What is Company Law?

Company Law is a fascinating blend of common law principles – many of which will be familiar to you from your previous studies in this degree - and major statutory attempts to ensure that the forms and practices of companies facilitate commercial enterprise and control their operations for the benefit of the public. Here you will find contract, trusts and agency sitting side by side with statutory provisions which, for example, criminalise the practice of insider trading and supplement the inadequate provision of the common law for protecting minority shareholders.

There is also a fundamental philosophical dimension to this subject. A company is a legal person that is, it is recognised by the law as capable of enjoying enforceable rights against other persons, as well as suffering duties which can be enforced against it. Companies are thus, not only everyday front-page news; they are also fundamental creations of our legal system.

Parts of Company Law

Corporate Personality

A company is taken to have a personality of its own. In fact, it is said that a company is a juristic person ie having rights and liabilities as a human person. This was the main principle laid down by the House of Lords in the landmark case of Salomon v Salomon (1897), which still remains as one of the core pillars or foundation of modern company law today.

The topic of corporate personality touches many aspects of our daily lives, as once a company is incorporated, and has a separate legal entity, it is immediately capable of many things. Some of the main effects of incorporation are as follows :

· The protection of limited liability
· The ability to own property on its own
· The ability to sue and be sued on its own
· The ability to contract on its own
· Perpetual succession

The main reasons for corporate personality and limited liability are :

· To enable risky ventures to be undertaken by allowing for capital of large number of individuals to be combined - thus encouraging ventures which no individual could take an alone.

· Protect members against the risk via limited liability and separation of the company's assets and liabilities from those of its members.

· Allowing people to invest money in company without having to become involved in the day management.

However, the benefits of the corporate form may be abused. The student is thus also required to assess situations when and how the corporate form may be taken advantage of. Taking this into account, the law has provided that in certain situations the corporate veil may be pierced or lifted. There are basically two main ways the veil may be pierced :

a) by statute (for e.g SS 213 and 214 of the Insolvency Act 1986 for fraudulent trading and wrongful trading respectively)
b) by the courts

Some of the (judicial) categories that exist to lift the veil are as follows :

a) where there is fraud / evasion of a contractual or legal obligation
b) in an agency relationship
c) where there is a single economic entity / single group enterprise
d) for tax considerations
e) for public policy considerations

Q: what about justice? when the courts exercise equitable considerations to lift the veil?

The answer to this question is that since the Court of Appeal decision in the seminal case of Adams v Cape Industries (1990), the courts have answered this question in the negative, namely that justice cannot be the sole criterion to lift the veil.

The veil must only be lifted in “exceptional circumstances”, following the strict pro Salomon approach taken by the House of Lords in the Scottish case of Woolfson v Strathclyde Regional Council (1978). We see a similar strict judicial attitude in the tenor of the judicial decisions in several recent cases such as Yukong Lines (1998); Ord v Belhaven (1998); Barakott (1998) and by the House of Lords in Williams v Anor (1998). The latter was an interesting case concerning the liability of statements made by a director of a limited company. It concerned issues involving areas of both tort law (liability for negligent statements) and company law (limited liability of members). It is quite fascinating to compare the Court of Appeal and House of Lords decision in this case, as it illustrates the complexities of the law in both these areas. The House of Lords ended up by not imposing liability on the director for his statements, but it is interesting to ask whether this was more a policy based decision protecting company directors and to encourage entrepreneurism. Certainly it is a decision which was much welcomed by company directors.

Lubbe v Cape plc (2000) throws up the issue of “interests of justice” in another context; namely that in the area of private international law. This case raised concerns of group representative actions brought in South Africa, and whether in such a situation, in “the interests of justice”, the action against the company could be brought in another jurisdiction, namely the UK . If the answer to this question is yes, is this another instance of the judicial piercing of the veil ?

The problems and inadequacies of the law will also be examined, particularly in the area of groups and multinational enterprises , where control and jurisdictional issues have, (and continue to be) been problematic.