Company Law Assignment

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Directors have powers to take majority business decisions on behalf of companies. Under the present rules, directors’ duties are enshrined in the common law rules and equitable principles as well as in statutes such as the Companies Act 1985 as amended by Companies Act 1989. It is considered that these principles lack certainty and are not easily accessible. Quite often, directors usually have to take advice in these kinds of areas so that they do not accidentally breach any duty enshrined in the case law. Therefore the government believes that codification of directors’ duties will make law in these areas more consistent as well as accessible. The Companies Act 2006 codifies directors’ duties into a statutory statement of seven general duties (s171-177). S171 of the Companies Act 2006 states that a company must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred. S171(b) is based on the equitable principle in that a director of a company has a duty to exercise the company’s powers for the purposes for which they were given. Directors of a company also have authority to exercise all of its powers in the management of the company’s business under the mode articles of association in SI 2008/3229. An exercise of a power for a purpose which is outside the purposes for which the power has been given is voidable. In the Bennett’s Case Turner LJ stated “....in the exercise of powers given to them...[directors] must, as I conceive, keep within the proper limits. Powers given to them for one purpose cannot...be used by them for another and different purpose. To permit such proceedings on the part of directors of companies would be to sanction not the use but the abuse of their powers”. The limits on the exercise of power may be found in the articles of association. However in advance it is not possible to lay down the limits beyond which directors may never pass in exercising a particular power. Every case depends on its own facts. In Hogg v Cramphorn Ltd the subject directors believed that it would not be in the company’s best interests or its staff if there was to be a pending takeover as the change would result in the nature of the company’s trading being unsettling. As a result of this, the directors sought to frustrate the takeover by issuing to the trustees of an employee trust fund 5707 preferences shares, each carrying ten votes. These votes constituted a majority in general meeting in combination with those shares held by friendly interests. Through an interest free loan from the company’s reserve fund, the shares were paid for as well as further money advanced to the trustees to purchase additional preference shares which also came from the reserve fund. From here, a minority shareholder decided to challenge the transactions. It was held that while acting in a manner which they believed to be in the company’s best interests, the transaction was voidable as its primary purpose was to ensure control of the company by the directors and those who they could regard as their supporters and thereby discourage the takeover bid from taking place. Where there is more than one purpose, the court must try to find the dominant purpose behind a power use to determine whether the proper purpose duty has been infringed. In Howard Smith Ltd v Ampol Petroleum Ltd Millers was subject to a takeover offer by Ampol and Howard Smith made a rival offer. Ampol and its associated company, Bulkships, rejected the offer and stated that they intended to act jointly in relation to the future operation’ of Millers. The majority of Millers’ board were in favour of the Howard Smith takeover bid. And to smooth the progress of the bid they agreed to issue enough shares to Howard Smith to reduce Ampol and Bulkships to minority shareholders. Millers did at the time did need to raise some capital and Ampol sought to have the share issue set aside. It was held that in determining whether the...
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