MANAGEMENT OF THE COMPANY

-Company management is done through holding meetings from which resolutions are made and registered with
the company registrar.

Companies Act provides for three types of meetings.

1) A statutory meeting
-S. 137(1) provides for a statutory meeting and it provides that a meeting shall be held for public companies, not
more than 3 months from the date of commencement of business.
-For other companies that are not public companies, the meeting is to be held upon receiving a certificate of
incorporation.
-Under the statutory meeting, there is a requirement for directors to forward a statutory report 14 days prior to the
members.
-The format and content of such report is given in S.137 (4) (a-e). The report must be certified by not less than 2
directors especially for public companies. (This is for proper management).
-In addition, the section requires that the statutory report must be certified by auditors, if any. Under
-S. 137(6), a copy of the report must be registered with the registrar of companies.
-Under S.137 (7) the directors must publish a list of what each shareholder owns and their addresses and this list
should be publicly accessible to every member.
-Under S.137 (8), members are free to discuss any matter in the report and any resolution thereafter must be made
after giving notice to the members, in accordance with the articles.
-S.137 (9) the meeting may adjourn from time to time.
-S.137 (10) establishes a penalty in case of default for non-compliance with this section. This penalty extends to
non-complying officers of the company and the company itself.

2) The Annual General Meeting (AGM)

-This is a meeting which is held once a year and is applicable to both private and public companies.
-The meeting is exclusive to members of the company and shareholders. (S.138) in this meeting adequate notice
should be given of at least 21 days. (S.140)
-Under S.138 (2) a private company, at the requisition of a member can hold an AGM. If a company holds its
first AGM meeting, 18 months after commencement, it need not hold another meeting in the second
year.(S.138(3)
-The objective of the AGM has generally been understood to mean an opportunity for the company to deliberate
on directors, to look at the balance sheets, to look at the audited accounts of the company, to appoint a company
secretary and appoint company auditors. The AGM is technically referred to as the company meeting.

3) The Extra Ordinary Meeting

-S. 139. Where some matters were not discussed or if an important and emergent point arises a resolution may be
made to sit an extra-ordinary meeting.
-This meeting can be by a requisition which should state the objectives of the meeting, which objective should be
deposited at the requested office of the company.
-For a member to requisition this meeting, they should have paid up10% of their shares. Once the requisition for
the meeting is deposited, the directors have up to 21 days to convene this meeting. (All this is stipulated under
Section 139)

EMERGENCE OF VIRTUAL MEETINGS

-Due to covid, meetings that used to be physical were then online and for some this has become the norm even
after the pandemic,
-Having meetings in a way not provided for in the Articles of Association renders the meetings void. Therefore
ideally if the articles provide for physical meeting having them online would render them void.

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
Ways to remedy this
1) The company can amend its articles by special resolution in line with Section 16 of the CA to cater for virtual
meetings
2) The company can apply to court under Section 142 of the Companies Act, 2012 for an order to hold the annual
general meeting in the most practical way.
-In the Matter of Stanbic Uganda Holdings Limited, the High Court granted the company leave to convene
AGM for the year ended December 31, 2019 by electronic means for the reason that given then existing COVID-
19 circumstances and legal regime, with the ban on public gatherings and meetings, the company could not
convene a physical meeting due to a large membership of about 22,500.

Notice.
-S.140 provides for a notice to hold a company meeting not to be shorter than 21 days.
-Notices are intended to give members full information, fair and reasonable disclosure, in order that members can
make a decision as to whether or not to attend the meeting.
-S. 140(4) members can consent to meeting called on short notice. The notice should fully have the details of
what is intended to be discussed in the meeting.
-It was held in Re Pearce Duff Co Ltd, that the mere fact that all the members are present at the meeting and pass
a particular resolution, either unanimously or by a majority holding of the voting rights, does not imply consent
to short notice and anyone who voted for a resolution in these circumstances can later challenge it.
-Notice of convening a meeting must be sufficient and specific to enable members decide whether to attend or
not. In Tiessen v. Henderson, it was held that notice of a company meeting must be full and specific enough to
enable a shareholder to decide whether he wants to attend or not.
-Notice of a general meeting must be sent to every member of the company and every director and if notice of a
meeting is not given to every person entitled to notice, the proceedings and any resolution passed at the meeting
will be invalid.
-Young v Ladies Imperial Club, Mrs. Young was expelled by a resolution passed in a meeting however the
Duchess of Abercorn who was member was not sent an invite claiming that she wouldn’t attend and this
invalidated the proceedings and Scrutton J held that every member has to be summoned unless they can’t be
reached or in situations of severe illness.
-However, the accidental omission to give notice of a meeting, or the non-receipt of notice of a meeting by any
person entitled to receive notice, does not invalidate the proceedings at that meeting and any resolutions passed.
Re West Canadian Collieries Ltd, The Company failed to give notice of a meeting to certain of its members
because their plates were inadvertently left out of an addressograph machine which was being used to prepare the
envelopes in which the notices were sent. The proceedings of the meeting were not invalidated, it being held in
the High Court to be an accidental omission within an article of the company.
-In regards to purpose of the meeting, in the case of Kaye v Croydon Tramways Company, It was held that the
notice by reason of its omission to refer to compensation of the directors did not fairly disclose the purpose for
which the meeting was convened and was thus misleading.

More Instances where Notice won’t be sufficient

-The notice of meeting was issued by someone without proper authority (Re State of Wyoming Syndicate it was
held that the Company Secretary cannot summon a General Meeting without consultation with or approval of the
Board of Directors),
-The meeting was deliberately held at a time or place to prevent some members from participating (Cannon v
Trask it was held that directors are not at liberty to call a meeting on a date which is unsuitable for the members
to attend and vote),
-An adjournment to an inconvenient time and place results in invalidity (Byng v London Life Association,
meeting was adjourned by the director to a different venue on the same day for an extraordinary meeting to vote
on a merger and this meant that a lot of people wouldn’t be able to attend the second meeting in which a resolution
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
approving the merger was passed it was held that the adjournment was unreasonable and therefore the resolution
invalid.

QUORUM
-Quorum refers to the number or members of any body of persons whose presence at the meeting is required in
order that the business may be validly transacted.
-S.141(c) of the Companies Act, the default position of quorum is 3 members in public companies and 2 in private
companies.
-However quorum required is usually set in the company’s articles.
-The problem arises is where the meeting is properly constituted but people leave during the meeting. In Re
Hartley Baird Ltd, the quorum set by the company’s articles was 10 and the meeting began with that number of
members present. One member then left but, despite this, Wynn Parry J held that the departure of the member did
not invalidate the proceedings carried on after his departure.
-However in Re London Flats Ltd, two persons were originally present at a meeting and one subsequently left.
A decision then taken by the remaining member was held to be ineffective. Here, the question was whether or not
there was actually still a meeting as defined above, not simply whether, if there were a meeting, it was quorate.

DUTIES AND ROLES OF A CHAIRMAN.

-S. 141(d) a chairperson is elected by members present in a meeting.
-The chairperson of the meeting has the responsibility of ensuring that the meeting is properly conducted, ensure
fairness throughout the meeting.
-The chairman should be considerate to request for adjournment.
-However a chairperson has no authority to terminate the meeting ‘at his own will and pleasure’.
-In National Dwellings Society v Skye, there was an ordinary general meeting in which a resolution was moved
that the accounts and reports of the company be received, however a counter-resolution was moved to open up an
investigation to determine the state of the company. The chairman dismissed the resolution and called an end to
the meeting and left, and the remaining shareholders voted in a new chairperson and went ahead with the meeting.
-It was held that the duty of the chairman, and his function, to preserve order, and to take care that the proceedings
are conducted in a proper manner, and that the sense of the meeting is properly ascertained with regard to any
question which is properly before the meeting.
-It was also held that it was not within the chairman’s power to stop the meeting at his own will and pleasure and
the meeting being continued was alright.
-Chairman has power to adjourn meeting. (Refer to the case above of Byng v London Life Assurance to determine
the parameters of this power)

Voting at Company Meetings

-Article 62 Table A provides for voting by show of hands
-In a company with share capital, each member there has 1 vote, irrespective of each share of that member as
provided for under. S. 141(e).
-For other companies without share capital, (limited by guarantee) every member has 1 vote in respect of his
shareholding.
-It should be noted that a member cannot vote unless he or she has paid up some shares.
-A shareholder has a right to vote as he or she wishes (general rule). In Pender v Lushington, Lord Jessel MR,
A member has a right to say, "Whether I vote in the majority or minority, you shall record my vote, as that is a
right of property belonging to my interest in this company, and if you refuse to record my vote I will institute
legal proceedings against you to compel you.
-Whether a shareholder can vote on a matter they are directly interested in. In North-West Transportation Co
Ltd v Beatty, Sir Richard Baggallay said: Unless there is some provision to the contrary, every shareholder has a
perfect right to vote upon any such question, although he may have a personal interest, in the subject-matter
opposed to, or different from, the general or particular interests of the company.
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-However, there are situations where the member’s democratic right to vote is interfered with, say by court, by
agreement or as may be expressly provided for in the Articles of Association. Clemens v Clemens Bros, an Aunty
and her niece were shareholders in the company with the Aunty having more shares. She also doubled as a director
and a resolution was tabled in extraordinary general meeting in order to increase the share capital and distribute
shares among the other directors and long serving customers and the aunt voted in favor and the resolution was
passed and the niece brought this suit claiming it was unfair because her shareholding decreased significantly. It
was held in a favor of the plaintiff as it was held that the exercise of her vote as majority shareholder is subject to
equitable considerations.

Voting agreements.
-These are treated like ordinary contracts and therefore the doctrine of freedom of contract arises where members
in this case are presumed to have voluntarily entered into a voting agreement, to vote in an agreed way or manner
-Non-compliance of what was agreed is taken as an ordinary breach of a contract and is actionable with remedies
such as specific performance, injunctions and damages.
-It should be noted that Voting agreements do not bind subsequent purchasers of the shares, subsequent to the
voting agreement.

Voting by proxy
-Under S.143, the general rule is that every shareholder must exercise their right to vote by themselves. However,
it is possible for one to vote through someone else (proxy). A proxy can only take part in a company meeting in
so far as voting is concerned.
-To avoid any mischiefs on the part of the proxy, such a member intending to use a proxy must give adequate
notice to be filed with the company directors before the meeting.
-This sometimes is referred to as the proxy instrument. However any provision in the company’s articles requiring
the instrument to be valid if it’s received by the company for more than 48 hours before the meeting, is void. (S.
143(5)).
-There is no requirement to give reason for such appointment and a proxy can be any person.
-In Tiessen v. Henderson, it was held that notice of a company meeting must be full and specific enough to
enable a shareholder to decide whether he wants to attend or not.
-Re Holbur Bridge, Iron, Coal and Wason Co, it was held that when a voting by poll is effected the voters are
to be counted according to their number of shares.
-S. 144 provides for right to demand a poll.
-In such a situation, the votes at such a meeting are not based on the numbers of members present in person or by
proxy but on the strength of the members’ shareholding.
-Where this takes place, the voting is said to be by a poll.
-The rationale behind voting by poll is the presumption that those likely to demand a poll are the most exposed
in terms of risk, given their shareholding in a company.
-Accordingly, if a crucial matter surrounding the policy of the company is before the meeting, such people may
be given a chance to direct the company.

MEMBER’S INFORMAL MEETING.

-A meeting of the company shall notwithstanding the fact that it is called by a notice shorter than the time specified
in S.140(1)(21 days) or that stipulated in the company’s articles be deemed to have been duly called and convened
if all members agree to attend.
-This is illustrated in Re Express Engineering Co, where court held that an informal agreement of all members
may constitute a company meeting.
-In this case, it was held that a member’s informal meeting are meetings held without the prescribed 21 days’
‘notice. In such instances short notice will be deemed good notice as long as;
1) Shareholders agree to meet
2) All the shareholders attend
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
3) The decisions/resolutions made are intra vires
4) Decisions are made for the benefit of the company.
-All of these requirements must be met for decisions of the informal meeting to be valid.
-Parker and Cooper Limited v Reading,

COMPANY RESOLUTIONS
-Resolutions are a conventional way by which companies take decisions. These are largely arrived at by a vote or
by voting at a properly constituted meeting of the company.
-The normal rule is that a resolution is adopted if more votes are cast in favor than against, which is usually a
simple majority. If by any chance the votes are equal, then there is no resolution.
-On certain specific company matters the law requires a larger majority (s. 148 which requires 3/4 of members
known as a special resolution)
Types of resolutions:
1. Ordinary resolution
2. Special or extra ordinary
3. Elective resolution

1) Ordinary Resolution
-This one is normally arrived at by a simple majority. S.195 allows a company to remove any director by an
ordinary resolution.
-In Bushell v Faith, a company passed an ordinary resolution to remove a director. However, the director had
special voting rights on resolution to remove him from office, and the resolution was rejected by court. It was
held that The words “ordinary resolution” in the Companies Act merely connote a resolution depending for its
passing on a simple majority of votes validly cast in conformity with the articles of the company: there is nothing
in the Act which prevents the articles giving certain shares or classes of shares special voting rights attached to
them on certain occasions, and, accordingly, the articles may validly give special voting rights to a director on a
poll or a resolution to remove him from office.
-Unless expressly provided otherwise, all company’s resolutions are ordinary

2) Special or Extraordinary resolutions.

-Under this resolution, ¾ of the members attending and voting is required to pass a special resolution. (S.148 (1),
and notice should be given specifying the intention to propose the resolution.
-If a special resolution is to be validly passed, the resolution as passed must be the same resolution as that
identified in the preceding notice. Re Moorgate Mercantile Holdings Ltd, the secretary of the company sent out
notices of an extraordinary general meeting where a special resolution to cancel share premium would be
discussed. In the meeting the premium was proposed to be reduced instead of canceled, and it was held that the
resolution had not been validly passed because it differed not only in form but also in substance from the one set
out in the notice.

3) Elective Resolution
-Under this resolution a notice of an elective resolution must be given stating the terms of such a resolution.
-The elective resolution must be agreed to by all members eligible to attend and vote at company meetings, in
person or by proxy. A requirement of a notice under elective resolutions can be waived if all the members entitled
to attend the meeting agree (s. 140(4))
-Once the shareholders have adopted an elective resolution in a particular matter, the board is empowered and
obliged to take the necessary steps to put that resolution in practice.

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
MINUTES OF A COMPANY
-S. 152. Provides every company shall cause minutes of all proceedings of general meetings and of all proceedings
at meetings of its directors, to be entered in books kept for that purpose
-If a minute is signed by the chairman of the meeting or of the next succeeding meeting, the minutes are prima
facie evidence of the proceedings. S. 152(2)
-This means that although there is a presumption that all the proceedings were in order and that all appointments
of directors, managers or liquidators are deemed to be valid, evidence can be brought to contradict the minutes.
Thus, in Re Fireproof Doors, a contract to indemnify directors was held binding though not recorded in the
minutes.
-On the other hand, if the articles provide that minutes duly signed by the chairman are conclusive evidence, they
cannot be contradicted. Thus, in Kerr v Mottram, the claimant said that a contract to sell him preference and
ordinary shares had been agreed at a meeting. There was no record in the minutes and since the articles of the
company said that the minutes were conclusive evidence the court would not admit evidence as to the existence
of the contract.
-Under S. 153 the minutes are free for inspection by company members.

DIRECTORS AND MANAGEMENT OF THE COMPANY

-The other organ of the shareholders in the management of a company is a board of directors (B.O.D). The board
is entrusted with the management and administration of the company and in doing so its affairs must be conducted
with reasonable formality
Definition.
-S.2 of the Companies Act defines director” to include any person occupying the position of director by whatever
name called.
-The word director was defined in the case of R v Camps that; A person who acts as, and performs the functions
of, a director, although not duly appointed as a director, is occupying the position of a director and includes a de
facto director unless the context otherwise requires.
-Under s. 185 every company must have at least one director. For public companies, there must at least be two
directors.
-Under s. 186 the company in a general meeting has the right to appoint any number of directors and specify their
general qualifications in accordance with the guidelines specified under the law.
-For public companies which have a share capital, a person is not capable of being appointed as a director unless
that person has undertaken in writing and delivered for registration a consent to act as a director of the company.
s. 192.
-It should also be noted that nobody under 18 years or over 70 years of age can be appointed a director in a public
company or in a private company which is a subsidiary of a public company. s. 196.
-A duty is imposed on such a person to disclose his or her age. (S.197)
-The Companies Act empowers court to stop anybody from taking part in the management of a company if such
a person has been convicted of an offence related to promotion, formation, management or winding up of a
company. s. 201.
-It should be noted that the Companies Act has a proviso that validates the acts of a person who acted as a director
although illegally nominated or appointed. S.191
-R v Camps, in the company’s articles it required a director to hold up At least one share fully paid. Camps didn’t
satisfy this qualification and charges were brought against him for breaching his duty as director and he claimed
that since he wasn’t qualified to be a director, he couldn’t be tried as one. The case went up to the Court of Appeal
of Eastern Africa which overturned the decisions of the lower courts and held that any person who performs the
functions of a director although not duly appointed as such is occupying the position of a director.

REMUNERATION OF DIRECTORS
-In practice, directors are paid for their services although under the law there is no general right for any payment
for their services. In Re: George, Newman and Co ltd it was held that directors have no right to be paid for their
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
services and cannot pay themselves or each other, or make presents to themselves out of the company’s assets
unless authorized to do so by the instrument that regulates the company or by the shareholders at a properly
convened meeting.
-If the director works for the company without a contract, he can recover a sum of money for his service under a
quantum meruit but this remedy is not available where the director has a contract which has used inappropriate
words. Craven-Ellis v Canons Ltd, The claimant was employed as managing director by the company under a
deed which provided for remuneration. The articles provided that directors must have qualification shares, and
must obtain these within two months of appointment. The claimant and other directors never obtained the required
number of shares so that the deed was invalid. However, the claimant had rendered services, and he now sued on
a quantum meruit for a reasonable sum by way of remuneration. Held by the Court of Appeal he succeeded on a
quantum meruit, there being no valid contract.
-There is no requirement that directors’ remuneration should be paid only from distributable profits. In Re Halt
Garage Limited, the directors of the company, husband and wife also owned the only issued share capital and the
articles provided for remuneration of the directors which the husband and wife took out for themselves. The wife
got sick and couldn’t take part in the day to day running of the company but still took out remuneration as director.
The liquidator sued the couple for the remuneration and it was held that the husband’s remuneration was valid
however since the wife hadn’t ably worked she was liable to pay back part of the remuneration she had taken out.

INDEMNIFICATION
-Under Article 136 of Table A, Every Director, managing partner, agent, auditor, secretary or other officer for the
time being of the company shall be indemnified out of the assets of the company against any liability incurred by
him or her in defending any proceedings, whether civil or criminal, in which judgement is given in his or her
favor or in which he or she is acquitted or in connection with any application under S.285 of the Act in which
relief is granted to him/her by the court.

REMOVAL OF DIRECTORS
-Under s. 195 a company may by an ordinary resolution remove a director before the expiration of his period of
office notwithstanding anything in the company articles or any agreement between him and the company.
-Removal of a director can be done immediately if a director is found guilty of a grave misconduct or a breach of
his/her fiduciary duties.
-Special notice shall be required of any resolution to remove a director at the meeting and on receipt of the notice;
he shall be entitled to be heard on that resolution.
-Bell v Lever Bros, two directors were removed, and paid compensation however later it was discovered that they
had done misconduct that would be entitled to dismissal without compensation. It was held that the company
could not recover the funds.
-In Burshell v Faith, there were 3 shareholders each owning a 100 shares and a provision in the articles that in
the event that there is a resolution proposed in a general meeting to remove a director, that director will have 3
votes in the matter. And when Faith one of the directors misbehaved the other 2 attempted to remove her but she
demanded a vote by poll and since she had the extra votes, it was in her favor and Burshell sought a declaration
from court to remove her and in the House of Lords it was held that special voting rights were not prohibited and
could not vote out Faith.

BOARD OF DIRECTORS MEETINGS

-The BOD must conduct its business in an organized manner and Under Art 98 of Table A, it states that subject
to the provisions of the articles, the directors may regulate the proceedings as they think fit and directors can’t act
individually unless they have been delegated powers by the BOD to do so.
-The words as they ‘think fit” were discussed in Re Portuguese Consolidated Mines Ltd where Lord Justice
Bright stated “when you talk of thinking fit must they not meet in order to think” and it was held that the only
way in which directors can exercise their powers is at or under the authority of a meeting which is properly
convened or where proper notice had been given or where all directors are entitled to attend. (General Rule)
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-Under S. 232, and 242 directors are supposed to act collectively and in person
-It should be noted that a director who has been excluded from attending BOD meetings may apply to court for
an injunction to restrain other directors from excluding him from office. In Industrial Coffee Growers (Uganda)
Ltd v Tamale, Slade J stated that ‘It seems well settled law that a meeting of directors is not duly convened unless
due notice has been given to all the directors and that any business transacted at a meeting not duly convened is
invalid”
-In Mohanlal K Radia vs Rose Kato Nakeyenga and Six Others, the plaintiff as director of the company wasn’t
given notice of a meeting that put forth a resolution amending the Memats to open up the company to new
members and it was held Clearly calling meetings of the company without due notice to all members of the
company is mismanagement of that company's affairs, especially to the detriment of the members not notified.
-BOD meetings can be held in informal circumstances as there is no legal requirement that the meeting must be
formal. Because Article 98 Table A provides for directors to meet for the dispatch of business and to regulate
their meetings as they deem fit. In Barron v Potter, it was held that directors can meet under any circumstances
so long as they all agree to do so. Justice Wallington pointed out that “if directors are willing to hold a meeting
they may do so under any circumstances provided there is an agreement to that effect between them”(Key thing
is agreement, if one or two directors disagree the meeting won’t be valid)
-During deliberations in BOD meetings, directors must take minutes of what transpired. Walugembe v Giwa,
where court observed that if they fail to take minutes, they can’t complain of inferences different from those
determined by the meeting.
-It has been emphasized that directors act collectively as a board and that once decisions have been reached by a
majority of those present, they bind the others.
-This rule can sometimes have a significant effect on the opposition to a proposal for as was stated by Millet J in
Re Equiticorp plc, “once a proper resolution of the board has been passed. It becomes the duty of all the directors,
including those who took no part in the deliberations of the board and those who voted against the resolution to
implement it.

Conflict between Shareholders and Directors

-Article 80 of Table A, which most companies adopt is to the effect that apart from those powers as may have
been expressly reserved for the general meeting by the Company’s Act and all the articles of association of the
company in question, directors are to manage the company’s business and must exercise all powers as are not
reserved as aforesaid.
-In interpreting this article, Gower says that any company with an article similar to the one under discussion is
subject to the rule that the general meeting of the shareholders cannot give directors directions or orders on how
the company’s affairs are to be managed nor can they overrule any decision of the directors which is in the conduct
of the company’s business.
-Automatic Self Cleaning v Cunningham, the shareholders of the company with a provision similar to Article
80 sued the directors who had refused to affix the company seal on a contract involving the sale of company
property which in the opinion of the directors was likely to lead to the winding up of the company. Court of
Appeal upheld the director’s refusal and observed that the directors cannot in general be merely looked at as
agents of shareholders. That the directors’ powers could not be overridden by a mere majority of shareholders.
They are not puppets, they are not even agents; they are servants of the company. At the end of the day they are
the company.
-Lord Greer in John Shaw & Sons (Salford) Ltd v Shaw, stated that “A company is an entity distinct alike from
its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors,
certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested
in the directors, they and they alone can exercise these powers. The only way in which the general body of the
shareholders can control the exercise of the powers vested by the articles in the directors is by altering their
articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they
disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more
than the directors can usurp the powers vested by the articles in the general body of shareholders.”
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-It should be noted that the board of directors is not supposed to cater for individual shareholder interests but the
general interest of the company and other stakeholders like credit institutions.
-With such observation, it is clear therefore that the general meeting in reality is no longer the company where
the board is its subordinate. On the contrary, the general meeting is subordinate to the board since the board is the
brain behind the company.
-If, however, there is no effective board because there are no directors or no quorum is possible, or the directors
refuse to meet, then there is a deadlock and it has been held that the powers enjoyed by the board under the articles
are retained or revert back to the shareholders in general meeting. In Barron V Peter, there were only two
directors who had a falling out and one of them refused to attend the meeting and therefore there could not be any
valid meeting. The directors had the power to appoint additional directors and therefore the shareholders had an
Extraordinary General meeting where they appointed two additional directors and it was held that since the
directors were unwilling to appoint additional directors, the shareholders were valid in doing it.

LIABILITY OF A COMPANY FOR THE ACTS OF ITS OFFICERS.

-As a general rule, a company is a person and the person should be responsible for specific acts of its officers. It
should be noted that although a company is a person it cannot be held responsible for all the acts that can be
attributed to human persons.
-When that person is a company, an artificial, fictional person, how is it to be determined what the company
thinks, knows or intends?
-The interpretation of the judgment of the leading case of Lennard’s Carrying Co Ltd v Asiatic Petroleum Co
Ltd was that you must look for the ‘directing mind and will’ of the company. What he or they thought, knew or
intended was what the company thought, knew or intended. In this case, case, a claim was brought against the
company by the owners of some cargo which had been destroyed by fire while it was on board a ship belonging
to the company and the question was raised to whether the company was at fault and Viscount Haldane LJ held
that a company has no mind or body of its own and it’s active and directing will must be sought from the persons
who is really directing the mind and will of the company. Accordingly, court held that Lennard who was the
directing mind of the company should have appeared to rebut the presumption of liability against his company.
-Therefore, the identification theory proceeds on the basis that there is a person or a group of persons within the
company who are not just agents or employees of the company but who are to be identified with the company
and whose thoughts and actions are the very actions of the company itself.
-HL Bolton (Engineering) Ltd v TJ Graham and Sons Ltd, this was stated by Lord Denning, A company may
in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has
hands which hold the tools and act in accordance with directions from the centre. Some of the people in the
company are mere servants and agents who are nothing more than hands to do the work and cannot be said to
represent the mind or will. Others are directors and managers who represent the directing mind and will of the
company, and control what it does. The state of mind of these managers is the state of mind of the company and
is treated by the law as such.
-In the case of Smithfield Butchery Ltd v R, the appellant company had been indicted for contravening the bye
laws related to the selling of meat and court accepted the argument that wrongful acts or omissions of a
subordinate staff of the company would not in the ordinary circumstances bind the company, but in this particular
case since a responsible officer was aware that the company was selling such meat court of appeal fixed criminal
responsibility to the company.
-Article 80 Table A makes it clear that a company’s business is to be managed by directors who are supposed to
exercise all such powers that are not reserved to the general meeting.(Any acts or omissions of such parties would
bind the company)
-In Mahony v. East Holyford Mining Co, court emphasized that the articles of association are open to all who
are minded to have any dealings with the company and those who deal with the company must be fixed with
notice of all that is contained in such a document. (Third parties dealing with companies should understand their
Memats, in order to ensure that an act or omission done by a director is within their functions under the memats
and therefore binding to the company)
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
DELEGATION OF DIRECTORS’ POWERS
-Under Section 232 of the Companies Act a director can assign their office to another person by a special
resolution of a company.
-Article 80 of Table A shows that a director can by power of attorney appoint any company or person to be the
attorney with such powers of directors.
-Managing director; Court in Harold Holdsworth v Caddies noted that someone with the title managing director
has no special powers unless the Articles of Association expressly gives him or her such powers.
-Article 107 Table A shows that directors may appoint one of their members as a managing director.
-If a managing director has not been appointed for a specified time, his termination will be in accordance with the
articles. In Read v Astoria Garage, the articles provided for termination of the MD by a resolution passed in a
general meeting and 1 months’ notice was given and he sued for wrongful dismissal but action was held to be in
line with the articles.

MONITORING OF DIRECTORS
1) Filing Annual Returns
-Section 132 Companies Act requires companies with a share capital to file annual returns every year.
-Annual returns are a report to the registrar of companies about the status of the company whether there has been
a change in ownership of shares or membership, location or debts incurred
2) Financial Reporting
-The Board of directors has a responsibility to cause financial reporting. They must ensure that books of account
are kept as required by Section 154 to show and explain the company’s transactions and the financial position of
the company.
-Section 55 requires them to prepare a profit and loss account and a balance sheet for each financial year.
-These must be duly signed by a director on behalf of the board. In Reproduce Marketing Limited court found
that directors could not escape liability by arguing that they were unaware of the financial state of the business
because the companies account was not ready in time.
3) Auditing
-The accuracy of the accounts must be verified by independent auditors.
-Section 167 requires a company at the annual general meeting to appoint an auditor.
-Auditors must examine the accounts of the company and they are empowered under Section 170 to obtain
necessary information for that purpose and to attend and be heard at company meetings
-In Re Kingston Cotton Mills court found that an auditor is not bound to be a detective. An auditor is a
“watchdog” but not a “blood hound” and is not designed to discover frauds. In their reports, auditors must state
whether in their opinion the accounts have been properly prepared and whether a true and fair view has been
given of the state of affairs at the end of the financial year.
-Auditors owe a duty of reasonable care to the company to carryout investigations to enable them form an opinion
whether proper accounting records have been kept. In Re Thomas Gerrard and Sons limited court found that
auditors must use reasonable skill and care in carrying out their statutory duty. It is the duty of the
Auditors on discovering falsified invoices to make enquires and inform the board of directors of the company.
-If auditors discover serious wrong doing, they should not delay to report. They are required to immediately
inform management / shareholders or any 3rd party involved. In London and General Bank Limited, the
company had not made adequate provision for bad debts. The auditor had discovered and reported to the directors.
The directors failed to make provision.
-The auditor did not report to the shareholders about this but instead went on to make a statement that the value
of the assets is dependent. Court held that the auditor had failed in his duty to convey information clearly in his
report and was made liable for certain dividends improperly paid.
-However in Caparo Industries Plc v Dickman, the judges noted that audit reports of plc`s are regularly carried
out which differs from reports carried out for specific purposes and for an identified audience. Thus, the
accountants owed no duty to the entire public who might or might not place reliance on the report when making
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
financial decisions. (The accountants in the audit made a misstatement as to the profits the firm was acquiring
which made the respondent invest and make a loss)

4) Company Secretary
-Article 110 of Table A: directors shall appoint a secretary
-Article 110(2) of Table A: directors can remove a secretary

Persons not eligible to be secretary

a) Sole director of the company
b) Sole director of a corporation
c) Company being sole director

Status of a company secretary

-Previously as seen in the case of Barnett Hoarse v. South London Tramways court said that a secretary is a
mere servant, and he has to do what he is told. He has no authority to represent anything at all.
-However, this position was changed in the latter case of Panorama Developments v. Fidelis Furnishing Fabrics
where Lord Denning said that a “company secretary is a much more important person now than in the past. He is
the Chief Administrative Officer of the company, and is no longer, a mere clerk. He regularly makes
representations on behalf of the company and enters into contract on its behalf.”

-Article 10 of Table A of the Companies Act highlights the role of the company secretary. Article 10(1) shows
that a secretary shall have a pivotal role in corporate governance through;
• Issuing notices of board and general meetings
• Taking minutes of the board and general meetings
• Counter signing company documents
• Making statutory filings of the company at the company registry
• Keeping the company’s statutory books
• Guiding directors on their duties and responsibilities
• Guide on corporate governance.
• Legal representation. The Company Act shows that a company secretary can be an advocate. However, it should
be noted that he/she must first get authority or instructions of the company directors before proceeding with the
legal action. In Kabale Housing Estate v. Kabale Municipal Local Government, court held that a suit brought
without instructions is incompetent.
• On the role of issuing notices of board and general meetings, the decision in Re State of Wyoming Syndicate
shows us that a company secretary cannot summon a general meeting without consultation or approval of the
board of directors

Fiduciary Duties of the Secretary

-To act in good faith
-Duty of care and skill
-Duty of account. (Use the Panorama Developments Case to show that Secretary can be held liable)

Liabilities for the Company Secretary

1) Liability of the company for acts of the secretary.
-A company secretary binds the company by his actions. The basis of liability stems from the ordinary principles
of agency. In Moore v. Bessler the company was held liable for the acts of its secretary for using documents in a
manner amounting to deceit.
-Liability can also arise, if a secretary holds out as having authority to act and as a result making a 3rd party to
believe that he/she has authority to act. (Use Panorama Developments Case)

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
2) Personal liability of the company secretary to the “company” and “third parties”
i. Secretary can be personally liable to the company where he acts as an agent of the company but makes secret
profits or appropriates confidential information. (Panorama Developments Case)
ii. The company secretary can be personally liable for any fraudulent dealings done against 3rd parties even
though it is done under the name of the company. In Ruden v. Great Fingall, liability was held not to attach to
the company but the company secretary who had issued a share certificate on which he fraudulently affixed the
seal of the company and also forged the signatures of two directors.

CORPORATE GOVERNANCE
-The OECD Principles of Corporate Governance defines “Corporate Governance” as a set of relationship between
a company’s management, its board, its shareholders and other stakeholders.
-Section 14(1) and (2) show that a public company or a Private company may at the time of registration adopt
and incorporate into its Articles the provisions of the code of corporate governance contained in Table F.
-Some companies in Uganda practice poor corporate governance. This is why in Mark Xavier Wamala v. Stephan
Aisu, Justice Kiryabwire took judicial notice of this sad state of corporate governance in Ugandan Companies
and he pointed out that it has become notorious for companies not to maintain company records like a register of
members.

Principles of Corporate Governance

1. Openness. Members need to know what is going on in the company so that they make informed decisions.
Article 1 of Table F shows that the board is accountable for the performance and affairs of the company.
2. Honesty. Article 1(1) of Table F shows that the directors in the performance of their duties are inter alia
expected to act in good faith. (Guiness v. Sauders)
3. Transparency. Article 21(2) of Table F shows that reports shall be transparent, reflect accountability and
comprehensive. (Guiness v. Sauders)
4. Independence. This is aimed at avoiding conflicts of interest. (Use the case of Regal Hastings)
5. Ethical behaviors. Article 16 of Table F shows that a code of ethics must be set for all stakeholders and there
must be commitment to do it
6. Accountability. Article 1(1) Table F shows that the Board is accountable for the performance of its duties.
Article 11 shows that the board is responsible for the total process of risk. (Flitcroft’s case- directors told pay
back capital paid as dividends
7. Fairness. All stakeholders must receive equal consideration. (Pari Passu Latin term) Article 20 Table F provides
for relations with shareowners. Article 15(2) highlights the integrated approach to stakeholder reporting. (Brady
v Brady- all interests of stakeholders must be considered.)

THEORIES OF CORPORATE GOVERNANCE

Agency Theory: This deals with the relationship between the principal, such as shareholders and agents such as
company executives and managers. According to this theory, shareholders who are the owners can appoint the
managers/agents to manage the company on their behalf. Section 194 shows that shareholders can appoint
directors in a general meeting.
Stewardship Theory: Managers who identify with the company are highly committed to organizational values
and are more likely to serve organizational ends. It places the managers responsibilities under one executive, with
a board comprised mostly of in-house members.

Transactions where there is a non-compliance with Internal Management Procedures

1) THE INDOOR MANAGEMENT RULE/THE RULE IN TARQUAND
-The doctrine of constructive notice by fixing contracting parties with notice of the contents of its registered
documents could have had even worse commercial consequences than it did if it were not for the rule in Royal
British Bank v Turquand. This case established that, whilst a person dealing with a company might be deemed
to know of certain limitations and procedures contained in the constitution which had to be followed before a
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
company could enter into a transaction, he was not obliged to investigate into the internal affairs of the company
to see whether the requirements of the constitution and regulations of the company had been complied with.
-In this case, the company’s deed of settlement authorized the directors to borrow on behalf of the company on
bond for such sums as had been authorized by the general resolution of the company. In contravention of this
resolution, two directors at the company borrowed two thousand pounds on bond from the plaintiff Bank without
the authority of the general meeting. The bank demanded for payment and the company raised a defence that it
was not liable since the officers did not abide by the regulations of the company. Court reaffirmed the principle
that those who deal with an incorporated company are bound to look at the articles of association. However, once
a person dealing with the company has looked at the company’s articles and memorandum, he is not bound to do
more. In this particular case since the deed of settlement gave the directors power to borrow money on bond the
bank had a right to infer that the resolution for borrowing had been respected.
-According to Lord Hatherly in Mahony v East Holyford Mining Co, When there are persons conducting the
affairs of the company in a manner which appears to be perfectly consonant with the articles of association, then
those so dealing with them, externally, are not to be affected by any irregularities which may take place in the
internal management of the company. They are entitled to presume that that of which only they can have
knowledge, namely, the external acts, are rightly done, when those external acts purport to be performed in the
mode in which they ought to be performed.
- S.53 which basically states that anyone dealing with a company in good faith can assume that the company is
acting in accordance with its memorandum and articles.
-In Charles Harry Twagira v DFCU Bank, Dfcu was claiming money lent to the plaintiff. The plaintiff argued
that its company’s Articles and memorandum required a resolution to be passed before borrowing money and
since one wasn’t passed, DFCU couldn’t claim for the money. However it was held that the New Companies Act
clearly shows that the powers of the company are not limited by their memorandum and articles and therefore
plaintiff had to pay the debt.
-In Gordon Tea Estates v Traders, it was claimed that the sale was illegal because a special resolution was not
passed contrary to the MEMATS of the company and court invoked the indoor management rule to state that the
third party did not need to make an inquiry and company’s powers not limited by Memats.
-However in Uganda the indoor management rule has been applied by courts inconsistently. In the case of
Necta(U) Ltd and Anor v Crane Bank, Constitutional Court held that financial institutions such as banks or any
person lending money to a company are required to scrutinize the MEMATS of the borrowing company and
acquaint itself with its demands.(In this case, the appellant company borrowed money, and a special resolution
was signed by the director and secretary however not all directors signed as was required by the MEMATS, court
overlooked the indoor management rule and S.53 and holding that the selling of the property of the company was
invalid as the bank hadn’t done due diligence in finding out the proper procedure under the MEMATS)

Exceptions to the application of the Indoor Management Rule

-Unsurprisingly, the rule will not apply where a person dealing with a corporation has actual knowledge of the
deficiency in the authority of a director or officer. It is trite that the Turquand rule applies only when the third
party is acting in good faith
-The rule will also not apply in suspicious circumstances that put an outsider on notice to inquire into the actual
authority of a corporate officer. As Justice Wright stated in B Liggett (Liverpool), Limited v Barclays Bank,
Limited, The rule proceeds on a presumption that certain acts have been regularly done, and if the circumstances
are such that the person claiming the benefit of the rule is really put on inquiry, if there are circumstances which
debar that person from relying on the prima facie presumption, then it is clear, I think, that he cannot claim the
benefit of the rule."
-The rule could not operate in favour of an ‘insider’ (for example, a director) who would be deemed to know of
any irregularity in the internal management of the company no matter how unrealistic, in fact, that might be. In
Howard v Patent Ivory Manufacturing Co., court stated that the authorities which don’t require that somebody
dealing with a company must make sure that the internal regulations have been complied with does not apply in
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
a case where those seeking to enforce obligations against the company are its directors. Where the directors could
not defend the issue of debentures to themselves because they should have known that the extent to which they
were lending money to the company required the assent of the general meeting which they had not obtained.
-However, the insider rule does not apply where the company held out one of its officers as having such authority.
In Hely Hutchinson v Brayhead Limited, the plaintiff was appointed director of the defendant company and was
convinced to advance money to another company in which the defendant was a shareholder and the managing
director of the defendant company held that he would indemnify the plaintiff and refused to do so, claiming that
since he was director in the company he ought to know the managing director doesn’t have such power but court
held that he was acting in the capacity as an individual and not as a director and the company had allowed the
managing director to hold himself out as having this apparent authority to enter the indemnity agreement.
-The rules of law laid down in Turquand will not validate a forgery. A forgery is a crime and in no sense a genuine
transaction. In Ruben v Great Fingall Consolidated, the secretary procured a loan from stockbrokers with the
security of share certificates signed by directors however the signatures had been forged and the brokers failed to
get registration of the certificates and sued the company in estoppel and it was held Neither was the company
responsible for the fraud of its secretary, because it was not within the scope of his employment to issue
certificates and further that the doctrine applies only to irregularities that might otherwise affect a genuine
transaction. It cannot apply to a forgery.

TRANSACTIONS WHERE THE PERSON ACTING FOR THE COMPANY IS NOT AUTHORISED

1) The doctrine of holding out

-There are situations where the company’s articles are silent or are not clear about an officer’s powers.
-Where the rules are silent, then no actual authority is given to anyone else to act for the company but it may be
possible for a third party contracting to the company with a person who purports to represent the company, but
who has no actual authority, to claim that that person had apparent or ostensible authority and that, therefore, the
company is bound by the agreement.
-Freeman and Lockyer v Buckhurst Properties, where there were four directors of the company, which had a
clause in its articles allowing for the delegation of the board’s powers to a managing director. No managing
director was ever formally appointed but, in reality, one of the directors, K, ran the business of the company. K
entered into a contract with the plaintiffs, who were a firm of architects, to carry out some work for the company.
This work was carried out, but the company subsequently refused to pay the fees, on the ground that K did not
have authority to enter into the contract on behalf of the company. It was held by the Court of Appeal that,
although K was not actually authorised, he was ostensibly authorised and, therefore, the contract was binding on
the company. Court laid down the instances when a third party will succeed notwithstanding the fact that the
internal regulations were never followed and the articles are also silent about the powers of the officer.
Diplock LJ in,
“If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which
must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the
company by an agent who had no actual authority to do so. It must be shown: (a) that a representation that the
agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made
to the contractor; (b) that such representation was made by a person or persons who had ‘actual’ authority to
manage the business of the company either generally or in respect of those matters to which the contract relates;
(c) that he (the contractor) was induced by such representation to enter into the contract, i.e., that he in fact relied
on it; and (d) that under its memorandum or articles of association the company was not deprived of the capacity
either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of
that kind to the agent.
-Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd, a company Secretary contracted
to hire cars in the absence of the managing director and was prosecuted and found guilty but the issue was whether
the company was liable for the amount for the hiring of the cars and it was held that company secretary had
ostensible authority to enter into the contracts for the hire of the cars on behalf of the defendants, for a modern
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
company secretary was not a mere clerk but an officer of the company with extensive duties and responsibilities
and he could be regarded as being held out to have authority to sign contracts connected with the administrative
side of a company’s affairs, such as ordering cars to meet customers.
-Emco Plastica International Limited V Sydney Lawrence Freeberne, a newly appointed Secretary dealt with a
newly appointed chairman of the board on the money they were to be paid and the company claimed the chairman
had no authority to negotiate with the secretary and it was held that the chairman had implied or ostensible
authority to enter into the contract on behalf of the appellant company.

DUTIES OF DIRECTORS (From Coursework)

-Regal (Hastings) Ltd v Gulliver and Others
-Regal Hastings was a cinema company and the appellant in this case, and Gulliver and four other respondents
were directors of the company and Garton was the solicitor for the company.
-This was an appeal from His Majesty’s Court of Appeal.
-The brief facts was Regal wanted to acquire shares in a subsidiary company called Hastings Amalgamated, and
could not raise up the funds which were a total of 5,000 pounds accruing to 5000 shares.
-It was then agreed that Regal would contribute 2000 shares and then the rest of the money would be contributed
by the directors each bringing money worth 500 shares and Garton, the solicitor to top up.
-The directors and Garton (Solicitor) agreed, however, Gulliver stated that he would acquire the 500 shares from
other people.
-After the conclusion, and the purchase of the shares, the directors and the solicitor went onto sale their shares in
Amalgamated at a profit which was not disclosed to the company.
-This brought up the suit and the contestation was that the directors and solicitor breached their fiduciary duty to
the company (Regal) by not disclosing the profit to be made by the sale of their shares.
-This fiduciary duty arises because of the agreement by Regal to purchase those shares. And the directors would
have never been in that position if it wasn’t for their position of directors at Regal.
-In the Court of Appeal, it was held that since there was no loss suffered by Regal and that there was no mala fide
in dealing with their shares, therefore the case should be dismissed against the respondents with costs.
-However this judgement was overturned by the House of Lords, all the Lords agreed to this judgement and they
held that indeed the four directors (in the exclusion of Gulliver and Garton) owed a fiduciary duty to the company,
this is because the only way they were in such a position was by the fact that they were directors of the company
and therefore disclosure should have been made in the profits that were made.
-The House of Lords relied on the case of Keech v Sandford, which expresses the rule of equity that insists that
those who by use of a fiduciary position make a profit, being liable to account for that profit in no way depends
on fraud, or any other circumstance and liability arises merely on the fact of a profit having been made.
-In this case of Keech v Sandford, a lease of the profits of a market had been devised to a trustee for the benefit
of an infant, and the renewal of the lease had been rejected on the basis that he was an infant. And the trustee took
up the lease not on behalf of the infant but on his own and it was held that this was not proper as the only reason
he was in that position was by virtue of the fact that he was a trustee.
-Therefore the majority of this decision was delivered by Lord Russell of Killowen and it was held that the four
directors breached their fiduciary duty to the Company when they did not disclose the profits to be made by the
sale of their shares in the subsidiary company (Amalgamated) as they were only in a position to buy those shares
because of their position as directors of Regal.
-For Gulliver, it was held that the appeal against him dismissed, this is because he procured other people to take
up the 500 shares and the profit that was made in the sale of the shares was not his own but that of those people
who owned the shares.
-For Garton, it was also held that the appeal be dismissed against him, as he was only a solicitor for Regal and
since he wasn’t a director he had no fiduciary duty to the company.
- (Strict application of the principle of equity and conflict of interest)
-Conflict of interest demands disclosure and

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
Other aspects of fiduciary duty
-It has long been settled that directors are viewed as agents of the company and as such they are subject to the full
rigor (strictness) of the fiduciary duties developed by equity to ensure strict compliance with the overriding
principle that fiduciaries must not benefit from their position of trust.
-Towers v Premier Waste Management plc 2001: Mummery LJ sums up the fiduciary nature of the office of the
director highlighting how the director has a duty of loyalty to the company and a duty to avoid a conflict between
his personal interests and his duty to the company.

Who does the director owe a duty to?

Peskin v Anderson 2000
-It was held how in general, directors of companies have no general fiduciary duty to shareholders. This is
because:
i. It would place an unfair, realistic and uncertain burden on a director
ii. It would present him frequently with a position where his two competing duties (Company and Shareholders),
would be in conflict.

Duties of the Directors according to the act.

Statutory Duties
-S.198 the duties of the directors shall include the following—
(a) Act in a manner that promotes the success of the business of the company ;(( the duty has two elements. First,
a director must act in the way he or she considers, in good faith, would be most likely to promote the success of
the company for the benefit of its members as a whole)
Charterbridge Corpn Ltd v Lloyd’s Bank ltd 1970:
- Pennycuick J stated that the test for determining whether this duty has been discharged ‘must be whether an
intelligent and honest man in the position of a director of the company concerned, could, in the whole of the
existing circumstances, have reasonably believed that the transactions were for the benefit of the company’.
Knight v Frost 1999:
- A director who borrows money ostensibly for the benefit of company A but then transfers it to benefit company
B which was insolvent and in which he held a substantial shareholding is not acting bona fide in the interests of
company A.
• Ball v Eden Project 2002:
- A director exploiting the goodwill of the company’s business for his own benefit by registering a trade mark
linked to the company’s business in his own name is in ‘clear breach of his fiduciary duty’.
- Thus if a director embarks on a course of action without considering the interests of the company and there is
no basis on which he or she could reasonably have come to the conclusion that it was in the interests of the
company, the director will be in breach.)
(b) exercise a degree of skill and care as a reasonable person would do looking after their own business;(This
means the general knowledge, skill and experience that may be reasonably expected of a person carrying out the
functions carried out by the director in relation to the company,
Re D’Jan of London Ltd 1994:
- Hoffman LJ, relying on s214(4) of the 1986 Act held a director negligent and prima facie liable to the company
for losses caused as a result of its insurers repudiating a fire policy for nondisclosure of the fact that he had been
a director of a company that went into liquidation.
- The director had signed the inaccurate proposal form without first reading it. (There is no passivity in the role
of director and in this case didn’t exercise that due-diligence.
(c) Act in good faith in the interests of the company as a whole, and this shall include—
(i) Treating all shareholders equally;
(ii) Avoiding conflicts of interest;
(iii) Declaring any conflicts of interest;
(iv) Not making personal profits at the company's expense;
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
Bray v Ford 1986:
- He highlighted how it is an inflexible rule of a court of equity that a person in a fiduciary person is not, unless
otherwise expressly provided, allowed to put himself in a place where his interest and duty conflict.
- Lord Herschell expressly states that the basis of this duty is not morality, rather it is the danger of the person
holding a fiduciary power being swayed by interest rather than by duty, and thus prejudicing those whom he was
bound to protect.
-corporate opportunity doctrine as a principle which ‘makes it a breach of fiduciary duty by a director to
appropriate for his own benefit an economic opportunity which is considered to belong rightly to the company
which he serves’.
(v) Not accepting benefits that will compromise him;
Aberdeen Rly Co v Blaikie Bros 1854:
- Lord Cranworth LC stated that ‘no-one, having fiduciary duties to discharge, shall be allowed to enter into
engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with
the interests of those whom he is bound to protect’.
(d) Ensure compliance with this Act and any other law.

Proper Purpose Doctrine.

-Re Smith & Fawcett Ltd 1942:
- Lord Greene MR restates the Part b ‘proper purposes doctrine’ asserting how directors must exercise their
discretion bona fide in what they consider is in the interests of the company, and not for any collateral purpose
-Allen v Hyde, it was held that the directors owe a duty to the company and not to the shareholders.
-S.170 of UK act, all duties should be in line with the principles of common law.

Common Law Duties

-Duty to act within the director’s duties. Strictly abide by the power, act in the company’s benefit even where
powers are not conferred, to use their power for a proper purpose. Not to make gratuitous payments. Hogg v
Cramphorn Ltd, in order to prevent a takeover he claimed was bad for the company, the director issued extra
shares to outvote the takeover and it was held that the directors violated their duties as directors by issuing shares
for the purpose of preventing the takeover.
-Need to promote success of the company. (Not taking unauthorized advantage of your position as a director,
ensuring transactions with the company are for a proper purpose, ensuring a proper division between personal
and company property, keeping company information confidential and considering the interests of creditors.)
-Duty to make independent judgement. Involves acting according to the company constitution Dissenting Lord
Denning in Boulting v Association of Cinematograph held that indeed the directors had no obligation to be a
part of the trade Union if they felt that it would lead to them not acting in the benefit of the company solely.
-Duty to exercise reasonable care. (Use Re D’Jan Case)
-Duty not to accept benefit from third parties. Towers v Premier Waste Management, the director accepted a loan
from one of the company’s customers to renovate his home and did not disclose this to his directors and on a
fallout with the customer, this came to light and an action was brought against the directors, and it was held that
the director had breached the duties of loyalty and the duty to avoid conflicts of interest that he owed to the
company.

Duty to avoid conflict of interest.

-General rule was laid down in the Regal Hastings following from Aberdeen Railway. No one having such duties
to discharge(fiduciary duty) shall be allowed to enter into engagements in which he has or can have a personal
interest conflicting or which possibly may conflict with the interest of those whom he is bound to protect(Lord
Cranworth in Aberdeen)
-Cook v Deeks, Judge declared that men who assume the complete control of a company’s business must
remember that they are not at liberty to sacrifice the interests which they are bound to protect.

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
-This duty is breached in two instances; 1)Where there is a conflict of interest opportunities, the director doesn’t
disclose the opportunity to the company and proceeds to appropriate money in the opportunity.
2) Where there is a conflict of interest opportunity, director discloses the opportunity to the company but continue
to appropriate money even through the company has properly rejected the appropriation.
-Peskin v Anderson
-West Mercia v Dodd
-Kuwait Asia Bank EC v National Mutual Life Nominees Ltd

Statutory Provisions (Duties)

-S.174-177 UK Act.
-S.178 Ug Act

Defenses Available to the Directors

-Consent by the Directors
-Full disclosure of the conflict of interest
-If the shareholders give consent.

Tests for Conflict of Interest.

1) Interest/Expectancy Test
-For this test Court considers whether the company has an interest in the transaction or whether indeed they had
an expected interest in the transaction.
-In Lagarde v Anniston Lime and Stone Company, the company had an interest in the land and had even
purchased a 1/3 of the land with a lease in another 1/3 and when the defendants came on as directors they
purchased the other 2/3 of the land in their individual capacity. However it was held that they were holding this
on trust for the company because it had an interest/expected interest in the property.
2) Line of Business Test.
-Court considers whether the opportunity causing the conflict of interest is in line with the company’s business
or that of its competitors.
-Turner v American Metal, it was held that opportunity would be held to be in line with a company’s business
where the company has the fundamental knowledge, skills and capability to pursue that knowledge. Where the
company logically and naturally is adopted to the business opportunity and where the opportunity is consonant/in
line with the company’s reasonable needs and aspirations.
3) The fairness test.
Durfee v Durfee, the court stated that the test was not whether the corporation has an existing interest or an
expectancy in the property involved, but whether, in the particular circumstances, the acquisition of the
opportunity by an insider would be unfair.
4) Hybrid Test
-Where a number of the tests stipulated above are employed. Broz v Cellular Information Systems, Broz was the
president and sole shareholder of CIS, and took an opportunity for licenses with another company in his personal
capacity after informing the company of the opportunity and the court held that he didn’t infringe on that duty of
conflict of interest because he informed the company and at that time they weren’t in position financially to be
able to handle the order. (Used fairness and the line of business test.

RAISING AND MAINTENANCE OF CAPITAL

Terminology;
Share; what is a share?
-Generally, a share is a unit of capital.
-The most famous definition of a share is that of Farwell J in Borland’s Trustee v Steel, where he states that: a
share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in
the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
the shareholders. A share is not a sum of money ... but is an interest measured by a sum of money and made up
of various rights contained in the contract.

Share capital;
-A share capital may also be referred to as authorized capital. This is an amount which is stated in the company’s
memorandum and is the maximum sum which a company can raise by way of issuing shares.
-Issued share capital refers to shares subscribed or allotted to members
-Capital is further described as paid up and unpaid up capital. The shareholders to whom the shares are issued are
not necessarily required to pay for them either in whole or in part, although frequently, nowadays, the shares will
be fully paid. -So, another term, ‘paid up capital’, refers to the amount of money paid to the company in respect
of the shares.
-Capital is also called capital on call and uncalled capital. These are shares arising from issued shares. If the
company has issued partly paid shares and wishes to obtain more money, it can make a ‘call’ on the shares, in
which case, the shareholders are contractually bound to pay the amount specified in the call.
-Uncalled capital is capital from unpaid shares not on call and allotted or issued to a shareholder.

Share premium;
-This refers to selling shares over and above the nominal value of the share as reflected in the articles of
association. (Helps in raising capital)

Allotment of shares
-This is normally limited to private companies. For public companies, the word issue or offer is used.

Types of shares;
1) Ordinary shares; they are ordinary because they are the most common type of shares.
-They have 3 main rights; right to vote on company matter which require voting right, right to receive dividends
when declared on a pro-rata (proportionality basis and the right to a pro-rata share of the residue upon dissolution.
2) Preference shares; these are referred to as preference because they are preferred. This preference is specifically
with the right to share in the dividends first or to receive a share first on dissolution.

Principles governing raising and maintenance of share capital.

-The rules are meant to protect the company from unfair transactions, having in mind that a company is an
artificial person. Also the rules are meant to protect third parties dealing with the company especially creditors
since they are dealing with a legal person.
1) The principle of presumption of equality of shares.
-Under this legal presumption, each share in the company provides the holder with the same rights and liabilities
as every other shareholder.
-In Birch v Cooper, it was held that without express provision to the contrary, those with ordinary shares and
preferential shares were to be treated equally in terms of disbursements when the company was winding down.
The 5% preference allotted to those with preferential shares was only on interest the company made and there
was no need to make preferential distributions on winding up.
-However, this presumption can be displaced if a company issued different classes of shares with different rights.
-Class rights are rights which are exclusive to the class and distinct from rights to another class. They must be
laid down under the company’s articles. These rights normally relate to dividends, nominal value of the share, the
right to vote and rights relating to protection of class rights.
-Greenhalgh v Arderne Cinemas Ltd and Another, The Company had shares divided into 10s but provided for
the provision for subdivision, during financial difficulties they got a debenture from the appellant and in exchange
gave him shares. He entered into an agreement with the directors that enabled him to maintain control of the
company. The directors subdivided their shares into 2s and gave out a lot of their shares which took away the
power of the appellant. It was contended on behalf of G that this resolution for subdivision was void because it
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
constituted a breach of an implied term in their contract and varied the voting rights. However it was held that
there was no implied term in the contract that should preclude the company from dividing the shares and taking
away the voting rights and only in very exceptional cases. (Class Rights Must Be Clear)
2) Shares may not be issued at a discount;
-Another principle is that shares may not be issued at a discount but can be issued at a premium.
-It is illegal to issue shares at a discount because, it relieves liability on a shareholder who is treated as having
fully paid up his shares.
-Ooregum Gold Mining Co. of India v Roper, in this case the shareholders wanted to sell their shares at 25% of
their share value in order to service a debenture. The transaction was held to be void by court it was noted that g
as the company honestly regards the consideration as fairly representing the nominal value of the shares in cash,
its estimate ought not to be critically examined.’
-Also the prohibition is meant to protect creditors of the company who might be seriously misled about the
financial standing of the company.
-In Mosely v Koffyfontein Mines Ltd, Debentures, convertible into shares, were issued at a price 20 per cent
below the nominal share price. Held, that even though it was not an avoidance scheme, this was caught by the no
issuing shares at a discount rule.
-However, S. 67 of the Companies Act creates an exception by providing that a company may issue at a discount
shares in the company of a class already issued, except that the issue of the shares at a discount must be authorised
by resolution passed in a general meeting of the company and must be sanctioned by the court;
-The requirement for court sanction is also to protect shareholders and prospective shareholders.

3) Shares must be sold in exchange for money or money’s worth.

-Non- cash consideration must be money’s worth and this is a matter for the director’s business management. It’s
up to their discretion.
-Accordingly colourable, fraudulent or sham transactions would not be taken as money’s worth.
-Re Wragg Limited, the company bought a horse business by issuing shares to the people they were buying the
business from. The horses and carriages were valued higher than they were actually worth and on liquidation,
liquidator brought the claim that since the valuation was not correct, and the shares issued had not been fully paid
up. Court held that a non-cash consideration is valid and in some sense sufficient, not necessarily adequate.
-Smith LJ, if the consideration is ‘not clearly colourable nor illusory, then, in my judgment, the adequacy of the
consideration cannot be impeached by a liquidator unless the contract can also be impeached
-In Re Eddystone Marine Insurance, the company allotted shares to directors and existing shareholders for non-
cash consideration on the basis that services would be rendered by them. Such services weren’t rendered, company
was wound up and the liquidator brought a claim of unpaid shares and it was held that since the services weren’t
rendered, shares couldn’t have been paid for.

4) Selling Shares at a Premium

-S.66 of the Companies Act provides for selling of shares at a premium. Where a company sells shares at a
premium, it must open a premium account; this is because it is treated as part of its paid up capital. In particular,
it cannot be distributed as a dividend to shareholders.
-Shearer (Inspector of Taxes) v Bercain Ltd, it was held that Where shares were issued at a premium, whether
for cash or otherwise than for cash, under the act it is required the premium to be carried into a share premium
account in the books of the company issuing the shares, and the premium could only be distributed if the procedure
for reduction of capital was carried through.

5) Capital Raised Must Be Maintained

-There is a restriction on return of capital. Paid up capital must be invested in the company’s operations.
-Shareholders having paid up for the shares, this capital should not be paid back to leave creditors with nothing
at all.
-This rules is tougher than the non-discount rule.
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-In Trevor v Whitworth, the court prohibited transaction between a company and a shareholder where money is
returned by the company to the shareholder unless there is a court order.
-Lord Watson in this case; one of the main reasons for this is to protect the interests of the outside public who
may become their creditors. The creditor should be able to rely on the availability of a substantial capital sum for
the ultimate satisfaction of his debts.
Ways in which company can lawfully return capital to its shareholders
1) Redeemable preference shares
-A company may, if authorized to do so by its articles, issue redeemable shares which are to be redeemed or are
liable to be redeemed at the option of the company or the shareholder.
-S. 68(1) of the Companies Act provides that a company limited by shares may, if authorised, by its articles, issue
preference shares which are or at the option of the company are to be liable, to be redeemed.
-However, subsection 2 gives circumstances under which shares can be redeemed.
-It states that;
(a) shares shall not be redeemed except out of profits of the company which would otherwise be available for
dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; (b) the shares
shall not be redeemed unless they are fully paid;
(c) the premium, if any, payable on redemption, must have been provided for out of the profits of the company or
out of the company’s share premium account before the shares are redeemed; and
(d) where shares are redeemed under this section otherwise than out of the proceeds of a fresh issue, there shall
out of profits which would otherwise have been available for dividend be transferred to a reserve fund to be called
“the capital redemption reserve fund”, a sum equal to the nominal amount of the shares redeemed and shall be
treated as paid up share capital of the company subject to the restrictions on reduction of share capital.(a company
must have twice the amount required to finance the redemption and one half of that will be transferred to the
capital redemption reserve and this will ‘replace’ the amount redeemed)
-Megarry J in Re Holders Investment Trust, that a shareholder whose shares are not redeemed on the agreed
date may be able to obtain an injunction to prevent the company from paying dividends either to ordinary
shareholders or to any subordinate class of preference shareholder until the redemption has been carried out.

2) On Reducing Share Capital

-A company limited by shares may only reduce its share capital in accordance with the procedures outlined in the
Companies Act 2012.
-Section 76 Companies Act provides that a company limited by shares may, if so authorized by its articles, reduce
its share capital on the passing of a special resolution subject to confirmation by the court.(For reduction to work
it must be in the articles)
-Section 76(1) specifies, A company may:(a) extinguish or reduce the liability on any of its shares in respect of
share capital not paid up, (b)cancel any paid up share capital which is lost or unrepresented by available assets,
(c) pay off any paid up share capital which is in excess of the company’s wants.
-Under S.77 (1) Where a company has passed a resolution for reducing share capital, it shall apply by petition to
the court for an order confirming the reduction and shall in the meantime cause the resolution to be published in
the Gazette and in a newspaper having national wide circulation and creditors can also object to the reduction.
-In Re Jupiter House Investments (Cambridge) Ltd, Harman J stated that the court’s discretion to confirm the
reduction would only be exercised in favour of confirmation of the reduction where the court is satisfied:
(a) That the proposed reduction affects all shareholders of equal standing in a similar manner, or that those treated
in a different manner from their equals have consented to that different treatment; and
(b) That the cause of the reduction was properly put to shareholders so that on a vote they could exercise an
informed choice, and the cause is proved by the evidence before the court.

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
VARIATION OF RIGHTS.
-Ascertaining the rights attached to shares the specific rights of second and subsequent classes of shares are found
in the articles or the shareholders’ resolution authorising their issue.
-Following the issue of new shares the specific rights of new classes of shares should be stated clearly in the
articles or authorising resolution.
-In the course of deciding these cases the courts have developed a number of rules or ‘canons’ of construction for
the purposes of working out the rights of shares issues with inadequately stated rights and liabilities. The main
canons of construction are:
1) All shares have the same rights and liabilities unless the company or the shareholders in a general meeting have
agreed otherwise. This is referred to as the presumption of equality of shares. (Use the case of Birch v Cooper)
2) If new shares are created, issued or allotted eg ordinary shares B, those shares will carry the same rights and
liabilities unless specific rights are created otherwise.
3) If voting rights have been specified, those rights are presumed to be exhaustive and any shares without voting
rights carry no right to vote on any resolution.
4) Additional dividend rights must be specified but the right to a dividend is presumed. In other words shares are
deemed to have dividend rights but additional dividend rights must be specified specifically eg preference shares.
(Also use Birch v Cooper)
5) If you have participation rights, those rights are enforceable. The shares carry no special right to participate
beyond what is stated. Scottish Insurance Corporation Ltd v Wilsons & Clyde Coal Co Ltd, The House of Lords
held that preference shareholders had no right to share in surplus assets, because the articles were exhaustive of
the rights of the preference stockholders in a winding-up, so it could not be said that the scheme was not fair and
equitable. (You can also use Birch v Cooper)
6) If shares have the right to receive a dividend of a specific amount before other shares known as preference
dividend, these rights are presumed unless cumulative. In otherwise, you have to pay since it is cumulative, it can
be paid in a subsequent year. Webb v Earle, The court confirmed that preference shares are presumed to be
cumulative if the company constitution is silent on the matter. That where the clause defining the preferential
rights declares that preference shares are entitled to a preferential dividend at a fixed specified rate, the dividend
is prima facie cumulative.
7) The right to a dividend is not automatic unless declared by the board and tis cuts across shares. Accordingly
dividends are distributed from profits not capital. Dividends are subject to availability of profits and once declared
it becomes automatic. In Re Roberts and Cooper Ltd, it was held that no dividends having been declared between
1921 and 1925, none were due, and the preference shareholders were not entitled to be paid anything in respect
of arrears.

CLASS RIGHTS
-Class rights must be set out and not presumed apart from ordinary shareholders common law rights.
-Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald, that a company which, by its articles,
confers special rights on one or more of its members in the capacity of member or shareholder thereby constitutes
the shares for the time being held by that member or members a class of shares. These rights are class rights.
-Class rights are deemed to be exhaustive. Greenhalgh v Arderne Cinemas Ltd and Another that class rights
must be read as being confined to the express terms of the article and only in a very exceptional and absolutely
clear case could an implied term be read into a contract.
-The names given to certain types of shares with certain key characteristics are not always legally significant.

What is a variation?
-A variation of rights can be a variation to improve or enhance the rights of the class as well as a variation
adversely affecting those rights.
-Also, an abrogation of rights is a variation. Consequently, a reduction of capital by way of repayment of capital
and cancellation of shares of a particular class may be a variation

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
-Case law decided that class rights are to be regarded as varied only if after the purported act of variation they are
different in substance from before eg where the company proposes to make its existing cumulative preference
shares non-cumulative
-The dilution of voting control by the issue of more shares of the same class to ordinary shareholders has been
held not to be a variation of rights necessarily. (Use Greenhalgh v Arderne Cinemas)
-The class rights are what is protected and the enjoyment of these rights is not protected Court has established the
difference. White v Bristol Aeroplane Co, In this case a clause in the articles of a company prohibited, except by
certain procedures, class rights being "affected, modified, dealt with or abrogated in any manner...” The company
proposed to make a bonus issue of preference shares to ordinary shareholders. These were to have the same rank
as existing preference shares. One of the preference shareholders objected to the proposal.
The Court held that what had happened was that the rights of the preference shareholders had not been affected.
Simply the enjoyment of those rights had been affected.
-The following cases decide that a company may reduce its share capital by returning nominal capital to
preference shareholders with priority rights to return of capital on a winding up and no further capital participation
without approval of the holders of the class and the preference shareholders cannot complain about the loss of the
right to share in the future wealth of the company by continuing to receive their preferential dividends.
-House of Fraser plc v ACGE Investments, In this case the House of Lords decided that where a company pays
off and cancels cumulative preference shares (which have priority for repayment of capital in the company’s
articles) in a capital reduction there is no need for a class meeting of the preference shareholders to approve this.
-Re Hunting Plc, on an application by the company for confirmation by the court of a resolution to reduce its
issued share capital by the cancellation of convertible preference shares, preference shareholders argued that the
scheme of reduction was unfair to them. Held: The reduction was approved. A company is entitled to reduce its
capital by cancelling preference shares to replace the preference share capital with cheaper capital. The reduction
was not unfair to the preference shareholders because they knew when they acquired their shares they were
assuming the risk of being paid off in full.

Procedure of Variation
-Under S 82. Of the Companies Act which provides for variation of the rights attached to any class of shares in
the company, subject to the consent of any specified proportion of the holders of the issued shares of that class or
the approval of a resolution passed at a separate meeting of the holders of those shares.
-S. 82 further provides that the holders of not less in the aggregate than fifteen per cent of the issued shares of
that class, being persons who did not consent to or vote in favour of the resolution for the variation, may apply to
the court to have the variation cancelled within thirty days after the date on which the consent was given or the
resolution was passed.
-On such an application, the variation does not have effect unless and until it is confirmed by the court. The court,
after hearing the application can, if it is satisfied that the variation would unfairly prejudice the shareholders of
the class represented by the plaintiff, disallow the variation or, if not so satisfied, confirm it.

TRANSFER AND TRANSMISSION OF SHARES.

-As a general rule, a shareholder has a right to transfer his/her own shares anytime he wants.
-Re Smith & Faucett Ltd, Lord Greene stated that it is to be borne in mind that one of the normal rights of a
shareholder is the right to deal freely with his property and to transfer it to whomsoever he pleases
-However, the company may restrict transfer of shares and creates its own procedure on how shares are to be
transferred. There is no limitation to this power.
-Buckley LJ explained the core company law position in Re Discoverers Finance Corporation Ltd, The
regulations [articles] of the company may impose fetters upon the right of transfer. In the absence of restrictions
in the articles the shareholder has by virtue of the statute the right to transfer his shares without the consent of
anybody to any transferee.’
-S. 83 provides that the shares or other interest of any member in a company shall be movable property
transferable in the manner provided by the articles of the company.
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-Article 22 & 24 of Table A. A company may restrict transfer of shares. And if the directors refuse a shareholder
from transferring his shares, they have no duty to give reasons for the refusal. However, if the Articles lay down
grounds for refusal of transfer, then the directors must adhere to those grounds or it must be in the company’s
interest.
-Re Smith v Faucett Limited, Article 10 of the company’s constitution said that directors could refuse to register
share transfers. Mr. Fawcett, one of the two directors and shareholders, had died. Mr. Smith co-opted another
director and refused to register a transfer of shares to the late Mr. Fawcett’s executors. Half the shares were
bought, and the other half offered to the executors.
-The principle established was the principles to be applied in cases where the articles of a company confer a
discretion on directors. Are, for present purposes, free from doubt. They must exercise their discretion bona fide
in what they consider – not what a court may consider – is in the interests of the company, and not for any
collateral purpose. The question, therefore, simply is whether on the true construction of the particular article the
directors are limited by anything except their bona fide view as to the interests of the company.
-The directors had not acted in breach of their duties and were entitled to refuse to register the share transfers.
-Re Hackney Pavilion Ltd, it was held that the board’s right to decline required to be actively expressed. The
mere failure to pass the proposed resolution for registration was not a formal active exercise of the right to decline.
-Re Swaledale Cleaners, The power to refuse a transfer must be construed strictly because a shareholder
ordinarily has a right to transfer his shares. Furthermore, the delay in exercising the power of refusal, i.e. four
months, had been unreasonable and the power was no longer capable of being exercised.

Preemption of shares;
-There are clauses in the Articles of Association which would restrict the right of a shareholder to transfer his
shares to an outsider without having given the existing shareholders the first opportunity to acquire them. (Use
Clemens v Clemens)

Transmission of shares
-This occurs where the rights encompassed in the holding of shares vests in another by operation of law and not
by reason of transfer. It occurs in the cases of death or bankruptcy of a shareholder.
-Article 30 provides that in such a situation, the beneficiary may elect either to be registered himself or herself as
holder of the share or to have some person nominated by him or her registered as the transferee of the shares, but
the directors shall, in either case, have the same right to decline or suspend registration as they would have had
in the case of a transfer of the share by that member before his or her death or bankruptcy.

Procedure for Transfer

-Proper Instrument of Transfer must be delivered to the company in all cases of transfer (S.85)
-Under S.88 On the application of the transferor of any share or interest in a company, the company shall enter in
its register of members the name of the transferee in the same manner and subject to the same conditions as if the
application for the entry were made by the transferee
-Under S. 89 where a company refuses to register a transfer of any shares or debentures, the company shall, within
sixty days after the date on which the transfer was lodged with the company, send to the transferee notice of the
refusal
-Upon transfer, the transferee is entitled to a share certificate. According to S. 90, a share certificate is prima facie
evidence of title.(Held in Re Bahia and San Francisco Railway Company)(In Ruben v Great Fingall
Consolidated, it was held that a forged share certificate is a nullity and does not bind the company)
-The company is also required to notify the registrar of companies about the transfer of shares, and the transferee
will be liable to pay a stamp duty assessed with regard to the share transfer.
-An irregularity in the transfer of shares where the transferor is fully paid, creates an equitable interest to the
purchaser. In Hawks v McArthur and Others, Shares were transferred by one of the shareholders to two other
individuals without compliance with the articles of the pre-emotion rights of other shareholders and the other

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
individuals paid up in full. It was held that because they had paid up in full they had a beneficial interest and the
lack of following of the articles didn’t take away their interest.

Forfeiture of Shares
-Shares may be forfeited by a resolution of the board of directors if, and only if, an express power to forfeit is
given in the articles. Where such an express power exists, it must be strictly followed, otherwise the forfeiture
may be annulled.
-The articles usually provide that shares may be forfeited where the member concerned does not pay a call made
upon him, whether the call is in respect of the nominal value of the shares or of premium. Article 33.
-A notice has to be given showing the date of payment on call,( Art 33), where notice is not complied with, shares
will be forfeited by a resolution of the company and shall be disposed/sold off in the manner directors deem fit.(art
34 and 35)
-A member whose shares have been forfeited shall cease to be a member in respect of those shares forfeited. (Art
37)
-A statutory declaration by the director or secretary that the shares have been forfeited is conclusive evidence of
forfeiture by the director or secretary. Art 38

CHARGES
-The Companies Act S.2 defines a charge as a form of security for the payment of a debt or for the performance
of an obligation consisting of the right of a creditor to receive payment out of some specific fund or out of proceeds
of specific property and includes a mortgage.
-It follows from the definition that the lender would seek security for the company’s borrowing.

Taking Security
-A creditor or a bank would seek for security which would leave the creditor on a higher priority in respect of
other creditors in case of insolvency.
-The ‘standard’ procedure is that commercial lenders like banks obtain charges from companies & these charges
are by way of documents or deeds and have to be registered subject to S. 105-111 of the Companies Act. The
commonest type of charge is referred to as a debenture.
-A debenture has been defined to include debenture stock, bonds and any other securities of the company whether
constituting a charge on the assets of the company or not. This mean that a charge can be created not only on
assets but other form of property like deeds
Types of Charges
1) A legal charge will, potentially, bind any person who acquires a charged asset from the company, even if that
person knows nothing of the charge.
2) An equitable charge does not bind a person who subsequently acquires an interest in the charged asset bona
fide, for value and without notice of the existence of the charge.
-However, since most charges created by companies have to be registered, in compliance with S.105, and
registration gives constructive notice of the existence of the charge, a person acquiring an interest in a charged
asset will generally have notice of its existence and will be bound by it.
3)Fixed and Floating Charges; A fixed or specific charge is taken over identified assets of the company, not used
in the day to day business of the company whereas a floating charge may cover company assets used in the
ordinary course of business.
-A floating charge has been further described in the case of Re Yorkshire Wool; where court gave the
characteristics of a floating charge as follows; ‘[I]f a charge has the three characteristics that I am about to mention
it is a floating charge. (1) If it is a charge on a class of assets of a company present and future; (2) if that class is
one which, in the ordinary course of the business of the company, would be changing from time to time; and (3)
if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those
interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular
class of assets.
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-A floating charge is taken over the entire undertaking of the company or over all the assets of the company both
present and future, including both movable and immovable assets and circulating assets. These may include,
equipment, tools, stock, etc. The other important feature of a floating charge is the freedom to deal with the assets
in the ordinary course of business without the consent of a chargee.
-In other words, the assets are under the control of the chargor and not the chargee. The charge floats or hovers
over the assets until some event occurs causing it to crystallize. This may arise with default of payment, default
of the company, liquidation or is wound up or cessation of business, etc.
-Illingworth v Houldsworth, where Lord Macnaghten offered the following definition of a floating charge in
contrast to a ‘specific charge’
‘A specific charge, I think, is one that without more fastens on ascertained and definite property or property
capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its
nature, hovering over and so to speak floating with the property which it is intended to affect until some event
occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and
grasp.
-National Westminster Bank plc v Spectrum Plus Ltd and others, it was held that The account into which the
proceeds of the book debts was to be paid was not a ‘blocked account’, that is, one that the company could not
draw on without the consent of the charge bank and therefore the company was free to deal with the proceeds of
the book debts in the ordinary course of its business. This did not give the bank the control over the charged asset
that is required to establish a fixed charge.
-The HOL determined that e essential test of whether a charge was a fixed charge related to the chargor's power
to continue to deal with the asset. In order to preserve the status of a charge as a fixed one, the bank must exercise
actual control over disposal of the asset. If the chargor is able to deal with the asset, such as by drawing from the
account in which charged funds are kept, or into which the proceeds of trade receivables are deposited, then the
holder of the charge does not have effective control.
-Until crystallisation, the property interest of the chargee simply floats above the assets, hence the name ‘floating
charge’

When is a charge deemed to have crystallized?

-Crystallisation, when a floating charge becomes a fixed charge over the assets currently comprising the relevant
class, occurs automatically on the happening of certain events, namely:
(A) if a receiver is appointed by the court or any chargee;
(b) When winding up commences (even a member’s voluntary winding up); or
(c) When the company ceases to carry on its business as a going concern (Re Woodroffes (Musical Instruments)
Ltd [1985], the Hong Kong and Shanghai Bank had the right to convert the floating charge into fixed charge
when the company stopped to carry on the business)
-However, a company may also, in its debenture, create conditions when the charge may crystallize. (Automatic
crystallization, Automatic Crystallization. The charge may provide for automatic crystallization if the debtor
company allows its external borrowing to exceed a stated figure, fails to pay a sum due under the charge within a
specified period of the due date, and allows a judgement against it by some other creditor to remain unsatisfied
for more than a stated. In Re Manurewa Transport Ltd, the debenture provided that the charge would
automatically crystallize if the company created another charge over its assets ranking in priority of the first
floating charge. In Re Panama, court found that the charge instrument required that there would be automatic
crystallisation if a receiver was appointed by the court or creditor under a debenture. Court held that when this
happened, automatic crystallization took effect.)
-Stephen Lubega v Barclays Bank (U) ltd, Mrs Ssezibwa Estates Ltd, secured a loan from the respondent bank
for purchase of a lorry, and the bank took all assets, debentures plus legal mortgages for the debtors coffee factory
and one residential house. The lorry was subject to a floating charge created by the debenture from the respondent
bank. The bank appointed a receiver, impounded the lorry and advertised it for sale. It was held that a floating
charge crystallises the moment there is default and a receiver is appointed.

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
-Diversey Lever East Africa Ltd v Mohanson Food Distributors Ltd and another, Per Mutungi J; A debenture
creates a floating charge over the assets of the execution debtor, and such floating charge confers upon the
debenture holder only equitable interest over the assets. Further, where there is a floating charge over the movable
property of an execution debtor (as is the case here) created by a debenture, the floating charge crystallises on the
date of the appointment of the receiver.

Effects of Crystallization
-On crystallisation, a floating charge becomes a fixed charge.
-If there are two charges attaching to the same asset, a floating charge, being, until crystallisation, an equitable
charge, is ranked in the order of priorities after a fixed legal charge over the same asset. The fixed charge has
priority even if it was created after the floating charge and that charge had been registered.
-The freedom of the chargor to deal with the assets in the ordinary course of business includes the freedom to
create other fixed charges/floating charges ranking in priority. In Re Automatic Bottlemakers Ltd, in which the
Court of Appeal held that a floating charge, even if over all the assets of a company, did not prevent the company
creating a second floating charge with priority over the first in respect of part of the charged assets.
-When such assets pass to a third party they do so free from the floating charge. It is considered that charging
assets of a company is within the ordinary course of business and, therefore, it follows that if a company that has
granted a floating charge grants a subsequent fixed charge or mortgage that this charge or mortgage will take
priority over the floating charge.
-In Wheatley v Silkstone and Haugh Moor Coal Co; North J; a floating security is not intended to prevent and
has not the effect of in any way preventing the carrying on of the business in all or any of the ways in which it is
carried on in the ordinary course; and, inasmuch as I find that in the ordinary course of business and for the
purpose of the business this mortgage was made, it is a good mortgage upon and a good charge upon the property
comprised in it, and is not subject to the claim created by the debentures.

Negative pledge clauses

-Since there is the risk of a later charge obtaining priority, prudent floating chargees commonly insert negative
pledge clauses into the security contract.
-A negative pledge clause is a clause specifically precluding the creation of a second charge with priority.
-Despite the frequency of negative pledge clauses, the cases support the view that, even if a later chargee has
actual knowledge of the existence of a prior floating charge (which he will have, at least constructively, through
registration), this is neither notice of a restriction nor requires the potential charge holder to make inquiries as to
the nature and extent of the registered charge.
-Wilson v Kelland, a case where a mortgagee had taken a mortgage over property which was already the subject
of a registered floating charge, Eve, J, stated that: I should have been prepared to hold that the particulars
registered in this case, amounted to constructive notice of a charge affecting the property but not of any special
provisions contained in that charge restricting the company from dealing with their property in the usual manner
when the subsisting charge is a floating security.

Priority of Charges
-Fixed charges rank in order of the time at which they are created: the first in time takes priority over all
subsequent fixed charges over the same property.
-Fixed charges establish stronger rights than floating charges and a later-in-time fixed charge ranks in priority
over an earlier floating charge.(Re Castell & Brown Ltd, In this case, a company created a floating charge over
debentures but later created an equitable mortgage over the various properties by deposit of title deeds. It was
held that the mortgage charge had priority over the floating charge)
-Except that if the subsequent fixed chargeholder had actual knowledge, at the time its charge was entered into,
that the pre-existing floating charge expressly prohibited the company from creating a subsequent charge with
priority, the pre-existing floating charge will take priority over the subsequent fixed charge (Siebe Gorman & Co
Ltd v Barclays Bank Ltd)
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-Floating charges rank in order of time of creation: the first in time takes priority over all subsequent floating
charges over the same property (Re Benjamin Cope & Sons Ltd)

NB: A bank/Creditor can create three charges over the same assets eg a legal mortgage, a fixed charge and floating
security. In Re Spectrum case above both a fixed charge on the debt books and a floating security on all assets of
the company were created in favor of the creditor.

Registration and Non-Registration

-Charges created by a company may need to be registered: with the registrar of companies, in the company’s own
register of charges and with Land Registry.
-The procedure is provided for under S. 105- 108. Of the Companies Act. The company has a primary duty of
ensuring registration of the charges within forty two days after the date of its creation.
-The document for registration should include the following particulars. S.105 (8) the following particulars—
(a) The total amount secured by the whole series;
(b) The dates of the resolutions authorising the issue of the series and the date of the covering deed, if any, by
which the security is created or defined;
(c) A general description of the property charged; and
(d) the names of the trustees, if any, for the debenture holders, together with the deed containing the charge or a
copy of it verified in the prescribed manner or, if there is no such deed, one of the debentures of the series.
-Once the charge is registered, the registrar issues a certificate which is conclusive evidence that the registration
requirements have been complied with. S.108

The effect of registration.

-Registration ensures that the charge is effective against other creditors and he liquidator. However, registration
is not notice of the terms of the charge instrument.

Consequences of non-registration.
-S.105 provides that the security given by a registrable charge shall be void against the liquidator and any creditor
of the company.
-However, the debt is still repayable immediately on an unsecured basis. The result is that the holder of the charge
is reduced to the level of an unsecured creditor.
-Indeed S. 105(2) states that under this section the money secured by the charge shall immediately become
payable.
-The other consequence of failing to register is the liability of the company to a fine for a continuing default under
S. 107(3).
-Kasozi Ddamba v M/S Male Constructions Co, It was held that the debenture was not registered within 42 days
and was void against a liquidator and any creditor of the company and could not be enforced against the judgement
creditor.

Role of the receiver;

-This is generally, appointed by a debenture holder to act on its behalf in realizing property subject to the
debenture-holder’s fixed and/or floating charge and use the proceeds to repay amounts due to the debenture
holder.
-He or she must be an individual and would usually be an accountant experienced in insolvency work.
-If a receiver and manager is appointed under a floating charge in respect of the whole business, then the director’s
powers to manage the company are suspended.
-In CuckMare Brick Co ltd v Mutual Finance Ltd, it was held that if a receiver chooses to sell the charged
property, he must take reasonable care to a proper price.
-A receiver has a duty to act in good faith. In Downsview Nominees Ltd v First City Corp Ltd; Lord Templeman
held that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the
consequences may be disadvantageous to the borrower. These principles apply also to a receiver and manager
appointed by the mortgagee.

ENFORCEMENT OF MEMBERSHIP RIGHTS

The Rule in Foss v Harbottle
-The rule states that states that in order to redress a wrong done to a company or to the property of the company,
or to enforce rights of the company, the proper claimant is the company itself, and the court will not ordinarily
entertain an action brought on behalf of the company by a shareholder.
-In this case, the claimants, Foss and Turton, were shareholders in a company formed to buy land for use as a
pleasure park. The defendants were directors and shareholders of the company. The claimant shareholders alleged
that the defendants had defrauded the company in a number of ways including some of the defendants selling
land belonging to them to the company at an exorbitant price. The claimants sought an order that the defendants
make good the losses to the company.
-Held, dismissing the action: in any action in which a wrong is alleged to have been done to a company, the proper
claimant is the company and as the company was still in existence, it was possible to call a general meeting and
therefore there was nothing to prevent the company from dealing with the matter.
-Jenkins LJ, in Edwards v Halliwell, where he states that:
-The rule in Foss v Harbottle ... comes to no more than this. First, the proper plaintiff in an action in respect of a
wrong alleged to be done to a company or association of persons is prima facie the company or association of
persons itself.
-Secondly, where the alleged wrong is a transaction which might be made binding on the company or association
and on all its members by a simple majority of the members, no individual member of the company or association
is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the
members of the company is in favour of what has been done, then cadit quaestio. No wrong has been done to the
company or association and there is nothing in respect of which anyone can sue.
-Burland v Earle; Lord Davey, it is clear law that in order to redress a wrong done to the company or to recover
moneys or damages alleged to be due to the company, the action should prima facie be brought by the company
itself.
-Furthermore he states that no mere informality or irregularity which can be remedied by the majority will entitle
the minority to sue, if the act when done regularly would be within the powers of the company and the intention
of the majority of the shareholders is clear.
-In MacDougall v Gardiner, an adjournment was called on the basis of a votes by show of hands and some
members demanded a poll, but the chairman declined and worked out and the members brought an action stating
that the actions were improper and it was held that the action would be dismissed and Mellish LJ was of the
opinion that this was a matter which the majority of the members of the company were entitled to put right by a
resolution to that effect, and there was no point allowing the action to proceed if the end result would be that a
meeting was called and, ultimately, the majority obtained its wishes.

Basis of the rule (From Smith and Keenan on Company Law)

-Four major principles seem to be at the basis of the rule as the decided cases show:
1) The right of the majority to rule. (Use any of the cases above)
2) The company is a legal person. (Use Salomon v Salomon)
3) The prevention of a multiplicity of actions
4) The court’s order may be made ineffective. (Moves hand in hand with the majority rule, Use the case of
MacDougall v Gardiner)

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES
Limits to the Principle of Majority Rule
-These are cases where either the rule has no application or the courts have developed an exception on the ground
of fraud.

Cases where the rule has no application

1) Ultra Vires and Illegality
-The principle of majority rule can have no application where a bare majority shareholders has no right to ratify
and adopt a particular act for the company. (Rule won’t apply where company is proposing to do an illegal act)
-The right of a shareholder to bring an action restraining a proposed ultra vires transaction is expressly recognised
in S.51 (2) of the Companies Act.
-In Smith v Croft, Knox J held that, where the ultra vires or illegal act had been completed, the shareholder loses
the right to bring the suit and it vests back to the company.
2) Special Majorities.
-The principle of majority rule can have no application where what is done or proposed to be done can only be a
special majority or special resolution.
-In Edwards’s v Halliwell, a member of a trade union was able to obtain a declaration that an alteration to the
union contributions was invalid as it had not been made following a two thirds majority vote as required by the
union rules.
3) Personal Rights
-Wood v Odessa Waterworks Ltd, where a shareholder enforced a right in the articles to be paid a dividend, rather
than being issued a debenture, which was what the directors proposed.
-In Oakbank Oil Ltd v Crum, a shareholder enforced the calculation of a dividend which was provided for in the
articles and, -In Pender v Lushington, the shareholder enforced a right to have his vote recorded at a general
meeting.
4) Where the fraud on the minority
-Burland v Earle, the court stated that a straightforward example of fraud is ‘where a majority are endeavouring
directly or indirectly to appropriate to themselves money, property or advantages which belong to the company.
-As Jenkins LJ said, in Edwards v Halliwell:
It has been further pointed out that where what has been done amounts to what is generally called in these cases
a fraud on the minority and the wrongdoers are themselves in control of the company, the rule is relaxed in favour
of the aggrieved minority who are allowed to bring what is known as a minority shareholders’ action on behalf
of themselves and all others.
-In Cook v Deeks, Directors obtained a contract in their own name in the exclusion of the company breaching
their fiduciary duty and a resolution was made declaring that the company had no interest in the matter and it was
held that in this case where such duty has been breached and company is not willing to bring the suit forth,
minority shareholders can bring it.
5) Control
-It is pertinent for the minority shareholders bringing the suit to show that the wrongdoers are in control and that’s
why the company can’t bring the suit.
-In Prudential Assurance Co Ltd v Newman Industries Ltd, Vinelott J, after a lengthy examination of the
authorities on the meaning of control, favoured the view that such an action would be brought where the persons
against whom the action is sought to be brought are able ‘by any means of manipulation of their position in the
company’ to ensure that the action is not brought by the company, and that the means of manipulation should not
be too narrowly defined.(Control can be seen in terms of those who are beneficial owners among others)
6) Interest of justice: - In Daniel v. Daniel, court held that the shareholders could sue because the directors had
sold the company’s plot of land to one of their fellow directors. Court held that the rule in Foss v Harbottle could
not be applied in the interest of justice.
7) Derivative Action
-A “Derivative action” enables the shareholder to enforce the right which is vested in the company to sue its
directors for breach of duty.
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-It gets its name from the idea that the shareholder’s right to sue is derived from the company’s right.
-In Moir v. Wallersteiner court explained that an action is derivative when the action is based upon a primary
right of the company but it is asserted on its behalf by the shareholder because of the company’s failure or
deliberate refusal to act upon the right. It is a suit where a shareholder enforces the company’s cause of action.
-Also use the Prudential Assurance Co. Ltd Case also to show that principle of control and then why the
shareholder brings the suit in place of the company)

2. ENFORCEMENT OF MEMBERS RIGHTS UNDER STATUTORY LAW

1) Winding up of the company under a just and equitable cause.
-Section 268 Companies Act shows that courts can wind up a company if it is satisfied that it is just and equitable
to do so.
-The Act however does not show what amounts to just and equitable, and resort is made to case law. In Eprahim
v Westbourne Gallaries, court said that the petitioner must satisfy court that although there is another remedy
that is open to him, he is not acting unreasonable in seeking a winding up.
-In Re East African Tobacco Co; Court explained that unless the main objective of the company has failed, that
is when you can opt for enforcement of a winding up for a just and equitable cause. In this case where the petitioner
argued that the company’s account had not been audited and that the balance sheet had not presented an order for
winding up was not granted.

2) Relief against Oppression.

-Section 248 CA where a shareholder can seek for winding up of the company. Under this remedy, the shareholder
must satisfy court through a petition that the affairs of the company are being conducted in an oppressive manner.
-For a petitioner to succeed, he / she must be a member of the company and must sue in his capacity as a member.
In Re Nakivubo Chemists, court held that for a petitioner to succeed under Section 248, he / she must show not
only that he has been oppressed but also that the affairs of the company have been conducted in an oppressive
manner. He must also show that he was affected in his capacity as a member of the company.

COMPANY INSTRUCTIONS TO COUNSEL

The thumb rule is that no advocate can act for a client without receiving instructions from that client.
-This is expressly highlighted in Regulation 2(1) of the Advocates (Professional Conduct) Regulations which is
to the effect that “No advocate shall act for any person unless he/she has received instructions from that person
or his/her authorized agent.”
-In Kabale Housing Estate Tenants Association v. Kabale Municipal Local Government Council, Hon. Justice
Kitumba held that “a suit brought without instructions is incompetent. Counsel must appear in court with full
instructions and authority from his client. Failure to do so, makes an advocate to be acting on his own and will
not be entitled to costs.
-Receipt and acceptance of instructions by counsel constitutes a binding contract between the client and counsel.
-Section 50(1) of the Companies Act, 2012 which provides that a company may make a contract, by execution
under its common seal or on behalf of the company, by a person acting under its authority, express or implied.
Who can bind a company for purposes of giving instructions to counsel?
-Any person acting under the express or implied authority of the company E.g., Director, Company Secretary or
any other person with implied authority.
-There is no requirement for a company to first pass a resolution to authorize counsel to take on a matter on its
behalf. This position was set in Kasaala Growers Co-operative Society v. Kakooza & anor, where the court said
that, “A resolution of the board of directors of a company is not necessary for the institution of a suit in the name
of the company. Any director of the company who is competent to exercise the powers vested in the board of
directors can give instructions for filing a suit in the name of the company.”
-Counsel should always be kin to the fact that “when receiving instructions to represent a company itself, he/she
must receive such instructions from the company directors on the Board of directors and not from the
shareholders. (This comes from the rule in Foss v Harbottle)
JAMWA RHEES REMO
BUSINESS ASSOCIATIONS II SUMMARIES
-Counsel should be cautious not to act on instructions from a person who might be passing off him/herself as a
director. In City African Textile Shop Ltd v. Jan Mohamed Ltd, a person who passed off himself as the executive
director had given instructions to counsel. Court held that the letter instructing counsel to represent the applicants
was not signed by the real managing director but by a person whose name did not appear in the list of directors
filed with the registrar of companies. The letter could not give authority to counsel to act.

CORPORATE CRIMINAL LIABILITY

-Companies can be held liable for offenses committed by their officers by attributing mens rea to corporations.
This is born by the famous “direct mind theory”. -In R v Fane Robinson Ltd. wherein court held that since a
corporation could enter legally binding agreements with individuals and other corporations, it could be said to
entertain mens rea (that vital blameworthiness for criminal liability). In this case, the corporation and two of its
‘directing minds’ were convicted of conspiracy to defraud and obtaining money by false pretenses.
-In Iridium India Telecom Ltd v. Motorola Incorporated & Others, a company was charged with offences of
cheating and criminal conspiracy on the basis of alleged false representations made by the company. Rejecting
the argument that a company cannot possess the requisite mens rea to commit a crime, the court held that a
corporation is virtually in the same position as any individual and may be convicted of common law, as well as
statutory offences, including those requiring mens rea.

JAMWA RHEES REMO

BUSINESS ASSOCIATIONS II SUMMARIES