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Company Law

Q&A Company Law

Mike Ottley

Company Lawcards 2012 - 2013

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Questions & Answers

The articles of association of Cedar Ltd provide that the company’s business is the production of organic food. The articles further provide that the company has the power to borrow money and the power to purchase plant and machinery in furtherance of the business of the company. Since the company’s formation in 1995, the company’s business of producing organic food has been profitable. However, in the light of a recent economic downturn, the company has not been able to make a profit from the business as demand for organic food has waned. Cedar Ltd’s board of directors resolve that, in order to arrest the decline in the company’s fortunes, the company should switch to the production of non-organic food.

For this purpose, the directors enter into the following contracts on the company’s behalf:

(i) A secured loan agreement with HBAS Bank plc.
(ii) The purchase of a substantial quantity of chemical fertilizers, insecticides and pesticides from Direct Land Ltd.

Giles, a minority shareholder of Cedar Ltd and a committed organic grower, is concerned with the activities of the board of directors, in particular (a) the validity of the two contracts and (b) the action, if any, that can be taken.

Advise Giles as to his legal position.

Answer plan

You will need to consider the principles dealing with the capacity of a company and a company’s board of directors to enter into binding arrangements of the kind that have taken place and the action if any that can be taken by an aggrieved shareholder. This will include a consideration of the further reform of the doctrine of ultra vires by the Companies Act (CA) 2006, a task previously undertaken by the CA 1985 and the CA 1989. It might be advisable to consider these issues from an ‘external’ as well as an ‘internal’ perspective.

Answer

EXTERNAL ASPECTS OF CORPORATE TRANSACTIONS

Making reference to the ‘external’ aspects of corporate transactions, means considering the capacity of a company to enter into transactions of a binding nature with another party. The issue, therefore, that arises, is whether the transactions between Cedar Ltd and HBAS Bank plc and between Cedar Ltd and Direct Land Ltd are valid and binding.

Under the CA 2006, a company is no longer required to have an objects clause. However, it can choose to have objects, but such restrictions relating to its objects must be contained in the company’s articles (s 31 CA 2006); under the CA 1985, objects had to be stated in a company’s memorandum of association. Section 31 CA 2006 applies to new and existing companies. Here, Cedar Ltd has restrictions on its objects contained in its articles, perhaps serving as a ‘reminder’ to the directors and shareholders of the company of the company’s business ethos.

Given the restrictions contained in Cedar Ltd’s articles, it must be considered whether the two transactions are valid and binding. Given Giles’ keen interest in the matter, he may believe that the company has acted ultra vires, that is, beyond the powers of the company, and that, by virtue of the doctrine of ultra vires, the transactions are void and unenforceable. However, the effect of s 39 CA 2006 is to nullify the doctrine of ultra vires to the extent that there is no limitation on a company’s capacity to enter into contracts.

Section 39 CA 2006 provides that no act, such as a contract, can be questioned on the ground of a lack of capacity in the company’s constitution. Therefore, from an external perspective, the contracts between Cedar Ltd and HBAS Bank plc and Cedar Ltd and Direct Land Ltd are valid and enforceable. Similarly, where an act of a company is within the company’s powers but outside the powers of the directors, a third party dealing with the company can assume there is no limitation on powers of the board of directors or those authorised by the board of directors (s 40(1) CA 2006). It is a requirement of s 40 CA 2006 that the third party is acting in good faith. However, the section states that a third party is not bound to enquire as to any limitation on the directors’ powers and neither is mere knowledge on the part of the third party that the directors have exceeded their powers sufficient to amount to a lack of good faith (s 40(2) CA 2006). There is no indication from the facts of the question that either HBAS Bank plc or direct Land Ltd have acted in bad faith, the burden of proof being on the company.

Section 40(4) CA 2006 does, however, provide for a shareholder to seek an injunction to prevent the company from acting beyond the powers of the board of directors, but obtaining an injunction is limited by any ‘legal obligation’ arising from the act of the company (s 40(4) CA 2006); ratification of the act by the company (s 239 CA 2006); whether, in fact, the act is beyond the directors’ powers, and whether, given the discretionary nature of the relief, the court would grant an injunction where it considered that ratification would be likely or imminent. Given that both contracts have been entered into, it would appear that Cedar Ltd is under a legal obligation to fulfil the contracts.

There have been two reported decisions on s 40 CA 2006, in which it was held that the section could not be relied on by the third party. However, both cases related to the meaning of ‘person’ within s 40 CA 2006 and the extent to which an insider, as a third party, was protected by that section. In Smith v Henniker-Major & Co (2002), in a mistaken, but honest, breach of the articles, a director entered into a contract with the company at an inquorate meeting of the board of directors and he attempted to rely on s 40 CA 2006 to validate the transaction. The Court of Appeal held that, although a requirement for a quorum of directors was a limitation on the powers of the board of directors and that s 40 CA 2006 was wide enough to include a director of the company, s 40 CA 2006 could not protect a director relying on his own mistake in order to validate something which had no validity under the company’s constitution. In EIC Services Ltd v Phipps (2004), the Court of Appeal held, that a shareholder of a company, as an ‘insider’, could not rely on s 40 CA 2006 in respect of an issue of shares that was beyond the powers of the directors of the company. The share issue was void and unenforceable. As ‘outsiders’ it does not appear that HBAS Ltd or Direct Land Ltd are affected by either decision.

Section 41 CA 2006, provides a different conclusion on the issue of contractual validity where a third party to a contract with a company is a director of the company or is connected to a director of the company. Under s 41 CA 2006, any transaction between the company and the director is deemed voidable, at the instance of the company, where the transaction exceeds any limitation placed on the powers of the board of directors or is beyond the powers of the company. It will cease to be voidable, however, where the company affirms the transaction or some other limit to rescission operates (s 41(4) CA 2006). The section further provides that the third party or the directors of the company who authorised the transaction are liable, where relevant, to indemnify the company for any loss or damage resulting from the transaction and to account to the company for any gain made from the transaction (s 41(3) CA 2006). Given the facts of the question, it does not appear that HBAS plc or Direct Line Ltd is such a third party.

In conclusion, therefore, from an external perspective, the advice to Giles is that, although the board of directors may have acted in breach of the articles, the respective contracts involving HBAS Bank plc and Direct Land Ltd appear to be valid and binding.

THE INTERNAL ASPECTS OF CORPORATE TRANSACTIONS

Giles is concerned further with the activities of the board of directors and how, from an ‘internal’ perspective, action can be taken against the directors for entering into contracts that appear to be valid but which breach a restriction contained in the company’s articles.

Action could be taken against the directors for breach of duty in failing to act in accordance with the company’s constitution (s 171(a) CA 2006). Additionally, or alternatively, directors are under a duty to act bona fide in a way that is most likely to promote the success of the company for the benefit of the members as a whole (s 172 CA 2006). The duties, based on case law, are owed to the company and not to any individual shareholder (s 170(4) CA 2006 – Percival v Wright (1902); Peskin v Anderson (2001).In Percival v Wright (1902), the directors of a company were privy to confidential information, which, once released, was likely to increase the value of the company’s shares. P, a shareholder, offered to sell his shares to the directors, who accepted his offer. When the confidential information was released, P sought to have the contract of sale set aside and to recover the shares, on the ground that the lack of disclosure was a breach of fiduciary duty by the directors. Swinfen-Eady J, in rejecting P’s claim, held that the directors did not, simply by being directors, owe a fiduciary duty to an individual shareholder; they did owe such a duty to the company but they had not broken it. In Peskin v Anderson (2001), the directors were held not to owe a duty to former shareholders to inform them of the disposal of a company asset, which resulted in existing members each receiving a windfall of £34,000, as there was no special factual relationship generating a fiduciary obligation such as a duty of disclosure. These fiduciary duties require a director to exercise his powers in a way that has regard to the interests of the person to whom the duties are owed and not to abuse his position of trust and influence within the company.

Although the directors may have the power to sue, by virtue of the wide, general power of management vested in them (art 3 (draft) model articles, 2008), where the directors are the wrongdoers, the shareholders can exercise a residual power to sue on behalf of the company. Section 260 CA 2006 also provides that a member can bring a derivative claim on behalf of the company against a director for breach of duty, but such a claim requires the shareholder to establish a prima facie case (s 261 CA 2006) and to obtain the permission of the court to continue with the claim (s 263 CA 2006). Section 260 CA 2006 provides that the shareholder must establish that the directors are in breach of duty and the company has a cause of action arising from such a breach. Assuming that provision was satisfied, the shareholder must establish a prima facie case. Where the court is satisfied that there is a prima facie case, it has the power inter alia to give directions as the evidence to be provided by the company and, on hearing the application, to give or to refuse permission to continue the claim (s 261 CA 2006). Under s 263 CA 2008, the court must refuse to give permission where the court is satisfied that a person acting in accordance with s 172 CA 2006 (duty to promote the success of the company) would not seek to continue with the claim, or where the act has been authorised or ratified by the company (s 263(2) CA 2006). Where this is not the case, factors the court can take into account in deciding whether to allow the claim to proceed include whether the shareholder is acting in good faith, the importance that a person acting in accordance with s 172 CA 2008 would attach to continuing the claim, whether the act in the circumstances would be likely to be authorised or ratified by the company, whether the company has decided not to pursue the claim, whether the member could pursue an action in his own right, and whether there are any views of other members who have no personal interest (s 263(3)(4) CA 2006). The Secretary of State has the power to add to the circumstances in which permission is to be refused or granted (s 263(5) CA 2006). Any decision by the company to ratify the conduct of the directors amounting to a breach of duty must be taken by the members, the votes of the directors as shareholders not counting (s 239 CA 2006), unless consent is unanimous (s 239(6) CA 2006). The common law and equitable rules on acts which are incapable of ratification are preserved by s 239 (7) CA 2006. In Smith v Croft (No 2) (1988), Knox J held that, where the decision by the company not to litigate had been made ‘by an appropriate independent organ’, the shareholder was not allowed to bring a derivative claim - for in such a case it was not the fraudsters who were blocking litigation but others unconnected with the fraud. He pointed out that the appropriate independent organ might have good reason to refuse to litigate, for example, by reason of unnecessary expense or the unlikelihood of any judgment being satisfied. In Franbar Holdings Ltd v Patel (2008) [2008] EWHC 1534 (Ch), the court refused to grant permission to a minority shareholder to continue with a derivative claim, on the basis that the allegation relied on by the shareholder gave rise to causes of action already being pursued by the company and that a director, acting in accordance with his duty in s 172 CA 2006 to act bona fide in a way likely to promote the success of the company, would have attached little importance to continuing the derivative claim (s 263(2)(a)&(b) CA 2006).

As a minority shareholder, it is not easy for Giles to bring proceedings against the directors of Cedar Ltd in this case. Action by a minority shareholder in these types of cases is usually very difficult and any decision of the company that might satisfy the minority shareholder is likely to depend on the action, if any, of the majority shareholders. That, in turn, is likely to depend on whether the majority shareholder(s) also feel aggrieved at the activities of the directors. They may, however, be supportive of the activities of the directors.

NOTE

You could comment on a shareholder’s position where there has been a breach of the articles in respect of the ‘s 33 contract’. Further, you could possibly consider whether a minority shareholder could petition for relief under s 994 CA 2006 on the basis of unfair prejudicial conduct.

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The Good, the Fair and the Ugly

Good essays are the gateway to top marks. The Good, The Fair, and The Ugly shows you the style of essay which works well in exams, as well as the simple errors that can cost you essential marks. Written by our Q&A authors, each of these interactive essay-based tutorials highlights key themes and common errors and illustrates essays of specific standards:

Whilst marking criteria will vary, as a general guide, the Good answer will be based on a general mark of a first or upper second class; the Fair answer will be based on a lower second or third class and the Ugly answer would result in a fail.

The Good

Q&B Ltd was incorporated in 1980. The business of the company is the retailing of building material for the trade and DIY market. Leslie is the managing director of the company. There are also five other directors sitting on the board of directors. The company’s articles are based on Schedule 1 of the Company’s (Model Articles) Regulations 2008.

Recently, it has been discovered that Leslie was engaged in activities that might have amounted to a breach of the ‘no-conflict’ rule. These are as follows:

1 Three months ago, Leslie bought a consignment of power tools on the company’s behalf for £500,000 from Fix Ltd for which, unknown to Q&B Ltd, he received a ‘thank you’ present of £10,000 from Fix Ltd. Last week, the tools were sold to various trade and retail customers, causing Q&B to suffer a loss of £50,000.

2 A year ago, Leslie was approached by Basil, a director of Hulti plc, a customer of Q&B Ltd, with a view to Q&B developing a chain of smaller DIY stores for the commuting market, called ‘Q&B Local’. A week later, Leslie told Basil in an email that Q&B Ltd was not interested in developing high street stores as a result of the difficulty in finding financial support from the UK banks following the ‘credit crunch’. However, Leslie informed Basil two days later by ‘phone that another company, Cranebag Ltd, was interested in developing and financing the project together. Unknown to Basil and Q&B Ltd, Leslie owns the majority of the shares of Cranebag Ltd and is Cranebag’s sole director. Following successful negotiations between Cranebag Ltd and Basil, Cranebag Ltd made a reported profit of £5m on the deal between Cranebag and Hulti plc.

In the light of these activities, consider whether Leslie has breached the no-conflict rule and the remedies available, if any, for breach of duty.

Podcast: the Good

Directors of companies owe duties to the company they serve. The codified, fiduciary (and common law) duties that directors owe are owed to the company, that is, the company’s current and future shareholders as a body, and not to any individual shareholder. This is the effect of s 170(1) of the Companies Act (CA) 2006, which codifies the common law position set out in Percival v Wright (1902)and Peskin v Anderson (2001). However, it is possible for a director to owe a duty to a shareholder, as in Allen v Hyatt (1914), where the court held that a director may voluntarily undertake a fiduciary duty towards a single shareholder by acting as his agent. (1) Identifying that directors owe ‘general’ duties and these are owed to the company alone.

In Percival v Wright (1902), the directors of a company were privy to confidential information which, once released, was likely to increase the value of the company’s shares. P, a shareholder, offered to sell his shares to the directors, who accepted his offer. When the confidential information was released, P sought to have the contract of sale set aside and to recover the shares, on the ground that the lack of disclosure was a breach of fiduciary duty by the directors. Swinfen-Eady J, in rejecting P’s claim, held that the directors did not, simply by being directors, owe a fiduciary duty to an individual shareholder; they did owe such a duty to the company but they had not broken it. In Peskin v Anderson (2001), the directors were held not to owe a duty to former shareholders to inform them of the disposal of a company asset, which resulted in existing members each receiving a windfall of £34,000, as there was no special factual relationship generating a fiduciary obligation such as a duty of disclosure. (2) Summarises the cases both accurately and succinctly. These codified, fiduciary duties are based on the equitable principle that a director is required to exercise his powers in a way that has regard to the interests of the person to whom the duties are owed and not to abuse his position of trust and influence within the company, so that, for instance, in common with a trustee, a director cannot, without authorisation or ratification, derive any benefit from the use of corporate property.

From the problem, there are two possible breaches of the no-conflict rule that can be indentified - each of these will be examined in turn (3) The answer will set out the work in two parts so that the examiner can be confident that the student knows the difference between the different aspects of the no-conflict rule.

1 The ‘bonus’ from Fix (F) Ltd

A director is under a duty to avoid a conflict of interest arising as between his duty to the company and his own personal interest. The House of Lords in Aberdeen Rly Co v Blaikie Bros (1854) ruled that a director could not benefit directly or indirectly from a contract made by his company, for example, where he enters into a service contract, or where a director benefits indirectly from a contract between his company and a third party (such as being in receipt of a bonus or commission) without making adequate disclosure of his own interest in that contract. Disclosure should be to the shareholders, unless the articles allow disclosure to the board (for example, article 14 of the model articles and s 178 CA 2006). Further, s 182 CA 2006 provides for disclosure to the company but the penalty for failing to comply with s 182 CA 2006 is a criminal one, not a civil one. For the civil consequences of non-disclosure, there is a need to turn to the general equitable rules, as provided for by s 180 CA 2006, which state (i) that the contract is voidable at the option of the company (Aberdeen Rly Co v Blaikie Bros (1854)) and (ii) the director can be held accountable for any secret profit made (Boston Deep Sea Fishing Ice Co v Ansell (1888)). Given that L did not disclose his interest in the contract between Q&B Ltd and Fix Ltd, the contract becomes voidable, although whether Q&B Ltd can rescind the contract depends on whether the right of rescission has not been lost. It would appear that the company cannot elect to exercise its right to rescind the contract, as restoration of the parties' property (a condition of rescission) would not be possible, the power tools having being sold to various, and presumably, innocent trade and non-trade purchasers.

However, whether the contract is avoided or not, it leaves it open for the company to compel the director to account for any secret profit he made from breaching the no-conflict rule. Alternatively, a director could be sued in damages (equitable compensation) where, in breaching the no conflict rule, he causes the company to suffer a loss. In Mahesan v Malaysia Government Officers' Co-operative Housing Society (1978) a housing society company claimed from the manager of the society the difference between the amount the society paid for the land and what it was later sold for, the original price not being its market value. However, the Privy council in this case ruled that the company must elect between account of profit and damages. In the problem, it would appear that the loss suffered by the company of £50,000 is greater than the secret profit made by L and that given the quick nature of the sale of the power tools, market conditions have had little effect on the original price paid by Q&B. The reduction of the value of the goods has occurred over a three week period and the loss suffered by Q&B Ltd of £50,000 is recoverable from L. This amount is greater than the amount L received in the form of the gift. In Attorney-General for Hong Kong v Reid (1994), the Privy Council recognised a proprietary remedy by way of a constructive trust in favour of the company against the director or other agent in respect of a bribe, so that the company would be able to claim any profit the director made from his use of the bribe.

As Lord Porter stated in Regal (Hastings) Ltd v Gulliver (1942), ‘Directors, no doubt, are not trustees, but they occupy a fiduciary position towards the company whose board they form.’ (4) Good use of a quote from a judgment to support the point made. The ‘general’ duty to put corporate interest above private profit is augmented in respect of corporate property; in common with a trustee, a director cannot appropriate corporate property. If he does so appropriate, he is liable as a constructive trustee (JJ Harrison (Property) Ltd (2003)). The duty is set out in s 175 CA 2006, the duty being that a director should not benefit from his position as director, an obligation that applies after the ending of the directorship (s 170(2)(a) CA 2006). It is obvious that, if a director appropriates the company’s tangible property, he will be liable to return the property to the company. The same is true of appropriation of intangible corporate assets, for example, the benefit of a contract possessed by the company. This liability for misappropriation is extended to commercial opportunities which are within the company’s grasp. In Cook v Deeks (1916), a company, X, was about to sign a contract to build a railway when X was persuaded by three of the four directors of X to award the contract to a new company which they had formed. The directors were held liable to hold the benefit of the contract as constructive trustees for X. (5) The work includes a summary of the cases – this theme is continued throughout the work.

Neither, in this case, could the directors be excused by the subsequent shareholder ratification of their actions (the three directors held 75 per cent of the shares in X), for misappropriation of corporate assets is an unratifiable breach of a director’s duty (s 239(7) CA 2006 – the statutory procedure on ratification is subject to any common law rendering certain acts as being incapable of ratification). The duty in s 175 CA 2006 provides, but this is not an absolute prohibition, as the duty is not infringed if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest (s 175(4) CA 2006) - comments to this effect can be found in the judgments of their lordships in Regal (Hastings) Ltd v Gulliver (1942). In Industrial Developments Consultants Ltd v Cooley (1972), C, the managing director of the company, was party to negotiations by the company for the design and construction of a gas terminal. It became clear that the company was unlikely to obtain the contract and C feigned illness, resigned his directorship and successfully tendered for the contract on his own account. The judge held C liable to account for the profit he had made on the contract. Although the company was unlikely to get the contract, C was not entitled to use information concerning it and obtained in corporate service, for his own benefit. In contrast, in Island Export Finance Ltd v Umunna (1986), a former director who successfully tendered for a contract with the Cameroon postal authorities was not in breach of his fiduciary duty despite the fact that he had gained useful information and contacts with the authority while negotiating a contract with it on the company’s behalf some two years ago. The court noted that there was a lack of a ‘maturing business opportunity’ for the director to exploit. In LC Services Ltd v Brown (2003), a director, in breach of duty delivered a copy of a company database to a rival company for whom he worked and removed company documents and company maintenance procedures. The court held that this amounted to a misuse of confidential information. In Ball v Eden Project Ltd (2004), the court held that, despite B’s claim for compensation in respect of a dispute with the company over remuneration, that did not entitle the director to register the company’s mark in his own name and deprive the company of the use of its property. (6) Makes a excellent distinction between that information that can be regarded as ‘corporate property’ and that information that can be regarded as ‘personal’.

Judging by the cases in this area, it would appear that L has breached the no-conflict rule by appropriating an opportunity belonging to the company. The information does not appear to be in the ‘public domain’ and the fact that Q&B Ltd might not be interested in the opportunity may not absolve L from liability, as the information might be considered to be ‘worthwhile and commercially attractive’ to the company (Bhullar v Bhullar Bros Ltd (2003)), or of a type that the director is under a duty to pass on to the company (Industrial Developments Consultants Ltd v Cooley (1972); Bhullar v Bhullar Bros Ltd (2003)). If, however, L had obtained authorisation by the directors (s 175(5) CA 2006) or approval from the shareholders (s 239 CA 2006), he may have escaped liability (Regal (Hastings) Ltd v Regal (1942)). In respect of authorisation under s 175(5) CA 2006, where the company is a private company, authorisation is permitted as long as it is not invalidated by anything in the articles; where a public company, the articles must provide for authorisation. For misuse of corporate property, L would be liable to account for any profit made. (7) Looks at remedies available to the company, not simply analysing the question in terms of breach alone. However, here, the profit that has been made has been made by Cranebag (‘C’) Ltd, a company controlled by L. In these circumstances, in order for Q&B Ltd to recover the profit, the court may be prepared either to lift the veil of incorporation (Trustor AB v Smallbone (1999)) or to hold the third party liable as a constructive trustee. Liability can be imposed on third parties who have been involved in a director’s breach of duty, as in Selangor v Cradock (1968), where the third party was held liable as a constructive trustee. Whether such third party liability exists depends on whether C Ltd had knowingly participated in a breach of duty or trust by the director on the basis of ‘knowing receipt’ or ‘knowing (or dishonest) assistance’; the appropriate remedy is either restoration of property misapplied and held by the third party or damages representing the value of the misapplied assets (Royal Brunei Airlines Sdn Bhd v Tan (1995); Twinsectra Ltd v Yardley (2002); Barlow Clowes International Ltd v Eurotrust International Ltd (2006)). In Twinsectra, the House of Lords held that in order to show that defendant has been dishonest for purpose of liability as an accessory it must be shown that his conduct was dishonest by the ordinary standards of reasonable and honest people and that the defendant realised that by those standards his conduct was dishonest. It is not necessary to show dishonesty on the part of the third party in respect of knowing receipt, for which, see Bank of Credit and Commerce International (Overseas) Ltd v Akindele (2001). It does appear from the facts of the question, that C Ltd can be held liable as a constructive trustee but that H Ltd has appeared to have acted innocently. (8) The answer considers the liability of third parties that may have assisted in a director’s breach of duty.

Finally, it should be noted, albeit briefly, that the proper claimant to address a wrong done to the company is the company itself – this represents the rule in Foss v Harbottle (1843). The power to sue on the company’s behalf normally resides with the directors (as provided for by art 3 of the model articles (2008)) but it can lie with the general meeting, either by passing of a special resolution instructing the directors to take action (art 4 of the model articles (2008)) or by taking action under a default power where the directors have committed the wrong to be suffered by the company. Alternatively, a shareholder, under s 260 CA 2006, can bring a derivative claim on behalf of the company against a director for breach of duty, but the shareholder would have to show a prima facie case in accordance with s 261 CA 2006 and to obtain the permission of the court to continue with the claim (s 263 CA 2006). (9) There is no need to consider this matter further, as the question does not invite the student to analyse the forms of corporate action.

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The Fair

Recently, it has been discovered that Leslie was engaged in activities that might have amounted to a breach of the ‘no-conflict’ rule. These are as follows:

In the light of these activities, consider whether Leslie has breached the no-conflict rule and the remedies available, if any, for breach of duty.

Podcast: the Fair

Directors of companies owe duties to the company they serve. The codified, fiduciary (and common law) duties that directors owe are owed to the company, that is, the company’s current and future shareholders as a body, and not to any individual shareholder. This is the effect of s 170(1) of the Companies Act (CA) 2006, which codifies the decision (of the Court of Appeal) in Percival v Wright (1902) and Peskin v Anderson (2001). However, it is possible for a director to owe a duty to a shareholder, as in Allen v Hyatt (1914), where the court held that a director may voluntarily undertake a fiduciary duty towards a single shareholder by acting as his agent. (1) Although the work identifies the principle that directors owe ‘general’ duties to the company, the work fails to summarise the cases in support of the propositions made.

A director is under a duty to avoid a conflict of interest arising as between his duty to the company and his own personal interest. The House of Lords in Aberdeen Rly Co v Blaikie Bros (1854) ruled that a director could not benefit directly or indirectly from a contract made by his company, for example, where he enters into a service contract, or where a director benefits indirectly from a contract between his company and a third party (such as being in receipt of a bonus or commission) without making adequate disclosure of his own interest in that contract. Disclosure should be to the shareholders, unless the articles allow disclosure to the board. Further, s 182 CA 2006 provides rules for the nature of the disclosure to the board, but the penalty for failing to comply with s 182 is a criminal one, not a civil one. For the civil consequences of non-disclosure, we need to turn to general equitable rules, which provide (i) that the contract is voidable at the option of the company (Aberdeen Rly Co v Blaikie Bros (1854)) and (ii) the director can be held accountable for any secret profit made (Boston Deep Sea Fishing Ice Co v Ansell (1888)). Given that L did not disclose his interest in the contract between Q&B Ltd and F Ltd, the contract becomes voidable, although whether Q&B Ltd can rescind the contract depends on whether the right to elect rescission has not been lost. (2) Attempts some application of the rules to the facts of the problem but the application is incomplete, for instance, it would appear the company cannot elect its right to rescind the contract, as restoration of the parties' property (a condition of rescission) would not be possible, the goods having being sold to apparent innocent purchasers.

The ‘general’ duty to put corporate interest above private profit is augmented in respect of corporate property; in common with a trustee, a director cannot appropriate corporate property. If he does so appropriate, he is liable as a constructive trustee (JJ Harrison (Property) Ltd (2003)). The duty is set out in s 175 CA 2006, the duty being that a director should not benefit from his position as director, an obligation that applies after the ending of the directorship (s 170(2)(a) CA 2006). It is obvious that, if a director appropriates the company’s tangible property, he will be liable to return the property to the company. The same is true of appropriation of intangible corporate assets, for example, the benefit of a contract possessed by the company. This liability for misappropriation is extended to commercial opportunities that are within the company’s grasp. In Cook v Deeks (1916), a company, X, was about to sign a contract to build a railway when X was persuaded by three of the four directors of X to award the contract to a new company that they had formed. The directors were held liable to hold the benefit of the contract as constructive trustees for X. Neither could the directors be excused by the subsequent shareholder ratification of their actions (the three directors held 75 per cent of the shares in X), for misappropriation of corporate assets is an unratifiable breach of a director’s duty (s 239(7) CA 2006 – the statutory procedure on ratification is subject to any common law rendering certain acts as being incapable of ratification). The duty in s 175 CA 2006 provides, but this is not an absolute prohibition, as the duty is not infringed if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest (s 175(4) CA 2006) - comments to this effect can be found in the judgments of their lordships in Regal (Hastings) Ltd v Gulliver (1942). In Industrial Developments Consultants Ltd v Cooley (1972), C, the managing director of the company, was party to negotiations by the company for the design and construction of a gas terminal. It became clear that the company was unlikely to obtain the contract and C feigned illness, resigned his directorship and successfully tendered for the contract on his own account. The judge held C liable to account for the profit he had made on the contract. Although the company was unlikely to get the contract, C was not entitled to use information concerning it and obtained in corporate service, for his own benefit. In contrast, in Island Export Finance Ltd v Umunna (1986), a former director who successfully tendered for a contract with the Cameroon postal authorities was not in breach of his fiduciary duty despite the fact that he had gained useful information and contacts with the authority while negotiating a contract with it on the company’s behalf some two years ago. The court noted that there was a lack of a ‘maturing business opportunity’ for the director to exploit. In LC Services Ltd v Brown (2003), a director, in breach of duty delivered a copy of a company database to a rival company for whom he worked and removed company documents and company maintenance procedures. The court held that this amounted to a misuse of confidential information. In Ball v Eden Project Ltd (2004),the court held that, despite B’s claim for compensation in respect of a dispute with the company over remuneration, the director was not entitled to register the company’s mark in his own name and deprive the company of the use of its property. (4) The work does attempt to summarise the leading cases, but fails to draw any firm conclusions in the light of the facts of the question.

If L had obtained authorisation by the directors (s 175(5) CA 2006) or approval from the shareholders (s 239 CA 2006), he may have escaped liability (Regal (Hastings) Ltd v Regal (1942)). In respect of authorisation under s 175(5) CA 2006, where the company is a private company, authorisation is permitted as long as it is not invalidated by anything in the articles; where a public company, the articles must provide for authorisation. For misuse of corporate property, L would be liable to account for any profit made. (5) Although the work refers correctly to the need to consider remedies for breach and the means by which a company can excuse a director for breach, it fails to either provide sufficient authority or make a clear or clearer connection to any breach, as identified in the previous key point. Here, the profit that has been made has been made by Cranebag (C) Ltd, a company controlled by L. In these circumstances, in order for Q&B Ltd to recover the profit, the court may be prepared either to lift the veil of incorporation (Trustor AB v Smallbone (1999)), or to hold the third party liable as a constructive trustee. Liability can be imposed on third parties who have been involved in a director’s breach of duty, as in Selangor v Cradock (1968), where the third party was held liable as a constructive trustee. Whether such third party liability exists depends on whether C Ltd had knowingly participated in a breach of duty or trust by the director on the basis of ‘knowing receipt’ or ‘knowing (or dishonest) assistance’; the appropriate remedy is either restoration of property misapplied and held by the third party or damages representing the value of the misapplied assets (as in Royal Brunei Airlines Sdn Bhd v Tan (1995) and Twinsectra Ltd v Yardley (2002)). (6) Identifies the relevant law and cases but does not provide any analysis of the facts of the problem.

It should be noted that the proper claimant to address a wrong done to the company is the company itself – this represents the rule in Foss v Harbottle (1843). The power to sue on the company’s behalf normally resides with the directors (as provided for by art 70 of Table A) but it can lie with the general meeting, either by passing of a special resolution instructing the directors to take action (art 70 of Table A) (7) Fails to recognise that Table A has been replaced by the model articles, 2008, or to explain that Table A may still form the basis of a company’s articles, or by taking action under a default power where the directors have committed the wrong to be suffered by the company. Alternatively, a shareholder, under s 260 CA 2006, can bring a derivative claim on behalf of the company against a director for breach of duty, but the shareholder would have to show a prima facie case in accordance with s 261 CA 2006 and to obtain the permission of the court to continue with the claim (s 263 CA 2006). Section 260 provides that the shareholder must establish that the directors are in breach of duty and the company has a cause of action arising from such a breach. Assuming in this case, that provision was satisfied, the shareholder must establish a prima facie case. If the court is satisfied that there is a prima facie case, it has the power inter alia to give directions as the evidence to be provided by the company and, on hearing the application, to give or refuse permission to continue the claim (s 261 CA 2006). Under s 263 CA 2006, the court must refuse to give permission where it is satisfied that a person acting in accordance with s 172 CA 2006 (duty to promote the success of the company) would not seek to continue with the claim, or where the act has been authorised or ratified by the company (s 263(2) CA 2006). Where this is not the case, factors the court can take into account in deciding whether to allow the claim to proceed include whether the shareholder is acting in good faith, the importance a person acting in accordance with s 172 CA 2006 would attach to continuing the claim, whether the act in the circumstances would be likely to be authorised or ratified by the company, whether the company has decided not to pursue the claim, whether the member could pursue an action in his own right, and the views of other members who have no personal interest (s 263(3)(4) CA 2006). Any decision by the company to ratify the conduct of the directors amounting to a breach of duty must be taken by the members, the votes of the directors as shareholder not counting (s 239 CA 2006), unless consent is unanimous (s 239(6) CA 2006). The common law and equitable rules on acts that are incapable of ratification are preserved by s 239 (7) CA 2006. For example, a derivative claim did not lie at common law where the shareholder participated in the fraud or had benefited from it (Nurcombe v Nurcombe (1985)), or was seeking to sue for an ulterior motive (Barrett v Duckett (1995)), or had failed to establish that it was the fraudsters who were blocking litigation by the company (Smith v Croft (No 2) (1987)). In Franbar Holdings Ltd v Patel (2008), the court refused to grant permission to a minority shareholder to continue with a derivative claim, on the basis that the allegation relied on by the shareholder gave rise to causes of action already subject to a personal remedy in the form of breach of shareholder agreement and a petition for relief under s 994 CA 2006. Further, a director acting in accordance with his duty to act bona fide in a way likely to promote the success of the company (s 172 CA 2006) would have attached little importance to continuing the derivative claim (s 263(2)(a)&(b)). In contrast, in Kiani v Cooper (2010), which was the first reported decision in which the court agreed to allow an application under the new statutory, derivative procedure to proceed further. The court held that the director had failed to adduce any evidence to rebut the allegations made against him and that the claimant was acting in good faith. A notional director, acting in accordance with his duty under s 172 CA 2006, would wish to continue with the claim against the defendant, where the defendant had failed to adduce any corrobative evidence in support of his denial of the allegations made against him. (8) Although the work is accurate, it is not entirely relevant to the question, which invites the student to consider breach of duty and applicable remedies and not forms of shareholder or corporate action. Even if that was ‘permitted’, the work as found elsewhere in this answer fails to draw any firm conclusions in terms of applying the principles to the facts of the question.

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Chapter 1: Incorporation

Introduction
The company and the partnership
Advantages of incorporation
Public companies and private companies
Limited liability partnerships
Formation of an LLP
Members and designated members
Contractual and tortuous liability
Members' relationship with each other
Minority protection
Winding up
Disqualification of members
Corporate personality
Statutory exceptions
Judicial exceptions
Combating fraud
Agency
Groups of companies
Trust

Chapter 2: The company's constitution

Introduction
Application for Registration
Objects clauses and ultra vires
The position at common law
Company name
Articles of association
Alteration of the articles
Class rights
Variation of class rights
The membership contract
Academic views

Chapter 3: Capital

Introduction
Promoters
De?nition of a promoter
Duties of a promoter
Pre-incorporation contracts
Position under statute
Prospectuses and listing particulars
Criminal liability
Rules relating to payment for shares
Rules relating to the maintenance of capital
The payment of dividends

Chapter 4: The management of the company

Introduction
Removal of directors
Directors' duties
The duty of care and skill
Fiduciary duties
The Duty to Promote the success of the company
The duty to exercise independent judgment
The Duty to avoid conflicts of interest
Transactions to which the company is a party
Fair dealing provisions
Transactions to which the company is not a party
The duty to act within powers
Disqualification of directors
The company secretary
History
Duties of the company secretary
Responsibilities of the company secretary
Disqualificationof the company secretary
Powers of the company secretary
Auditors
Nature of post of auditor
Liability of auditors
Tortious liability
Auditors' statutory liability

Chapter 5: Company meetings

Annual general meetings
Extraordinary general meetings
The conduct of meetings
Length of notice
Serving the notice
The chairman
Quorum
The conduct of meetings
Resolutions
Special resolution
Ordinary resolution
Unanimous informal consent
Votes
Adjournment
Minutes

Chapter 6: Shareholder protection

Introduction
Majority control - minority protection
The Statutory Derivative Claim
The Derivative Case Law
An ultra vires act
The special majorities exception
The personal rights exception
Fraud on the minority
Minority protection and majority control
The other statutory remedies
Section 994 of the CA 2006
Remedies
Just and equitable winding up
Examination questions on shareholder protection
Company Investigations
Investigation of affairs of a company
Investigation of ownership or control
Investigation of directors' share dealings
Other companies in groups of companies
Investigation into insider dealing
Consequences of an inspection
Different types of company investigation - summary

Chapter 7: The company in trouble, reconstructions and takeovers

Introduction
Loan stock (debentures)
Debentures compared with shares
Charges
Crystallisation of a ?oating charge
Priorities amongst charges
Receivership
Voluntary arrangements
Administration
Liquidation
Compulsory liquidation
Voluntary liquidation
Priorities in a liquidation
Void charges
Priority of payment
Fair dealing provisions
Misfeasance
Fraudulent trading
Wrongful trading
Takeovers, reconstructions and amalgamations
Schemes of arrangement
Amalgamation
Takeovers

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Glossary

Click on the glossary term to see the definition

Chapter One

Company: A company is a trading structure. It is created by promoters through a process called incorporation. A company can own its own property, is liable for its own debts, can sue and be sued as well as having perpetual succession. There are several different type of company.

Company limited by shares: A company limited by shares is one in which the liability of the members is limited to the amount, if any, outstanding for payment of shares. Once a member has paid for their shares in full, they will have no further liability for the companyâ€™s debts.

Company limited by guarantee: In this type of company the members agree to pay a specified amount if the company is wound up. The most common example of a company limited by guarantee is a charity.

Unlimited Company: In this type of company there is no limit on the liability of the members so if the company goes into liquidation then the members must pay the companyâ€™s debts as far as they can.

Public Company: Public companies are those companies which can issue shares or debentures to the public. They must have a share capital of at least £50,000 of which a quarter must be paid up.

Private Company: Every company starts out as a private company. Private companies are prohibited from selling their shares to the public. They are small companies, who have greater freedom to operate under the CA 2006

Separate legal personality: Once a company has come into being, it is a body corporate and has a separate legal personality from that of its members and directors.

Veil of Incorporation: There are occasions when the courts will wish to ignore the companyÕs separate legal personality. If this happens the courts are said to lift the veil of incorporation which separates the company from its members and directors.

Partnership: A partnership comes into being when two or more people go into business together. There is no need for any formalities. There is a definition in s 1(1) of the Partnership Act 1890 Ð ÔPartnership is the relation which subsists between persons carrying on a business in common with a view of profit.Õ

Limited Liability Partnership: These were introduced by the Limited Liability Partnership Act 2000. The Act provides for a form of business organisation that offers more protection for those involved than the traditional form of partnership as regards liability, but it also allows more flexibility than a company.

Chapter two

Memorandum of Association: The Memorandum is now a historical document which is incapable of amendment. It contains a statement of intent by the subscribers that they intend to form a company and a statement by the subscribers that they agree to be members and take at least one share each.

Articles of Association: The Articles are a companyÕs rule book or constitution (CA 2006 s 17). Every company must have a set of articles, which can be tailor-made or taken from the one of the model sets. A company can only change its articles by special resolution and any change must be bona fide for the benefit of the company as a whole (Allen v Gold Reefs of West Africa (1900)).

Model Articles: Every company must have a form of articles of association Ðrules by which the company is run. The ready made forms were previously known as Tables. Under the CA 2006 the new model articles are more limited in the types of company to which they apply and are less prescriptive in structure than the old Tables. This is in line with the aim of streamlining regulation of companies.

Name: Every company needs a name by which it can be identified. There are limitations placed on a companyÕs choice of name. It cannot be the same as a name already registered. There are names which are prohibited from use (s.66 CA 2006) and names which require the approval of the Secretary of State because they may suggest a connection with the Government or are sensitive. (Ss.54 and 55 CA 2006). A companyÕs name may have to be changed if it is misleading or too similar to the name of another company (s. 75 CA 2006).

Index: The Index is a list of all registered companies names and is maintained by Companies House.

Objects Clause: Prior to the CA 2006, the Objects clause was vital to a company because it prescribed the limits of what a company could or could not do. If a company carried out an act which was not covered by its objects clause, it could be declared void. Since the CA 2006 and the downgrading of the importance of the memorandum of association, all objects clause will be treated as unrestricted. If a company wishes to restrict its objects it can do so (s.31 CA 2006).

Ultra Vires: Ultra vires in this context means outside the capacity. For a company to be acting within its capacity, it has to observe any limitations placed on its activities by the objects clause. If not, the act can be declared ultra vires and can be declared void. With the change to the importance of the objects clause, the common law doctrine of ultra vires will become less important but because of s.31 of the CA 2006 (the ability to restrict a companyÕs objects) remains relevant.

Class Rights: Every class of share that is created has its own rights. These rights can be, for example, the right to attend and vote at company meetings or the right to share in any surplus on the winding up of the company. Class rights are created in the articles at the time of the companyÕs creation or at the time of the issue of shares. Class rights should be exercised so as not to affect or deprive other classes of their rights.

Variation of Class Rights: Class rights can only be changed in accordance with the provisions contained in the articles or, if there is no provision in the articles, s. 260 CA 2006. A variation of class rights has to be approved by a special resolution of the members of that class or by the written consent of 75% of the members.

Membership Contract: When a person becomes a member of a company, this contract operates on two levels: first to bind each member to the company; and second to bind each member to each other. Under s.33 of the Ca 2006 it is now the constitution of the company that is binding upon the company and its members. (This was formerly known as the s.14 contract.)

Chapter Three

Promoter: Promoters are those people who form the company. In Whaley Bridge Calico Printing Co. v Green (1880), Bowen J said "The term promoter is a term not of law, but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence."

Pre-incorporation contract: Promoters may wish to be able to start trading as soon as company is incorporated and as such enter into contracts on behalf of the company. Legally this cannot happen as the company has no legal personality until it is created. Under s 51 of CA 2006 the rule is that the contract will be effective but the promoter will be personally liable on the contract.

Share: The issue of shares is one method by which a company can raise finance. A share is a unit which represents the investment a member has made in the company. The issued share capital is the total nominal value of the shares that the company has issued.

Dividend: If a company makes profits, then those profits may be distributed to the members as a dividend.

Debenture: The issuing of debentures is another method of raising finance. A debenture is the security for a long term loan. Usually there is a set amount of annual return that a debenture holder is entitled to.

Chapter Four

Director: Directors are the officers that run the company. Under s.154 CA 2006 a private company must have at least one director and a public company must have at least two directors. A director will usually be appointed to the office of director and will also enter into a service contract with the company. Directors are subject to various statutory duties under CA 2006. These are: to act within the companyÕs constitution and to exercise their powers for a proper purpose (s.171); to promote the success of the company (s.172); to exercise independent judgement (s.173); to exercise reasonable care, skill and diligence (s.174); to avoid conflicts of interest (s.175); to not accept benefits from third parties (s.176); and to declare an interest in any proposed or existing transactions or arrangements (s.177).

Fiduciary Duty: Despite the new statutory duties, directors still owe fiduciary duties to the company. They are not permitted to make any secret profits from their position and they are under a duty to exercise their powers bona fide for the benefit of the company.

Company Secretary: A company secretary is an officer of the company, but not necessarily a director, who has the responsibility of maintaining various records for the company, such as the minutes of meeting, and ensuring that the company complies with filing requirements. Under s.270 CA 2006 a private company is no longer required to have a company secretary.

Member: Also referred to as a shareholder. The members are the owners of the company. Membership starts from the point where the memberÕs name is entered in the register of members. Members are given certain powers over the company, for example, the power to remove directors. Members have rights under the companyÕs constitution. Examples of rights are the right to dividend once it was lawfully declared and the right to vote at meetings. The first members of the company are known as the subscribers to the memorandum.

Chapter Five

Meeting: There are various meetings that a company may hold. A public company is required to hold an Annual General Meeting (AGM), at which the annual reports and accounts are presented to the shareholders for their approval. Any other meetings are referred to as Extraordinary General Meetings (EGM). Under s.303 of the CA 2006 members may call an EGM. Meetings are subject to strict requirements regarding the amount of notice that must be given of the meeting, usually 14 clear days. If a special resolution is to be voted on at the meeting then 28 days notice is required.

Quorum: This is the minimum number of people that need to be present at a meeting to enable business to be transacted. The rules for establishing that a meeting is quorate are found in s.318 of the CA 2006. Only those entitled to vote may be counted as part of the quorum. For a one member limited company, the quorum is one qualifying person. For other companies the minimum is two.

Resolution: Under the CA 2006 certain matters require that the members of the company vote on them. This type of decision making is done by resolution, where a proposition is put forward and either accepted or rejected dependent on the type of resolution and whether certain thresholds have been reached. An ordinary resolution requires a simple majority of those voting in favour of it. A special resolution requires a majority of 75% voting in favour of it. Private companies may also use written resolutions to conduct business.

Chapter Six

Minority Protection: Because of the way that companies are governed it is usually the will of the majority that prevails. For example, a special resolution requires 75% of the members to vote in support of it to be passed. This means that a small but significant group of shareholders may find that their wishes are ignored. In common law this was tackled in the case of Foss v Harbottle, which established that if any wrong were done by the actions of the majority, the wrong was to the company. However, it was established that minority shareholders could bring complain about unfair conduct in a series of limited exceptions to the rule in Foss by way of what is called a derivative action. This has now been put on a statutory basis by the introduction of s.260 CA 2006. Members can still complain of any ill treatment by use of the unfair prejudice sections in ss.994 Ð 996 CA 2006 or resort to asking the court to winding the company up under the Ôjust and equitable groundÕ found in s.122(1)(g) of the Insolvency Act 1986.

Chapter Seven

Fixed Charge: This is a charge that is given over a specific asset to give a lender a security in case the charge is not repaid. Once a fixed charge has been granted, the company cannot deal with the asset without the permission of the charge holder.

Floating Charge: This is a charge that is given over a class of assets. The type of assets are those such as plant, machinery or stock, which will not remain constant.

Crystallisation: This is term that is given to the process of a floating charge attaching itself to a class of assets. This means that the floating charge has become a fixed charge. Crystallisation may occur if the business ceases, the company goes into liquidation or an event specified in the companyÕs constitution occurs.

Insolvency: This is found in s.122 Insolvency Act 1986. A company is insolvent when it is unable to pay its debs when they fall due.

Receivership: A receiver is the person appointed by a lender to take control of the company and to pay off the creditor.

Administration: Administration is a process whereby a person is appointed in order to rescue a company as going concern.

Liquidation: There are two types of liquidation. Compulsory liquidation occurs when there is a court order granted to wind up the company. Voluntary liquidation if the members or creditors have requested that the company be wound up.

Priority of Payment: This is the order in which creditors must be paid off during a liquidation. This is set down in the Insolvency Act 1986.

Wrongful Trading: This is where directors of a company who either know or should have known that there was no reasonable prospect of a company avoiding an insolvent liquidation but continued to trade. Those directors can be made liable for the losses incurred (S.214 IA 1986).

Fraudulent Trading: This is where the business of a company has been carried with an intent to defraud creditors. It is not limited to actions of the companyÕs officers. The court can make an order against the person responsible for continuing to trade (s.213 IA 1986).

Takeover: Where a business is brought by another company. This is usually done by way of share purchase in order to gain control of the target company. Takeovers can be friendly, (done by agreement between the companies) or hostile (where the target company will advise the members not to accept any offers to buy their shares).

Scheme of Arrangement: This is an agreement between a company and either its members or it creditors, which is usually entered into in order to achieve a compromise between the parties to pay off debts.

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Additional Material

1. Corporate Manslaughter

The courts have accepted that it is possible for a company to be guilty of manslaughter by an unlawful act or gross negligence (R v P and O European Ferries (Dover) Ltd [1990]. However, because criminal acts require not just the actus rea (the act) but also the mens rea (guilty mind), it has been difficult to bring successful prosecutions against companies. Effectively this has meant that an individual has had to be identified as being the 'controlling mind' of the company. While this approach worked with small companies which were owned and operated by one person, it resulted in failure when applied to larger companies because the controlling mind could not be identified, even if it was a general failing of policy or procedures within the company which led to the death. To remedy this situation the Corporate Manslaughter and Corporate Homicide Act 2007 was passed. Now under s 1 of the Act the offence of Corporate Manslaughter is committed by a company if the way in which its activities are managed or organised: (a) causes a person's death; and (b) amounts to a gross breach of a relevant duty of care owed by the company to that person.

This still remains a complex and difficult offence to establish as 'gross beach' is defined in s 1(4)(b) as conduct falling fall below what could be reasonably expected of the company in the circumstances. Additionally, a company is only guilty of the offence if the way that its activities are managed or organised by its senior management is a substantial part of the breach of duty. S 1(4)(c) defines senior management as persons who play significant roles in making decisions about how the company's activities are run or do the actual managing or organising of those activities.

If a company is found guilty of the offence, then the punishment is a fine, which may be accompanied by an order to take steps to remedy the breach of duty which caused the death.

2. Corporate Governance

Corporate governance is defined as "the system by which companies are directed and controlled". Corporate governance goes beyond the legal obligations of directors and includes the idea of accountability of directors to shareholders.

There were a series of reports during the 1990s ( Cadbury, Greenbury, and Hampel), which focused on how plcs were being run. The result of these investigations was the Combined Code on corporate governance. The Code covers the responsibilities of the directors and the board as a whole and the responsibilities of the shareholders.

There have been further reviews of the area (Turnbull, Higgs and Tyson). These reports have examined the role and effectiveness of the non executive directors and investigated how the pool of talent can be expanded. The Combined Code has been revised to take not account the findings of the late reports.