Company Law 1 - University of Wolverhampton

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Rafsanjan Pistachio Producers Co-operative v S Reiss [1990] BCLC 352Rolled Steel Products Ltd v British Steel Corporation [1985] 2 WLR908; [1985] 3 All ER 52 (CA)Royal British Bank v Turquand (1855) 5 E & B 248Simmonds v Heffer [1983] BCLC 298Williams and Another v Natural Life Health Foods Ltd [1998] BCC428; [1998] 2 All ER 577 (HL)Business Names Act 1985Companies Act 1985: ss2, 3, 3A, 4, 25, 26, 27, 28, 30, 31, 35, 35A, 35B,348, 349, 380, 714 and 719Note: Insolvency Act 1986: ss187 and 216Self-Study Questions1 What is the supposed rationale behind the requirement that a company’s objects be stated in thememorandum?2 What is a ‘Bell Houses’ clause?3 Distinguish between the objects and the powers of a company.4 Can a company make valid gifts (a) to its members; (b) to its employees; (c) to its customers; (d)to its competitors, if it has noexpress power to make gifts?5 Can an ultra vires transaction ever be ratified by the company?Sample Questions1 New School Ltd is a company which is entirely directed by a board of trustees who are the directorsof the company. Its objects include: a to educate girls; b to give money to girls to enable themto proceed to higher education; c to do all things the trustees consider desirable. There is an independentobjects clause.James, Tim and Ron are members of the board of trustees and consequently directors of the company.Ron, who is responsible for promoting the good name of the school, arranges for the companyto donate £20,000 to research into a cure for lung cancer. Without reference to his fellowdirectors he arranges for the company to create a covenant to this effect. The trustees also authorisea gift to Mary who has been accepted on a course at a finishing school in Switzerland. Timand Ron agree with the majority of the directors that boys should be admitted to the school, andfive boys are provisionally accepted as pupils at the school, their parents paying deposits of £500each. One of the parents decides not to send his son to the school and asks for a return of his deposit.Advise James who is a member of the company and who objects to the covenant to pay the£20,000 to the proposed gift to Mary, and to the decision to admit boys. Advise also the parentswho wish to have their deposit returned.(Wolverhampton LLB by Distance Learning Question.)2 Sparks, an electrician, instructed his solicitor to incorporate his business as a private company.Sparks took 70 per cent of the issued share capital and two of his employees, Frank and Stein,took the remaining 30 per cent of the issued share capital in equal proportions. The company wasregistered with the name ‘Bright Sparks Limited’ and had objects which provided that the companywas to carry on a business as electrical suppliers. Sparks, Frank and Stein were named as thecompany’s directors.
Prior to the company’s registration, Sparks, writing on notepaper headed ‘Bright Sparks Limited’,agreed to supply Waterworks Limited with a large quantity of gas ovens. Sparks signed the letter‘Bright Sparks Ltd, Sam Sparks, Managing Director’.After the company was registered, Sparks agreed to take a loan on behalf of the company fromNat East Bank plc, for the sum of £30,000 to be repaid over five years. Sparks did not seek theapproval of his fellow directors when taking out the loan. Sparks wished to use the funds from theloan for the purpose of purchasing gas ovens. The manager of Nat East Bank plc agreed to theloan despite the fact that he had not, as required, obtained approval from his head office (a factknown to Sparks) to authorise the loan.Six months after taking out the loan, Sparks was informed by the Nat East Bank that the loan wasinvalid and that it must be paid back in full. However, Sparks was unable to comply with the bank’sdemand in that he had already purchased the gas ovens (total price £20,000) having spent therest of the money on donations to the Raving Monster Looney party, and a local college whichspecialised in electronics. At a board meeting of the company, Frank questioned the legality ofthe contract with Waterworks Ltd, the bank loan and the donations.Advise Sparks.(Wolverhampton LLB by Distance Learning Question.)3 To what extent has the rigidity of the doctrine of ultra vires been mitigated by statutory intervention,and by attempts by companies to evade it?(Wolverhampton LLB by Distance Learning, January 2000, Question 2.)
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Company Law 1 - University of Wolverhampton

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