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Company Law Issues - Case Study Example

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This paper "Company Law Issues" discusses BCB that will be liable to honor Simon’s agreement on grounds of Baby’s implied authority. However, there are strong grounds for BCB to negate Dill’s claims for payment and make a claim against sporty for breach of directors’ duties…
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Company Law Issues
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Download file to see previous pages Various sections of the CA are coming into force over a staged process and the relevant provision relating to authority is sections 39 and 40, which came into force on 1 October 2007.

Section 39(1) of the CA provides that “the validity of any act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution”

Additionally, section 40(1) provides that: “In favor of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorize others to do so, shall be deemed to be free of any limitation under the company’s constitution”.

Section 40 (2) of the CA further implements a presumption that a third contracting party acts in good faith. Furthermore, a contractual party is not bound to enquire as to any limitation on the powers of the board or authorize others to do so2. Additionally, in the case of Ernest v Nicholls3, it was established third parties dealing with directors were deemed under the doctrine of constructive notice to have notice of the company’s memorandum and articles of association, along with any limitations contained therein4.
If we first consider the agreement with Simon, it is evident that the “company’s business is to do all things connected to the production of television equipment”. This is widely drafted and may well cover Simon’s engagement to carry out feasibility studies’ relocation to new premises. Whilst Simon’s fee is £100,000, the purpose of his engagement is to undertake a feasibility study in connection with business relocation and therefore does not fall within the definitions of “Transactions with directors requiring approval of members” under Chapter 4 of the CA 2006.

As such, the effect of sections 39-40 of the CA means that even if Baby did not have actual express authority to instruct Simon, the statutory rules on authority appears to prima facie strengthen Simon’s position vis-à-vis BCB for payment.  ...Download file to see next pagesRead More
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