Hello! These notes are a complete review of the SQE1 course from the University of Law. They contain everything you need to know to pass. I successfully completed both SQE1 and SQE2 both times and I attribute it to these notes which were incredibly effective when reviewing prior to the exams.
Exam Topics
Review Essay Q’s:
Separate Personality (development through to current position)
- Salomon, it’s historical development (changes from Brent case, autonomous rule of property) to
current laws
Shareholder primacy/interpretation of S 172
- is there such a thing? Where did it come from? Theories from readings? How does capitalism
relate/short-termism? Relationship with institutional investors?
Institutional Investors/Stewardship Code
- stock market relationship (short-termism vs activism), critiques, how effective has it been? Is it
enforceable/soft law? What can we do if they don’t listen? How does it relate to capitalism (see
capitalism notes below), why is it not effective against shareholder primacy?
Corporate Social Responsibility
- is enough being done in helping companies’ move away from their bad corporate reputation? Relate to
capitalism and how this does the opposite? Relate to shareholder primacy and how this promotes or
opposes social responsibility (look at history)?
Alternative Corporate Forms
- how it relates to corporate social responsibilities, pros and cons, which is best in a capitalist society?
Then relate to enlightened shareholder value and s. 172, how will this have to change?
Capitalism
- creative destruction, how it is necessary to be a company, how the way company law is structured
encourages capitalism through shareholder primacy investors (look at friedman theory)
Review PQ’s:
Corporate Personality/Veil Lifting (wk 7)
Directors Duties and Shareholder Remedies (wk 20-23)
- do not isolate them! Once you identify what duties have been breached, you then have to identify
what can be done about it
- make sure to explain issue fully, criticize it!
- use cases of authority ratio (point of law established), but do not so much focus on facts of
authoritative cases unless extremely similar
- ensure you are familiar with different types of directors
Corporate Personality
The company is designed as an investment vehicle, with limited liability for the shareholders and
a clear organizational structure, it is designed for ventures where there is an effective separation
of ownership from control and thus has been largely unsuitable for the majority of its users who
are small businesses
The common law permits this evasion of legal responsibility, for it does not usually penetrate
the formal separation of legal identities
, Limited liability: shareholders will be limited to the extent of their investment (the company’s
liability is not limited)
**There has been a recent trend within significant veil-lifting/piercing cases to declare that
lifting is being emphatically rejected as a solution and then to find some other way to achieve
the same outcome Prest case
Separate Legal Personality
In contrast to a partnership, a company is a corporate body, a separate legal entity with
corporate capacity to hold property, to sue and be sued in its own name
o The members (shareholders) of a company are not liable for its debts, and enjoy limited
liability
Salomon Principle
o Debenture: a document acknowledging a loan to a company and giving the lender
security over the assets of the company – so, upon insolvency, the lender can take the
assets and so recover payment ahead of the unsecured creditors
o HOL took the decision to protect the corporate veil
o The importance of the case is the fact that some shareholders only holding shares as a
technicality is irrelevant, and that a company formed in compliance with regulations of
the Companies Act is a separate person
Corporate Groups
Roskill LJ in The Albazero [1977]: there is no general principle that all companies in a group are
to be regarded as one. One the contrary, the fundamental principle is that ‘each company in a
group of companies is a separate legal entity possessed of separate legal rights and liabilites’
Templemen LJ in Re Southard & Co Ltd [1979]: a parent company may spawn a number of
subsidiary companies, all controlled directly or indirectly by the shareholders of the parent
company. If one of the subsidiary companies, to change the metaphor, turns out to be the runt
of the litter and declines into insolvency to the dismay of its creditors, the parent company and
other subsidiary companies may prosper to the joy of the shareholders without any liability for
the debts of the insolvent subsidiary
o Essentially, a parent company is a shareholder and therefore not legally responsible for
their subsidiary
Why use the corporate group structure?
o Integrated finance: assets and liabilities passed from one company to another in the
group – obscure the true financial position of each company
o Enhances the anonymity of beneficial owners
o Management/avoidance/evasion of tax obligations
o Avoiding creditors by concealing or shielding assets
o Limited exposure to or avoiding tortious liability: principle that one cannot be liable for
the actions of another
o Facilitating illicit activities such as bribery, corruption and money laundering
Corporate veil refers to the separation of legal identity between parent firms and their
subsidiaries, which gives the parent protection against the liabilities of its subsidiaries
, o Results in injustices to claimants against multinational enterprises through the use of
limited liability and separate legal personality
Adams Principle
o Suggested a court cannot lift the corporate veil except when construing a statute,
contract or other document – not if a company is a mere façade or a subsidiary
company not acting as authorized agent of its parent
Ability to lift corporate veil as established in Adams
o 1) the single economic unit argument:
DHN v Tower Hamlets (1976): DHN imported groceries and operated on land
owned by its subsidiary, Bronze. Bronze’s land was compulsorily bought and
received compensation for the value of the land. DHN ran the business, but had
no interest in the land, the defendants therefore argued it was not entitled to
compensation for the disturbance to its business. It was found that the company
was entitled to compensation, even though it was their subsidiary that owned
the land.
Adams: said that the “day-to-day” running of the subsidiary was not related to
Cape and so, they should not be treated the same
o 2) façade or sham (this is what the courts use now)
Gifford Motor Company v Horne (1933): Horne was managing director of motor
company and was not allowed to solicit customers once terminated. When he
left he set up his own company and competed against GMC anyways because
the shareholders were his wife and friend. The courts found that the company
was formed to mask himself, so the veil was lifted.
Jones v Lipman: L meant to sell property to J but decided not to so in order to
avoid the transaction he transferred the property to a company he owned. The
High Court did not follow Salomon, and lifted the veil as the company was a
sham.
Adams: the court found CPC (the Illinois subsidiary) to be an independent legal
entity – the court held that there was nothing wrong with a parent company
using a subsidiary to limited or avoid future liability.
Creasy v Breachwood Motors Ltd (1993): C was wrongfully dismissed. BW
traded all assets to BM to leave nothing to compensate C with. C sought to lift
corporate veil against BM and it was enforced.
Ord v Belhaven Pubs Ltd (1998): O claimed misrepresentation against BelP but
the defendant (which was part of a larger corporate group) had suffered due to
financial crisis. The veil was not lifted as the assets were reorganized due to the
crisis, not fraud (overruled Creasy)
o 3) the agency argument (single economic unit): the company is acting as agent for its
shareholders (express agreement, very uncommon) – the presumption is that there is
no agency relationship between parent and subsidiary
Adams: CA rejected this argument on the facts that the subsidiary had not been
given authority to act on behalf of or bind Cape Industries
o 4) interests of justice
o 5) impropriety (evading existing legal obligations)
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