The company secretary owes duties similar to that of the director.
(b)
With respect to the rules governing the external aspects and the internal management of the organisation these rules are set out in the companies Memorandum of Association and Articles of Association. These two documents make up the constitution of the company. The Companies (Tables A – F) Regulations 1985 give suggested forms of memoranda and articles for different types of company.
Public and Private companies limited by shares can adopt the articles of Table A of the Regulations. Table A also applies automatically so far as not modified or excluded by the company’s own articles.
For a company limited by shares, the memorandum must contain a name clause and a registered office clause. These two state the intended name of the company and states where the registered office is to be. An objects clause must also be included which states the purpose or purposes for which the company was incorporated. Another clause to be included is the limitation of liability clause. The capital cause states the total amount of share capital which is to be registered. The clause stating that the subscribers are desirous of being formed into a company in pursuance of the memorandum is known as the association clause. And finally an alteration of memorandum must be included.
The Articles of Association govern the internal management and organisation of the company. The articles are secondary to the memorandum. If conflict arises between the articles and the memorandum then the memorandum prevails. The Companies (Tables A – F) Regulations 1985 provides a model set of articles for a company limited by shares. A company can choose from three options: to adopt Table A in full, adopt Table A with modifications or it can exclude Table A and write its own articles. Articles must be printed, set out in numbered paragraphs and signed by the subscribers to the memorandum.
The memorandum and articles operate as a contract between the company and its members, which both parties are bound to honour.
B.2 (i)
When using the word capital when referring to organisations it takes several meanings. A share is the unit of measure for determining a member’s interest in the company. The memorandum states the nominal value for each share and members must contribute at least this amount. There are two types of membership to a company, preference shareholders and ordinary shareholders.
An ordinary shares dividend depends on company profits and there is no automatic right to a dividend. A good aspect of ordinary shares is that their dividends are not fixed and therefore the dividend could rise considerably with the profit made by the company. Ordinary shares ‘rank behind preference shares for repayment of capital’. (Keenan et al, Company Law, “The Capital of a Company”, pg 134) Ordinary shares are said to ‘hold the equity share capital of the company. (Keenan et al, Company Law, “The Capital of a Company”, pg 134) At general meetings the directorate can really represent or be made to represent ordinary shareholders in order to control any resolutions that are passed.
Preference shareholders have the right to receive a fixed net rate of dividend before any dividend is paid to an ordinary shareholder. A cumulative preference shareholder is where the company does not have sufficient funds to pay the shareholder their dividend in one financial year but can have it paid to them by the end of the following year along with that year’s dividend as well. This was demonstrated in the case of Webb v Earle
A Debenture is not regarded as a share but as a loan and is the usual form a company takes to borrow money. The debenture holder is a creditor and not a member of the company. There are many types of debentures.
A secured debenture is a debenture which is secured by placing a charge on the company’s assets. This is done either by the creation of a provision in the debenture or by terms held in the trust deed which deals with the issue.
(ii)
Debentures may be secured by ‘means of a fixed or floating charge, or by a combination of both’. (Keenan et al, Company Law, “Debentures and Charges”, pg 422)
A fixed charge takes the form of a legal mortgage. It usually applies to specified assets such as the company land and building and fixed plant. The charge is created by a deed held under the Law of Property Act 1925 section 85 (1). By securing the debenture against the company the friends can ensure the company’s overdraft.
In the event the friends have no land or buildings the bank can take a fixed charge over their books.
While under a fixed charge the company can not do away with the assets to which the charge is applied.
A floating charge is not attached to any particular assets which the company may hold at the time of the charge. The charge is placed against the company’s assets at the time. With a floating charge the company can freely dispose of its assets and any new assets which are acquired are made available to the debenture holder.
B.3 (a)
The administration of a company is dealt with by the company secretary. In the case of the friends Gina without knowing it has been appointed. Table A section 99 deals with the appointment of a secretary through the directors. The company secretary may also be a director.
It is recognised that today a secretary is an ‘important official’ (Keenan et al, Company Law, “Directors and Management” pg 310). The law recognises that a secretary has the power to contract on behalf of the company on administrative duties.
Gina’s main duties would be to deal with the procedure associated with general meetings and board meetings, keeping statutory registers, sending returns of information to Companies House and keeping custody of the company seal.
The company secretary may also be given other duties by the directors.
The company secretary ‘also owes the company fiduciary duties which are similar to those owed by a director’. (Keenan et al, Company Law, “Directors and Management” pg 310) Therefore Gina may not make secret profits or take secret benefits from the office. If this should happen she may be ‘required to account for them to the company as a constructive trustee’. (Keenan et al, Company Law, “Directors and Management” pg 310) This was seen in the case of Morvah Consols Tin Mining Co, McKay’s Case.
(b)
With some exceptions to private companies, all companies must hold a general meeting every year under s 366 of the Companies Act.
The DEFG Company has called their meeting within 16 months of incorporation and is therefore not required to hold a meeting for the next year.
The way in which notice of meetings can be called is a matter for the articles of association. Gina sent the other three a text message telling them of her intent to hold a meeting. She specified the time and place of the meeting, which she is required to do under Table A. However, she deliberately did not invite the auditor which she is also required to do under Table A.
Under Table A notice must be given to all members and to the auditors of the company. If notice is not given then the proceedings and any resolutions which are passed will be deemed invalid. Cases in which members have been excluded are Young v Ladies Imperial Club and West Canadian Colleries Ltd.
The required notice for an annual meeting is normally 21 days unless all members entitled to attend and vote agree on shorter notice. However the auditor is entitled to attend but was not given notice and therefore the meeting is not valid.
Table A contains no provisions as to what can be dealt with at meetings. Items of business are supposed to be placed in the notice of the meeting. This would not have been adequately achieved through a text message.
Once the meeting has been convened the matters of ‘quorum, voting, proxies, the position of the chairman and the recording of minutes’ (Keenan et al, Company Law, “Meetings and Resolutions”, pg 388) must be dealt with. This can not be done without the presence of everyone who is required to be there.
Any decisions or proposals made at this meeting are invalid without the presence of the auditor.
B. 4 (i) (ii)
Being one of the companies members, Frank has a fiduciary relationship with the other three.
The duties and obligations a director owes are to the company only. The director must act bona fide for the benefit of the company as a whole as was the case in Lee Behrens and W & M Roith Ltd. Frank is not benefiting the company as he is not showing up for meetings.
In the case of Howard Smith v Ampol Petroleum (Bisacre, Company Law with Scottish Case, “The Directors” pg 161) , a director must also only use his powers only for the purpose for which they were conferred.
A director must also avoid conflict between his own interests and those of the company; a good example of this was Aberdeen Railway Co v Blaikie Bros (Bisacre, Company Law with Scottish Cases, “The Directors”, pg 165). Frank’s private life is conflicting with his company as he is on the verge of personal bankruptcy.
Another duty is to disclose the fact he/she has sold their own property to the company. Erlanger v New Sombrero Phosphate Co (1878).
Frank has used confidential information to gain a personal profit from the company, this is not allowed and as in Gluckstein v Barnes, Frank has not disclosed this fact and so must surrender his profit to the company. The other three can take action to ensure that they are paid for his personal profit which he did not disclose.
Frank is not meeting his duties as a member and therefore the company may be able to sue for damages for breach of fiduciary duty as was seen in Leeds & Hanley Theatre of Varieties (1902).
B.5 (a) (b) (c)
A company’s life can be brought to an end by a process known as winding up. A company may be wound-up by either the court or by voluntary means. In the case of a court winding up the business it is usually because the company is unable to pay debts. A petition for the winding-up may be placed. In the event of this happening a liquidator is appointed who realises the assets and pays the creditors. After the company’s affairs are wound up the court passes an order dissolving the company.
DEFG (Boatcraft) Limited would be a case of the members winding-up the business. Section 84 of the Insolvency Act 1986 provides that voluntary liquidation may commence if a fixed period has been settled for the duration of the company and the fixed period has passed, if the company resolves to be wound up voluntarily by special resolution or if the company resolves by special resolution to be wound up on the basis that it cannot by reason of liabilities continue its business.
Once the required resolution is obtained a notice of theresolution must be published within 14 days in the Edinburgh Gazette. The winding up then commences on the day that the resolution is passed.
Under the Insolvency Act, there are two procedures that can be followed in voluntarily liquidation. When members’ voluntarily wind-up the company a statutory declaration of solvency is delivered to the registrar. If the directors are unable to make a declaration, the winding-up proceeds as a creditor’s voluntary winding up.
After the liquidator has realised the company’s assets, he must pay off the company’s debts. Once distribution is completed the liquidator must call a meeting of the relevant parties in order to present the accounts. These final accounts along with a return of the meeting are then lodged with the Registrar. Once the Registrar receives this information he lodges the accounts and within three months of receipt the company will be dissolved.
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BIBLIOGRAPHY
BOOKS
J R Bisacre, Casebook on Company Law, London: Pitman, 1992
Stephen Griffin, Company Law: Fundamental Principles, 3rd Edition, Harlow: Logman, 2000
Denis Keenan & Josephine Bisacre, Company Law, 12th Edition, Harlow: Longman, 2002
INTERNET
”Companies Act” (www.formations365.co.uk/companies_act_1989)
“Law Facts” (www.godloves.co.uk)
“Company Law” (www.sml.hw.ac.uk/bus1m1/ComLaw2)
Gluckstein v Barnes [1900] AC 240
Erlanger v New Sombrero Phosphate Co (1878)
Insolvency Act 1986, s 85(1)
Insolvency Act 1986, s 86
