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Lecture 1 Alteration of Articles
When is alteration in the interests of the company?
Greenhalgh v Ardene Cinemas Ltd [1951] Ch 286
The arts of a co originally required any member who wished to sell his shares to offer
them first to fellow members
...
(This was so that
the majority would be able to transfer shares to an outsider, Sheckman to give him a
controlling interest)
...
It
was held that the alteration was valid even though its immediate effect was to enable
the majority group to sell their shares to outsiders without first offering them to the
minority shareholders, though the minority shareholders, not being able to pass an
ordinary resolution, were still bound to offer their shares to the majority group before
selling elsewhere
...
Note that
the court is not concerned with the immediate effect but rather the general effect
the clause may have on the co and ‘hypothetical members’ in the future
...
In the main the member co’s did buy their steel from the
defendants, but the plaintiff co began in 1912 to get its steel from another co in which
it had an interest
...
The alteration provided that the defendant company by ordinary
resolution could require any member to sell his shares to the other members at a fair
price as set by the auditors
...
It was held that the power taken by the articles was a bare power of
expulsion, and could be used to expel a member who was not acting to the detriment
of the defendant company at all
...
NB the power of expulsion was to be written in
the articles and would last indefinitely
...


Contrast with - Sidebottom v Kershaw Leeds & Co [1920] 1 Ch 154
The defendant co – a small private co – altered its arts to empower the directors to
require any member who carried on business competing with the co, to sell his shares
at a fair price to persons nominated by the directors
...
The court at first instance held that the
alteration was invalid as it represented a bare power of expulsion
...
NB even though the provision
was detrimental to the plaintiffs, it was in the interests of the co as a whole and
future ‘hypothetical members’ that the co’s trade secrets should not be made
available to its competitors
...
It is only when an alteration is made to give rise to this situation that the
‘interests of company’ test comes into play
Shuttleworth v Cox Bros [1927] 2 KB 9
The co’s arts provided that S and 4 others should be permanent directors of the co, to
hold office for life, unless disqualified by any one of the events set out in Art 22 of
the co’s arts – bankruptcy, insanity, conviction of an indictable offence, failure to hold
necessary amounts of shares and being absent from board meetings for more than 6
months without leave
...
The
arts were altered by adding another disqualifying event - namely a request in writing
by all of the other directors
...
It was held that the alteration and action taken under it was valid
because it was for the benefit of the company as a whole since S was defrauding the
company
...
S claimed, inter
alia, damages for breach of this contract
...


Compare with - Southern Foundries v Shirlaw [1940] AC 701
S was a director of Southern Foundries and had been appointed MD for a fixed period
of 10 years
...
When S was dismissed as director of Southern Foundries, this meant he
could not continue as MD (as the articles did not allow this)
...
The House of Lords held that by making it impossible
for S to continue as MD, the co had breached its contract with S and although the
alteration was valid, the co were liable in damages
...


Lecture 2 Minority protection cases at common law
Foss v Harbottle (1843) 2 Hare 461
Two minority shareholders brought an action against the company's directors alleging
that they had defrauded the company in a number of ways, including selling land to
the company at an exorbitant price
...
The court refused
...
As the board was
still in existence and it was still possible to call a general meeting of the company,
there was nothing to prevent the company from determining to bring an action
...
The pursuer alleged that to do so was negligent
and in breach of their duty as directors
...

Edwards v Halliwell [1950] 2 All ER 1064
A trade union had rules equivalent to articles of association under which any increase
in the contributions of members had to agreed by a two-thirds majority in a ballot of
members
...
The plaintiffs, as a minority of members, applied for a declaration
that the resolution was invalid
...
Jenkins LJ identified four exceptions to
the Rule in Foss:
(a) Fraud on the minority by wrongdoers in control
...

(c) Ultra vires acts
...


Fraud on the Company
Prudential Assurance Co Ltd v Newman Industries Ltd [1982] Ch 204
Prudential owned 5% of the shares in Newman
...
The
two directors were not majority shareholders and had no overall voting
control
...

Prudential claimed the shareholders had been misled into approving
...
e
...

Pavlides v Jensen [1956] Ch 565
The directors of the Tunnel Asbestos Cement Co sold an asbestos mine to
Cyprus Asbestos Mines Ltd in which Tunnel held 25% of the issued shares
...
It was held that as the sale was intra vires and no
fraud was alleged, the sale could be approved by the shareholders and it was a
matter for them
...
It was alleged that the
company, Ideal Homes Ltd, had sold property to one of the directors at a price
considerably less than its true value
...
If the breach was of duty of care (negligence) then it could proceed
as an exception to Foss v Harbottle, because the alleged negligence had
resulted in profit to one of the directors
...
Hooper's then found they could make a greater profit by
selling the cable to another company, but this company did not have the
government concession to lay the cable
...
To prevent E & SA Telegraph
from suing for the loss of the concession Hooper obtained a resolution to wind
it up voluntarily
...
Held: The action was valid and Hooper's had to account for profit
made on the sale
...

Estmanco (Kilner House) Ltd v Greater London Council [1982] 1 All ER 437
The GLC owned a block of 60 flats and formed Estmanco to manage it
...
The GLC
was to control the voting rights for all the shares until all 60 flats were sold
...
The
directors of Estmanco brought an action for breach of contract, but GLC had
voting control and resolved to discontinue the action
...

Cook v Deeks [1916] 1 AC 554
Three directors of the Toronto Construction Co Ltd were supposed to be
negotiating a construction contract on behalf of the company
...
They were
holders of 75% of the share capital of Toronto Construction, and used this
majority to pass a resolution at general meeting that the company had no
interest in the contract
...
This was fraud on the minority
...
and so long as the work of formation continues, those who carry on that work
must, I think, retain the character of promoters
...
"
Whaley Bridge Calico Printing Co v Green (1880) 5 QBD 109
A promoter negotiated the sale of a business from the seller to the company which he was
intending to form
...

It was held that the promoter was accountable to the company for that profit
...

Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218
A syndicate headed by Erlanger acquired the lease of an island in the Caribbean for £55,000
...
The syndicate later incorporated the New
Sombrero Phosphate Co
...
The
company issued a prospectus which did not mention that anyone other than the nominee had
any interest in the lease
...

Gluckstein v Barnes [1900] AC 240
A syndicate bought property intending to sell it to a company they were forming
...
They then sold it to the newly formed company, of which they had become
directors, for £180,000
...
The company later failed and the liquidator claimed repayment of
the £20,000
...


Tinnevelly Sugar Refining Co Ltd v Mirrlees, Watson & Yaryan Co Ltd
...

Two men bought machinery from the defenders, claiming to be acting on behalf of the
plaintiff company
...
Machinery
supplied was defective and the company tried to sue
...
A company has no capacity before it is registered
...
The
company was later registered but became insolvent before the goods were paid for
...
The directors were therefore personally liable on the contract
...
Mr Lane accepted a cheque
from Phonogram for £6,000, signing his name "for and on behalf of Fragile Management Ltd"
...
When the album was not produced, Phonogram sought to recover the money
from Lane, the company having not been in existence at the time the contract was made
...
51 (CA 06)
...
9(2) of the European Communities Act 1972)
...
Held : Lane was thus liable to
repay the money
...
The company's
promoters applied for judicial review of the refusal to register
...

R v Registrar of Companies, ex p Attorney-General [1991] BCLC 476
In 1979 Lindi St Clair, a prostitute, attempted on the advice of her accountants to register a
private limited company which had its stated object: "to carry on the business of
prostitution"
...
In 1980, the Attorney-General applied to the court to quash the registration
on the basis that the company had been formed for an unlawful purpose
...
Though the company's objects did not necessarily involve
the commission of a criminal offence, contracts for the services of a prostitute would be
illegal and unenforceable as contrary to public policy
...


Passing off actions
Dunlop Pneumatic Tyre Co Ltd v Dunlop Motor Co Ltd 1907 SC (HL) 15
The pursuers were in the business of manufacturing tyres, the defenders carried on business
as a retail motor trader and car repairer
...
Interdict was refused, on the basis that confusion was unlikely
to result
...

The defendants were in the process of forming a new company to be called Automatic
Aerator Patents Ltd
...
The plaintiff's patent was a portable aerator for use in
siphons, while the defendants' company was concerned with large installations
...
The action was an attempt to monopolise a word in ordinary use and
must be dismissed
...
The defendants
were motor insurance brokers
...
The plaintiffs had an international reputation and "Exxon" was a
distinctive invented word
...


Caselist : Law relating to Directors

Why do we need directors?
Ferguson v Wilson (1866) LR 2 Ch App 77

‘The company itself cannot act in its own person… it can only act through
directors’, Cairns LJ, pp 89-90
...

De facto directors – the ‘equal footing’ test
Re Richborough Furniture [1996] 1 BCLC 507

‘…clear evidence that he had been either the sole person directing the affairs
of the company [or acting with others all equally lacking in a valid
appointment…) or, if there were others who were true directors, that he was
acting on an equal footing with the others in directing the affairs of the
company’ Timothy Lloyd, QC, at p 524
...
He is held
out as a director by the company, and claims and purports to be a director,
although never actually or validly appointed as such
...
It is not sufficient to show that he
was concerned in the management of the company’s affairs or undertook
tasks in relation to its business which can properly be performed by a
manager below board level’, Millet J
...

However, the action failed on the facts
...
The landlord co
...
Judge Paul Baker, QC decided that there was not even a
prima facie case that the landlord directors were shadow directors of PFTZM and almost
complete control of the company affairs would be required for such a finding
...


Directors’ Duties
No general duty owed to individual shareholders, therefore no general duty of
disclosure

Percival v Wright [1902] 2 Ch 421
P sought to sell his shares in the co and wrote to the co secretary asking if he
knew of anyone who was willing to buy
...
Soon afterwards, P discovered that prior to, and throughout the
negotiations for the sale of the shares, another person was negotiating with
the board for the purchase of the whole company and was offering higher
prices for the shares than P had been paid by the directors
...
The court held, however, that the directors are
not trustees for individual shareholders and could purchase their shares
without disclosing that they are negotiating for the sale of the entire co
...

Such a duty may arise where directors are held to be acting as agents for
shareholders

Allen v Hyatt (1914) 30 TLR 444
The directors of a co induced shareholders to give them certain options for
the purchase of their shares so that the directors could themselves negotiate
for the sale of shares to another company
...
It was held by the court, however, that the directors had made
themselves agents for the shareholders in the sale of the shares and were
therefore bound to account for any profit made on the sale
...
However, the court held that such
payments were not for the benefit of the company, but rather for the benefit
of employees and hence the co could not make them
...
But where a company is
insolvent, the interests of the creditors intrude
...

entitled, through the mechanism of liquidation to displace the power
of the shareholders and directors to deal with the company’s assets
...

DIRECTORS’ DUTIES OF SKILL AND CARE
General guidelines

Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
Th chairman of a co committed fraud by purporting to buy bonds prior to the
end of the accounting period and selling them just after the audit
...

The liquidator of the company attempted to make the other director’s liable
for the fraud as they had left the management of the company entirely in the
hands of the chairman
...
a director need not exhibit in the performance of his duties, a greater
degree of skill and care than someone of his knowledge and experience
...
a director is not bound to give continuous attention to the affairs of the
company
3
...

Subjective Duty : director may hide behind his stupidity

Re Brazilian Rubber Ltd [1911] BCLC 498
A rubber co made heavy losses in a poor speculation in Brazil
...
The
action failed
...
He may undertake the
management of a rubber company in complete ignorance of everything
connected with rubber, without incurring responsibility for the mistakes which
result from such ignorance”
...
At this age, clearly little could be
expected from him in terms of corporate control
...
The court held that the Marquis was not
liable for breach of duty in failing to attend board meetings as he had not
undertaken to do so
...


Shifting standards – directors cannot be overly lax in allowing others to run
company affairs

Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498
Dorchester was a moneylending company, with 3 directors, only one of whom
was involved in the business on a full time basis
...
The full time director made loans to person with whom he was
connected with and which did not comply with the Moneylenders Acts
...
The
company sued all three directors for negligence and all three were held liable
by the court
...


This idea has been emphasised by case-law relating to Directors’
Disqualification proceedings – see Re Barings plc [1999] 1 BCLC 43; Re
Landhurst Leasing plc [1999] 1 BCLC 286 (Ch D)
...
It was
held that in the circumstances he could not reasonably rely upon the opinion
of his fellow directors that the transfer was a proper one
...
The law
may be evolving in response to changes in public attitudes to corporate
governance, as shown by the enactment of the… Company Directors
Disqualifications Act 1986
...

A new test? Subjective and Objective

Norman v Theodore Goddard [1991] BCLC 1028
Q, a surveyor, was a director of a property company
...
A partner in the solicitors’ firm advised Q that tax could be saved if
the company’s surplus cash was lent on deposit to a company he claimed was
controlled by the solicitors’ firm
...
It was held that in the

circumstances Q was not liable in relying upon the partner’s advice, but
Hoffman J postulated a duty of care which was stiffer than those laid down in
earlier cases
...


Re D’Jan of London [1993] BCC 646
A director signed an insurance proposal without checking it
...
In holding that the director was negligent
(and although in this case, a purely subjective standard sufficed), Hoffman J
held that a dual subjective/objective standard (as set out in the ISA, s 214 for
wrongful trading) represented the general common law
...

General nature of fiduciary duties in the company context

Re Lee Brethren Ltd [1932] 2 Ch 46
A dispute arose over the purchase by the co of pension policies for the benefit
of employees and their spouses
...
The judge set out a three-part
test for determining whether the directors were using their powers properly :
1
...
was the transaction reasonably incidental to the carrying on of the
company’s business?
3
...
He was then issued by the board of directors with a
service contract which provided for payment of a pension to his widow if he
died while still a director
...
The pension was then paid for several
years before the company went into liquidation
...
This was
rejected by the liquidator
...
The
pension was not for the benefit of the company, nor was it incidental to the
carrying on of the co’s business
...


The Question of Good Faith is Subjective not Objective

Re Smith and Fawcett Ch 304
Directors had a right (set out in the arts) to refuse to register a share
transfer
...
The court would not
substitute its own view as to this question

Regentcrest plc (in liquidation) v Cohen and another [2001] 2 BCLC 80
Per Jonathan Parker J, (p120) “The duty imposed on directors to act bona
fide in the interests of the company is a subjective one (see Palmer’s
Company Law para 8
...
The question is not whether, viewed objectively
by the court, the particular act or omission which is challenged was in fact in
the interests of the company; still less is the question whether the court, had
it been in the position of the director at the relevant time, might have acted
differently
...
The issue is as to the
director’s state of mind
...
Blaikie, a
member of the firm was also a director of the company
...

As Lord Cranworth held “[the director’s] duty to the company, imposed upon
him the obligation of obtaining these …chairs at the lowest possible price
...
This is the very evil against
which the [fiduciary] rule is directed”
This had the effect that the company could repudiate the contract with Blaikie
Brothers
...

Following a board resolution, the chief executive, Saunders, and two NED’s,
Roux and Ward, were brought together to form a committee of the board to
settle the terms of the offer
...
2 million for advice and services rendered to
Guinness in the course of the bid
...
2% of the ultimate value of the
deal
...
The court held that Ward was not
entitled to the commission as he was in a conflict of interest
...
Under the agreement reached in the committee, however, he would
only receive commission if the deal went ahead and the more the company
paid, the more commission he would receive
...
317 had to be made to the whole board and
not just to the committee
...
This may render
any decision of the board invalid
...
Unknown to the company, he was paid a
commission on the contract by the shipbuilders
...
Ansell contracted with the ice company, to provide ice for Boston’s
boats and was paid the bonus
...

Misuse of company corporate opportunities –

Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 (stretches the principle to
an illogical conclusion?)
Regal owned one cinema and on the advice of the company solicitor, hatched
a plan to buy 2 others and then sell all 3 together
...
All but one of the directors of Regal (and the company solicitor)
subscribed for shares in the subsidiary to allow the necessary capital to be
raised
...
The directors and solicitor made a profit
on the sale
...
Even though there was no evidence of bad faith, the court
held that the directors who had bought shares in the subsidiary had to
account to Regal (ie the purchasers who had willingly paid the price for the
company!) for the profit made because it was only through the knowledge
and opportunity they had gained as directors of Regal that they were able to
obtain the shares (even though without their investment, Regal could not
have proceeded with the purchase in any case)
...
EGB intimated that they would not deal with IDC but that
that they might be prepared to deal with the MD (Cooley) personally
...
He then negotiated and won the contract with EGB
...

Competing with the company?

London & Mashonaland Exploration v New Mashonaland Exploration [1891]
WN 165
There is no general principle of common law that a director cannot hold
directorships in competing companies
...
Again, in relation to
partnerships, for example
...


Exercising powers for a proper purpose? – the test is objective

Howard Smith Ltd v Ampol Petroleum [1974] AC 821
Rival bids were made for the share capital of the company
...
The
directors issued additional shares to the bidding company to place the
majority shareholder in a minority position so that he could no longer block
acceptance of their preferred bid
...

Company may ratify breaches of fiduciary duties

Cooks v Deeks [1916] 1 AC 554
3 directors of Toronto Construction were given a remit to negotiate a contract
on behalf of their company
...
As holders of 75% of the shares in Toronto,
they were able to pass a resolution at a general meeting, declaring that the
company had no interest in the contract
...
Where however, those in
breach of the duty control the voting at the general meeting, this will amount
to fraud on the minority and a minority shareholder may bring an action on
behalf of the company
...


Lecture 5 Section 33 contract
Members bound by the memorandum and articles
Hickman v Kent or Romney Marsh Sheep Breeders Assoc
...
Hickman, in dispute with the association concerning his
expulsion, raised an action in the High Court
...

Co bound by memo and arts
Pender v Lushington (1877) 6 Ch D 70
The arts of the co set out shareholders’ voting rights and prescribed a max amount of
votes a member could cast at 100
...
At a subsequent meeting, the chairman refused to
count the votes
...
It was held that the action was
successful on the grounds that the co was bound to uphold shareholder rights and the
shareholder was entitled to vote as set out in the articles
...
It was held that the directors
were obliged to take the shares
...
Note, generally rights and
obligations relating to outside capacities (eg directors) are not enforceable under the
s14 contract
...
It was held that
the creditor had no title to sue since any irregularity in the transfer was a matter for
the co and members alone
...
After being removed from office he sought to
enforce his rights as set out in the arts
...

Beattie v Beatie [1938] Ch 708 (CA)
The arts provided that “any dispute between
...
A dispute did arise between the company and one the
members
...

But contrast with
Salmon Quin & Axens Ltd [1910] 1 Ch 311
The co’s arts gave the power of management to the board of directors but provided
that joint MD’s each had a power of veto over certain key decisions
...
When
the co proceeded despite his objections, he sought to enforce the right of veto by
bringing an action on behalf of himself and all other shareholders to restrain the co
from so doing
...

Note Salmon Quin appears to be out of kilter with other case-law
...
The
controversy may be more academic now in the sense that outsider rights are
invariably set out in separate contracts
...

Separate contracts (either expressed or implied) may incorporate provisions in
the articles and render them binding
If a director takes office on the footing of an article providing for remuneration of the
director, even though the article itself may not be enforceable, if the terms can be held
to be imported or implied into a separate contract between the company and the
director then the director may raise an action on that basis
...
The
directors were employed and accepted office on that footing
...
The co then went into
liquidation
...
Directors) are entitled to a proportion
of wages due to them in priority to other shareholders)
...
At the time of Eley’s case however under legislation of the day
employment contracts over one year’s duration had to be expressed in writing and
hence any unwritten contract was not enforceable in this manner
...

S carried on business as a leather merchant and boot manufacturer
...
The memorandum of association was signed
by S, his wife, daughter and 4 sons
...
They met and made S
and 2 sons directors
...
Less than one year later the
company fell on hard times and a liquidator was appointed
...
The assets were
sufficient to pay off the debentures but then the trade creditors would get nothing – they
claimed on the ground that the company was a mere alias or agent of S
...


Grierson, Oldham v Forbes Maxwell (1895) 23 R 18
Forbes Ltd entered into an agreement with Grierson, a firm of wine merchants, for a space in
G's advertising wine-list for a period of 3 years at a rent of £200 per annum
...
When F Ltd failed to pay the rent to G Ltd, it was held that G Ltd had no title to sue
for payment of the debt - this was because the debt was owed to Grierson (the old firm that
was no longer in existence) and not G Ltd as G Ltd was a separate and distinct person in law
from both G and those that comprised it and hence not a party to the contract between F Ltd
and G
...
The purchase money was paid by the issue to M and his
associates of 42,000 shares fully paid up of £1 each
...
M effected an insurance policy on the timber in his own
name and not in the name of the co and on Feb 23rd 1922 most of the timber was destroyed
in a fire
...
He
could only be insuring either as a creditor or a shareholder of the co and neither of which had
an insurable interest since the assets belong to the co in its capacity as a separate entity
...
In March 1956, Mr Lee was killed while piloting the aircraft during the
course of top soil dressing, and Mrs Lee claimed compensation from the co, as the employer of
her husband under the New Zealand Worker’s Compensation Act 1922
...
One of his first acts
as managing director had been to appoint himself the only pilot of the co at a salary set by

himself
...


Piercing the veil
Under statute
Durham Fancy Goods v Michael Jackson (Fancy Goods) Ltd 1968 2 All ER 987
Durham Fancy Goods drew a bill of exchange on the defendants which was accepted on
behalf of the company by M Jackson, who was a director and a company secretary
...
The bill was dishonoured and the plaintiffs brought an action against M
Jackson personally, arguing that by signing a document which did not correctly state the
company's name, he had made himself personally liable on the bill
...
349
CA 1985
...
)
Common law examples
Gilford Motor Co v Horne [1933] Ch 935
Horne had been employed by Gilford Motor Company under a contract in which he undertook
not to compete with the company
...
All the shares in the company were held by Horne's wife and an employee
...
The court
was prepared to look behind the corporate identity and issued an injunction to prevent the
company trading in competition with Gilford Motor Co
...

Jones v Lipman [1962] 1 WLR 832
Lipman sold land to Jones by a written contract but refused to complete the sale, offering
damages for breach of contract
...
Jones brought an action against
Lipman and the company for specific performance
...
"The
defendant company is the creature of the first defendant, a device and a sham, a mask which
he holds before his face in an attempt to avoid recognition by the eye of equity
...
Under statutory provisions (now s
...
The
two owned 90% of the shares so they formed a new company to make a takeover bid for the
original one
...
The attempt failed
...


Smith, Stone & Knight v Birmingham Corporation [1939] 4 All ER 116
Premises owned by the plaintiffs were compulsarily acquired by the corporation
...
It was held that the
plaintiffs were entitled to compensation
...

Firestone Tyre and Rubber Co v Lewellin [1957] 1 All ER 561
A US company formed a wholly-owned subsidiary in England to manufacture and sell tyres in
Europe
...
Held: The
American company was carrying on business in the UK through its English subsidiary acting
as its agent
...

Adams v Cape Industries Ltd [1990] 2 WLR 657
Cape was an English company which mined asbestos in South Africa
...
Factory workers in Texas who had
contracted illnesses through exposure to asbestos dust obtained judgment in Texas against
the holding company, Cape
...
Three
arguments were put forward:
(1) The agency argument - that the subsidiaries were mere agents making contracts for their
principal, Cape
...

All of the arguments failed
...

DHN Food Distributors v Tower Hamlets London Borough Council [1976] 1WLR 852
...
Bronze owned the premises from
which the business was conducted and Transport ran the business
...
Compensation could be paid under two heads: (a) the value of the land,
and (b) disturbance of business
...
Lord Denning pierced the veil of incorporation to
treat DHN as the owners of the land, which entitled them to payment of compensation
...


Woolfson v Strathclyde Regional Council 1978 SC (HL) 90
W ran a shop in Glasgow, which in 1966 was compulsarily purchased by the Council
...
W and Solfred received
compensation for the value of the land, but the Council refused to pay compensation for
disturbance of the business, because the business was operated by M & L Campbell Ltd,
another company owned by W and his wife
...
W tried to persuade the court that he and his two companies were, in
reality, a single entity which both owned and occupied the land
...
It was held that W's case was distinguishable from the DHN case
...
The three were distinct
entities
...
Daimler claimed that, as the members and officers of the company were German, paying
the debt would amount to trading with the enemy, therefore the matter should not be
permitted to go to trial
...
Though the domicile and
nationality of a company is normally determined by its place of registration and the situation
of its registered office, the court was prepared to lift the corporate veil to determine who was
in control of the company
...

Re a Company [1985] BCLC 333 (CA)
The case involved a complicated network of companies and trusts
...
The
network of companies had been set up in an attempt to confuse and conceal
...
"
Creasy v Breachwood Motors Ltd [1993] BCLC 480
C was dismissed from his employment with a company called Welwyn Motors Ltd
...
The two people who
were the sole directors and shareholders of B Ltd were also the only directors and
shareholders of W Ltd
...
Unknown to C, the directors of W Ltd had already transferred all its assets to B Ltd,
and W Ltd had been struck off the register of companies
...
B Ltd then carried
on W Ltd's former business from the same premises as before
...
The
court lifted the corporate veil and determined that W Ltd was part of B Ltd, thus B Ltd was
prima facie responsible for payment of the compensation
...


Lecture 7 Statutory minority protection cases – s 994, CA 06

Re Bovey Hotel Ventures Ltd (1982) Unreported
It was said that to establish unfairly prejudicial conduct, the petitioner did not have to
show that the persons controlling the company knew they were acting unfairly, or that
they acted in bad faith
...
In this case, a company was owned in equal shares by a husband
and wife
...
She applied for an order for the purchase of
either her own or her husband's shares
...

Re London School of Electronics [1986] Ch 211
The school was 25% owned by the petitioner and 75% owned by another company,
CTC, which was mainly owned by two people
...
CTC then transferred most of
LSE's students to its own school
...
He petitioned under s
...
Held:
"Clean hands" were not an overriding requirement, though it might affect the relief the
court was prepared to grant
...
The understanding was that the relationship
between them and the controlling shareholders in O plc would be a "partnership"
...
Held: A member's interest in a
company in which he has invested his capital may include a legitimate expectation that he
will continue to be employed as a director and exclusion from management may be
unfairly prejudicial
...
All were to take part in the
management but the petitioner thought the others were not pulling their weight
financially or managerially and he quarrelled with them after which he was excluded from
management
...
Held: His legitimate expectation
to be involved in the management had been breached
...


Re Sam Weller & Sons Ltd [1990] Ch 682
The petitioners owned 42% of the shares in a family company
...
At the same time,
the directors of the company were receiving substantial salaries
...

Re D R Chemicals Ltd (1989) 5 BCC 39
The majority had 60% and the minority 40% of the shares
...
The
majority shareholder issued shares directly to himself and increased his shareholding to
96%, diluting the minority to 4%, so that the minority had lost any control over the
company
...

Re Elgindata Ltd [1991] BCLC 959
The petitioners made various complaints against the controlling directors, including
exclusion from management, late payment of dividends, mismanagement and
extravagance
...
On the issue of mismanagement,
the court felt that serious mismanagement could amount to unfair prejudice, but the
circumstances where this could be so would be rare
...
L
...
634) of his petition against H
under the Companies Act 1985 s
...
Following an agreement by members to cease
trading and to sell off the assets of an informally run company, H made an unauthorised payment
to himself in respect of redundancy or the termination of his employment
...
The Lord Ordinary dismissed
the petition on the basis that A had failed to show that the payment to H was unfair as well as
being unlawful, and further held that it was inappropriate to proceed by way of a petition under s
...

Summary: The Inner House Held, allowing the reclaiming motion (Lord Prosser dissenting),
that the existence of circumstances which justified the commencement of a derivative action to
recover monies from a company director and shareholder a petition did not necessarily act as a
bar to proceedings brought under s
...
In general it was possible for a petitioner to succeed if
he could show that an action, or proposed action, of the company satisfied the test of unfairness
in s
...
The test of unfairness to be applied was not a subjective test but was
based upon equitable principles of good faith, O'Neill v Phillips [1999] 1 W
...
R
...
C
...
692 applied
...
However the refusal of a s
...


Case List – Just and Equitable Winding Up
Legitimate Expectations in private ‘quasi-partnership’ companies
Ebrahimi v Westbourne Galleries [1973] AC 360
E and N had run a successful partnership business selling carpets and tapestries
...
The business
flourished and later N sought entry of his son, G into the business and E agreed
...
A dispute then ensued and N
and G excluded E from the management of the company and removed him as
director
...

He sought a winding up order on the just and equitable ground and the House of
Lords granted this on the basis that he had a legitimate expectation to be involved
in and share in the profits of the business which rendered it just and equitable that
the company be wound up
...
When he was excluded, the court granted a
petition to have the company wound up
...
The company was set up merely to take money from
subscribers of shares without any intention of carrying on any substantial
business
...

Destruction of the substratum of the company
Re German Date Coffee Co (1882) 20 Ch D 169
The company had been formed to obtain a German patent to manufacture coffee
from dates
...
It was held that a winding-up
petition would be granted
...
In this case the company’s engineering business
had ceased when it was sold
...
A petition to wind the company up was
therefore not successful
...
They
could not agree as to how the company should be managed
...


Note that there is no deadlock as such if there is any procedure under the
company’s articles or the general law by which one side could get decisions made
(e
...
by appointing additional directors, using casting votes, going to arbitration,
dismissing directors or petitioning the court under s 371 to hold a meeting and
setting the quorum at one)
Lack of probity of directors
Re Bleriot Manufacturing (1916) TLR 523
The court held that where directors had misappropriated company property, this
would sufficient grounds for winding the company up
...
In addition, the petitioner had been excluded from
management
...
The court also sanctioned a kind of
‘no-fault divorce’ and viewed that whenever the parties in a quasi-partnership
company suffered an irretrievable breakdown of trust and confidence, either
party may bring an action to have the company wound up in a similar fashion as is
the case in partnership law
Loch v John Blackwood[1924] AC 783

Directors failed to provide corporate information to shareholders and to hold
company meetings and in general ran the company as if it was their own property
– there was a breakdown of trust and confidence
...

But see Re Guidezone [2000] where the court viewed that the grounds for an action
under s 122 could be no wider than an action under s 459 and hence the windingup of the company on the just and equitable ground could not be ordered in ‘no
fault’ scenarios
...
14]: Such an agreement is a regulated agreement for
the provision of credit in connection with the use of a “credit-token”
...
Examples include: (i) bank cash machine cards; (ii)
shop credit cards allowing goods to be purchased from the shop and have an account
debited for the purchase; (iii) bank credit cards
...


It is an offence to supply a credit token unless in response to a written and signed
request – but this does not apply to renewals of credit tokens (s
...
In other words, it
is an offence to send unsolicited a bank credit card, in the sense of sending one
without a written and signed request (usually, of course a pro forma application which
is signed); but it is not an offence to send a renewal of an existing bank credit card
without receiving a written signed request for a renewal card
...
17]: the Act does not in principle exclude small
agreements from its regulatory regime, but it does exclude regulated
consumer credit agreements and consumer hire agreements (other than
H
...
agreements and conditional sale agreements) for no more than £50
from the formalities and cancellation provisions of the Act
...
18): these are agreements which fall
(a) into two or more categories of agreement for which are within the
Act for some purposes but outside the Act for other purposes,
[e
...
You have a current account with a bank; it is normally in
credit, but the bank has allowed it to become overdrawn
...
Each element must be treated under s
...
]
or
(b) partly into one category and partly into another
...
18
...
g
...
In the first instance, it is a debtor-

creditor agreement providing for unrestricted use credit; in the
second, it is a debtor- creditor- supplier agreement providing
restricted-use credit
...
18 requires that the agreement be
treated as an agreement in each of these categories
...
19]: where a regulated agreement is entered into,
there may be an ancillary agreement: e
...
television is hired or bought on
h
...
and the customer is encouraged to enter into a maintenance contract;
buy a mobile phone from Car Phone Warehouse and you will be
encouraged to enter into an insurance policy in respect of it, written by an
associate company; sometimes in taking out a standard security the
borrower is required to take out a life insurance policy with an associate
company to the finance company
...
19 provides in broad principle that
where there is a regulated agreement, statutory rights in respect of that
agreement (withdrawal, cancellation etc) apply equally to the linked
agreement
...
g
...

You should note that a transaction for the provision of security is not a
“linked transaction”
...
As a condition
of granting the loan X is required to (a) grant a standard security on the
family home in favour of Y (Finance) (b) take out a life assurance policy
with Y (Insurance) an associate company of Y (Finance) and (c) the loan
agreement requires the life assurance policy to be assigned as security to
Y (Finance)
...

Taking out the life assurance policy is a linked transaction because it is taken out
in compliance with the principle loan agreement
...
]
Non-commercial transaction: a consumer credit agreement or a
consumer hire agreement not made by the creditor or owner in the course
of a business carried on by him (s
...
Formalities and cancellation
rights under the Act do not apply to such agreements
Note that the wording of the provision clearly indicates that a noncommercial agreement is one made not made in the course of a creditor’s
or owner’s business - but that the business does not have to be a
consumer credit business
...


---oOo--Having looked at the terminology of the Consumer Credit Act 1974 we must now
turn to the manner in which it protects the consumer……
The Consumer Credit Act 1974 regulates consumer credit business at all its
stages:

v Seeking business (advertising; canvassing etc)
...
g
...
g
...
g
...
Now we will turn to look in a little more detail at some elements of
each of these stages…
...
1]
1
...
43 – 46]
1
...
g
...
The
detailed provisions are contained in delegated legislation
...
S
...


3
...
43 (1))
...
43 (1) is limited in particular ways: e
...

(i)

it only applies to an advertiser carrying on consumer credit or
consumer hire business, or a business which provides credit
secured on land;

(ii)

it does not apply to advertisements indicating: (a) that credit is
only offered to bodies corporate or (b) that the advertiser does
not enter into consumer hire agreements (in respect of a hire
agreement advertisement) or (c) which merely communicate
and inducement or invitation to engage in investment activity
[within meaning of FSMA s
...


(iv)

Finally, the provisions may be disapplied in respect of
consumer credit agreements with certain characteristics, and of
categories of business, by order made by the Secretary of State
– and such delegated legislation has been made
...
Lombard North Central plc [1984] 1 WLR 307*
Lombard supplied stickers to a motor dealer to place on vehicles that he
was offering for sale
...

Lombard was charged with being in breach of the relevant delegated legislation
under the CCA
...

Held: as they did not contain or constitute a statement of Lombard’s willingness
to provide credit, they did not amount to an advertisement within s
...
]

4
...
44 requires the Secretary
of State to provide for this by delegated legislation
...
g
...
The Regulations limit the information to: name, logo,

contact address and numbers and occupation – and nay information other
than information that the person is willing to provide credit or
information on the price of goods or services: “Loanstar Ltd - Finance Co
– address and telephone number”
Intermediate Advertisement: allows more choice to the advertiser –
they must include name, address and telephone number, and an indication
that terms of business may be obtained at the address or telephone
number: “Cash Loans £200-£5,000 – 17
...


Two cases that illustrate how the advertisement controls work in
practice:
Ford Credit plc v
...

Both companies were prosecuted under the 1989 Regulations
...

The companies argued that the statement was not false or misleading because it
stated that a cash sale would be 10% less than a credit sale
...


Rover Group Ltd v
...

The first time the phrase was used in the advertisement there was an
asterisk beside it – with an indication that an extra £400 was payable
before the sale could be completed
...


Held: the advertisement was misleading in a material respect contrary to
s
...


Canvassing (ss
...
It is an offence (in the circumstances set out in these provisions) to
canvass (i
...
to solicit a customer to enter into an agreement by oral
representations) debtor-creditor agreements [unconnected
agreements, where there is no link between the creditor and
supplier] – but not debtor-creditor-supplier agreements [connected
agreements, where there is a link between creditor and supplier]
...
154] ]
...

2
...
49 (3) of the Act
...
The circumstances in which the offence is committed are:
(i) The canvassing is at off-trade premises: [trade premises are the
business premises of the creditor, the debtor, the canvasser or a supplier –
so not an offence to canvess the debtor at, say, his shop]

Unless the canvasser is attending the off-trade premises for that purpose
– at the signed written request of the person canvassed, or a
representative of that person
...
g
...

(iii) It is a specific offence for a person – with a view to financial gain - to
send a minor (a person under 18) a document inviting the minor to
borrow money, obtain goods on credit or hire, obtain services on credit –
or to apply for information or advice on borrowing money, otherwise
obtaining credit or hiring goods: s
...
– unless the terms of the offence
exclude information sent to a minor for reasons other than financial gain
– e
...
for educational purposes
...

On the other hand, where the document is received by a minor at a school
or other educational establishment for minors, the sender of the document
to that place is deemed to have reasonable cause to suspect that the
recipient was a minor: s
...
B
...
So, it would be committed
even where the document was sent but did not arrive [although evidence
might be difficult – other than from mailing lists etc]
...
Babbs 1993 CCLR 77*
A brochure was sent by the building society to a minor which advertised
loans and included an application for a loan
...


Held: on the construction of the document as a whole (and eccentrically
on the evidence that the building society’s operating software prevented
loans being made to minors) - not a s
...


REGULATING ENTRY INTO THE AGREEMENT [“MAKING
AGREEMENTS”] [ Handbook, para 4
...
Introduction
The Consumer Credit Act 1974 [“CCA”] seeks to protect the consumer in
various ways at the time that the consumer enters into a regulated consumer
credit or consumer hire agreement
...
Pre-contractual information (s
...
55 [Consumer Credit (Disclosure of
Information) Regulations 2004 (SI 2004/1481)] require the creditor (or owner in
consumer hire agreements) to disclose to the prospective debtor (or hirer) prior
to entering into the agreement various information about the credit arrangement
(e
...
the APR, the amount or limit of credit, details and timing of payments) that
the creditor is required to provide if the agreement went ahead
...
55(2))
...
Antecedent Negotiations (s
...
e
...


1
...
56 defines ‘antecedent negotiations’ (in effect, pre-contractual
negotiations)
They are any negotiations with the consumer debtor or hirer:
(a) Conducted by the creditor or owner in relation to making a regulated
agreement (e
...
finance company supplying goods under an HP
agreement) or
(b) conducted by a credit-broker [i
...
some-one who introduces those
seeking credit to those offering credit] in relation to goods sold (or
proposed to be sold by the credit-broker) before forming the subjectmatter of a debtor-creditor-supplier agreement within s
...
g
...
12(b) or 12(c) [i
...
one involving three parties] (e
...
supplier selling
goods against a credit card; car dealer selling a car for cash that has been
advanced by a finance house to whom the car dealer introduced the
buyer)
** The importance of this lies in s
...
g
...

Ø The creditor thus is liable for the misrepresentations of the
credit-broker or the supplier
...
In the case of negotiations by the credit-broker, the notion of being an
agent for the creditor only relates to goods, which are, or to be sold
...
Whitfield [1987] CCLR 60*
Whitfield had a car on HP and decided he wanted a new car – also on HP
...

The remaining sum on the new car would be financed by an HP
agreement with UDT
...

Whitfield argued that – under this provision, s
...

Held: s
...
e
...
e
...
e
...

So the judge treated the three elements of (a) sale of the new car (b) the
trade-in agreement and (c) the agreement to pay off the outstanding
balance on the HP agreement on the trade-in car as one transaction in
the sale of the new car
...
v
...
Lloyds Bowmaker Ltd 1996 SLT (Sh
Ct) 117)
[note also Black Horse Ltd v Langford [2007] CCLR 5]
3
...
56?
They begin when the negotiator and the consumer first enter into
communication (and this includes communication by advertisement), any
dealings between them – and presumably ends [although the Act does not
expressly say] when the contract is made: s
...


Example: (Sch 2, Pt II, Example 2):
Shopkeeper advertises a fridge-freezer in the shop with a placard that
declares it to have automatic de-icing
...

The fridge-freezer does not have automatic de-icing
...
[In
a sense the ‘negotiations’ began when the shopkeeper put up the placard and
even before the buyer entered the shop and looked at it!!!]

Form and Content of the Agreement (s
...
The Consumer Credit
(Agreements) Regulations 1983 (SI 1983 No 1533) [amended: SI 1984 No 1600;
SI 1985 No 666; 1988 No 2047] do this
...


So: the requirements include:
(i)

statement of the legal nature of the agreement on first page;
names and addresses of the parties (i
...
so that the consumer
can find out how much still to be paid, or knows where to send
notice of termination of the agreement etc);

(ii)

statement of the APR [Annual Percentage Rate of Interest] (so
that the consumer knows the cost of the credit);

(iii)

timing and amount of payments; and (importantly)

(iv)

details of the rights, obligations and remedies under the
CCA
...


[Note also: Hurstanger Ltd v Wilson* [2007] 1 WLR 2351 CA]

Execution of the Agreement (ss
...
To execute the agreement:
(i) Must be signed in accordance with s
...
62-63

- where the consumer signs the agreement and the creditor also signs
`on the spot', the agreement becomes executed, and the consumer is
entitled to copy of executed agreement there and then but no
further copy required
...
62(2)]
...


2
...

(ii) However, as we shall see, excluding the right of enforcement has been
held to be a breach of ‘Convention rights’ under the HRA 1998 (re
...

(iii) A regulated agreement which is not properly executed cannot be
enforced against the debtor or hirer without the permission of the court
(ss
...
127(4)(b))
...
127(3)
(v) On the other hand, a failure to comply with the statutory requirements to
provide copies of the regulated agreement can be cured by providing the
consumer with the copy and then obtaining a court order to enforce the
agreement (s
...
If it is sent to the debtor (e
...

posted) for the debtor’s signature then a copy must be sent at the same
time: s
...
]
(vi) The Human Rights Act 1998 dimension:
Wilson v First County Trust Ltd (No 2) [2001] 3 All ER 229*
Mrs Wilson borrowed £5,000 from a pawnbroker – First County – and
pledged her car as security
...

An agreement could not be enforced under a court order (i
...
the court
could not make an order) unless the amount was accurately stated: s
...


In fact, the agreement stated the amount as ‘£5,250’ which included a
sum of £250 described as a ‘document fee’ – but this sum was not part of
the ‘credit’ under the agreement
...
113
...

Court of Appeal considered this in detail at a separate sitting
...
The Court of Appeal made a
declaration that s
...


Cancellation and Withdrawal of the Agreement (ss
...
Introduction
Cancellation provides a mechanism by which the debtor has an opportunity to
avoid a regulated agreement into which the debtor may have been pressurised in
the debtor’s home – or at least away from trade premises
...
Under s
...
g
...
Kabir The Times 24 April 1995; [1995] CLY
722*: The wide definition of ‘representation’ in CCA s
...

Neither is it necessary for all the negotiations to have taken place in the
presence of the debtor in order to satisfy this provision (s
...

3
...
69)
(i) The cancellation must be notified in writing to:

- the creditor or owner
(or their agent – the agent is deemed to include:
(a) a credit-broker or supplier who was an negotiator in the
agreement or
(b) also any person who in the course of their business acts
on behalf of the creditor); or
(c) person specified to receive it in the statutory notice of
cancellation and this notice must be included in a
cancellable agreement
...


4
...
68)
(i) S
...

(ii) S
...
63(2) requires that where the creditor has not signed
the agreement when the debtor signs (i
...
an unexecuted agreement) the

debtor is entitled to a copy of the agreement when he or she signs and a
second copy within seven days of the creditor owner signing the
agreement
...

(iii) If a second copy is not required (because the creditor signs before the debtor
and the debtor just gets a copy at the time he or she signs) and the agreement is
cancellable a separate notice detailing the cancellation rights must be posted to
the debtor within seven days of the agreement being made
...

5
...
70 - 73)
Various rights and duties flow from a cancellation:
(i) s
...
71 deals with repayment by the debtor of any credit received under the
agreement

(iii) s
...
73 deals with the goods given by the debtor to the creditor in part
exchange under the pre-contractual negotiations – they must be returned
within ten days of the cancellation
...
Withdrawal (which has the same effect as cancellation, but it is not
cancellation because the agreement never executed!!) puts the debtor in
an enhanced position relative to ordinary contract law when making a
regulated agreement
...
Where there is an unexecuted agreement (i
...
the creditor has not
signed at the time that the debtor has signed) there may still be an oral
agreement
3
...
57 allows the debtor to withdraw from such agreement at any time
before the creditor signs
...
This requires oral or written notice to the creditor or specified other
people
...
One thing that the debtor consumer needs during the contract is
information, so the CCA ss
...
e
...
The debtor has the same statutory rights under a regulated agreement
which is a sale of goods, an HP agreement or a contract of hire in respect
of implied terms as he or she would have anyway
...
The big issue is the scope of the connected creditor liability for
breaches by the supplier (s
...
56 [where the creditor is liable with the supplier for
misrepresentations in the antecedent negotiations (pre-contractual
negotiations)]
...
75, in certain circumstances supply contracts and credit
contracts are treated as interrelated – on the grounds that suppliers and
finance houses are often closely connected
...
75: in a commercial debtor-creditor-supplier agreement (i
...
where there is
an agreement between creditor and supplier) where the cash price of the goods
under the agreement is between £100 and £30,000, if the debtor has a claim
against the supplier for misrepresentation or breach of contract (including, of

course, breach of a SoGA implied term) – the debtor also has a claim against the
creditor
...
g
...
Taylor 1980 SLT (Sh Ct) 28*:
The purchaser of car had right to rescind contract of sale (the supply
contract) and in consequence had a consequential right to rescind the
related loan contract (the credit contract) and recover the sums paid under
it – including interest
...
Hornby 1995
SCLR 574*, but the (English) Court of Appeal cast doubt on this
approach in Jarret v Barclays Bank plc [1999] QB 1, 15G (per Morrit
LJ)]
(b) If the creditor in a debtor-creditor-supplier agreement is a
credit card company does s
...
B
...

187 (3A)]

First, the credit card industry has argued that technically it should
not – because there are four parties to such an arrangement
...

In fact the ‘merchant acquirer’ is probably no more than a
contracted administrative service rather than a party to the central
contract
...

However this issue has been effectively resolved as the (English)
Court of Appeal has held that transactions where there is a
“merchant acquirer” involved is still one which involves and an
“arrangement” between the supplier and creditor: Office of Fair
Trading v Lloyds TSB Bank plc [2007] QB 1, 55-64 (and the
House of Lords has refused leave to appeal on the point: Office of
Fair Trading v Lloyds TSB Bank plc [2007] UKHL 48 at para

24(Lord Mance))
...
75 applies
...
So, it is argued by some, s
...
75
would then apply)
...
75
applies to each transaction and the date that the credit card
agreement was made is irrelevant
...
75 liability on
cards issued under such agreements – to the extent of the
credit used on each purchase with the card
...
4]
INTRODUCTION

Difference between the two?
Termination is the formal notification that the agreement is at an end
...


TERMINATION

CCA provides for three categories of situation in which the debtor
may terminate a regulated agreement:

1
...
94 – 98)
1
...
e
...
97
...
It is a criminal offence for the creditor to fail to supply the
statement within one month and it is also a criminal offence to
supply an inaccurate statement
...
There are also procedural sanctions: e
...

(i)

a failure to supply the statement on demand means that
the creditor cannot enforce the agreement until the
statement is supplied, and

(ii)

if the creditor supplies an inaccurate statement where the
statement of the money owed under the agreement is too
low – the creditor is bound by the sum quoted
...
Termination by early discharge also terminates liability of the
debtor (or a relative of the debtor) under a linked transaction – except
it is insurance contract or a guarantee (e
...
of the loan) [e
...
this would
apply maintenance contract]: s
...
The creditor may also have a contractual capacity to terminate by
early discharge as well as the debtor being able to terminate
...
g
...
76 & 98
2
...
101)
1
...
101) terminate a regulated consumer hire
agreement which has been running for at least eighteen months
...
The notice period of termination is either (i) three months or (ii) the
period between hire payments – whichever is the shorter

3
...
a
...
g
...
g
...

Ø So: it can be seen that s
...


3
...
99, 100)
1
...
99
2
...

Possible variations of this basic rule:
(i) The agreement may stipulate a lesser sum, or
(ii) a court may order the payment of a lesser sum if it considers that is
sufficient to compensate the creditor – and

(iii) the court can order a greater sum to be paid if the debtor has failed to
take reasonable care of the goods but
(iv) a court order cannot relieve the debtor of liability under the
agreement which exists at the time of the termination (i
...
payments
outstanding under the agreement at that time)
...
One of the useful purposes of s
...
99 may be
undermined by ‘accelerated payment clauses’
Ø An “accelerated payment clause” is one which provides that it the
debtor fails to pay any one payment required by the agreement – all
payments immediately become due [see Wadham Stringer
Finance Ltd v
...

Ø So: if the agreement has an accelerated payment clause then it
becomes impossible to use s
...

Ø But n
...
: unreported Northern Ireland Court of Appeal case of
Kindlace v
...


DEFAULT (ss
...
A debtor who defaults on a regulated agreement allows the creditor
to repossess the goods, but the repossession has to be in accordance
with CCA
2
...
The default notice must state: (i) nature of the breach (ii) what action
must be taken to remedy the breach (if that is possible) or the sum
payable in compensation for the breach if it is not possible to remedy it
(iii) the consequences of failure to rectify the breach or to pay the
compensatory sum
...
b
...
89)
4
...
89) [and the same notice period is required if the creditor wants
to terminate the agreement and repossess (or demand earlier payment or
enforce a security or affect the debtor’s rights) – where the agreement
allows the creditor to do so even where the debtor is not in breach (ss
...
Limited Debtor Protection
There are a number of provisions in the CCA which give the debtor some
limited debtor protection on default:
(i) s
...
Hall 1998 CCLR 14*]

But this protection is not available to a debtor who voluntarily terminates
the agreement – the courts are reluctant to make that assumption:
UDT (Commercial) Ltd v
...


(ii) s
...

But if a third party is in possession of the goods on the basis that they
have agreed to buy them, it is not a breach of CCA for the creditor to
repossess from the third party:
Kassam v
...


The finance company, Chartered Trust, repossessed the car from the car
dealer
Held (Court of Appeal): CCA controlled possession if car was being held
by the dealer on behalf of Kassam, but not if the dealer held the car
because he had agreed to buy it from Kassam
(iii) s
...


Ø And other provisions were inserted into the CCA 1974 by the
CCA 2006 to raise the awareness of debtors who are having
difficulties meeting payments
...

(iv) s
...


(v) s
...
86D: imposes sanctions for failure to comply with these new
requirements in ss 86B and 86C: if the creditor fails to give the
prescribed notices, the creditor cannot (i) enforce the agreement until the
notice is given nor (ii) charge any interest (or levy any default sum – to
which we are coming) for the period that he is not in compliance with
notice requirements
...
These are sums, other than interest, payable by the debtor
(hirer) as a result of being in breach of the agreement e
...
administration
charges, fees in respect of exceeding credit limits, fees in respect of
failing to make timeous payments (but do not include sums payable
directly under accelerated payments clauses)
...
So: (i) the creditor is required within a prescribed period
to serve notice on the debtor (hirer) notice of such default sums (for
which the sanction is that the creditor fails to serve the required notice,
the creditor cannot enforce the agreement until the notice is served) ; (ii)
interest may not be charged on default sums for the first 28 days after

service of this notice and (iii) when interest can be charged thereafter, it
may only be simple interest and not compound interest
...
86A: provides for information sheets on arrears and default, to be
prepared by the OFT, which must be sent by the creditor (owner) to the
debtor (hirer) when serving arrears and default notices
...
These are set out in CCA Part IX:
(i) These are court orders which can be made in an action by the creditor
or debtor: they include:
(a) a general power to make the court order conditional on one
of the parties taking specified action, or to suspend its
operation on such a condition (s
...
136) – but the power to amend specifically
does not allow the court to extend the period under the
agreement for which the hirer is entitled to the goods (s
...
Lee

1994 CCLR 44* [however, that appears not to be the case
with power (c) below]
(c) unfair relationships: a power to require action by the
creditor, to alter the liabilities of the debtor or alter the terms
of an agreement or related agreement where the court
determines that the relationship under an agreement is unfair
to the debtor (ss
...
140B
orders in respect of unfair relationships

Enforcement Orders (ss
...
Where an agreement has not been properly executed it cannot be
enforced by the creditor without a court order (s
...
In deciding whether to make the order, the court must consider (i) the
prejudice caused by contravention of CCA and (ii) the degree of
culpability of the creditor involved in the contravention: (s
...
Where the agreement is cancellable the court cannot make an
enforcement order if the copy requirements have not been complied with
and the creditor has not rectified the situation by supplying the debtor
with a copy of the executed agreement before commencing the
proceedings for an enforcement order (s
...
The same is true where the creditor has been in breach of the
notification requirements to the debtor of the right to cancel (s
...
g
...

5
...
Hiscox 1998 CCLR
68*; cf Kemp v
...
Cazdow 1999
SCLR 539* (often not very senior judges, often not very fully reported,
and often dependent on the peculiar facts of the case)
6
...


Time Orders (ss
...
Application for a time order may be made by a debtor where the
creditor has (i) served a default notice or (ii) sought an enforcement
order; and (iii) the court may also make a time order if there has been an
application from the creditor (a) to enforce a regulated agreement
(payment etc) or (b) to recover goods related to the agreement {see 1994
NLJ (Mar 25) 429}

2
...
The second of these purposes of a time order [to reschedule the time
and amounts of payments ‘having regard to the debtor’s means’ – as the
court considers reasonable] has led to somewhat inconsistent case-law:
(i) only sums due at the date of the order can be rescheduled:
J & J Securities v
...
Thompson [1993] CCLR 31*
(iii)If the creditor is seeking to repossess the goods, does that
amount to demanding payment of all the sums under the
agreement and, if so, does that mean that the whole amount
can be rescheduled: Southern District Finance v
...
Syed [1991] 2 All ER
250* [where the court took account not only of the size of
arrears and the fact that the payments which the debtor could
afford would not even meet the interest accrued under the
loan but also the very poor default record of the debtor]
...
Where there is an application for a Time Order and the debtor
makes an offer to pay arrears on the agreement by instalments and
this is accepted by the creditor – the Time Order can be made
without reference to the means of the debtor
...
In the case of HP or conditional sale agreements the Time Order
may deal with payments due in the future (s
...
129 is interpreted to allow rescheduling all
sums due under the agreement??); it has been held that the s
...
v
...
Lee
1994 CCLR 44 ) but only to rescheduling the dates of payments
[presumably by reference to the powers under s
...
140B)
1
...

Ø A “credit agreement” is defined for this purpose as “any agreement
whereby a creditor provides an individual (the debtor) with credit
of any amount”: s
...
140A(5))
...
g
...

Ø If the court determines that the relationship is unfair it can do a
wide range of things (under s
...


[
The three minor court orders:
(i) Financial Relief for Hirers (s
...

Where the creditor repossesses hired goods without taking court action,
the hirer may request the court to order (i) repayment of some or all the

sums paid under the consumer hire agreement and (ii) that the obligation
to pay further sums under the agreement shall cease
...
v
...
131)
The creditor or owner may apply to the court to make a discretionary
order (as it thinks just) for the protection from damage or depreciation of
his or her property or property held subject to security – pending the
outcome of CCA proceedings
...

Return and Transfer Orders (s
...

The court has a discretionary power to make these orders where the
creditor has (i) brought an action to recover possession of goods (ii)
applied for an enforcement order or (iii) there has been an application for
a time order
...


A transfer order: is an order to transfer title in part of the goods from the
creditor to the debtor (and obviously can only be made where the goods
are divisible)
...
at any time before the creditor takes possession
...
One of the great successes of the CCA was the introduction of a
comprehensive licensing regime
...

3
...

Any person who conducts

(i)

consumer credit business

(ii)

consumer hire business or

(iii)

ancillary credit business [defined in s
...

Ø It need not be the main business as long as it is a regular
activity of the business
...
There are two types of licence:
(i) a standard licence (the most common); there are six categories
reflecting the licensable activities; and
(ii) a group licence (where it is not thought necessary by the Director
General to examine individual applications: e
...
CAB; Age Concern; Law
Society of Scotland; professional accountancy bodies) – although named
persons may be excluded from a group licence

5
...

He must issue a licence under s
...

6
...
g
...
27
...
Having considered the representations, the DG may grant or refuse the
licence, or grant it on different terms
...
An appeal lies from the DG’s determination to the Secretary of State,
and from the Secretary of State on a point of law to the Inner House (ss
...


9
...
It may be varied, suspended or revoked
(subject to similar procedures as obtain in issuing a licence) (ss
...

A licence automatically terminates on certain events (e
...
death of
licensee, bankruptcy of licensee) – but the termination may be deferred
for 12 months and the business run by an authorised person (s
...
Sanctions within the licensing system
(i) It is an offence to engage in any of the activities described in CCA
without a licence (s
...
The specific matters which the DG must consider are set
out in s
...


Lecture 10
PERSONAL INSOLVENCY – 1

1
...
Personal insolvency [Handbook, p
...

2
...
This is
“sequestration” in Scots Law
...
B
...
14-16]
3
...


[2
...
g
...

Apart from that there must be some allowance in the process to allow the insolvent debtor within a reasonable period to have the
capacity to continue work in which they are trained or experienced
...
?

•

What is the appropriate balance between the interests of the debtor, the
creditors, and third parties?

The interests of the debtor may be to clear debts and resume his or her life
...
g
...
And with this, there has to be control over debtors disposing of property to
avoid their creditors
...

[Note in Scots law there is a distinction between types of debtor: company debtors – corporate insolvency; and non-company
debtors – sequestration (bankruptcy)
...
Should the creditors who have done
diligence (perhaps because they have a closer knowledge of the debtor’s business) enjoy the advantages of having done diligence
to the prejudice of other creditors (who are less knowledgeable or who choose the more structured insolvency process)? ]

3
...

Your creditors arrive and find that there are mysteriously fewer assets
that they expected
...
It is
addressed both by the common law and by statute
...

Unfortunately, your business has not done well and you are insolvent and
about to be bankrupt
...

This is fraudulent preference (because it puts two creditors – your parents
– in a better position than the other creditors immediately prior to the
bankruptcy
...
[That example was a
WW1 Case]

4
...

There are now four broad categories of process: (1) informal/extra-judicial
responses; (2) formal response (the sequestration process); (3) supportive
judicial orders (introduced by 2007 Act) and (4) two streamlined procedures
...
This is cheap for the creditors but what if all the creditors
have not been involved or some of the creditors do not agree

with the arrangement offered? There will be a disorganised rush
to diligence!!
(ii)

Trust deed the debtor may make a trust deed in favour of the
creditors ( with a trustee or trustees to manage matters) where
the debtors’ assets are held in trust for creditors [ in fact Scots
common law treats someone who is absolutely insolvent to hold
their assets in trust for creditors anyway ]
Advantages for the debtor?:
- avoids greater publicity (the formal process of sequestration is very
public)
- avoids statutory disqualifications of the formal sequestration procedure
-

avoids rigidity of formal sequestration procedure as well

Advantages for creditor?:
-

saves money (as compared with the sequestration procedure)

-

avoids rigidity ( this is important if the debtor is still trading)

Disadvantages for creditor?:
-

cannot control gratuitous alienations or unfair/fraudulent preferences

- there is no supervision of the trustee or trustees by the
creditors or by the Accountant in Bankruptcy – so (i) what if
all the creditors do not join in? or (ii) what if the creditors
who join in are permitted (like the non-participating ones) to
do diligence or to proceed to sequestration?

[However, BSA 1993 provides some protection for the
debtor by the protected trust deed (which I will deal with
shortly)
...


(3) Supportive Judicial Orders
[ss
...
And if the AiB
thinks that insufficient there is the possibility of:

Bankruptcy Restriction Order
Made by the sheriff on the application of the Accountant in Bankruptcy, where the behaviour of the debtor in the past merits it
...


(4) The Streamlined Procedures

Ø In general, the sequestration procedure is expensive but appropriate

for large estates
...


(i) the small assets cases (BSA, Schedule 2) and the certificate of summary
administration (BSA Schedule 2A)
The small assets cases arise under BSA s
...
The principal procedural difference is
that if the Accountant in Bankruptcy is the trustee, he has much more freedom to act
without consultation
...
The certificate will be granted where the unsecured liabilities of the debtor are
less than £20,000 ad the total assets (excluding heritable property) do not exceed
£2,000
...
32-33, para 12]
We have already seen that the debtor (and the creditors) may see advantages of
cheapness, speed, simplicity and privacy in the debtor placing his estate in trust for
the creditors
...

The protected trust deed attempts to address some of these problems
...
b
...


5
...


The word itself has no precise legal meaning in law, but there are three states of
insolvency recognised in the law (see Handbook, p 16), third of way down the page:
which (a) reflect these situations and (b) have procedural implications:

Practical insolvency: debtor unable to pay debts as they fall due
...

Apparent insolvency: where the insolvency becomes a matter of public
knowledge
...
7
(which effectively lists how knowledge of insolvency becomes “public”)
and provides that it arises automatically on certain events [these are
largely set out in the Handbook at p
...
7(1) (c)]
...
7(1)(a)];

(ii)

is adjudged bankrupt elsewhere in UK [s
...

7(1)(ba);

(iii)

gives written notice to creditors that he has ceased to pay debts in the
ordinary course of business [and is not a affected by a restraint order
(under the |Proceeds of Crime Act) or subject to a confiscation or
charging order(under the Criminal Justice Act 1988 or the Drug
Trafficking Act 1994) [s
...

7(1) (c) (i)]

(v)

is served with a charge for payment and the fourteen days of
charge expire without payment [s
...
7 (1) (c) (iv)]

(vii) a debt payment programme under the Debt Arrangement and
Attachment (Scotland) Act 2002 is revoked and a debt being
paid under the programme is constituted by a decree or
document of debt [s
...
[Before the Bankruptcy (Scotland) Act 1985 this form of
bankruptcy was known as notour bankruptcy
...
]

(ii) “Bankruptcy”
Again this is a rather loose term in Scots law without precise meaning and it is not
used in the Bankruptcy (Scotland) Act – except in the title! The Scots law term for the
personal insolvency process is “sequestration” (although it is commonly used by
lawyers to describe the legal processes which place obligations on the insolvent
debtor – so for example it is a sub-chapter heading in Cloag & Henderson)
...

THE SEQUESTRATION PROCESS

[Handbook, in outline: pp
...
19ff]
(i) Who can be sequestered? [BSA ss
...


(ii) Who can petition the court for sequestration? [s
...
18-21]:

I
...
with the agreement of a qualified creditor (i
...
some-one
currently owed currently £3k - or a number of creditors
owed that in total) or
b
...
5A introduced by the 2007 Act) has a weekly
income of £100 p
...
or less, no land, and net assets of £1k
or less; or
arising from a trust deed which the debtor has entered into
...
9(1),(5)]
The debtor must present with the application a statement of his or
her assets and liabilities (and present a copy to the AiB) with the
application or it cannot be granted [s
...

It is a criminal offence for the debtor: (a) to fail – without
reasonable excuse – to send a copy to the Accountant in

Bankruptcy; (2) to fail to disclose a material fact in the statement
or (3) to make a material misstatement in the statement [s
...
a qualified creditor (or creditors) [owed £3k or more] where the
debtor is “apparently insolvent”
Ø A petitioning creditor (and also a creditor concurring in a debtor’s
application petition) must submit on oath in prescribed form and
must produce prima facie evidence of his or her debt [ by account
or voucher ] [s
...
11(5)]

N
...
Submission of copies of the petition [BSA, s
...
1A of
1985 Act para 6
...
5(6)] or
the petition cannot be granted [s
...
9]:
Ø

If the sequestration is by application of the debtor, the sequestration is
determined by the Accountant in Bankruptcy (“AiB”)
...
g
...

However, there may be complications with concurrent or analogous
proceedings:
There may, for instance, be other such proceedings in another Scottish court
in respect of the same debtor, or similar proceedings in other UK
jurisdictions, or in another country
...
10 (1) (5))
...
10 (2))
...


(iv) Making the award of sequestration

Debtor Application: if satisfied that the requirements of the BSA have
been complied with, the AiB must make the award “forthwith” [s
...
The
warrant must be clear in its terms; if it is inaccurate or
confusing, sequestration will not be awarded
...
Grantly Developments 2000
SCLR 711 and Commissioners of Customs & Excise v
...
12(3) & (3A)]

BUT [and introduced by the 2007 Act] there is some flexibility in the
system:
The sheriff may continue the petition:
• for 42 days, if satisfied that – within that period – the
debtor will pay or satisfy any debt: (a) by which the
debtor became apparently insolvent and (b) owed by the
debtor to the petitioning creditor (or a creditor concurring
with the petition [s
...
12 (3C)]
Ø Making the award of sequestration (once the conditions have been
complied with) both in debtor applications and creditor petitions is
peremptory in statutory terms [“forthwith” is the term used] and
Sheriff Principal N D MacLeod observed that the Act “could
scarcely be more peremptory or enjoin greater despatch [Sales
Lease Ltd v
...
B
...

Where it is awarded, there is right to seek a recall of the award (this in

not really an appeal, because other parties may exercise it (e
...
anyone
who can establish an interest in the proceedings and all action until the
recall is granted remains valid (unlike an appeal), but a recall petition
submitted more than 10 weeks after the award of sequestration can
only be on limited grounds
...
2 (5) &
(6))
...
B
...
7
...

Ø Commonly the petition nominates a trustee who will usually be
confirmed by the court [or in future by the sheriff or AiB]; failing
that one will be appointed
...
12 (4)]
N
...
In particular, on the appointment of the Trustee in Sequestration
(or the AiB) the entire estate of the debtor vests in the Trustee from the
date of sequestration
...
e
...

Ø IMPORTANT: The recording of the sequestration (with the operative date
being the date of sequestration) has the effect that the debtor cannot sell
or deal with his heritable property to the prejudice of the creditors

---