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Law Notes Company Law Notes

Uk Corporate Governance Code 2016 Notes

Updated Uk Corporate Governance Code 2016 Notes

Company Law Notes

Company Law

Approximately 805 pages

Company law notes fully updated for recent exams in the UK. These notes cover all the major LLB company law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Canada, Hong Kong or Malaysia (University of London). These notes were formed directly from a reading of the cases and main texts and are vigorous, concise and very well written.

Everything is conveniently split up by topic as you can see by the list o...

The following is a more accessible plain text extract of the PDF sample above, taken from our Company Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

The Board of Directors and their Management Jurisdiction

Gower Chapter 14: The Board

The Role of the Board

UK Corporate Governance Code 2016:

Every company should be headed by an effective board, which is collectively responsible for the success of the company

Code then goes on to explain what these responsibilities include:

  • Set company’s strategic aims

  • Ensuring necessary financial and human resources are in place

  • Review management performance

  • Set company values and standards

  • Ensure obligations to its shareholders and others are understood and met

This Code only formally applies to public companies with a Premium Listing of equity shares on the LSE but is nevertheless indicative of the board’s far-reaching powers and responsibilities in all companies.

Unlike civilian systems, however, the division of power between shareholders and the board is often a question of private ordering, representing the partnership origins of British company law.

The Default Provisions of the Model Articles

Hard to generalise about the patterns of division between board and shareholders in practice but model articles can offer some guidance. For both public and private companies, the default provision is the same, and it is one that gives much power to the board:

Subject to the articles, the directors are responsible for the management of the company’s business, for which purposes they may exercise all the powers of the company

This reference to ‘management’ in abstract may seem inappropriate for large public companies where the board could not possibly deal with all aspects of management but this is because Art 5 of the Model Articles for Public Companies provides for a broad power to delegate management functions to others, meaning higher-level questions of strategy as laid out in the Code are a more accurate reflection of what such boards do.

For private companies, however, it is sometimes possible for the board to really oversee all aspects of management directly. In quasi-partnerships, a small company would be free to displace the default rules through bespoke articles by reserving some matters to a unanimous vote or to involve greater shareholder involvement.

For both public and private companies, therefore, the Model Articles are just the starting point, with the needs of each type pointing in different directions.

The Power of the Board – the Legal Effect of the Articles

The Board and Shareholders

Legal effect of the articles – key question: is the relationship between the shareholders and the board one of agency or do the articles provide for a constitutional division of powers? Agency is about power-sharing not power-giving (meaning principal may revoke agency at will) but this is not how companies work, even though articles could actually provide for this possibility.

Until end of 19th century – it was assumed that the general meeting was the supreme organ of the company and the board was merely the agent of the members. Directors could therefore not block a general meeting whose purpose was to appoint a committee which would reorganise the running of the company in Isle of Wight Railway v Tahourdin (1883).

However, Automatic Self-Cleansing Filter Syndicate Co v Cuninghame [1906] made it clear that the division of powers between board and members was purely a question of the construction of the articles. The general meeting could not interfere with powers vested in the board – members thus could not force sale agreement by ordinary resolution.

This was firmly accepted following Quinn & Axtens v Salmon [1909] – members cannot interfere with a decision of the directors unless they are acting contrary to the Act or AoA.

Greer LJ per Shaw & Sons (Salford) Ltd v Shaw [1935] expresses the modern doctrine:

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 its 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 control the exercise of the powers. The only way in which the general body of shareholders can control the exercise of the powers vested in 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 action they disapprove. They cannot usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested in the articles in the general body of shareholders.

Scott v Scott [1943]: accordingly, GM resolutions which were instructions to make loans were nullities as the relevant power had been delegate to the directors.

Since 1985, Model Articles have further enunciated this position. Grant of authority to the board thus ‘subject to the articles’ and there is a specific section dealing with members’ reserve powers (Art 4) – by special resolution, members may instruct directors to take or not to take a specified action (ie equivalent to one-off change of constitution).

However, note S168 gives shareholders the power to remove directors by ordinary resolution so shareholders do have the power to force certain decisions indirectly.

The Board and Senior Management

There has not been the same level of legal controversy with senior management and the board as senior management can be sacked by the board and senior management has no formal position in the legal structure of the company. Although there are no restrictions on firing managers as a matter of company law, this would have labour / contract law implications. Note that the Code tries to put the MD/CEO within a system of accountability to the Board.

Default and Confirmation Powers of the GM

If for some reason the board cannot exercise the powers vested in them, the GM can do so:

  • Deadlock of the board – Baron v Potter [1914]

  • Where there were no directors – Alexander Ward & Co v Samyang...

Buy the full version of these notes or essay plans and more in our Company Law Notes.