Date
Table of Content
Introduction................................................................................
.....................3
Traceys
Breach
of
Duties...............................................................................3
Consequences
and
Rectifications
of
not
registering
Debenture..................4
Caspars
Breach
of
duties...............................................................................6
Ronnies
Claims.........................................................................................
.......8
Conclusion
and
Recommendations.................................................................9
Introduction
In the corporate sector, the directors of a company are the most
responsible persons for the success of the company. The negligence
committed by directors can lead to the losses in the companys business
and, in various cases, even to the insolvency and bankruptcy of the
corporation. The case study of the Wolf Roast Limited (hereinafter Roasts)
and Wolf Roast Houses Limited (hereinafter Houses) is the perfect
examples of successful business falling into losses due to business
blunders committed by directors, involvement of directors in other similar
business and negligence to their duties. The case study attracts various
provisions of the UK Companies Act 2006. The laws relating to the
debenture registration and regulations regarding the safety and health of
the working staff have also applications in this case. Further, this case has
connections with the situation when a single person possesses directorial
duties in more than one company in the same time. In the following, we
shall try to cover all these aspects by answering four questions.
a) Whether Tracey has breached any of her directors duties in
respect of the debenture taken out by Roast over the assets
of Houses;
As we have said earlier, the director is the most responsible person in
companys growth and success, the law left no stone unturned to define
the duties of a director towards the company. To provide the best
understanding of these duties, there are different kinds of laws which
define the duties of a director in the corporation. There are various case
laws which cover the issue we are discussing here. Apart from case laws,
the general principles of law which are very often referred to as the
natural law- also define some duties of directors in a company. But the
statutory law of UK, the Companies Act 2006 defines the duties of the
directors in a great detail. The sections 171 to 177 of the said act are
devoted to define the duties of the directors in companies. The foremost
duty of a director, according to these sections, is to strive for the success
of the company.1 Coming back to the case study; Tracy did not fulfil her
duties as a director of Roasts. She committed negligence on the first place
by delegating the matters related to the debenture of the loans to Nancy
who was a part time law student. Delegating such an important matter to
a part time law student was a business blunder. On the second place, she
breached the trust, which the other share holders have put on her, by not
taken them into the confidence about what she was doing with the matter
of loan debenture. It was the right of the other director to have known
what was going on. According to the section 175 of the Companies Act
2006, it was duty of Tracey to avoid conflict of interest. Further, the
section 177 of the act made it obligatory on her to declare her interests in
the arrangements she had made. As per 175 acts this is a duty of Tracey
to avoid conflicts, and as per 177 it is her duty to declare interest in
arrangements. Apart from these duties the company itself may put
specific duties on the directors.2 Thus, in this case all liabilities of the issue
of debenture lie on Tracey; not Nancy. This is because Tracey was the legal
director whereas Nancy worked in the accounts department and studied
law as a part time student. There are various solutions to the cases where
a director in a company breaches the trust of the other directors. The
consequences of such breach may vary from an injunction in which the
rights of other directors may be enforced- to the termination of the
contract of Tracey as a legal director of the company. Being an equal share
holder and legal director of the company, Nancy was under obligation to
remain in the limits and comply with the policies of the company. By
delegating the matter of debenture to Nancy she committed a blunder
1 Paul Davies and Jonathan Rickford, 'An Introduction To The New UK Companies
Act: Part II' (2008) 5 European Company and Financial Law Review.
2 Anam M. Ahmed, 'A Critical Analysis Of The UK Company Law Corporate
Objective: Purposive, Practical And Possible: Longitudinal Corporate Objective To
Remedy The Enlightened Shareholder Value Approach Of The Companies Act
2006' SSRN Electronic Journal.
4
which led to this financial crisis in the company in which all the share
holders suffered.3
b) The consequences of the failure to register the Debenture
over the assets of Houses at Companies House and whether
this can be rectified;
According to the laws of the United Kingdom, a debenture has to be
registered within 21 days of its formation. Registration of debentures in UK
is, on the hand, very easy with simple procedure and, on the other hand it
is very inexpensive. It costs only 13 for registration on paper and the
electronic registration of debenture costs only 10. It is, perhaps, due to
this simples and inexpensiveness of debenture, non registration of
debenture can bring serious consequences for the company. Further, the
Companies Act 2006 makes it compulsory for the firms, which issue the
debentures, to be registered. According to the law, a non registered
debenture is void which has no legal effects. Thus, the directors
particularly the one who was entrusted with the responsibilities of
registration of the debenture- are responsible for the consequences of non
registered debenture. As far as the rectification of the non registration of
the debenture concern, there is a Companys Court in UK which deals with
the matters related to the companies including debentures. If a debenture
is not registered within the prescribed time, the debenture holder can
prefer an appeal in the Companys Court with justifiable reasons for the
delay in the registration of the debenture. 4 There is a CPR part 8 which
deals with the alternative solutions of some legal claims in the United
Kingdom. The CPR also has applications in the inheritance act of 1975.5 An
interesting feature of the CPR part 8 is that, it needs not dispute and
3 Emma Kirkby-Geddes, Nigel King and Alison Bravington, 'Social Capital And
Community Group Participation: Examining Bridging And Bonding In The
Context Of A Healthy Living Centre In The UK' (2012) 23 J. Community Appl. Soc.
Psychol.
4 'Failure To Register A Charge At Companies House On Time. - DWS Solicitors'
(DWS Solicitors, 2011) <http://d-w-s.co.uk/failure-to-register-a-charge-atcompanies-house-on-time> accessed 25 April 2016.
5
Further, the
debenture holder will have to pay the court fee for the appeal.
Furthermore, before the hearing of the case the court may also demand
for the application of solvency from the directors or the owners of the
company. After the completion of all the formalities, the hearing of the
matter will begin latest by 14 days of these formalities. The proceedings
will take place in the chamber of the registrar and the appeal will be
accepted, if the appellant could convince the court for the justifications of
delay in the registration of the debenture. By following the said procedure
the consequences of non registration of debenture can be rectified.
To fill any possible gap in the company laws in the United Kingdom the
part 25 of the Companies Act 2006 was added to it so that not a single
issue of company law can be left without legal provisions. The part 25
which was brought into existence in 13th April 2013- of the act particularly,
deals with the issue of registration of the corporation. According to this
part, every company, for the purpose of registration, shall follow the
procedure of electronic filing as well. The registration process if designed
in such a way which reduces all kind of uncertainties in order to protect
the people who would come into the relations with the company.
According to this part, every company registered in UK will also be able to
carry its business in Scotland. For this purpose, the documentation in the
United Kingdom is sufficient and the company does not need any
registration in Scotland. For the purpose of electronic filing the maximum
data should not be more than 10 mega bytes. Each debenture, after the
electronic registration, will be allotted a 12 digit code so a debenture with
one agency, company or firm will be different from all other debentures.
The section 873 of the Companies Act 2006 also deals with the delay in
5 Anam M. Ahmed
6
Caspar has not breached any of his duties towards Roasts and Houses as a
director in these companies. He would have been regarded breaching his
duties had then been any conditions in the original business contract
between the four directors in Houses in Roasts that they will not do any
other business or they will not become directors in any other corporation.
As a matter of fact there had not been any such contract between the four
directors of Roasts and Houses and as per the practice of business
community everybody tries to expand his business and earn as much
profit as possible. This is why many directors can be seen buying shares in
other companies and even become members of the board of directors by
buying the majority shares and take control over the decisions of the
company. So, as a matter of law, there is no bar on a director in one
company from beginning any other business. 6 Another fact should also be
taken into consideration that before Caspar could acquire the new
business the Houses was closed down by him and his fellow directors. So,
there is no application of the prohibition of competitive business by a
partner. As far as the fact concerns that Caspar had not mentioned this
new development to other directors, there is not harm if someone does
not disclose his business to his friends. As long as Caspar complies with
laws regulating his new company he is under no legal obligation towards
his co directors in other companies. The only thing which can be
considered here is that, the friendship and trust of his co directors, which
require him to at least mention this fact to them. But in the corporate
world the morality can play very less role because to protect a business
6 Companies Act 1956, s 316
7
from bad reputation one, at times, has to hide some facts from certain
group of people. After failure and closure of a company, mentioning this
fact to the other directors or involving them in this business could damage
the reputation of the new business. Another matter needs to be addressed
here. That whether or not one person can be a director in more than one
corporation? As a matter of fact the directors are, usually, inflectional
people with very good reputation who attract the attention of the market
and customer. Furthermore, due to the long experience in the market, the
directors are very skilful people; therefore every corporation desires to
have such personalities in the board of directors. So, the directors are,
according to law, allowed to serve in more than one place.7
d) Whether Roast may be liable to Ronnie in respect of the
injuries suffered whilst working for its subsidiary, Houses.
Employees in any organization have the right of the healthy working
conditions which at the best possible mean be able to protect the workers
and employees from physical, mental or any other injuries. Every country,
including the United Kingdom, has made various rules and regulations to
achieve this end and protect the workers from getting injured during, or
even after, the work in an organization. But, no matter how much state of
the art conditions are applied in the working place, there is always a
chance of getting injured and accident. To provide better legal help to the
workers, the UK laws in such accidents directs the owners of the business
to provide compensation to the worker for the injury he received during
work.8 The law, regarding the compensation to the injured workers,
applies in numerous cases of injury. It has application when a worker falls
or slips in the workplace. It also deals with the poorly handled material.
The dangerous practices in the workplaces are also covered by this law.
The assaults made against any worker in the workplace also attract this
7 Ian Havercroft and Arad Reisberg, 'Directors' Duties Under The UK Companies
Act 2006 And The Impact Of The Company's Operations On The Environment'
SSRN Electronic Journal.
8 Anam M. Ahmed
8
law. The health and safety executive in the United Kingdom has the
responsibility to make sure that the companies are providing healthy
conditions to the workers by appropriate implementation of the safety
measures proposed by the Health Safety Act 1974. Apart from this, the
law has proposed different types of measures for different industries. The
main risk in the food and catering industry is with slip of knives, dermatitis
and musculoskeletal diseases. The existence of carbon monoxide in the
commercial kitchens is also a threat for the health of workers in the
catering industry. The Health and Safety Executive in UK is responsible to
make sure that the workers in this industry are not open to such diseases
by working in an unhealthy environment. In order to comply with the
health and safety measure Roasts should have hired a safety manager
who would look after the matters related to the health and safety of the
staff. Further, appropriate training of the working staff should also have
been provided in order to make them aware of the threats and means of
protections for these threats. If these procedures were not applied in
Roasts, the company is surely responsible for the injuries received by
Ronnie while working in Roasts and it will have to pay appropriate
compensation to him.9 The Health and Safety Executive does not only
provide a set of rules to be followed to ensure the safety of workers in the
workplace, it also takes strict action against businesses which do not
comply with these rules. Apart from the health and safety act 1974, there
are various other business laws which cover the matters of damages and
compensations for the workers who get injured while working. The law of
torts is one example of such laws. There are numerous acts, which have
been passed by the UK parliament since 1988, and statutory instruments
which help controlling and ensuring the healthy environment for the
workers in the workplace. The healthy working environment of a company
can have a positive impact on the marketing, decision making and
9 'Directors As Guardians Of Compliance And Ethics Within The Corporate
Citadel: What The Policy Community Should Know | RAND' (Rand.org, 2010)
<http://www.rand.org/pubs/conf_proceedings/CF277.html> accessed 25 April
2016.
9
executive
promotes
culture
of
trust,
care
and
healthy
business with his wife. There should have been no discrimination between
the interest of the company and that of the directors own.11
The case study also has connection with the health and safety laws in the
United Kingdom. The businesses can achieve more profits and grab trust
of customers, if the rules and regulation provided by the health and safety
executives, are applied in appropriate fashion. In order to survive in the
market, Roasts need to implement few policies for both; the directors and
the employees. The policies are;
organization
helps
developing
corruption
free
the business.12
By compliance with the Companies Act 2006 a healthy working
environment could be created within the company which will have a
competitive nature. This will play vital role in the growth and
be adopted.
Lack of adequate information also played its role in the failure of
Houses and creation of problem for Roasts. Each director thought
that the other directors are doing their job well. No director was
aware that Tracey has delegated the matter of debenture to Nancy,
a part time law student.
References
Companies Act 1956, s 316
Ahmed A, 'A Critical Analysis Of The UK Company Law Corporate
Objective: Purposive, Practical And Possible: Longitudinal Corporate
Objective To Remedy The Enlightened Shareholder Value Approach Of The
Companies Act 2006' SSRN Electronic Journal
An investment company director's guide to oversight of codes of ethics
and personal investing. (2000). Washington, DC (1401 H St., NW, Suite
12000, Washington 20005-2148): Investment Company Institute.
Davies P and Rickford J, 'An Introduction To The New UK Companies Act:
Part II' (2008) 5 European Company and Financial Law Review
'Failure To Register A Charge At Companies House On Time. - DWS
Solicitors' (DWS Solicitors, 2011) <http://d-w-s.co.uk/failure-to-register-acharge-at-companies-house-on-time> accessed 25 April 2016
'Directors As Guardians Of Compliance And Ethics Within The Corporate
Citadel: What The Policy Community Should Know | RAND' (Rand.org,
2010)
<http://www.rand.org/pubs/conf_proceedings/CF277.html>
Owned
And
2016)
Enforced
By
HSE
And
Local
Authorities'
<http://www.hse.gov.uk/legislation/enforced.htm>
13