International Company Law Report: UK vs. France & Financial Distress

This report on international company law explores various aspects of international business regulations. It begins by differentiating between international sales contracts, specifically comparing the CISG and English law. The report then delves into the forms and functions of EU companies, highlighting the differences between private, public, and partnership entities and their adherence to the Companies Act 2006. A significant portion of the report is dedicated to comparing the historical development of British and French corporate law, including the impact of the Industrial Revolution and subsequent legislation. The report also addresses corporate governance issues surrounding limited liability, particularly in the context of financing, and examines the rights of stakeholders within corporate governance frameworks. Furthermore, it outlines the duties of directors towards a company, assessing instances of breaches of these duties and the available administrative remedies. Finally, the report discusses the information available for identifying a company's financial distress and the role of directors in avoiding and managing such situations, culminating in recommendations for creditors regarding a company's financial health.

INTERNATIONAL COMPANY LAW
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Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
1.1 Difference between various international sales contract..................................................1
1.2 Forms and functions of EU companies............................................................................1
1.3 Comparing historical development of British Corporate Law and France Corporate Law. .2
LO 2.................................................................................................................................................2
2.1 Corporate governance issues surrounding limited liability arising in financing of
corporation..............................................................................................................................2
2.2 Legal framework and common law position in the UK...................................................3
LO 3.................................................................................................................................................3
3.1 Stakeholder’s rights in corporate governance..................................................................3
3.2 Duties of directors towards company...............................................................................4
3.3 Assessing instances of breaches of corporate and director duties....................................5
3.4 Administrative remedies available for breach of corporate duty.....................................5
LO 4.................................................................................................................................................6
4.1 Information available for identifying financial distress of company...............................6
4.2 Role of company director in avoiding and managing distress situations.........................6
4.3 Recommendation for creditors on financial health of company......................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Big organizations always emphasise on expanding their business across the world. When
entity makes commercial transactions with other nations then it becomes essential for the firm to
follow international company’s principles and regulations. Present report will discuss differences
between various international sales contracts. It will compare historical development of British
Corporate Law. Furthermore, assignment will discuss stakeholder’s rights in the corporate
governance. Study will describe duties of directors towards company. In addition, it will discuss
information available for identifying the financial distress of enterprise.
LO 1
1.1 Difference between various international sales contract
There are two main sales contract : CISG (United Nations Convention on Contracts for
the International Sale of Goods) and the English law act 1979. Article 31 of CISG explains sales
remains silent at the time of delivery. This contract describes that goods will be delivered when
buyer is available to collect them. Whereas section 29 of English law explains that it is essential
to deliver goods at seller's place of contract remains silent on this matter. English law of 1979
act describe that it is very important to deliver goods within reasonable hours (Contracts for
international sale of goods. 2017). Whereas CISG has no such type of provision. Article 33 of
CISG declare that seller has to present products as per provision of contract of sale but reactive
nature of 1979 act gives right to buyer to claim against seller if there is non delivery of products
on time.
1.2 Forms and functions of EU companies
Corporate business forms give in-depth description on technical matters such as capital
increase/ decrease. Public and private limited as well as partnership are three main forms of EU
companies (Koutsias, 2017). Private limited entities work for raising their profit and expansion
of business unit. On the other hand, public limited organization works for improving the
economic condition of nation and providing satisfactory goods to consumers. Partnership firms
have function to generate reasonable profit. Section 2, clause 68 of Companies Act 2013 state
that private firm needs to have minimum £100 share capital. All these businesses have to follow
legal requirements of company act 2006. This act reduces the burden of directors and helps in
conducting operations in other nations effectively (Donovan and et.al, 2016).
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1.3 Comparing historical development of British Corporate Law and France Corporate Law
At the end of 19th century, France was allowed to incorporate in England freely because
of free registration system. In medieval times, traders were following common law. In the year
1820, industrial revolution has made changes in corporate law. Limited liability act 1855 was
formed that describe investors to limit their liabilities (Duncan, 2015). In 20th century,
Companies Act 1948 has been made. Foreign investments in France are free from restrictions. In
the year 1791, France revolution has created situation when private companies were free to trade.
But in the year 1793 and 1796, this law was modified. New law was consolidated by using
concession system. In the year 1867, under Loi Sur les Societes, France has adopted new system
of free registration of companies. Whereas, in the UK, initially government has created Royal
charter. At that time, British East Indian Company has got permission to trade with other
countries. In 1719, London assurance corporation act was made by authorities (Hannigan, 2015).
In the year, CA 1948 was formed in which it was declared that director can be removed by
stakeholder’s voting system.
French limited firms protect directors from certain liability claims. Whereas, UK
companies do not protect directors from liabilities and if director makes some mistakes or
breaches duties then individuals will be responsible to get punishment for the same. Corporate
tax rate is lower in UK than to France. In the year 2013, authorities have declared that companies
will have to pay 20% of profit for tax (Coffee Jr, Sale and Henderson, 2015). Whereas, it is
33.1% in France.
LO 2
2.1 Corporate governance issues surrounding limited liability arising in financing of corporation
One of the strategic major issues faced by company surrounding limited liabilities is to
add value by changes in financing. As if condition of financial market gets changed then it
becomes difficult for entity to manage its operations properly. Corporate governance makes
decision of making financial innovation and economic closures in market. For that, authorities
make rules and regulations (Bayern and et.al, 2017). Financial innovations create issues in
capital structuring and financial strategies of business. In such condition, overall profit of the
firm gets reduced.
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Changes in legal norms and policies create difficulty for enterprise and enhance their
burden. Modifications in legal policies impact on share prices that sometimes reduce return over
investments. Monitoring cost is another strategic issue because shareholders fail to use the
information (Hudson, 2017).
2.2 Legal framework and common law position in the UK
Section 1(2) of company act 2006 (CA 2006) define that limited firms are such entities
which are limited by shares. These entities have to register themselves by registration of
memorandum. Regulation No 2015/ 2425 explains about European Union trade mark and
intellectual properties. Later on several amendments have been made in this law and authorities
have included one-fee-per class system at the time of renewal. Section 171 of company act gives
power to shareholders to make decision (Valenta and Moravec, 2017). Section 172 is for
promoting the success of entity. CA 2006 discusses the memorandum of limited liabilities. It
describes that it is essential to have at least one director in limited company. This regulation
describes that limited firm is required to prepare their accounts and records as per the standard
guidelines. It is essential to prepare these records every year (Carr and Sundaram, 2016).
LO 3
3.1 Stakeholder’s rights in corporate governance
Corporate governance is the system or mechanism to control and direct international
corporations. Each stakeholder is given with certain rights in business. Corporate governance
protects the right of stakeholders and ensures success as well as economic growth of entity.
Rights of stakeholders are described as below: Inspecting rights: These shareholders have authority to seek all financial information
related to company (The Shareholder's Rights in a Corporate Governance, 2018). They
need to know about appropriate use of funds, accountability of business. They can
request to management to give necessary details related to merger, major investments,
etc. so that they can make their decisions accordingly. Dividend entitlement: It is another right of all stakeholders to get dividends from profit
generated by entity in each financial year. Entity cannot pay dividend to selected people
and cannot neglect other stakeholders.
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 Voting rights: Shareholders have power to vote in essential decisions of organization.
These people are authorized to vote for selecting board of directors, management (The
duties and liabilities of directors of limited companies incorporated in the UK, 2007).
They can vote on various matters such as selection of officers, acquisition, liquidation of
assets, etc. It is responsibility of owner to consider their votes and take decisions
accordingly.
 Appraisal rights: They can demand for the fair value of shares. If value of shares is
increasing in market then these people have rights to get appraisal in entity.
3.2 Duties of directors towards company
Section 291 of Companies act 1956 explains about duties of director towards company.
Responsibilities of directors are described as below:
 Director is responsible to take any action within power. Individual has to work as per
given in guidelines of company's constitution that involve article of association and
resolution as well as agreement of constitutional nature (Directors’ duties: remedies and
reliefs and director disqualification, 2016).
 Director has to ensure benefits of other involved people and stakeholders. Individual is
responsible to make such decisions that can be profitable for company and support in
accomplishing its objectives. Individual has to protect the benefit of its members as well.
 Director is responsible to minimize or avoid direct or indirect conflicts' situation in
organization. Individual has duty to protect the environment of workplace and resolve
conflict situations soon (Valenta and Moravec, 2017).
 Director is liable to not accept benefit from any other third person. All necessary
decisions are made by director and thus, it is moral responsibility of person that do not
accept any kind of benefit from anyone that gives personal benefit to director. Individual
is responsible to promote the success of company.
 Director has duty to take all judgements independently without influence of others.
Section 173 of companies act explains that individual has to make independent decisions.
3.3 Assessing instances of breaches of corporate and director duties
It is responsibility of director to fulfil their corporate duties in an effective manner. If
person gets failed to fulfil their duties then individual is liable to get punishment. There are many
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examples when breaches of corporate and director duties have occurred. Greenhalghy v Arderne
Cinemas Ltd [1951] Ch 286, at 291 is one of the great example of breach of corporate and
director's duty (Hannigan, 2015). Director has to make sound decision for the growth of
business; his wrong judgement can affect overall performance of entity to a great extent. But in
the case of Prest v Prest [2013] 2 AC 4 15 at [41], it is found that director has made foolish
decision and approved negligent judgement. Shareholders have not given their consent for this
decision but director has approved it which was breach of duty.
Case of North West Transportation Co Ltd V Beatty (1887) 12 App Cas 589 at 593-4 per
Sir Richard Bagallay is another example of breach of duty to avoid conflict situation in company.
Individual is liable to minimize conflict situation in firm. (Predicting financial distress using
financial ratios in companies listed in NAIROBI stock exchange, 2014).
3.4 Administrative remedies available for breach of corporate duty
There are some forms of relief if director breaches the general duties. Meaning of
remedies in legal terms is to cure problem by taking support of court, laws and administrative
agencies. For example: Duty of reasonable care and diligence is the responsibility of director but
if director breaches this corporate responsibility then company needs to show all losses that have
been occurred due to this breach and has to show causal link in between breach and company
loss. Cohen v Selby [2001] 1 BCLC 176 is a great example of this remedy. Director also has
equity based duty and if individual breaches this law then equitable remedies will be available
(Directors’ duties: remedies and reliefs and director disqualification, 2016).
If director has breached their duty then shareholders can rectify this mistake by passing
ordinary resolution. In most of the cases, court gives relief to the director who has breached the
duty because of their honesty (Bayern and et.al, 2017). If entity has made loss due to illegal
action of director then firm can take benefit of insurance in order to recover its loss.
LO 4
4.1 Information available for identifying financial distress of company
There are many companies those which are suffering from bankruptcy sand financial
distress. It is very important for investors, creditors that to find out actual performance of entity
so that they can make their decision accordingly. There are many information available to
identify financial distress of an entity. Each enterprise is responsible to prepare their financial
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statement as per guideline of IFRS. These accounts give detail regarding overall economic
performance of organization (Predicting financial distress using financial ratios in companies
listed in NAIROBI stock exchange, 2014). Cash flow ratio can be calculated by the shareholder.
This cash flow ratio is significant predictor of financial distress. This helps in analysis actual
cash inflow and outflow so overall profit and expenses of entity can be examined.
Profitability, liquidity and operational rations are significant factors that give detail
regarding financial health of business. Total assets of entity, obligation of business, operational
effectively determine how entity is utilizing its assets and to what extent it is able to generate
profit. Financial ratios can predict distress in the organization easily. These help in identifying
risk of investment and investors can make their sound decision. For example by looking at ratios
of Tesco it can be identified that from last few years entity is facing financial distress, its profit is
getting down (Hannigan, 2015).
4.2 Role of company director in avoiding and managing distress situations
It is duty of director that to monitor financial performance and activities of business
carefully. Individual has to make careful decision so distress type of situations can be avoided.
Before making investment decision individual is required to take support of investment appraisal
techniques such as NPA, Payback period etc. so that investment can be made in right place from
where entity can generate high revenues over its investment. This can help in enhancing profit of
business and minimizing critical conditions. Director is responsible or has power to control over
business activities. Thus, individual has to focus on effective utilization of cash so that assets can
generate good revenues and can be profitable for entity (The duties and liabilities of directors of
limited companies incorporated in the UK, 2007).
Director plays role of monitor, individual has to keep eye on performance of entity and
has to look upon quarterly financial performance of business. This support in making
modification in entity so that overall performance of business can be improved. Furthermore,
director plays role of communicator. Individual has to coordinate necessary details to all
shareholders so that they can make their decision effectively. Director is responsible to timely
communicate details regarding growth of the entity to all investors, creditors etc. This helps in
gaining their trust and making them loyal towards the brand (Koutsias, 2017). By this way
individual can avoid distress situation and can manage financial performance of the enterprise
significantly.
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4.3 Recommendation for creditors on financial health of company
Insolvency act 1986 is one of the effective legislation that deals with corporate
insolvency matters. If creditors or investors have invested in a firm which is going through
financial distress situation then shareholders can take support of insolvency act in order to
protect themselves from loss. There are many firms which are facing such distress but these
entities do not show this loss or negative performance in their financial statements. In such
condition creditors and investor invest their money in business but fail to get high return over
their investments. Insolvency act protect rights of creditors and prevent them from monitory
losses. Insolvency law is helpful in debt recovery of creditors, by this way investors can prevent
themselves from big losses.
Workout is considered as another effective solution that protect creditors and help in
getting complete repayment of delinquent debt (Hannigan, 2015). If entity face any kind of
financial distress then it would be responsibility of firm that to repay creditors all money with
required incentives as per workout plan.
CONCLUSION
From the above report it can be concluded that international company law helps business
in conducting their operations across the world. It is responsibility of director to take sound
business decision and information to all shareholders about financial health of enterprise.
Individual has to focus on effective utilization of cash so that assets can generate good revenues
and can be profitable for entity. Shareholders have Voting, dividend entitlement, inspecting
rights in business.
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REFERENCES
Books and Journals
Bayern, S. and et.al., 2017. Company Law and Autonomous Systems: A Blueprint for Lawyers,
Entrepreneurs, and Regulators. Hastings Sci. & Tech. LJ. 9. pp.135.
Carr, I. and Sundaram, J., 2016. International Trade Law Statutes and Conventions 2016-2018.
Routledge.
Coffee Jr, J. C., Sale, H. and Henderson, M. T., 2015. Securities regulation: Cases and materials.
Donovan, A. H. L. and et.al., 2016. Towards an adaptive economic model for microstates: the
importance of company law reform in international regulatory competition. The Company
Lawyer. 37(9). pp.267-281.
Duncan, I., 2015. A Synopsis of Company Law of the People's Republic of China:
Commercially and Socially Effective" Stakeholder-oriented" Law 1. Quarterly Journal of
Chinese Studies, 4(1), p.1.
Hannigan, B., 2015. Company law. Oxford University Press, USA.
Hudson, A., 2017. Understanding Company Law. Taylor & Francis.
Koutsias, M., 2017. The Fallacy of Property Rights' Rhetoric in the Company Law Context:
From Shareholder Exclusivity to the Erosion of Shareholders' Rights. International
Company and Commercial Law Review. 28(6). pp.217-233.
Valenta, P. and Moravec, T., 2017. The Influence of Law Changes in the Czech Republic to the
Easiness of Set up a Company. International Information Institute (Tokyo). Information.
20(10A). pp.7143-7150.
Online
Contracts for international sale of goods. 2017. [Online]. Available through
<https://www.lawteacher.net/free-law-essays/contract-law/contracts-for-international-sale-
of-goods.php>
Directors’ duties: remedies and reliefs and director disqualification. 2016. [Online]. Available
through <https://lawexplores.com/directors-duties-remedies-and-reliefs-and-director-
disqualification/>
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Predicting financial distress using financial ratios in companies listed in NAIROBI stock
exchange. 2014. [Online]. Available through
<http://erepo.usiu.ac.ke/bitstream/handle/11732/133/ROBERT%20OTOM%20.pdf?
sequence=1&isAllowed=y>
The duties and liabilities of directors of limited companies incorporated in the UK. 2007.
[Online]. Available through <https://www.lexology.com/library/detail.aspx?g=0c67cb7d-
c248-4b35-b5fc-9c1864c6a5f1>
The Shareholder's Rights in a Corporate Governance. 2018. [Online]. Available through
<http://smallbusiness.chron.com/shareholders-rights-corporate-governance-61933.html>
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