases and the statutory derivative claim under the English Companies Act 2006, which replaced the old ‘exceptions to the rule in Foss v. Harbottle’ regime. In fact, quite a few issues related to the remedy are yet to be considered by Cypriot law; case law is scarce and uncertainty looms over (potential) derivative claimants. Taking into account the origin of Cypriot company law from English company law, the jurisprudential and legislative evolution of the derivative action in English company law constitutes a fertile ground for the modernization of derivative action in Cypriot company law. It is therefore hereby submitted that the Cypriot Courts and the Cypriot legislator seek insight from the rich experiences and the multi-faceted evolution of the English law on derivative action, in an effort to address existing problems and establish a modern and functioning framework.

Further Legal Determinants of External Finance in Scotland: An Intra-UK Market for Incorporation?

Previously in this journal the author reviewed Scots law's corporate debt finance rules from a transaction cost perspective. Recent research has identified that use of the Scottish corporate vehicle has significantly dropped for companies listing on the London Stock Exchange, even for those companies with headquarters in Scotland. This article explores whether this could be said to be caused by differences in company law rules between English and Scots law. It identifies that there are low transaction cost differences when it comes to known differences, but that Scots law is at a disadvantage when it comes to implicit differences (for example, the nature of a share) and uncertain company law differences from English law (for example, whether the Duomatic principle, or any other equity-based English company law principle, applies under Scots law). The framework for a market for company law exists intra-UK. As such, it seems possible that the reduction in use of the Scottish form arises because of higher transaction costs when using the Scottish form. This represents a methodological development for company law more generally – an atomisation approach, distilling company law into its component private law aspects.

A Trans-Atlantic Doctrinal Orientation Made Concrete: Ohio’s First 'Modern' Business Corporation Act (1927)

A Trans-Atlantic Doctrinal Orientation Made Concrete: Ohio’s First 'Modern' Business Corporation Act (1927)

Creating a New Legal Form: The GmbH

The most common business enterprise form in Germany today is the Gesellschaft mit beschränkter Haftung (GmbH). The GmbH offers entrepreneurs the flexibility of a partnership combined with limited liability, capital lock-in, and other traits associated with corporations. Authorized in 1892, the GmbH appeared during a period of ferment in German enterprise law and was an early example of the private limited-liability company prevalent in many economies today. The new form reflected challenges created by the corporation reform of 1884, problems in German colonial companies, and the view that British company law had put German firms at a competitive disadvantage. Significant sections of the financial and legal community harbored strong reservations about this legal innovation.

Creating a New Legal Form: The Gmbh

The most common business enterprise form in Germany today is the Gesellschaft mit beschrankter Haftung (GmbH). The GmbH offers entrepreneurs the partnership’s flexibility combined with limited liability, capital lock-in, and other traits associated with corporations. Earlier enterprise forms such as the partnership and corporation were codified versions of longstanding practice; the GmbH, on the other hand, was the lawgiver’s creation. Authorized in 1892, the GmbH appeared during a period of ferment in German enterprise law and was an early example of the “Private Limited-Liability Company” (PLLC) prevalent in many economies today. This paper traces the debates and the legislative process that led to the GmbH’s introduction. The new form reflected challenges created by the corporation reform of 1884, problems in German colonial companies, and the view that British company law had put German firms at a competitive disadvantage. Many new enterprises adopted the GmbH, but significant sections of the financial and legal community harbored strong reservations about this legal innovation.

No reflective loss: The English approach reconsidered

A company shareholder should have no difficulty in commencing a claim to recover the loss suffered due to a wrong done to their personal property. The right to the protection of property is a fundamental human right in English law. A wronged person whose property right is infringed will have the right to commence legal proceedings against wrongdoers. However, in the company context, the exercise of a shareholder’s right of action may conflict with the company’s right of action where the loss sought is reflective. The English company law’s arrangement has been that a shareholder’s action is exceptional beyond which it will routinely be barred through the principle of the ‘no reflective loss’. Where company’s loss and the shareholders’ loss are reflectively linked, then the company’s action prevails against the shareholder action. This paper argues that the two actions should swap places in law. Shareholder action should be recognised as a general principle of law while it is barred exceptionally in circumstances where stronger policy considerations such as the observation of the corporate autonomy are to be prioritised. This article refers to company law in the UK.

Reconceptualising Shareholder Remedies to Mitigate the Problems Caused by the Overlap between Section 994 and Part 11 Companies Act 2006

To download this paper, please click here . The contemporary paradigm relating to shareholder remedies under English company law identifies a fundamental overlap between the Section 994 and Part 11 of the Companies Act 2006. The underlying cause of the overlap is that an alleged breach of directors’ duties can establish a claim under both remedial jurisdictions. This article argues the overlap between the jurisdictions generates three undesirable consequences. First, shareholders have used s.994 to obtain personal relief on a corporate claim, as opposed to pursuing a derivative claim for corporate relief. Second, s.994 has been used to obtain corporate relief on a corporate claim, instead of bringing a derivative claim. Third, shareholders can exploit s.994 to obtain an order authorising a derivative claim, effectively circumventing the threshold test in Pt 11. The article explores the undesirable impact of these consequences for English company law. In each case, the article recommends three reform proposals which, if implemented, would reconceptualise shareholder remedies under English company law and mitigate the problems caused by the overlap between s.994 and Pt 11.

Misreading the directors’ fiduciary duty of good faith

ABSTRACTThe fiduciary duty of good faith, now set forth in section 172 of the Companies Act 2006, expressly positions shareholders at the centre of the company’s interests, and assigns the priority entitlement to shareholders relative to all other stakeholders. The provision constitutes an attempted codification of the common law duty to act in good faith in the corporate interest, which remains immensely important in interpreting and applying the modern good faith requirement. However, this article submits that a reductive shareholder-determined articulation of the pre-2006 corporate interest seems practically misconceived, if not indeed in some sense conceptually impossible as a managerial behaviour obligation, and represents a departure from the common law doctrinal origins that is problematic for contemporary English company law and policy. Instead, the article provides a more functional and nuanced understanding of the salient cases, which focus typically on the company as a body corporate, and the particular free floating commercial objects of that entity.

Opening the black box of the common-law legal regime: Contrasts in the development of corporate law in Britain and the United States in the late nineteenth and early twentieth centuries

ABSTRACTThe general incorporation laws enacted in Britain and the US in the nineteenth century had strikingly different structures. Whereas British law was laissez-faire in spirit, the American statutes were highly regulatory. The literature on the efficiency of the common law might lead one to expect that these statutory differences would become less salient over time, as businesses litigated their disputes and courts in the two countries came to similar resolutions. However, the authors find that the case law tended, if anything, to accentuate the differences in the statutes. British courts typically enforced whatever arrangements shareholders wrote into their articles of association or otherwise contracted among themselves, so long as the agreements were not contrary to law. In the US, by contrast, courts generally refused to enforce shareholders’ agreements that deviated in any significant way from statutory norms. US law would not really begin to converge on British law until the second half of the twentieth century, when states began to enact more flexible general incorporation statutes. By that time, British company law was also becoming more regulatory.

Market Soundings: The Interaction between Securities Regulation and Company Law in the United Kingdom and Italy

Before deciding on operations involving share issuance or sale, companies or shareholders may seek to disclose information to selected investors, in order to gauge their opinion on the envisaged market operation. Despite such “market soundings” risk violating the prohibition of insider trading, selective disclosures have been partially accepted in several European jurisdictions. Market soundings have been eventually regulated in the MAR, which clarifies under which circumstances they are allowed and the position of the involved parties. This article analyses the rules on market soundings in the MAR with regard to issuance in the secondary market and accelerated bookbuildings. In this context, the question arises of whether harmonised rules on market soundings are compatible with national company law regimes. To address this issue, it will be assessed how Italian and English company law regimes react towards selective disclosures. It will be shown that a tension may still exist between uniform rules on market abuses and national company law rules, mostly with regard to directors’ duties and liabilities.

‘Shareholder Supremacy in a Nexus of Contracts: A Nexus of Problems’

This article focuses on shareholder supremacy and exclusivity derived from a view of the company as a nexus of contracts. The nexus of contracts theory is the dominant theory within English company law. It defines the company as a contract between private individuals. The shareholders and the company are recognized as the only parties to that contract. While corporate membership is reserved exclusively for shareholders, the rest of the stakeholders are viewed as external to the company. The article will question the theoretical and doctrinal validity of shareholder supremacy and exclusivity within this context. It argues that while the nexus of contracts theory promotes shareholder exclusivity in a rather dogmatic manner, not only the law but also the courts have limited the rights of shareholders to a significant extent. The article does not place into doubt the importance of shareholders within the corporate context; after all the shareholders are the capital providers of the company. It does however criticize the current status quo in English company law where theoretically the shareholders are sitting on the corporate throne in a company which includes no one else but them, but in practice their supremacy is challenged by the courts to such a degree that it is difficult to exercise even the rights stemming from their shares and to have access to effective remedies against managerial abuse. The article will therefore underline the controversies inherent in the nexus of contracts theory. It will shed light on the distorted application of the theory within English company law. It argues that the theory should be reformed to adjust to the new reality. On the one hand, it should certainly protect the rights of shareholders stemming from their shares and it should allow for effective shareholder protection against mismanagement. On the other hand, the theory should adopt a more inclusive definition of the company that will not leave the stakeholders off its context. Especially those stakeholders who clearly have a contractual relationship with the company should be factored into corporate governance. Therefore, the article will argue against the doctrinal dominance of shareholder exclusivity and supremacy by arguing that they nowadays flow from a flawed interpretation of the nexus of contracts theory. The article will focus on shareholder protection; it will examine section 994 of the Companies Act 2006, which provides for one of the main remedies against directorial abuse. The jurisprudence of the courts embodies a clear mismatch between theory and practice. Absolute shareholder supremacy should have entailed an enhanced level of protection to match the status of shareholders as the only members of the company. After all, the nexus of contracts theory defines the interests of the company as the interests of the shareholders. Yet, the judicial stance on this matter proves that the courts have actually curtailed the protection granted to shareholders by the Companies Act 2006; this clearly testifies to the deeply problematic nature of shareholder supremacy within the context of the nexus of contracts theory. The article will therefore argue that the dominant views in theory, academia and law, which continue to recognize a notion of absolute shareholder supremacy and exclusivity, flow mostly from ideology rather than reality. Ideological dogmatism has resulted in a very narrow, and in many ways distorted, definition of the company; one which left only the shareholders within its context albeit and paradoxically with a limited set of rights to control the management. The article argues that the current law should be reformed, aiming at creating a more inclusive company where shareholders would actually enjoy a bundle of rights appropriate for capital providers. The law should also be reformed so that stakeholders whose interests are integrally linked with the company’s fortune – such as employees and creditors – should be factored into the company. This is in the interests of both the company and the stakeholders

The Inadequasy of Existing Concepts of Corporate Group Liability and New Doctrines

Since end of 19th century Salomon principle has been at heart of English company law. The facts in Salomon v Salomon & Co Ltd (1897) are well known and need not to be repeated here. In essence, this principle provides that, upon incorporation, a company becomes a separate legal entity which, in eyes of law, is not different from a human being. A corporation has rights, duties and obligations of its own which are different from those of its incorporators. As a result, companies can hold properties, they can contract in their own name, they can sue and be sued and, more importantly, companies can be liable for their own debts. The latter provides justification for limited liability. This principle was conceived by House of Lords in order to allow a sole trader (Mr Salomon) to avail himself of benefits of limited liability by conducting business activities through a corporation. The House of Lords did not realise what consequences of their decision would be in following decades because there were not corporate groups at that time. During course of last century, principle of separate corporate personality was applied to groups of companies in order to allow a parent company to avail itself of limited liability in relation to activities of its subsidiaries just like Mr Salomon did in relation to activities of his own company. Whether House of Lords intended to give rise to such an outcome remains doubtful. Nevertheless, limited liability has benefitted our global economy as no other legal fiction has ever done and it has been described as the corporation's most precious characteristic. On other hand, it is often claimed that this regime encourages excessive risk-taking in running of company's affairs. After all, the riskier more profitable is a basic rule in investment activities. In such scenario, it is not hard to envisage a potential danger of moral hazard. The business owners lose nothing when things go wrong but become richer if risk does not materialise. As a result, limited liability may give rise to unfairness particularly in cases involving tortious liability for personal injuries by externalising risks and costs that ought to be internalised by corporation as a better risk taker and cost bearer. Liabilities can be avoided by interposing a subsidiary or, more commonly, different layers of subsidiaries between injured party and decision-making centre, be it a parent company or its controlling shareholders. The situation is further exacerbated when it comes to multinational groups. Not only will ultimate controller be protected by corporate veil but also by a jurisdictional veil. The combination of corporate and jurisdictional veils makes attribution of liability to parent in home country almost impossible. The difficulties mentioned above are graphically illustrated by seminal case Adams v Cape Industries Plc (1990). The effect of this is that a corporate group acts as a single living being for a single economic purpose but when it comes to liabilities then it consists of separate legal entities and only entity which happens to be in a direct relationship with injured party will bear responsibilities. This is most unfair when injured parties are tort victims who are often referred to as involuntary creditors. Unlike voluntary creditors, they have limited ways of assessing and mitigating their risk when dealing with companies. They have no chance to bargain with corporation over allocation of risk. Yet, they will bear risk of loss if subsidiary has insufficient assets to provide adequate compensation. They will not be able to rely on assets of parent since, as shareholder in subsidiary, its assets can be touched only up to unpaid amount on its shares. A modification of existing concepts of corporate group liability is clearly required if justice is to be achieved in such cases. Hence, in first part, this paper seeks to identify shortcomings of current approach to attribution of liability in corporate groups and analyses adequacy of exceptions to otherwise inviolable separation of personality in a parent/subsidiary relationship. Secondly, it explores new approaches and doctrines put forward by eminent academics such as Philip Blumberg, Nina Mendelson, Hannsman & Kraakman and many others in an attempt to address unfairness and inefficiencies generated by existing concepts of intra-group liability.

Shareholder Primacy, Labour and the Historic Ambivalence of UK Company Law

Most directors and senior managers of UK companies would likely regard it as trite law that, in undertaking their managerial and/or control functions, they are accountable first and foremost to their employer firm’s general body of shareholders. It follows that the interests of other corporate constituencies – and, in particular, those of employees – must ultimately cede to those of shareholders in the event of conflict. Although frequently taken for granted today, the lexical priority that the British company law framework affords to the interests of shareholders over those of other corporate constituencies is remarkable, not least when viewed alongside the correspondingly disempowered corporate governance status of labour in the UK. However, whilst the centrality of shareholders’ interests to the doctrinal and normative fabric of contemporary UK company law is both manifest and incontrovertible, this has curiously not always been the case. In this paper I argue that, whilst UK company law might look substantively stable and well-settled on its surface today, on closer inspection this facade of apparent calm can be seen to mask a fairly recent history of doctrinal and ideological turbulence with regard to fundamental underlying concerns. There is thus cause to question whether the basic normative impetus of the UK’s company law framework is as complementary to its surrounding economic and socio-political context as might first appear.

The Transplant and Adaption of Company Law in Colonial Victoria 1850-1900

This paper deals with the transplant and adaption of company law in the Australian colony of Victoria during the second half of the nineteenth century. It seeks to place the development of company law in Victoria in its economic and institutional contexts so as to inform a consideration of the circumstances that are conducive to successful legal transplants. The gold mining industry was a particularly important driver of economic development and prosperity. However the availability of resources may be either a blessing or curse. In the case of nineteenth century Victoria, the extraction of gold was a decided blessing due to a number of favourable institutional factors including the successful transplant of English company law which facilitated the formation of gold mining companies and the necessary large-scale investment. An important factor in this success was the preparedness of the legislature to respond to the needs of the wider business community and especially the gold mining industry. This paper then examines some of the significant innovations that assisted the gold mining industry, in particular the introduction of the no liability company and other later investor protection innovations that modernised company law.

Corporate governance and the expansion of the democratic franchise: beyond cross-country regressions

ABSTRACTThis article documents the stark differences in the legal regulation of corporations in the United States compared to Britain and other Western European countries in the nineteenth century. The lack of alternative ways of obtaining ‘corporate’ advantages in common-law countries made the corporate form much more politically fraught than in civil-law countries. In the United States, general incorporation laws came after the attainment of universal white manhood suffrage and were part of a broader egalitarian movement to ensure that elites did not have advantages over everyone else. As a result, they were highly prescriptive, limiting corporations’ size and duration and also mandating specific governance rules. In Great Britain, by contrast, general incorporation laws were passed in a context where only a small fraction of the population could vote. Because the interests at stake in the legislation were those of the business and financial elite, British company law (like the less politically controversial statutes enacted on the European continent) left the rules governing corporations largely to the contracting parties themselves. This paper also argues that understanding the patterns in general incorporation laws requires scholars to move beyond cross-country regressions to study the political economic processes that unfolded in these different settings.

The development of accounting studies and practices in Nigeria

Prior to the Nigerian independence in 1960, there was little professional accounting activity in the country, which was mainly in the multinational enterprises sector under the tutelage of British accounting system. Nigeria, like most of British colonies, inherited accountancy and company law based on the British model. Disclosure requirements and reporting requirement were based on the British system. Along with multinational enterprises, large international accounting firms also influence the accounting systems in Nigeria. As a matter of fact, international accounting firms dominated the accounting and auditing practices in the country. The old link between multinational enterprises and international accounting firms is the primary reason for their presence in Nigeria, although the lack of indigenous accounting firms is another reason. So, there has been a significant amount of influence of foreign enterprises on the development of accounting system in Nigeria. Ethics play a vital role in accounting profession in Nigeria, as a result accounting enhanced economic growth in Nigeria.

Have the dikes collapsed? : Inspire Art a further break-through in the freedom of establishment of companies

On30September 2003, theEuropeanCourtof Justice (hereinafter: the ECJ), in full court, handed down a judgment in the Inspire Art case1 in which it found certain provisions of the Dutch Law on Formally Foreign Companies of 17 December 1997 (Wet op de Formeel Buitenlandse Vennootschappen. Hereinafter: the WFBV)2 to be contrary to Article 2 of the Eleventh Company Law Directive3 and others to form a restriction to the exercise of the right of secondary establishment incapable of justification under Article 46 of the EC Treaty or the case law on overriding reasons relating to the public interest, also referred to as the ‘rule of reason’ case law.4 Ten days later, a leading Dutch legal periodical5 stated that this judgment would lead to the Netherlands being inundated by private limited liability companies incorporated in England under English company law. Does the ruling in Inspire Art mean that the dikes erected in the Netherlands to prevent an influx of so-called formally foreign or pseudo-foreign companies6 have collapsed?