Company Law

Members' Voluntary winding up

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De facto directors

[in fact] One who has not been formally appointed as such but has nevertheless acted as a director in so far as he has openly undertaken a directorial role in the conduct of the company's affairs -- Re Kay tech International. The issue of whether or not an individual is a de facto director generally arises in relation to disqualification orders under the Company Directors Disqualification Act (CDDA) 1986. s.250 of the CA 2006 provides that a director 'includes any person occupying the position of director, by whatever name called.' Therefore this includes de jure and de facto directors.

Sole Trader Advantages

⟨ No filing requirements; fees or professional advice needed for set up ⟨ One person, thus a complex organizational structure is not needed.

#COMPANY MANAGEMENT#

#COMPANY MANAGEMENT#

#CORPORATE GOVERNANCE#

#CORPORATE GOVERNANCE#

#LIQUIDATING#

#LIQUIDATING#

#PROMOTER#

#PROMOTER#

Lee v Lee's Air Farming Ltd

A company is a separate legal entity, so a director could still be under a contract of employment with the company he solely owned (wife claimed for workers compensation after husband was killed on the job of the company he owned)

Quoted company

A company whose shares can be bought or sold on the Stock Exchange. A company is said to be "listed", "quoted" or "have a listing" if its shares can be traded on a stock exchange. To be more accurate, it is the securities that are listed, not the company. The phrase "listed company" is widely used to mean a company that has listed ordinary shares.

Going concern

A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.

Moratorium

A period of delay where there's an authorized postponement in the deadline for paying a debt or performing an obligation. The suspension of a specific activity.

Company Limited by Shares

A shareholder's personal assets are protected in the event of the company's insolvency, but money invested in the company will be lost. Company where the liability of the shareholders for the debts of the company is limited to the amount unpaid on their shares. Limited by shares means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company.

Shareholders relationship to company assets

Asset value of a company is a small art of the equation that determines market price. Many factors affect the price others will pay, like managerial skill, rumors, general economic conditions, government intervention, etc. What is being traded is not a paper representation of a percentage of the assets of a company owned by shareholders, because a shareholder does not own any of the company's property.

Gluckstein v Barnes

Consequently, where promoters make a secret profit during the promotion process they will be jointly and severally liable to account for that profit to the company. (promoters disclosed some of the profits they have obtained in a prospectus, but withheld some other profits)

Charges

Charges may be either fixed (or specific), the effect of which is that the chargee's rights (i.e. the lender's) attach immediately to the property in question, or floating, whereby the chargee's rights attach to a 'shifting fund of assets' (Re Cimex Tissues), such as receivables, stock in trade etc.

Corporate Personality

Company is deemed at law to be a person, has own name and can be sued and sue. Has perpetuity (lasting for eternity) unless it becomes insolvent (bankrupt).

Constructive notice

Constructive notice is the legal fiction that signifies that a person or entity should have known, as a reasonable person would have, even if they have no actual knowledge of it. For example if it is not possible to serve notice personally then a summons may be posted on a court house bulletin board or legally advertised in an approved newspaper. The person is considered to have received notice even if they were not aware of it.

BIS

Department for Business, Innovation & Skills.

Fostering a rescue culture

Failure of a company and liquidation can have substantial adverse effects. Employees lose their jobs, creditors unlikely to be repaid in full if at all, company shares become worthless thereby members lose their investment; suppliers and retailers likely to suffer; and if the company is large enough its liquidation may even adversely affect the economy of the country in which it is based. • Prior to the IA 1985 and 1986 there was little aid and struggling companies were simply left to die. The Cork Report of 1982 favoured establishing a rescue culture under which mechanisms would be created that aided financially struggling companies. IA 1986 provides a number of mechanisms that aim to rescue struggling companies in order to bring them back to profitability or achieve a more advantageous winding up. The most useful one is administration.

Lagunas Nitrate Co v Lagunas Syndicate

For rescission to be available it must be possible to restore, at least substantially, the parties to their original position unless, due to the fault of the promoter, this possibility has been lost.

21-day invisibility problem

If a charge is registered within the 21-day period, its priority depends on when it was created, not when it was registered. A charge-holder that registers first could find itself subject to a charge created up to three weeks earlier that it knew nothing about. This results in what has been termed the 21-day invisibility problem because whenever a person checks the register it cannot be assumed that it is comprehensive because there may be a charge for which the 21-day period is still running.

Liquidator

Irrespective of the type of winding up, a liquidator will be appointed to oversee the company's liquidation. The liquidator occupies an extremely important position and his role is basically to gather in all the assets of the company, to pay off its debts and liabilities, and to distribute the remaining assets to persons entitled to them in the correct order.

Pari passu

Latin, means, 'on equal footing'.

Novation Fails

Novation is ineffective if the company adopts the contract due to the mistaken belief that it is bound by it - Re Northumberland Avenue Hotel Co Ltd

De jure director

Those who have been validly appointed to the office of director. (in law)

Re Hydrodam (Corby)

To establish that D is a shadow director it is necessary to allege and prove: (1) the de jure and de facto directors must be identifiable; (2) that D directed those directors how to act in relation to the company or he was one of the persons who did so; (3) the directors did act in accordance with his instructions; and (4) that they were accustomed so to act. (the issue was whether two directors of the parent company could be deemed to be shadow directors of its subsidiary company and liable under the IA 1986. Held, being members of the parent company's board was not of itself sufficient. It would have to be shown that they personally instructed and directed the subsidiary's board )

Group Structures

Where a parent company organizes its business through a number of subsidiary companies in which it is usually the sole shareholder.

Companies Act 2006, s 51(1)

Where a promoter of a company purports to enter into a contract on behalf of that company, a valid contract will exist between the promoter and the third party that both parties can enforce. Phonogram Ltd v Lane: This is unless 'subject to any agreement to the contrary', meaning for a promoter to avoid personal liability the contract must expressly provide for his exclusion.

Siebe Gorman

Where the chargee retains control over the debts and their proceeds so as to severely restrict the company's freedom to deal with them it will be a fixed charge. (the company granted a debenture in favour of Barclay's Bank. The security was expressed to be a 'first fixed charge' over all of its present and future book debts. The debenture required the company to pay the proceeds of all book debts into its Barclays account and it prohibited the company from charging or assigning its book debts w/o first obtaining the bank's consent. It was held that the company's charge over its receivables was fixed. The judge reasoned that taking the restrictions placed on the company's power to deal with the proceeds of the debts, together with the bank's right to prevent the company making withdrawals from the account even when it was in credit, gave the bank a degree of control that was inconsistent with a floating charge.)

Merrick Dodd

A debate between Adolf Berle and Merrick Dodd played out in the pages of the Harvard Law Review that was to shape the course of the corporate governance debate significantly. Merrick Dodd aimed to respond to the lack of managerial accountability that Berle and Means pointed out in Corporate Realism. Dodd theorized that a corporation is a real legal person rather than an aggregate of the private individuals behind it, and just as a normal person have citizenship responsibilities that require personal self-sacrifice, that impede their free will, so must a corporation. This suggestion of a 'Socially Responsible Corporation' required managers to exercise their power in a manner that recognises their social responsibilities to stakeholders such as employees and customers, which may at times be contrary to its economic objectives. With this theory Dodd emphatically rejected the notion of shareholder primacy and provided a clear basis of the separation of ownership from control.'

Perpetual Succession

Separate personality means that the existence of a company does not depend on the existence of its members. Membership may change or members may die - the company continues in existence until wound up.

Share Capital and Company assets

Share capital (capital stock) ⟨ It is a cardinal principle of company law that the share capital of a limited company belongs to the company and not its shareholders. This principle exists primarily for the benefit of the company's creditors: while creditors have little or no protection against a solvent company incurring trading losses, they can at least be certain that in the last resort the share capital will be available to satisfy the company's debts. In practice, this means that monies subscribed for shares can only be paid back to the shareholders in certain controlled circumstances. The rules that give effect to this principle are sometimes called the capital maintenance rules, or regime. ⟨ However, the company assets are the money, properties and rights owned by the company which may vary depending on the results of the commercial activity carried out by the company, whereas the share capital is a fixed sum of money established in the articles of association and the first item on the liabilities side of the balance sheet. ⟨ Share capital represents the minimum amount of money which the company has and, therefore, the minimum amount of money with which the company will pay its credits. A company's share capital is not ring-fenced in some separate bank account to be used only in the event of liquidation to pay creditors. Rather, it is a book-keeping entry and before any returns can be paid to shareholders the accounts must show that the value of a company's assets exceeds its share capital. Share Capital performs the following functions: 1.-It is a way of financing: Capital represents the amount of money which should be gathered by each partner's contribution in order to develop the commercial activity proposed in the articles of association. 2.- It acts as a guarantee for third parties: Share capital represents the minimum amount of money which the company has and, therefore, the minimum amount of money with which the company will pay its credits. If creditors are unsecured, they will look to the capital fund as well as to its unsecured assets as a means of payment should the company be wound up. 3.- It facilitates the company organization. In public and private companies, partners' or shareholders' rights and obligations are broken down in proportion to their contribution to the share capital of the company.

Shareholders & Members

Shareholders are Members and vice versa. Term used interchangeably. Shareholders do not own a company, they own a share of participation rights, rights to attend meetings, vote, participate in a dividend. Shareholders invest usually for two reasons; in hope of seeing the value of their shares increase as the company prospers so that they can make a profit on resale and in expectation of receiving an income by way of a dividend - a share of the company's profits in proportion to the number of shares held. Shareholders do not have an interest in the property belonging to the company -- Macaura v Northern Assurance Shareholders bear the ultimate risk should the economic fortunes of the company fail which is why residual control over management is vested in them.

Equity

Shares

Floating charges

A floating charge floats over the whole or a part (class) of the chargor's assets, which may fluctuate as a result of acquisitions and disposals. Corporate property that can be made subject to a floating charge includes stock in trade, plant (ie machinery), and book debts (receivables). The distinguishing feature of a floating charge is that the company can continue to deal with the assets in the ordinary course of business w/o having to obtain the chargee's permission. This is the very essence of the floating charge and it is, therefore, a commercially convenient way of raising secured borrowing. A floating charge converts to a fixed charge over the assets within its scope upon the occurrence of a 'crystallising' event such as a default on repayment or the winding up of the company. The crystallising event, such as default in making payment of the principal or interest, is usually stated in the debenture document although crystallisation will occur by operation of law if the company ceases to carry on business. Floating charges may be challenged under the Insolvency Act 1986, s.245

Kelner v Baxter

A person cannot be an agent of a non-existent principal and so a company cannot acquire rights or obligations under a pre-incorporation contract.

Administration

A procedure that functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process is an alternative to liquidation and is often known as going into administration. A company in administration is operated by the administrator on behalf of the creditors as a going concern while options are sought short of liquidation. Governed by the IA 1986. An "administrator" can be appointed w/o petitioning the court by the holder of a floating charge (created since 15 September 2003), by the company or by its directors. Other creditors must petition the court to appoint an administrator. The administrator must act in the interests of all the creditors and attempt to rescue the company as a going concern. Upon entering into administration an administrator will be appointed who will from then on manage the company's affairs. The directors will no longer exercise any managerial powers w/o the administrator's consent. Benefits: • Cheaper than liquidation • may allow the business of the company to be sold as a going concern, rather than as a fire sale on liquidation, under which the assets are sold off for whatever price the liquidator can obtain • Creditors (directors and employees) may have better prospects of being paid than would if the company was liquidated.

Newborne v Sensolid

A promoter can avoid personal liability on a contract where he signs the agreement merely to confirm the signature of the company. Because in so doing he has not held himself out as either agent or principal. The test is whether the promoter was intended, in the circumstances, to be a party to the contract or not. The signature and the contractual document will be a complete nullity because the company was not in existence (N contracted to sell tinned ham to S. Contract signed using co. name but not yet incorporated and added a scrawl under name which was individual's signature. Held that co. or individ. could not enforce contract as individ had not signed as agent and co. was not in existence.)

Debenture

A written acknowledgement of debt like a mortgage

Company voluntary arrangements (CVA)

An important, but much underused, rescue procedure that basically allows the company to enter into a binding arrangement with its creditors.

Shares

As opposed to small companies who look to the banks to finance the business operations of the company by means of loan capital, in large companies shares are generally issued as a major source of capital. Unlike partners in a partnership, shareholders do not own corporate assets but rather ownership is vested in the company itself: Macaura v Northern Assurance Co Ltd There is a presumption of equality between shareholders so that they are deemed to enjoy equal voting and dividend rights, when the company is a going concern, and equal rights to participate in any surplus assets should the company be wound up. This presumption will be rebutted where a company issues shares that carry different class rights. Regarding class of shares, the company's right to issue shares divided into different classes is generally contained inits constitution. The rights attaching to each class should be clearly stated either in the constitution or in the resolution authorizing the share issue as well as in the prospectus because it is a rule of construction that any statement of class rights is presumed to be exhaustive. A company's stock price reflects what investors think about the stock, not necessarily what the company is "worth." Example, companies that are growing quickly often trade at a higher price than the company might currently be "worth." Stock prices are also affected by all forms of company and market news. The quoted share price of a company is based on the market's perception of all the publicly available information that affects that limited liability. Companies are designed as investment vehicles so one can buy and sell some shares alone. With partnerships one has to sell everything, all their shares. A share is a species of property (a chose in action) that can be purchased, sold, bequeathed and mortgaged.

Aggregate theory [Managers trustees for owners]

Berle believed that Dodd's model was impractical and would encourage greater managerial dominance over the control of corporations. He responded to Dodd's article with an opposing argument based on the aggregate theory.That theory describes the company as the central institution formed by the aggregation of private contracting individuals. That is the members come together to pool their investment on terms they all agree. The state therefore has little to do with the corporation as a nexus of private contracting individuals. As such Berle was opposed to Dodd's solution. He believed that the Doddanswer was too vague. It would be practically unenforceable and lead to the furtherance of managerial dominance. Instead he sought to focus the company's accountability mechanism on just the shareholders. He argued that the managers are trustees for the shareholders, not the corporation. Thus, the managers are accountable to the shareholders and shareholder wealth maximisation is the sole corporate interest. This way it can justify placing the interests of its shareholders as the most imperative objective for the company to obtain, known as shareholder primacy, namely profit maximization with no regard for societal needs. Default rules, such as the articles of association which apply in the absence of any agreement to the contrary, and enabling rules, such as the company registration procedure, which provide a framework for private parties to carry out certain functions sit easier with aggregate theory.

Cadbury Committee / Greenbury Committee

Cadbury 1992, Greenbury 1995 reports culminated in the adoption by the London Stock Exchange of the Principles of Good Governance and also the Code of Best Practice (The Combined Code). Of concern was the high levels of remuneration being awarded to directors and an apparent lack of any link between boardroom remuneration and performance, and lack of procedural transparency in the determination of director's remuneration. Before Greenbury, the Cadbury Committee (the Committee on The Financial Aspects of Corporate Governance (1992)) had recommended that quoted companies should adopt a committee system as a means of improving the effectiveness of the board structure and enhancing the strength and influence of NEDs. As part of this system, a remuneration committee was proposed, dominated in its membership by NEDs, to advise the board on the remuneration (in all its various forms) of executive directors. The aim here was to address the perception of directors effectively determining their own pay. Greenbury noted in 1995 that most quoted companies had established remuneration committees. Accountability issuescontinued regarding directors' pay, and by 1995 the Greenbury Committee (Directors Remuneration, Report of the Study Group, 1995) was formed to report on directors' pay. Greenbury identified that there is an inherent conflict of interest in directors deciding on their own pay and recommended an enhanced disclosure regime for directors' pay and a nonexecutive only remuneration committee. The disclosure of individual directors' pay was now disclosed and unfortunately this open disclosure regime only succeeded in providing a reference point for managers to negotiate higher salaries as they could point to higher salaries in other similar companies to justify their desire for higher pay. The Combined Code (published in 2008), laid down the principle that companies should establish a formal and transparent procedure for developing policy on executive remuneration and that that principle governed the setting of remuneration packages of individual directors.

EC Treaty - article 2, 43 and 48

Companies have a right to carry on business in any Member State provided that the company have been formed according to the law of a Member State and that they have their registered office, or centre of administration or principal place of business within that Member State). *Centros Ltd v Erhversus-og Selkabssyrelsen

Companies Limited by Guarantee

Companies limited by guarantee are for charitable, educational, and scientific purposes, while unlimited liability companies are extremely rare. No profit is envisaged. As a result the people behind the venture guarantee to pay a certain amount towards the debts of the company should it fail.

Company Law Review Steering Group (CLRSG)

Company Law Review Steering Group. The Final Report forms the basis of the Government's 2002 and 2005 White Papers. ⟨ The CLRSG addressed two key issues with regard to the operation of the articles of association. First they found that the general meeting was a burden on small companies and recommended doing away with the need for a general meeting for private companies unless the company wished to have one (Final Report, July 2001, Chapter 2). ⟨ Also recommended that public companies could dispense with annual general meetings if all the shareholders agree (Final Report, para 7.6). This has been implemented for private companies but public companies are still required to hold an annual general meeting (s.336 CA 2006.). ⟨ For most public companies the general meeting, in theory, fulfils an important accountability function. In reality, however, large shareholders don't tend to vote, leading to accountability problems. The CLRSG recommended that institutional investors who hold the vast majority of shares (insurance companies, pension funds and investment trusts) should disclose their voting record at general meetings to increase accountability and transparency. However, the CA 2006 did not put in place a provision requiring compulsory disclosure.

Corporate Realism [Co separate/managers dominate]

Corporate realism is the theory that probably seems the strangest to a 21st-century reader. It considered the company to have a separate existence from its shareholders, who have no primacy in the company, as the company's interests and objectives are defined instead by the managers. This being so, corporate realism goes a long way to legitimizing the manager-dominated companies that arose at the beginning of the 20th century. It did not however deal with the managerial accountability issue as it assumed a neutral disinterested management. The strength of corporate realism is that it can best explain the separate existence of the corporation and therefore justify departure from a shareholder-oriented focus for the corporation.

Debenture stock

Debenture stock is money borrowed from a number of different lenders on the same terms. Such lenders form a 'class' who usually have their rights set out in a trust deed. The trustee, often a bank, represents their interests as a whole. The trust deed will generally set out the following terms. ⟨ The obligation to pay the principal sum with interest. ⟨ The security, if any, that is given for the loan. ⟨ The events that will trigger the enforcing of the security.

Cadbury Committee

Despite the fact that virtually all larger companies have established a remuneration committee there is a widespread dissatisfaction.

Directors' remuneration

Directors are not entitled as of right to be paid for their services unless the articles of association or a service contract between them and the company provide otherwise - Re George Newman & Co The model articles provide that directors are free to determine their own levels of remuneration. However, the UK Corporate Governance Code provides that no director should be involved in determining his own pay. Obviously, the temptation for directors to vote themselves 'fat cat' awards has generated much debate and thus the Cadbury Committee concluded that the determination of remuneration should be given to another body, namely a remuneration committee. Pay has continued to be a corporate governance problem, as the central conflict of interest in a board deciding on its own pay has remained despite the creation of remuneration committees. As a result the government introduced a requirement in August 2002 (the Directors' Remuneration Report Regulations 2002, (SI 2002/1986)) that all listed companies must present a remuneration report to their general meeting for consideration. The vote is advisory only and so does not affect the contractual validity of the directors' contracts. It is, however, intended to give shareholders a direct voice as to levels of acceptable pay.

Debenture

Document that evidences, or acknowledges, the company's debt, It includes debenture stock, bonds and any other securities of a company. Thus a mortgage of freehold property by a company falls within the statutory definition as it is a security and a charge on its assets. ⟨ A debenture may be secured in one or two ways: by a fixed or by a floating charge.

Promoter's Fiduciary Duties

Erlanger v New Sombrero Phosphate Co provides: Promoters of a company stand in a fiduciary relation to it and to those persons whom they induce to become shareholders in it and cannot in equity bind the company by any contract with themselves without fully and fairly disclosing to the company all material facts which the company ought to know. Failure to make such disclosure the contract is voidable at the company's option. This means, the company can bring an action for rescission (the unmaking of a contract), or simply recover the secret profit even and not to rescind the contract. A promoter who makes a profit out of his promotion of the company will only be permitted to keep that profit is he discloses this fact to persons regarded as independent, usually an independent board of directors or body of members.

Corporate Goverance

For many years the business landscape consisted mainly of individual traders who both owned their business and exercised control over it. This all changed with the dawn of the Industrial Revolution, an unprecedented period of social upheaval and economic change, most notably the emergence of the modern capitalist economy. During this era there was a huge increase in the wealth of the middle classes as well as many technological improvements, such as rail travel, that required mass amounts of investment to function. This was mostly done through unincorporated associations, though it was possible for a joint stock company to become incorporated (i.e. obtain a separate legal personality from its owners) this was rarely extended to many corporations as the protections and privileges they granted were well protected by the state. The result of this was that these companies had many shareholders, often spread over most of the country, which would have made any attempts at litigation extremely difficult, so the Joint Stock Companies Act 1844 introduced incorporation for joint stock companies, though shareholders could still be liable for the debts of the corporation until the Limited Liability Act 1855 which gave the option of limited liability for corporations. This encouraged further investment and increased both the number and the geographical distance between shareholders and their companies. It was at the time of the stock market crash of 1929 in the USA and the subsequent Great Depression that academic commentators started to discuss the separation of ownership, which was vested in the shareholders, and control, which lay in the hands of the managers.

Company

Formed by applying to the registrar of companies, providing a constitution (essentially a set of rules for the company), the names of the first directors and members plus a small fee. This formation process is called incorporation.

Arguments against the primacy given to shareholders

Historically arguments against the primacy UK company law gives to shareholders have been based on three general points: • Corporations are very powerful and therefore have an enormous effect on society. Thus a narrow accountability to shareholders is insufficient to protect society's interests. • The assumption that shareholders have a moral claim to primacy by virtue of their property rights is plainly incorrect. If shareholder primacy is to be justified it must be on other grounds. • The moral claims of others (stakeholders) either outweigh the shareholders' claims or at are at least equal to them when it comes to allocating primacy.

...

In 'The Modern Corporation and Private Property', Berle and Means, an economist and a lawyer, disputed the Corporate Realism model with fears of unaccountable managers controlling the largest corporations in America as their owners were too dispersed or uninterested to be involved with the day to day running of the corporation. They feared that these powerful managers would be unaccountable to the owners of their respective companies, but could also hold power over those who relied on the company, such as employees, their families and the consumer. Berle and Means promoted greater transparency, voting rights for all shareholders and accountability to ensure that managers never gained too much control over the company. By advocating these shareholder rights, Berle and Means sought to reduce the gap between ownership and control, placing control firmly back in the hands of the owners, they viewed the corporation as a manifestation of shareholder will and felt that wherever possible those in control of the company ought to fulfil the objectives of the shareholders, and disregard any social responsibility where it would hinder the completion of said objectives, most notably profit maximisation.

Adolf Berle

In 1932 Berle and Means, an economist and a lawyer, made two key observations about the operation of American companies in the 1930s. First, that shareholders were so numerous (described as dispersed ownership and subsequently as the Berle and Means corporation) that no individual shareholder had an interest in attempting to exercise control over management. Most of the largest US companies were controlled entirely by their managers. Second, they expressed concern that managers were not only unaccountable to shareholders but exercised enormous economic power which had the potential to harm society.

Reform

In August 2005 the Law Commission published its final report, Company Security Interests. Its principal proposals include: ⟨ A new system of electronic notice filing for registering charges. ⟨ Removal of the 21-day time limit - thus removing the 'invisibility' period. ⟨ Extending the list of registrable charges so that all charges are registrable unless specifically exempted. The principal exemptions will be for some charges over registered land and over financial collateral. ⟨ Clearer priority rules. Priority between competing charges will be by date of filing unless otherwise agreed between the parties involved (this will also remove the current 21-day period of invisibility). The distinction between fixed and floating charges will be preserved. For floating charges it will no longer be necessary to rely on a 'negative pledge clause' to prevent subsequent charges gaining priority. It will also be unnecessary to rely on 'automatic crystallization clauses'. ⟨ If a charge over registered land is registered in the Land Registry, it will not need to be registered in the Company Security Register. Instead, the Land Registry will automatically forward to Companies House its information about companies' charges. ⟨ Sales of receivables will be brought within the scheme (e.g. factoring and discounting agreements, currently a factor, will only obtain priority if it gives notice to each account debtor). ⟨ The rules on charges over investment securities and other forms of financial collateral are to be clarified. ⟨ The report also contains draft Company Security Regulations 2006 prepared by the Law Commission for adoption by the DTI (now BIS) under powers contained in the Companies Act 2006.

Gemma Ltd v Davies

In order to establish that a person is a de facto director, it is necessary to show that the person performed functions which could properly be discharged only by a director. • For this it would have to be shown that he exercised real influence in the governance of the company on an equal footing with other directors and not in a subordinate role. • One holding himself out as director is not a sufficient. What matters is not what he called himself but what he did. • If it is unclear whether the acts of the person are that of an assumed directorship or to some other capacity, the person in question is entitled to the benefit of the doubt. (Husband and wife in an action for misfeasance in the management of a company that had entered into a creditors' voluntary winding-up. An issue was whether the wife, who was company secretary but not appointed a director, was nevertheless a de facto director who could also be liable for misfeasance.)

Shadow directors

In order to evade the duties to which directors are subject a shareholder might avoid formal appointment as such yet nevertheless direct the board's decision making. In this case the shareholder may be classified as a 'shadow director' and will be subject to the obligations and liabilities imposed by the CA 2006, the Company Directors Disqualification Act 1986 and the Insolvency Act 1986. • S.251(1) of the CA 2006 defines a 'shadow director' as a person in accordance with whose directions or instructions the directors are accustomed to act • They are distinguishable from de facto and de jure directors by virtue of the fact they seek to evade the duties and liabilities by remaining in the background, instructing and directing the actions of the board members, while taking care to avoid directorial appointment. • Those who provide professional advice are expressly excluded. But a professional person may be held to be a shadow director if his or her conduct amounts to effectively controlling the company's affairs -- Re Tasbian Ltd • However, merely controlling one director is not sufficient; the shadow director must exercise control over the whole board or at least a governing majority of it -- Re Lo-line Electric Motors Ltd Example: s.214 Insolvency Act 1986 provides that a shadow director (or any director) may be liable to contribute to the company's assets if it goes into insolvent liquidation and it is proved that at some time before the liquidation he knew or ought to have known that there was no reasonable prospect of avoiding insolvent liquidation. Shadow directors are treated as being directors. As a result, a person who controls a company or who performs the duties of a director without being formally appointed as such, may not avoid liability for breach of duty simply by virtue of not being appointed formally as a director if he is in truth a shadow director.

Constitution

It is the memorandum and articles. Sets out the binding rules of the company. Identifies the powers of the company and allocates them to the company's organs, usually the general meeting and the board of directors. The articles of association are a set of rules for running the company. They set out the heart of any company's organisational structure by allocating power between the board of directors (the main management organ) and the general meeting (the main shareholder organ). Those forming a company can provide their own articles but if they don't a model set of articles (historically called Table A) is provided by the CA 2006 and will apply. The model articles, with some amendments, are usually adopted.

PLC: Public limited company

Limited liability is one of the most obvious differences between the company and other forms of business organisation, where members of both private and public companies have limited liability - serves to put the business assets of an individual out of reach of that individual's personal creditors. It minimizes the risk for investors and is said to encourage investment. Also said to allow managers to take greater risk in the knowledge that the shareholders will not lose everything.

Crown monies

National Insurance, PAYE (employees' income tax) and VAT (sales tax) are all collected by companies on behalf of the government and paid over at set intervals.

Registration of charges

Most charges require registration and the categories that have to be are set out in s.860 of Companies Act 2006. They must be registered within 21 days of creation or they will be rendered void (s.874), that is, prescribed particulars of certain categories of charges created by a company, together with the instrument creating it, must be delivered to the Companies Registrar within 21 days of the creation of the charge. Once registered, the charge is valid from the date of its creation. ⟨ When a charge is paid off, a memorandum should be delivered to the registrar to record this event. ⟨ The company is also obliged to keep a register of all fixed and floating charges at its registered office to made available for inspection by any creditor or member of the company or any other person on payment of a fee. An officer of the company who fails to keep a register, that is, who knowingly authorises or permits the omission of a required entry is liable to a fine. ⟨ Note, the loan is not void if it's not registered within 21 days, but failure to register results in the lender ranking as an unsecured creditor. ⟨ If a charge has not been registered, the company and every defaulting officer is liable to a fine (s.860(4)). Charges that need to be registered include: ⟨ a charge for the purpose of securing any issue of debentures ⟨ a charge on, or on any interest in, land (not including a charge for any rent) ⟨ a charge on book debts of the company - a floating charge on the company's undertaking or property.

NEDs

Non-executive directors. Perform a monitoring role over executive directors. Although this is their primary focus the UK Corporate Governance Code makes clear that they should be involved in the management of the company. Normally appointed to the boards of larger companies to act as monitors of the executive management. Typically part-time appointments. The committees view non-executive directors as holding the potential to perform a monitoring role over their executive brethren, ensuring that they act strictly in the interests of the company. The key recommendation of the Cadbury Committee was to introduce NEDs to the main board, the idea being that these non-executive directors would bring some objectivity to board decisions. Play a pivotal role in the determination of executive directors' remuneration The remuneration of NEDs should be set by the board, or a committee of the board, unless the articles require their remuneration to be determined by the shareholders.

S.585 (1) CA 2006

Payment in shares for work: A public company is prohibited from accepting an undertaking to do work or perform services in payment of its shares. The allotte is required to pay the company the nominal value with any premium, and interest, irrespective of any benefit that the company may received, that is, the work the allottee had done. Further, a subsequent holder of the shares is jointly and severally liable to pay the same amount unless he is a bona fide purchaser for value without actual notice. *Private companies may do so.

Erlanger v New Sombrero Phosphate Co

Promoters of a company stand in a fiduciary relationship to investors, meaning they have a duty of disclosure. The contract could be rescinded otherwise. (Promoters (who are in law fiduciaries, and therefore subject to a duty to disclose material facts) didn't tell investors that a mine on Sombrero island had been bought by the promoters for half the price that they were now valuing it for in the company. By the time investors realized, a substantial amount of phosphate had been mined. It clearly could not be put back in the ground. Held, since substantial restitution (ie the money equivalent) could be paid, rescission of the share contracts was not barred.)

Companies Act 2006

Provides for single person private companies - Could not have this prior. Public companies still need two shareholders.

Book debts (receivables)

Refers to balances due from customers whom a company has sold goods or rendered any services on credit. Book debts are 'debts arising in a business in which it is the proper and usual course to keep books, and which ought to be entered in such books' (Official Receiver v Tailby). It is common for a company to have debts continuously owed to it by customers for goods and services that the company has rendered. Rather than wait for payment a company can borrow money from creditors against the debts which remain unpaid. A fixed charge can be created over uncollected book debts

Registration is a "perfection requirement"

Registration is merely a "perfection requirement", that is, perfection relates to the additional steps required to be taken in relation to a security interest in order to make it effective against third parties and/or to retain its effectiveness in the event of default by the grantor of the security interest. However, it does not determine priority, as priority depends upon the date the charge was created.

Wilson v Kelland

Registration of a charge is notice of the fact that a charge exists (constructive notice) but it is not sufficient to show that a subsequent chargee has 'actual notice' of the negative pledge clause.

Creditors' Voluntary winding up

Requires the creditors be notified and hold a meeting (s.98(1)). At that meeting the creditors may appoint a liquidator who will take priority over any liquidator appointed by the general meeting (s.100).

Voidable Floating Charge

S.245 of the Insolvency Act 1986 provides that a floating charge may be invalid if it is created within two years of the onset of insolvency if the parties are connected or one year if they are not. There is a defence that the company was solvent when the charge was created and did not become insolvent as a consequence of the transaction, but this will not apply if the parties are connected. The charge will, however, be valid if it was created in consideration for money paid, or goods or services supplied, at the same time as or after the creation of the charge, together with interest, if any, payable under the relevant agreement. ⟨ 'Connected person' is defined by s.249 as a director or shadow director of the company; an associate of a director or shadow director of the company; and an associate of the company. The object of s.245 is to prevent an unsecured creditor obtaining a floating charge to secure his or her existing loan at the expense of other unsecured creditors.

The Company Directors Disqualification Act 1986 (CCDA)

The CDDA 1986 seeks to protect the general public against abuses of the corporate form. The effect of a disqualification order is that a person shall not, without the leave of the court, 'be a director of a company, or a liquidator or administrator of a company, or be a receiver or manager of a company's property or, in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a specified period beginning with the date of the order' (s.1(1)).

Re Spectrum Plus

The ability of the chargor to continue to deal with the charged assets characterises it as a floating charge. For a fixed charge to be created over book debts, the proceeds must be paid into a 'blocked' account. (The debenture stated that the security was a specific charge over all present and future book debts and other debts. It also prohibited Spectrum from charging or assigning debts and the company was required to pay the proceeds of collection into an account held with the bank. Spectrum's account was always overdrawn and the proceeds from its book debts were paid into the account which Spectrum drew on as and when necessary. The bank's debenture placed no restrictions on the use that Spectrum could make of the balance on the account available to be drawn by Spectrum. HOL held, floating)

Nexus of contracts theory

The aggregate theory evolved into the nexus of contracts theory and remains the dominant theory today. It argues that a firm was not a person, but instead a series of contracts between individuals thus constituting a market. Because the firm is not in any sense a real person it has no interests of its own into which one can place corporate social responsibility, instead the shareholders would maximise their own self interest by chasing the most efficient methods of production and the most profitable contracts.

Fixed charges

The bank or lender (chargee) may have provided money to a company (chargor) to acquire an asset like a building, printing press, car, etc. The company cannot sell this w/o the lender's permission, i.e, the the chargor's power to deal with the asset is restricted. The debt must be repaid as per the loan agreement. Such a charge is similar to a mortgage in that, you borrow money to buy a house, you cannot own the house outright until the debt is repaid, nor can you sell it w/o the chargee's permission. The mortgage is a form of fixed charge. A fixed charge is a mortgage (legal or equitable) that is generally granted over identifiable assets not commonly traded in the day-to-day operations of the company - it attaches to specific assets of the company, for example, land. The holder of a fixed charge will have rights in rem over the assets (Agnew v Commissioner of Inland Revenue). Fixed chargees rank above floating chargees in respect of their priority in a liquidation.

Agnew v Commissioner of Inland Revenue

The classification of a security as a fixed or floating charge is a matter of substance rather than drafting. ⟨ Where the chargor company is free to deal with the charged asset(s) in the ordinary course of business it must be construed as a floating charge.

Negative Pledge' clause

The general rule is that security interests (fixed charges) which are effective from the time of creation have priority over floating charges which only have efficacy from the time of crystallization. Therefore a fixed charge can be created which will take priority over an earlier floating charge. In order to protect their priority, floating chargees can insert a so-called 'negative pledge' clause in the charge that prohibits the chargor from creating a charge that ranks equally with (pari passu) or in priority to the earlier floating charge. However, the negative pledge provision is only effective if its existence is actually known by the subsequent fixed charge holder (chargee), that is, mere notice of the earlier floating charge is not sufficient -- Wilson v Kelland. Where there isn't a negative pledge clause and there are competing floating charges the governing principle is that the earliest created takes priority.

Re Yorkshire Woolcombers Association

The hallmark of a floating charge is that the company can continue to deal with the charged assets in the ordinary way without obtaining the chargee's consent.

The Memorandum

The memorandum still exists as a separate document as part of the registration requirements under the 2006 Act. Addressed to the general public and contains: ‣ Company name ‣ Company's share capital ‣ Address of company's registered office ‣ The objects of the company (stating what the company is empowered by the state to do) ‣ A statement that the liability of its members is limited. ⟨ The memorandum is now a simple document providing certain basic information and key declarations to the public which state that subscribers wish to form the company and agree to become members taking at least one share each. The subscribers to the memorandum are those who agree to take some shares or share in the company, thus becoming its first members. If the application to the Registrar is successful the subscribers become the first members of the company and the proposed directors become its first directors.

Alternate directors

The office of director is personal in character and so a director cannot appoint a delegate to act in his place should he be prevented from attending board meetings unless the company's articles of association or memorandum permit this.

Novation

The only way that a company can take advantage of a pre-incorporation contract is for the promoter and third party to discharge the pre-incorporation contract and the company then to enter into a new contract w/ the third party in respect of the same subject matter. This process of substituting one contract w/ another is known as 'novation.' The company, a stranger, cannot simply by subsequent ratification relieve the promoter from their responsibility. Novation may also be suggested by the conduct of the parties such as where the terms of the original

Liquidator and Receiver

The person appointed to deal with the assets and liabilities of the company or partnership once the resolution to wind up has been passed or a compulsory winding up order has been made.Will oversee the way in which the company's assets are dissolved. Put another way, it's the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in ALL of the assets of the company and settling ALL claims against the company before putting the company into dissolution. The difference between a receiver and a liquidator, is that a receiver's main duty of care is to "a" secured creditor, which is usually a bank, whereas a liquidator is concerned with all of the affairs of a company and all of its creditors. Liquidation means the process of a company closing and the assets being turned into liquid money - hence liquidation.

Liquidation

There are three types of liquidation: ⟨ Compulsory winding up: when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs which the articles provide will result in the company being dissolved, and the general meeting has passed a resolution requiring it to be wound up voluntarily (this category is rare nowadays). ⟨ Members' voluntary winding up: company resolves by special resolution ⟨ Creditors' voluntary winding up: company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business and that it is advisable to wind up (this will result in a creditors' winding up). • Creditors in all three categories may also form a liquidation committee to liaise with the liquidator (s.141). • In both creditor's and members', the winding up is commenced by the members passing a special resolution agreeing that the company is to be wound up voluntarily (IA 1986, s.84(1)(b)). The distinction between two depends on whether a declaration of solvency is made. A declaration of solvency is a declaration by the majority of the directors which states that the directors have made a full inquiry into the company's affairs and have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months from the commencement of the winding up, as may be specified in the declaration (IA 1986, s.89(1)). Where such a declaration is made, the winding up will be a members' winding up and the creditors will likely be paid in full. If not, the winding up will be a creditors' winding up and the creditors may not be paid in full. Different procedures govern the two forms of voluntary winding up.

Service Contracts - ss 188-189

To prevent directors entrenching themselves by long-term service contracts "which would attract significant compensation packages (so-called 'golden parachute' payments), ss 188-189 require shareholder approval of any service contract which may run for more than two years (under the 1985 Act the period was five years). Failure to obtain such approval renders the relevant terms void.

Promoter

Twycross v Grant: " One who undertakes to form a company with reference to a given subject and to set it going and who takes all the necessary steps to accomplish that purpose." In essence, the person who takes the necessary steps to form a company, such as... - Registering the company - Entering into pre-incorporation contracts. In the case of public companies... - issuing a prospectus. - Appointing directors and finding shareholders wishing to invest in the new company.

UK Corporate Governance Code

UK Corporate Governance Code 2010 (replaces the Combined Code) is a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. It is overseen by the Financial Reporting Council and its importance derives from the Financial Services Authority's Listing Rules. The Listing Rules themselves are given statutory authority under the Financial Services and Markets Act 2000. Compliance with the Code is voluntary. However, listed companies do have to state how they have applied the Code in practice, or explain why they have failed to apply the Code. This is known as the 'comply-or-explain' approach and is a key characteristic of the UK's corporate governance system. Private companies are also encouraged to conform; however there is no requirement for disclosure of compliance in private company accounts. ⟨ Section D relates to Director's remuneration. It acknowledges that levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. ⟨ Premium listed company's board should establish a remuneration committee made up only of independent non-executive directors to set the remuneration levels of executive directors and the chairman.

The concession or fiction theory

Views the company as being part of the state. The original charter and statutory companies were in no sense ordinary businesses but rather they were special ventures which were granted the advantages of incorporation by state because of the public interest in the success of the business venture. Rail, telegraph and colonial trade companies are probably the highest profile example of these companies. Under the thinking of the concession theory, the ability to form a company is nothing more than a concession granted by the State. As such, the State should be able to intervene in anyway it sees fit. It views the corporation as a legal person rather than a natural one, thus it is a fiction. This theory makes it relatively easy to justify the imposition of corporate regulations aimed at promoting the public interest. For example, mandatory company law rules, such as minimum capital requirements which override any private agreements between contracting parties, sit easier with concession theory, where state interference is more easily justifiable. The weakness of concession and fiction theories is that they have little to say on the subject of the private individuals behind the corporation. Once registered companies arrived in the mid-19th century and incorporation became a simple matter of registration rather than requiring a charter or specific Act of Parliament, this weakness became very apparent.

Company's Right to Rescind Contract

the right to rescind will be lost where: ⟨ the company affirms the contract (Re Cape Breton Co) [though the company can nevertheless sue the promoter afterwards to account for the secret profit.] ⟨ company delays in exercising its right to rescind the contract

Private Companies

⟨ Investment comes from founding members' personal savings or bank loan. A private company may normally issue shares to family, friends or employees by way of a private arrangement. They are less strictly regulated with regard to loans to directors and raising and maintenance of capital • Prohibited from raising capital from the general public • Can restrict membership to those the directors approve of or insist members who wish to leave the company first offer their shares to the other members. Same actions can discourage members in a public company from investing, though it can be done. • S.154 lays down the minimum number of directors that companies must have: two for public companies and one for private companies.

Company Advantages

‣ Confer prestige which has come to be the way business is done ‣ Limited liability: it's debts does not flow over to shareholders. Ex., one is liable up to the amount he invests, ie., cannot lose more than that. Sole traders and partnership can lose all personal assets. ‣ Management can take greater risk, be more entrepreneurial, because shareholders have limited liability. Whereas management in partnerships have to be aware that the assets of partners are at risk when making decisions.

Secretary of State for Trade and Industry v Stephenson (aka, Re Stephenson Cobbold Ltd)

⟨ Acting as a signatory for company cheques does not amount to involvement in the company's financial affairs and signing blank cheques was not necessarily evidence of unfitness. ⟨ Non-executive directors who lack corporate financial experience may rely on the advice and assurances provided by the company's accountants although they should be vigilant and raise objections whenever they have concerns about the financial operation of the company. (The Secretary of State sought an order under the Company Directors Disqualification Act 1986 s.6 disqualifying H from acting as a company director. H, a non executive director of SC, was a signatory for cheques drawn on SC's account and in this capacity had signed some blank cheques as well as cheques for the managing director's child's school fees. Regarding these cheques, however, he been assured by SC's auditors that the fees were part of the managing director's remuneration package. At all times the auditors were responsible for SC's bookkeeping and prepared monthly management accounts. When SC went into voluntary liquidation it had become clear that there had been a policy of not paying Crown debts. There was evidence that H had become aware of this and, as a consequence, had reported SC's near insolvent position to the board.)

Grounds for Disqualification

⟨ Conviction of an offence: S.2 CDDA 1986 provides that the court may, at its discretion, issue a disqualification order against a person convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation, management, liquidation or striking off of a company, or with the receivership or management of a company's property. The maximum period of disqualification is five years where the order is made by a court of summary jurisdiction, and 15 years in any other case (s.2(3)) ⟨ Persistent breaches of the companies legislation: The court may disqualify a director where it appears that he has been 'persistently in default' in complying with statutory requirements relating to any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the Registrar (s.3(1)). Persistent default will be presumed by showing that in the five years ending with the date of the application the person in question has been convicted (whether or not on the same occasion) of three or more defaults (s.3(2)). ⟨ Fraud: The court may make a disqualification order against a person if, in the course of the winding up of a company, it appears that he has been guilty of an offence for which he is liable (whether he has been convicted or not) under s.993 CA 2006 (fraudulent trading), or of any fraud in relation to the company or of any breach of his duty as such officer, liquidator, receiver or manager (s.4). ⟨ Disqualification after investigation of the company S.8 CDDA 1986 provides that if it appears to the Secretary of State from a report following a BIS investigation that it is expedient in the public interest that a disqualification order should be made against any person who is or has been a director or shadow director of any company, he may apply to the court for a disqualification order. The court can disqualify such a person for up to 15 years if it is satisfied that his conduct in relation to the company makes him unfit to be concerned in the management of a company. This power has been used where, following a BIS investigation, it was apparent that a director had abused his or her power to allot shares in order to retain control of the company - Re Looe Fish Ltd

Public Companies

⟨ Formed specifically to raise large amounts of money from the general public. ⟨ Have a minimum capital requirement of £50,000, though only one quarter need be fully paid and the ability to call on the members for the balance.

Re Eric Holmes (Property) Ltd

⟨ Inaccuracy in the registered particulars and the certificate does not affect the validity of the charge to which they relate. Put another way, a charge cannot then be set aside merely because the particulars are incorrect - Re Eric Holmes (Property) Ltd When a charge is registered the Registrar must issue a certificate stating the amount secured by the charge. The certificate is conclusive evidence that the statutory registration requirements have been complied with. Rectification of the register may be possible where the court is satisfied that the failure to register within the required period or that an omission or misstatement of any particular was accidental or inadvertent, or is not of a nature to prejudice creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief (s.873).

Issued shares (issued capital funds)

⟨ Issued shares is a term of law and finance for the quantity of shares of a corporation, which have been allocated (allotted) and are subsequently held by shareholders. It is also known as the subscribed capital or subscribed share capital. The act of creating new issued shares is called issuance, allocation or allotment. Allotment, in simplicity, is the creation of shares and their transfer to a subscriber. After allotment, a subscriber becomes a shareholder. The number of issued shares is a subset of the total authorized shares. It is that amount which the board of directors and/or shareholders have agreed to allocate. Issued shares are the sum of outstanding shares and treasury shares. ⟨ There's a minimum capital requirement of £50,000, though only one quarter need be fully paid and the ability to call on the members for the balance. ⟨ Authorized share capital is the maximum amount of equity capital that a company can issue to the shareholders. The issued capital can be less than the authorized share capital but it cannot be more than it. The CA 2006 did away with the concept of authorised share capital, leaving just the shares that have actually been issued. The notion of authorised share capital lives on in only one respect: where it appeared in a company's memorandum before October 2009, it will be deemed to have transferred to the articles and, unless removed by a shareholder vote, will continue to act as a limit on the number of shares that can be issued. ⟨ One person in the case of a private company, or two in a public company, must subscribe to the memorandum. In essence, they agree to take some shares or share in the company and become its first shareholders.

Ltd (Private Limited Liability

⟨ Ltd: a limited liability company would offers distinct advantages in the sense that, as members of a limited liability company, their liability would be limited to the extent of their capital contribution to the company as opposed to their being exposed to unlimited personal liability up to the full extent of their private fortunes. Members (shareholders) are not liable for the debts of the company; the company's debts are its own. Ltd stands for private company with limited liability. In a company (public), membership is through the acquisition of shares which are freely transferable. This would mean that there would appear to be no control over the membership of a company. Private companies, however, will usually in their articles impose restrictions on the free transfer of their shares by giving first priority to existing members before they can be offered to outsiders. In addition, most private companies will insert in their articles a provision to the effect that the directors can, without giving reasons, refuse to register any transfer of shares.

Partnership Advantages

⟨ No legal filing requirements, only 2 or more members needed ⟨ Allows the pooling of resources / capital, being jointly liable for debts ⟨ Flexibility: If you're aware of the problems the Partnership Act can cause you can draft an agreement to vary these terms with a reflection of your intentions when entering the partnership - ie, specify responsibilities of members' involvement, profit share, etc.

Sole Trader Disadvantages

⟨ Not a particularly useful business form for raising capital (finding investors) -money is usually from bank loans or savings ⟨ Unlimited liability: if business fails creditors can come after your personal assets, ie., no difference from the trader and the business.

Partnership Disadvantages

⟨ Partnership Act 1890 can be a danger to the unwary, ex., may not know, despite business being successful, if partner dies business ceases to exist. ⟨ Jointly liable for debts, that is, creditor can come after one partner for debts owed by all. ⟨ entitles each partner to an indemnity in respect of liabilities assumed in the course of the partnership business ⟨ If a partnership agreement wasn't made the Act entitles partners to participate in management; entitled to equal profit share; entitled not to be expelled.

Mandatory disqualification orders for unfitness

⟨ S.6(1) CDDA 1986 provides that the court shall make a disqualification order against a person in any case where it is satisfied: a. that he is or has been a director of a company which has at any time become insolvent (while he was a director or subsequently), and b. that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company. * In contrast with the other grounds for disqualification noted above, s.6 is restricted to directors or shadow directors, including de facto directors. As to the meaning of unfit, s.6 provides that the court must be satisfied that the director's conduct 'makes him unfit to be concerned in the management of a company'. In Reynard v Secretary of State for Trade and Industry the court observed that s 6(2) was so framed as to be wide enough to enable the court to take into account a director's dishonest conduct in giving evidence in disqualification proceedings against him: 'Indeed, it would be surprising if a court had to exclude from consideration of unfitness or length of disqualification serious misconduct by a director defendant in the proceedings; for example, shredding or fabricating documents in the course of the proceedings.' In determining whether a person's conduct renders him unfit to be a director, s.9 CDDA 1986 directs the court to take into account the matters listed in Schedule 1. The list is divided into those matters which are generally applicable and those that are applicable only where the company has become insolvent. For example: • the extent of the director's responsibility for the causes of the company becoming insolvent