Company Law: The Powers of Directors in Private and Public Companies to Refuse Registration of New Members into Their Companies - Assignment Example

 Topic:  Company Law Discuss The Powers Of Directors In Private And Public Companies To Refuse Registration Of New Members Into Their Companies. In addition, discuss whether the Companies Act 2006 makes any improvements to the rights of transferees who have been refused registration for membership. Answer Introduction The main aim of the modern economy is to co-operate the society. All most in every countries of the world company plays the vital role for the performance of the business. For the maintenance of such types of the performances necessary act is to be passed. The company act, 1985 and 2006 tries to fulfil that demand. By this act, the formation, regulation, shareholders, powers of the directors, meetings etc are properly admitted. The act has properly incorporated the rules and regulations by which the company can be controlled and financed. “It provides the means by which people are held to account for the exercise of corporate economic power. And it is a crucial element in promoting trust and confidence in business and the stability of financial markets” (DTI, October 2005, p.1). Who is a director? Director is defined in Section 250 of the Companies Act, 2006 as that any person who obtains the seat of director is called Director. In the act of 1985, the definition has not been changed. The same definition contains in section 741(1) of the 1985 Act. “The Act does not attempt a more detailed definition of a director because it is important to ensure that the term is applied to anybody who exercises real power within the company, particularly in relation to decision taking” (Explanatory Notes, 2006). The term ‘Director’ also includes the following- 1. an executive director who has been properly appointed by the company; 2. a non-executive director who has been properly appointed by the company; 3. a de facto director meaning, a person who has assumed the status and functions of a company director even though he has not been properly appointed. The powers of directors in private and public companies to refuse registration of new members into their companies: The powers of directors in private and public companies to refuse registration of new members into their companies are given below- a) The directors may decline to register any transfer of a Share which is not fully paid without assigning any reason, and may also decline to register any transfer of any Share on which the Company has a lien. The directors may suspend the registration of transfers for such periods (not exceeding 30 days in any year) as they may determine. The directors may decline to recognize any instrument of transfer unless: (i) The instrument of transfer is duly stamped and accompanied by the certificate of the shares to which it relates, and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer; (ii) It relates only to one class of Shares; and (iii) It is in favour of less than five transferees. (b) The directors may decline to register any transfer of a Share provided that the discretion in this Article 7.6(b) is not exercised unreasonably and shall decline to register any transfer: (i) Registration of which would increase the number of members beyond any prescribed limit; (ii) Which relates to Shares on which the Company has a lien ; (iii) Which is to a bankrupt, a person of unsound mind or a competitor who has not been approved in accordance with Articles 17 (12); (c) If the directors refuse to register a transfer of any Shares they shall within seven days after the date on which the transfer was lodged with the Company wend to the transferee notice of the refusal, and in the case of a refusal under Article 6.6(b) the notice will| be accompanied by details of the reasons for the refusal. The Directors’ Duties in the Companies Act, 2006 which is changed. The Companies Act, 1985 has been amended in 2006 and renamed as the Companies Act, 2006. The directors’ duties and liabilities have not been amended by the present Companies Act, 2006. “Directors (and others involved in management) should, therefore, ensure they are also aware of their additional responsibilities (already in existence) when a company becomes, or is likely to become, insolvent. Concluding Remark So, from the above discussion at last we can say that the powers of directors in private and public companies to refuse registration of new members into their companies are properly said in the Companies Act, 1985. Though the Companies Act, 1985 has been amended in 2006 but it does not make any improvements to the rights of transferees who have been refused registration for membership. Question B – (40%) The company, Moonlight Electronics Ltd was formed in London in 2002. Soon afterwards the company started to face financial difficulties. In July 2004, the board decided that they needed to inject more money into the company. In December 2004 the company took a loan of £4 million from Bank of Liverpool. This loan was arranged as a floating charge secured on a substantial part of the company’s assets. However, the directors were so busy with Christmas preparation that they forgot to register the loan. In August 2005 the company took an unsecured loan of £3 million from Quickie Bank. A petition for winding up the company was presented to the court on 4th January 2008 by one of the company’s creditors, the Northminster Bank Plc. The court granted a winding up order on 25th April 2008. In the light of the winding up, discuss the legal implications of the following transactions: a) In Dec 2006, the company sold one of its cars for £3,500. The car was worth £27,000 b) The implication of the loan of £4 million from Bank Liverpool. c) In Nov 2005, the unsecured loan of £3 million from Quickie Bank was converted into a floating charge secured on a substantial part of the company’s assets. d) On 15th Feb 2008, the directors sold the company’s guest house for £930,000. However, this house was valued by independent valuers at only £350,000 in the same month. Answer Introduction All good things must come to an end so the saying goes. Companies whether is good or not also have an end. Winding up is the second method of putting an end to the life of a company. “An administrator, called a liquidator, is appointed and, he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights” (Gower, 1969, p.647). Winding up of a company differs from the insolvency of an individual inasmuch as a company cannot be made insolvent under the insolvency laws. Moreover, Singh (2004) states that “a perfectly solvent company may be wound up” (p.541). The company is not dissolved immediately at the commencement of winding up. Gannon Dunkerley & Co. vs. Assistant. Commissioner, Urban Land Tax held that “Company remains a tax payer until dissolved by order of court”. “Its corporate status and powers continue” Syndicate Bank vs. Printersall (P) Ltd, (1991) held that “where the contention was that there was no use winding up the company because all the assets of the company had already been sold, the court ordered winding up.” The process of buying shares from someone else Through a broker shares in a public company are normally transferred dealing in the market appropriate to those shares, usually, the London Stock Exchange or the Alternative Investment Market. It may also be said that shares may be transferred directly from seller to buyer and the company informed accordingly. It is the general rule that shares in a private company are usually transferred by private agreement between the seller and the buyer. In both cases, a transfer document must be completed. “The articles of association of private companies often place restrictions on the transfer of shares that must be observed. The transfer of shares is normally a chargeable transaction under the Stamp Act. Stamp Duty is payable to HM Revenue & Customs (HMRC)  on the aggregate amount at ½% rounded up to the nearest multiple of £5” (Share Capital - GBA6). The process of shares transferring to new owners: The transfer of shares in a public limited company is also dealt with through a broker. To transfer shares in a private or unlimited company, a seller must complete and sign the appropriate section of a 'stock transfer form' - available from law stationers - and pass it, together with the share certificate, to the new owner. ”The new owner must then complete their section of the stock transfer form, pay any stamp duty to the Inland Revenue and pass the completed form and share certificate to the company. The company secretary then arranges for the directors to authorise the change to the members' register and issues a share certificate in the new name” (Share Capital - GBA6). The transfer of the share of the person dead and insolvent: A reason becoming entitled to a Share in consequence of the death or bankruptcy of a Member shall, upon such evidence being produced as may from time to time be required by the directors, have the right either to be registered as a Member in respect of the share, or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt member could have made; but the directors shall, in either case, have the same night to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt before the death or bankruptcy. A person becoming entitled to a Share by reason of the death or bankruptcy of the holder shall be entitled to the rights to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as the holder of the share, be entitled in respect of it to attend or vote at meetings of the Company or of any class of its Members. Approval of the Board: Transfers may only be made to competitors of the company with the prior written approval of the Board. The classification of any person as a competitor shall be at the sole discretion of the Board, save that this Article 7.12 shall not prevent a Sale of Shares under Articles 8.3 or 8.4. In the event that a buyer buys any interest under an option or a warrant to be allotted shares the seller and the buyer shall enter into such new provisions in respect of that warrant or options as the Board (acting reasonably) requires. Consequences of Winding-Up Order Section 130 says that on the making of a winding-up order, a copy of the order must forthwith be forwarded by the company otherwise as may be prescribed) to the registrar of companies, who shall enter it in his records relating to the company. Subsection 2 says that when a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose. Subsection 3 says that when an order has been made for winding up a company registered under section 680 of the Companies Act, no action or proceeding shall be commenced or proceeded with against the company or its property or any contributory of the company, in respect of any debt of the company, except by leave of the court, and subject to such terms as the court may impose. Subsection 4 says that an order for winding up a company operates in favor of all the creditors and of all the contributories of the company as made on the joint petition of a creditor and of a contributory. Case References In these respects the court may have regard to the wishes of the creditors and contributories. In Re Chepstow Bobbin Mills Co. (1887) case held that “if a petition is presented for winding up under supervision, the court cannot make a compulsory order on the motion of a creditor”, and held in Re Jubilee Sites Syndicate (1899) case “if an order is made for winding up under supervision, a creditor cannot present a petition for compulsory winding up, but the Official Receiver may do so.” Concluding Remark The company, Moonlight Electronics Ltd will be wound up by the court under the provisions of section 124,125,128 & 129. A petition for winding up the company was presented to the court on 4th January 2008 by one of the company’s creditors, the Northminster Bank Plc. The court granted a winding up order on 25th April 2008. Now the consequences will be as following- 1. In Dec 2006, the company sold one of its cars for £3,500. The car was worth £27,000. this worth will be distributed among the creditors. 2. The implication of the loan of £4 million from Bank Liverpool will be liquidated as far as possible. 3. In Nov 2005, the unsecured loan of £3 million from Quickie Bank was converted into a floating charge secured on a substantial part of the company’s assets. These assets will also be sold and its money will be distributed among the creditors. 4. On 15th Feb 2008, the directors sold the company’s guest house for £930,000. However, this house was valued by independent valuers at only £350,000 in the same month. This is also be distributed. Actually, all the properties that the company earned must be handed over to the liquidator and he will manage to sold them. These monies shall be distributed among the creditors of the company. References Arbuthnot, Luke., and Hughes, Ben. (07 September 2007). Companies Act 2006: new duties for company directors in England & Wales. Bird & Bird. Retrieved 26 March 2008 fromhttp://www.twobirds.com/english/publications/articles/Companies_Act_2006_new_duties_company_directors.cfm DTI (October 2005).Companies in 2004-2005. Report for the year ended 31 March 2005. Presented pursuant to the Companies Act 1985 Section 729. Ordered by The House of Commons. 19 October 2005. Retrieved 26 March 2008 http://www.berr.gov.uk/files/file13424.pdf Explanatory Notes (2006). Companies Act 2006. Royal Assent on 8 November 2006. Retrieved 27 March 2008 http://www.opsi.gov.uk/Acts/acts2006/en/ukpgaen_20060046_en_1 Gannon Dunkerley & Co. v Assistant. Commissioner, Urban Land Tax, (1992) 73 Comp Cas 168 Mad. Syndicate Bank v Printersall (P) Ltd, (1991) 71 (Comp Cas 215 Kant.) Gower. (1969). The Principles of Modern Company Law. 3rd ed., 1969. McLaughlin, Mark. (October 2004). Ending the Family Company-Taxation. Business Tax Articles. TaxationWeb Limited. Retrieved 27 March 2008 from http://www.econtentmag.com/Articles/ArticleReader.aspx?ArticleID=18639 Re Chepstow Bobbin Mills Co. (1887), 36 Ch.D. 563 Re Jubilee Sites Syndicate (1899) 2 Ch. 204 Sen, K. Arun., and Mitra, K. Jitendra., (2006). Commercial Law and Industrial Law. 25th ed., 2006) Singh, Avtar. (2004). Company Law. 14th ed., Eastern Book Company. thebharat.com (2006). Closure or Winding up of a Company. Taurus Marketing. Retrieved 27 March from http://www.thebharat.com/legal/companylaw/winding.html Topham & Ivamy. (1967). Company Law. 13th ed. Scotland: David M. Walker; Butterworth. Share Capital - GBA6, http://www.companieshouse.gov.uk/about/gbhtml/gba6.shtml Read More