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A New Legislative Structure for Company Law in UK - Coursework Example

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Analysis of “Section 31(1) of the Companies Act 2006 is a retrograde step in terms of a company’s capacity. The provision re-asserts the ultra vires problem encountered by creditors in cases such as Ashbury Railway Carriage & Iron Co v. Riche (1875) LR 7 HL 653 Analysis of "Critically evaluate this statement with reference to the changes wrought by the Companies Act 1989 and Companies Act 2006 in relation to company constitutions…
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A New Legislative Structure for Company Law in UK
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Download file to see previous pages Both the section 31 and 39 of the CA 2006 of UK chiefly diminish the applicability of the doctrine of ultra vires to the company law, especially in the United Kingdom. However, the doctrine of ultra vires is still applicable to Charity Companies in UK. Thus, an injunction can be applied by a member of a Charity Company, in advance only, to hamper an act which is supposed to be ultra vires1. The acts that were ultra vires the competence of the company, and that could not be approved by seeking its member’s approval were first time differentiated by an English court in 1875. The phrase “ultra vires “refers the acts of the company which falls outside objects of the company. Ultra vires includes the acts of directors of the company who took the decision which falls outside the authority granted to the directors under the articles of association of the company2. In theory, the authorities of a company are restricted to those listed in the main objects clauses of its memorandum. If a company or its directors have done any acts, which fall outside the main objects of the company, then such acts will be regarded as ultra vires or void. This has been laid down in the famous Ashbury case3. The House of Lords in Ashbury Railway Carriage and Iron Co Ltd v Riche4 held that a company did not possess the contractual authority to sign business contracts that fall outside the defined main objects of the company as defined in the memorandum of association. The Law Lords were of the opinion that this Ashbury rule would safeguard the interest of the outsiders who deal with the company5. The directors of the company derive the authority to enter business contracts as stated in the main objects of the company as defined in the memorandum of association of the company and if the directors do enter contracts which fall outside the main objects of the company, then actions of the directors would not bind the company and would be regarded as ultra vires6. However, as per section 31 of the Companies Act 2006, a company may have unrestricted main objects unless their article of association specifically limits the objects of the company. Where a company enters into business contracts with a third party in good faith, the authority of the directors to bind the company or to permit others to act so is presently considered to be free from any restriction under the company’s articles and memorandum of association. This indicates as long as the articles of a company does not restrict any object, specifically , the company is free to enter into a contract with the third parties on any main objects, which is not restrained by the articles of the company. Further, the directors are now empowered to approve any business transaction or can authorise others to do so, if such objects are not restrained by the articles of the company7. The introduction of section 31(1) of the CA 2006 has resulted in the “death of doctrine of ultra vires.” Thus, this research essay will analyse how section 31 (1) of CA Act 2006 makes the doctrine of ultra vires as held in Ashbury Railway Carriage and Iron Co Ltd v Riche a redundant one and how this section will be applicable to charitable companies or companies not for profit by restricting their objects in the articles in a depth manner. Analysis of Doctrine of Ultra Vires in the ...Download file to see next pagesRead More
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