Scenario 1
Arthur Albiston is a sole trader who runs a business selling boots in central London. Arthur decides to form a limited company to run the business. Albiston ltd is duly registered at Companies House and all the legal formalities are complied with. Arthur formed the company because he was concerned about future financial problems that the business might get into and he wanted to avoid personal liability if the business folded. Arthur is the only shareholder and director.
As Arthur suspected, the business did get into trouble 12 months later and eventually was wound up (liquidated). Albiston Ltd owed a large amount of money to a variety of creditors who only received a small amount of their money back. The creditors are particularly annoyed about a rumor they have heard that Albiston Ltd carried on trading long after Arthur knew that the company was going to collapse.
Scenario 2
Gordon is selling his house. He agrees to sell the house to David and they both sign contracts. They agree that the completion of the deal will take place in 1 month, when the property itself will be transferred into David's name and the registration completed.
Gordon has just heard that David, who works in Gordon's firm, is a potential rival for a promotion that Gordon is seeking. Gordon is so annoyed about this that he decides to pull out of the house sale. As Gordon realises that he is contractually obliged to transfer the house to David, he decided to avoid this by transferring the house to Browns Ltd, a company that he has recently incorporated. Gordon is the only shareholder of Browns Ltd.
Scenario 3
ABC Ltd is a company that specialises in making carpets in East London. DEF Ltd is a wholly owned subsidiary of ABC Ltd. (This means that ABC Ltd owns all the issued shares of DEF Ltd.) DEF Ltd does make profits on its own carpet business, but all the profits go back to ABC Ltd. DEF Ltd has one major asset, it has a lease on a large building in East London that ABC Ltd occupies and trades from.
The local council makes a compulsory purchase order for the land where DEF's building is located. As ABC Ltd has to relocate, this causes them significant losses. There is a compensatory scheme, but because DEF Ltd has not suffered a loss they cannot claim. ABC Ltd cannot claim compensation because it does not own the land.
Questions
1. Are all limited companies "mere schemes" to permit business people to take advantage of limited liability?
2. Does the Salomon decision create a moral hazard?
3. If the principles of limited liability and separate personality were present much earlier, why is the Salomon decision so significant?
4. What did the Court of Appeal hold was the relationship between M. Salomon and the company?
5. Is the Salomon decision merely an application of the literal rule of statutory interpretation?
6. Since the defining case of Adams v Cape 11990] Ch 433, a number of inroads have been made into the Salomon principles, often involving the law of torts. These developments are not surprising given the contrasting nature of contractual and tortious liability.'
Critically evaluate the above statement.
7. This exercise is designed to develop your skills of legal analysis. Below are three different scenarios that require a discussion of the Salomon principle and also the lifting of the corporate veil. Your task is to provide an answer to the three scenarios, addressing in particular the following points:
i) Which cases are most relevant to each scenario?
ii) What is the most likely "head of lifting" for each scenario? (There may be more than one head of lifting.)
iii) How likely is it that the veil will be lifted in each particular scenario?The Constitution of the Company
Reading:
Cases
Allen v Gold Reefs [1900] 1 Ch 656
Beattie v E and F Beattie Ltd [1938] Ch 708
Bushell v Faith [1970] AC 1099
Citco Banking Corp NV v Pusser's Ltd [2007] UKPC 13
Cumbrian Newspapers Group Ltd. v Cumberland & Westmorland Herald Newspaper & Printing Co. Ltd [1986] 3 WLR 26, [1987) Ch 1
Eley v The Positive Government Security Life Assurance Company Limited (1875) 1 Ex D 20 Hickman v Kent or Romney Marsh Sheepbreeders Association [1915] 1 Ch 881
Russell v Northern Bank Development Corporation Ltd. and Others [1992) 1 WLR 588 Salmon v Quin & Axtens Ltd [1909] 1 Ch 311
Wood v Odessa Waterworks Company (1889) 42 Ch D 636
Articles
RR Drury, The relative nature of a shareholder's right to enforce the company contract' (1986) 45 CU 219
KW Wedderburn, 'Shareholders' rights and the rule in Foss v Harbottle' (1957) 15 CU 194
Questions
1. Is there any reference to suing "qua member" in S.33 Companies Act 2006?
2. What is the underlying rationale for the imposition of the Hickman test?
3. If a regulation in the articles is not enforceable due to the test in Hickman, can it still be enforced through an unfair prejudice petition?
4. Why was the regulation in Wood v Odessa enforceable?
5. Arguably, the Eley case is a straightforward application of which contract law doctrine?
6. Clarkson Ltd was incorporated to purchase the successful car selling business previously run by Jeremy.
7. "An outsider to whom rights purport to be given by the articles as such outsider, whether he is or subsequently becomes o member, cannot sue on those articles treating them as contracts between himself ond the company to enforce those rights."
Hickman v Kent or Romney Marsh Sheep-Breeders' Association (Per Astbury J)
Critically analyse the judicial construction of the 5.33 statutory contract. Is there any real justification for this restrictive approach?
8. John, Paul, George and Pete all met doing an acoustic engineering course at university over 10 years ago. When they left university, they decided to set up in business together, selling sound systems to the music industry. Quarrymen Ltd was incorporated in 2003, with John, Paul, George and Pete as the only shareholders and directors. The shareholdings are as follows:
John 30,000 Paul 30,000 George20,000 Pete 20,000 The Articles of Association contain the following clauses:
Pete shall be director in charge of corporate events for life. On any resolution to remove Pete as a director, his votes shall count five votes per shore.
Any director must resign if called upon to do so by every other board member.
In the event of any legal dispute between the company and any shareholder, the company reserves the right to refer that dispute to arbitration.
In recent months, John, Paul and George have become increasingly irritated with Pete. Their irritations, however, are entirely personal and have nothing to do with the business. Nevertheless, they have decided that they must remove him as director. Pete cornes to you for advice. He has been told by John that he will be rernoved at the next board meeting.
Advise Pete.
Use OCSOLA referencing
Attachment:- Assignment.zip