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Company Law Essay

2489 words - 10 pages

Company Law, s.33 CA '06
            The introduction of the Companies Act 2006 has reformed the law regulating corporations which over the previous century has been subject to much criticism. This essay will show that in the main change to s.33 of the act has not achieved any noticeable reform in relation to the company constitution, challenging the notion that it heralds a new era in the corporate constitution for small closely held companies. The wording of s.33 (1) remains for the most part identical to that of its predecessor s.14 Companies Act 1985:
...the provisions of the company's constitution bind the company and its members to the same extent as if they were covenants on the ...view middle of the document...

..,as being treated in law as a party to its own memorandum and articles.” One explanation for this change addresses the previous effect of the earlier statutes which failed to recognise the company's separate legal capacity. 
            The next issue that arises is how s.33 affects the relationship between the members acting in their capacity as a member, members inter se, early cases provide some confusion. In Wood v Odessa Waterworks Co [13] Stirling J considered that “the articles of association constitute a contract not merely between the shareholders and the company, but between each member and every other.” Lord Herschell in Welton v Saffrey [14] was of the opinion that “there is no contract between the individual members of the company.” And In Salmon v Quinn & Axtens Ltd [15] Farwell J stated :
The articles...are made equivalent to a deed of covenant signed by all the shareholders. The act does not say with whom that covenant is entered into, and there have been varying statements by learned judges, some of them saying it is with the company, some of them saying it is both with the company and the shareholders.
In Rayfield v Hands [16] where the matter for consideration was a pre-emption clause which not only gave the directors a right to pre-empt the purchase of shares by an outsider, but actually cast an obligation on them to buy the shares from the outgoing director , Vaisey J qualified that “it is,..., material that this private company is one of that class of companies which bear a close analogy to a partnership.”[17] What now seems to be the settled is that the contract will be enforceable by the members inter se if the company is of a quasi-partnership type. Something the government failed to clarify in the new act.
            The next consideration is, in what capacity a member is able to enforce the terms of the contract, this deals primarily with the doctrine of insider and outsider rights. The doctrine becomes an issue not when a member is enforcing the rights he has as a member qua (insider rights), but when a member who serves in an official capacity for the company as an outsider and attempts to enforce the terms of the articles in relation to his outside role. This was set out by Astbury J in Hickman v Kent [18] in which he states that: right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, as, for instance, as a solicitor, promoter, director, can be enforced against the company.
 Astbury J was presented with the conflicting view of two lines of authority, the first being Eley v Positive Government Security Life Assurance Co [19] which purported “that a member cannot enforce all the terms of the section .14 contract, but only those which relate to him in his capacity as a member.”[20] The other  from Salmon v Quinn & Axtens Ltd [21] where a member of  the company enforced his outsider right as managing director...

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