Corporate Secretarial Case Study - Business Law

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note
Total Words: 14008

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Corporate Secretarial Case Study
750763
University of Portsmouth
Word Count: 14315

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Question A
Introduction
The law related to companies in the United Kingdom, is governed by the
provisions of Companies Act 20061 (CA). This section of the paper would analyze the
breach of legal obligations committed by sportive and its director since it had been
incorporated. The main purpose of company law is to ensure that the directors do not
misuse their positions to cause harm to the stakeholders and shareholders of the
company or to the public. On the other hand the primary purpose of employment law is
to promote fair and good employee relations and ensure balance between the rights
and liabilities of employees and the employer, with help from the Employment Rights
Act 19962. There are several areas of law including company law and employment law
which an organization has to abide by while carrying out its operations. These laws
include the way in which the company is to be managed and how the employees of the
company are to be treated. There are several areas of company operations which are
subjected to provisions of company law. These include directors’ duties, issue of
shares, insolvent trading, and payment of dividends, board meetings, company
disclosures and meeting resolutions such as the amendment of constitution. In relation
to employment law, the operations of the company which fall within the legal provisions
include unfair or wrong full dismissal, right to notice and disciplinary proceedings.
Whether the company in context has violated any legal provisions or not can be
identified by the analysis of facts in relation to the company with the existing legal
1 Companies Act 2006
2Employment Rights Act 1996

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provisions such as statutes and case law. For this section of the paper, the legal issues
are identified as the initial step. After the identification of the legal issues the paper
identifies the relevant legal areas with respect to the issues. The legal provisions which
have been identified are applied on the facts of the case to conduct the analysis and
finally a conclusion has been reached.
The Legal issues
1. Is the change in articles done before the share allocation valid under the
provisions of the CA?
2. Is the amendment of articles with respect to the two new Articles 22(g) and 43A
valid under the provisions of the CA?
3. Has there been a breach of directors’ duty committed by the directors of the
company?
4. Has the directors indulged in the breach of insolvent trading provisions?
5. Was the dismissal of Mrs Allen after the interview considered as valid under the
Employment Rights Act 1996?
6. Was the issue of dividends by the company legal?
7. Was the termination of Mrs Kicker valid under the provisions of the Employment
relations Act and is Mrs Mason obliged to provide a reference?
8. Is it legal not to provide information to Mrs Mason about the meetings and run the
meetings without her references?
Rules

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Under section 558 of the CA3 it has been stated by that the allotment of share
has to be managed and planned carefully. A director who has allotted shares in an
unlawful manner is liable for a criminal offence even if the allotment is valid.
Under the provisions of section 551(1)4 it has been provided that a director has to
have an authority to issue shares provided by the article or an ordinary resolution. This
authority can be varied or revoked by a general resolution.
In the case of Re Mackenzie and Co Ltd5 it has been stated by the court that
when a right in relation to a share has been abolished it would lead to the variation of
class rights and in case there is a small alteration it would not lead to a variation.
According to section 630 of the CA6, protection offered to the class rights holders
may not be reduced by the articles, but may only increase the protection. There are two
ways in which class rights can be varied. These include compliance with the article
clauses or approval of 75% shareholders of the class or an approval by passing special
resolution in a meeting consisting of the concerned share class.
Under common law, companies have the power to distribute profit to its members
with respect to the limitations under the CA or the articles. Under section 8307 it has
been stated that a company has the right to issue dividends in relation to the profit
which is present for the purpose. Further, it has been provided under section 830(2)8 of
3Companies Act 2006, s 558
4Companies Act 2006, s 551
5 Re Mackenzie and Co Ltd [1916] 2 Ch 450 (Ch)
6Companies Act 2006, s 630
7Companies Act 2006, s 830
8Companies Act 2006, s 830(2)

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the CA, profit which are available for distribution include its realised profit subtracted by
its realised losses. The total of its profit and losses are to be considered from the day
the company had commenced business. The distribution of dividends is only possible
when the total derived is positive.
The duties of directors of a company in UK are provided under section 171-177
of the CA. These are known as the general duties9. According to the duties, the
directors are required to function within the limits of their powers, promote company
success, deploy independent judgement, exercise reasonable, diligence care and Skill,
avoiding conflict of interest, not taking bribes and declaring interest in transactions. In
addition, under the provisions of s 182-226 of the CA10, it is the duty of the directors to
get approval for loans, service contracts, property transactions and payment for losses
of office.
Under the operations of section 171 of the CA, the directors are required to
function within the limits of their powers and also act for a proper purpose. An act which
is indulged into be the director for the purpose of maintaining control within the company
is to be considered as an act for improper purpose11.
Section 172 of the CA provides rules relating to promoting the success of a
company12. In the case of Extrasure Travel Insurance Ltd v Scattergood [2003]it had
been provided by the court that in case actions causes harm to the company the court
9Companies Act 2006, s 171-177
10Companies Act 2006, s 182-226
11Companies Act 2006, s 171
12Companies Act 2006, s 172

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would not be persuaded easily to believe that the action is in the interest of the
company13. Under the section14, the directors who are making decisions must give
regards to the consequences of the decision, interest of company employees, fostering
business relationship with customers and suppliers, assessing impact of operations on
the environment, maintaining business conducts and acting fairly between the members
of the company15. In the case of Fulham Football Club (1987) Ltd v Tigana [2004]16, it
had been stated that the breach of the duty is analyzed in the light of whether the
directors acted in an honest breach.
Under section 173 of the Act it is the duties of the directors to implement
independent judgment17. They must have the ability to exercise their discretionary
powers as provided by the case of Fulham Football Club Ltd v Cabra Estates plc18. In
case such independent judgment is not used, this would lead to the breach of this duty.
Based on the the provisions of s 174 of the CA, the directors are expected to
deploy a standard of care which is same as that of a reasonable person19. This is
analyzed in relation to the general experience, skill and knowledge which is expected of
a person indulging in the same functions as carried out by the directors. In general law
the skill and knowledge which is actually possessed by the directors is taken into
consideration. The provisions have been further discussed in the court of Re Barings plc
(No 5) [2000]20.
13Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598 (Ch)
14Companies Act 2006, s 172
15Omar, Paul J. Directors' duties and liabilities.Taylor & Francis, 2017.
16Fulham Football Club (1987) Ltd v Tigana [2004] EWHC 2585 (QB),
17Companies Act 2006, s 173
18Fulham Football Club Ltd v Cabra Estates plc [1992] BCC 863
19Companies Act 2006, s 174
20Re Barings plc (No 5) [2000] 1 BCLC 523 (CA).

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Under the provisions of sections 17721 and 18222 of the CA, it has been stated
that any interest in a proposed transaction or arrangement has to be disclosed by the
directors as soon as reasonably practicable.
Under the provisions of section 21 of the CA it has been stated that the articles of
associations can be amended by the company23. This can be done through the passing
of a special resolution. In addition if the articles prohibit certain kinds of alterations they
cannot be carried out under section 22 of the CA24.
Section 993 of the CA provides rules in relation to an offence of fraudulent
trading25. It has been stated through the section that in case a business of an
organization is carried out with an intention of defrauding the company creditors, of a
creditor of any other person, or for any purpose which is fraudulent in nature, all
individuals who are a part of carrying out the business transaction knowingly are held to
have committed an offence in such manner26. This is applicable irrespective of whether
the company is or has been subjected to the procedure of winding up. A person who is
found to have violated this section is liable of an imprisonment which can be extended
up to ten years and fines or both27. This issue has been discussed by the court in the
case of Re Patrick and Lyon Ltd [1933]28. Wrongful trading takes place when the
directors have knowledge that the company has become insolvent and there is no plan
in relation to how payment is to be made to the creditors. It takes worse effect where the
21Companies Act 2006, s 177
22Companies Act 2006, s 182
23Companies Act 2006, s 21
24Companies Act 2006, s 22
25Companies Act 2006, s 993
26Companies Act 2006, s 993(1)
27Companies Act 2006, s 993(3)
28Re Patrick and Lyon Ltd [1933] Ch 786