The Company Law - Case Study Example

COMPANIES ACT 2006 – A Case Study Analysis Answer to Question Section 420 -422 of Companies Act 2006 of U.K and the Directors Remuneration Report Regulation 2002 stipulates that Section 420 -422 of Companies Act 2006 of U.K and the Directors Remuneration Report Regulation 2002 stipulates that company’s annual report should include a report on director remuneration , info about remuneration policy and powers and authority of the remuneration committee1. A special committee will look into the various issues of the tasks assigned to it and will come to a conclusion. In the case of a remuneration committee, the committee will look into the various recommendations made for employees and director’s remuneration and will make an independent analysis of the proposals and will finally will make its recommendation to the main board. The specail committee has approved the payment of £2 million as the consultation fees to Harry for effectively maneuvering acquisition of Durmstrang Ltd.At this juncture, we have to see the powers of such committees. If the main board has delegated the power to the committee to fix any amount as the consultation fees to any director without any ceiling, then the decision of such committee need not to be ratified by the main board. However , if the main board has not delegated the power to such a special committee to decide about any consultation fee to be paid to any director but only can make a recommendation to the main board and then, the main board has the final authority to accept or reject such a recommendation. In such scenario, as the main board has disapproved such payment, then the consultation fees paid to Harry has to be repaid to the company. However , it should be noted that taking Harry’s efforts in successfully handling such merger as it has added value to the company , it is suggested that Board should take into consideration before making any refusal to pay compensation as recommended by a special committee. 2) Answer to Question 2 A director of a company is required to declare his interest in any envisaged business arrangement or transaction with the company under section 177 of the Companies Act 2006. As per this section, if a director of a company is any way either indirectly or directly, is interested in a future business arrangement or transaction, he has the duty to divulge his extent and nature of his interest to other directors or to the Board2. S 177 also requires that the disclosure should be made to the company well before the start of such business arrangement or transaction3. Further, a director is expected that he is aware of the issues of which he ought to be known reasonably on such business transaction4. A director is bound to disclose his interest’s of another person also, if such other person’s interest tantamount to an indirect or a direct interest on the part of such director5. A director should divulge his interest when he ought practically conscious of the conflicting interest in any business transaction6. Further, the general rule as prescribed in s 175(1) restricts unauthorised clash of personal interest of directors with that of the company but not in duty to the company as decided in the case Bray v. Ford7 . In IDC v Cooley (1972), it was held that Cooley was accountable only for not divulging a business opportunity when getting a sanction to pursue a new business, had the company itself might have seized the opportunity had it known previously8. In IDC v, Cooley case ,when a director who has received any information even in his private capacity but has only one capacity that it is in his capacity as director such information is being received . It was held in Bhullar v Bhullar9 that the infringement of duty emanates from the failure to exchange any relevant information to the company. The appellants were under an onus to divulge the necessary information to the company. (Mantysaari 2005:187). In Gardner v Parker10 , it was held that where the director had not divulged his interest in any business transaction, then such transaction can be voidable at the option of the company. If any profits are made by a director, then the director is liable to account for such profits11. Since Harry has not divulged his interest in Ollvanders Ltd to the board of Hogwarts Plc, the transaction entered with Ollvanders Ltd is voidable at the option of the Hogwarts Plc. 3) Conflict Answer to Question 3 Section 174 (1) of the New Companies Act 2006 stipulates that a director of a company should apply reasonable skill, care and diligence. The new Companies Act 2006 stresses that director should not have clash of interest with the interest of the company. Divergence of interest includes: a clash of interest and a clash of duty and interest12 In Bhullar v BhullarError: Reference source not found, it was held that a director could not engage in a competing business with another company, unless such action was approved by the company where he is the director. (Mantysaari 2005:187). Thus, diversion of business to Ollvanders Ltd, a private company owned by Harry from the Honeydukes Inc is definitley fall under conflict of interest as held in Bhullar v Bhullar as Harry had engaged in diversion of business for his personal interest, which is an infringement of his fiduciary duty to Hogwarts plc. 4) Answer to Question 4 Section 260 to 264 of Companies Act 2006 speaks about derivative claims. A derivative claim can be brought only as regards to any cause of action emanating from a proposed or an actual omission or act associating default , negligence , breach of trust , breach of duty by a director of a company. It is not relevant whether the cause of action happened after or before the individual trying to initiate or continue the derivative claim before such a person became a member of a company and the director include an erstwhile or former director of the company13. In lesini v Westrip Holdings Ltd, it was held that a derivative claim can be ordered against the director’s of a company if there is a breach or default of duty on the part of directors. In cases like Stainer v Lee14 and in Kiani v Cooper15, the court refused to exercise its authority to grant permission to go ahead with the derivative claim to trial but sanctioned restricted permission. In Cinematic Finance Ltd v Ryder16 , permission for derivative claim was turned down by the court claiming that permission will be given only on exceptional scenarios.17 Alternatively , an unfair prejudice petition can be raised against Harris under section 459 of the CA 2006 and a petitioner has to establish thate there is unfair prejudicial conduct by Harris to Dark Mark Plc . Under derivative claims , petitioner has to be follow substantive and procedural needs but under section 459 , a petitioner has to establish thate there is unfair prejudicial conduct by Harris to Dark Mark Plc18 . Applying the verdict given in Cinematic Finance Ltd v Ryder, Dark Mark plc should establish that there exists an exceptional scenario to proceed against Harry under the derivative claim. Bibliography Bourne Nicholas & Pillans Brian, Scottish Company Law, Routledge Taylor & Francis Group, London, 1999. Dunne Patrick & Morris, Glynis D, Non-Executive Director’s Handbook, Butterworth –Heinemann, London, 2008. Lightsman, Daniel, The Statutory Derivative Claim: Three Years On, retrieved 20 March 2011, . Mantyassari Petri, Comparative Corporate Governance: Shareholders as a Rule-Maker, Springer, London, 2005. Morse Geoffrey, Palmer’s Company Law: Annotated Guide to the Companies Act 2006, Volume 2006, Sweet & Maxwell,London,2007. Sheikh, Saleem, A Guide to the Companies Act, London, Taylor & Francis, 2008. Xiaoning Li 7 Xiaoning Li, A Comparative Study of Shareholders’ Derivative Actions, Kluwer, London, 2007. Read More