LAWDM0008R COMPANY LAW 2024

Java Python LAWDM0008R

COMPANY LAW

AUGUST 2024

SECTION A - You must attempt at least one question from this section.

1.   The  articles of association of X Limited, a company manufacturing and selling craft materials, contain a provision that any transaction involving the purchase or sale of goods or services at a value of £50,000 or more will only be valid if approved by both directors. There are two directors of X Limited – Anne and Brenda. This provision was included in the articles when the company was first incorporated some years ago. Anne and Brenda are also shareholders in the company, together with a range of other investors. They each hold 20% of the  shares, with the remaining 60% being split amongst the remaining shareholders.

Anne would like to change the articles of association to increase the limit of £50,000 to £90,000. Her view is that £50,000 is too low and that necessary business decisions are being delayed waiting for both directors to discuss and agree on various matters. On one occasion recently, Anne went ahead and signed off on the purchase of what she thought was a necessary piece of equipment for the business, which cost £75,000. Brenda was upset to hear this. Anne has spoken to a few shareholders about this matter, who have reassured her that they would support her decision.

The articles also give Brenda, as the founding member, the right to veto any decision to allot shares. Anne thinks that this should be removed. Brenda suspects that this is because Anne wants to allot shares to her family so as to give her more power in the company.

The articles contain a further provision that allows directors to use the company’s premises for ‘workshops and training events in the creative use of craft materials’. Anne has recently allowed the premises to be used for her sister’s birthday party, where those attending learned how to make bowls using a potter’s wheel. Due to a few too many drinks being consumed, the party  LAWDM0008R COMPANY LAW 2024 got out of hand and clay was spilled on various surfaces.

Advise Anne, who (i) wants to change the articles; and (ii) has recently been told by Brenda that she was ‘out of order’ in allowing the premises to be used for a party and that her first loyalty is to the company.

2.   Kaz and Leon are two friends with a shared interest in craft beer. They have sold their beer at some small local food festivals and the feedback has been very positive. They would now like to set up business to sell their products more widely. They estimate that the cost of website design and leasing premises will be more than they have in savings. They are also realistic and know that they will need to employ others to help in the business. They have sought the advice of a local business adviser, who has put them in touch with potential investors. There is one investment group that is particularly keen. The collective view of this group is that craft beer is possibly too niche and Kaz and Leon should look at developing a range of spirits in addition to beer. Kaz and Leon are reluctant to do this. The group is clear that they can provide business advice during the start-up period but do not want to run the business.

Analyse which business option would be best for Kaz and Leon, and why.

SECTION B

3.   ‘Section 172 of the Companies Act 2006 is a progressive provision, which sets out clearly that directors may no longer manage their companies in the interests of shareholders alone.’

Critically analyse this statement.

4.   Adam Smith wrote that directors of joint stock companies could not be expected to watch over other people’s money ‘with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own’ .

Critically consider whether Adam Smith’s contention is true of company directors in 2024.

5. ‘Ebrahimi v Westbourne Galleries Limited has had a significant impact on the development of the unfair prejudice remedy. It is difficult to conceive of another British company law case in the twentieth century that has had such a profound influence on the development of company law.’

Critically analyse this statement