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John Lowry and Arad Reisberg Pettet’S Company Law: Company Law & Corporate Finance FOURTH EDITION

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John Lowry and Arad Reisberg Pettet’S Company Law: Company Law & Corporate Finance FOURTH EDITION LONGMAN LAW SERIES John Lowry and Arad Reisberg Pettet’s Company Law: Company Law & Corporate Finance FOURTH EDITION “John Lowry and Arad Reisberg rise more than admirably to the task of assimilating, explaining and analysing this vast corpus of legal material. The text is pellucidly clear, analytically précis, judicious in its balance in dealing with the various topics, comprehensive, and always cognisant of the policy issues.” Professor Dan Prentice, Oxford, UCL and Erskine Chambers Pettet’s Company Law LONGMAN LAW SERIES Providing you with the best possible basis for your legal study. ISBN: 9781408279281 ISBN: 9781408255520 ISBN: 9781408295731 ISBN: 9781408279328 ISBN: 9781408280799 ISBN: 9781408272831 Longman Law Series titles come with Your Complete Learning Package All Longman Law Series titles are available to order from all good bookshops or online at: www.pearsoned.co.uk/law Pettet’s Company Law Company Law and Corporate Finance Fourth Edition John Lowry Arad Reisberg Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at : www.pearson.com/uk First published 2001 Second edition published 2005 Third edition published 2009 Fourth edition published 2012 © Pearson Education Limited 2001, 2012 The rights of John Lowry and Arad Reisberg to be identified as authors of this Work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply and affiliation with or endorsement of this book by such owners. Contains public sector information licensed under the Open Government Licence (OGL) v1.0. http://www.nationalarchives.gov.uk/doc/open-government-licence/open-governmentlicence.htm. Pearson Education is not responsible for the content of third-party internet sites. ISBN 978-1-4082-7283-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Pettet, B. G. Pettet, Lowry & Reisberg’s company law : company and capital markets law / Ben Pettet, John Lowry, Arad Reisberg. -- 4th ed. p. cm. Rev. ed. of: Pettet’s company law. 3rd ed. 2009. ISBN 978-1-4082-7283-1 (pbk.) 1. Corporation law--Great Britain. I. Lowry, John P. II. Reisberg, Arad, 1971- III. Title. IV. Title: Pettet, Lowry and Reisberg’s company law. V. Title: Company law. KD2079.P48 2012 346.41′066--dc23 2012004180 10 9 8 7 6 5 4 3 2 1 16 15 14 13 12 Typeset in 10/12.5pt Minion by 35 Printed by Ashford Colour Press Ltd., Gosport In memory of Professor Ben Pettet and Professor John Usher Contents in brief Preface to the fourth edition xx Preface to the first edition xxi Foreword to the third edition xxiii Acknowledgements xxiv Table of cases xxv Table of statutes xl Table of statutory instruments lvi Table of European legislation lx 1 Treaties and conventions lx 2 Secondary legislation lx Part I Foundation and theory 1 1 The nature of company law 3 2 Corporate entity, limited liability and incorporation 32 3 Legal theory and company law 57 Part II The constitution of the company 87 4 Entrenchment of rights 89 5 Organisation of functions and corporate powers 112 6 Relations with third parties: agency and constitutional limitations 127 Part III Corporate governance 139 7 The governance problem and the mechanisms of meetings 141 8 Duties of directors 157 9 Role of self-regulation 207 10 Shareholder litigation: the derivative claim 237 11 Shareholder litigation: winding up on just and equitable grounds and the unfair prejudice remedy 283 Part IV Corporate finance law 311 12 Techniques of corporate finance 313 13 Raising and maintenance of capital 337 14 Financial assistance for the acquisition of shares 360 Part V Securities regulation 381 15 Policy and theory in securities regulation/capital markets law 383 16 Credit rating agencies and their role in capital markets 416 viii Contents in brief 17 The regulatory machinery of the Financial Services and Markets Act 2000 452 18 The regulation of public offerings of shares 479 19 The regulation of insider dealing and market abuse 507 20 The regulation of takeovers 529 Part VI Insolvency and liquidation 545 21 Insolvency and liquidation procedures 547 22 Disqualification of directors 563 Index 576 Contents in detail Preface to the fourth edition xx Preface to the first edition xxi Foreword to the third edition xxiii Acknowledgements xxiv Table of cases xxv Table of statutes xl Table of statutory instruments lvi Table of European legislation lx 1 Treaties and conventions lx 2 Secondary legislation lx Part I Foundation and theory 1 1 The nature of company law 3 1.1 Preliminary 3 1.2 Rationale, abstract and agenda 4 1.3 Scope of this work 8 1.4 The genesis of company law 9 1.5 The present companies legislation 10 1.6 European community legislation 11 A The harmonisation programme 11 B The company law programme: UK implementation 11 C The EC Commission’s company law action plan 14 1.7 Company law, corporate law or corporations law? 15 1.8 Focus – the main business vehicle 15 A Company limited by shares 15 B Public or private 16 C Small closely-held and dispersed-ownership companies 17 D The Company Law Review and law reform 18 1.9 Other business vehicles 18 A Other types of companies 18 B Other organisations and bodies 20 C Partnerships 21 1.10 Reform mechanisms 23 A Modern company law 23 B The agencies of company law reform 23 C The 1998 review 27 D The Companies Act 2006 30 x Contents in detail 2 Corporate entity, limited liability and incorporation 32 2.1 Corporate entity 32 A The ‘Salomon ’ doctrine 32 B Piercing the corporate veil 33 C Corporate liability for torts and crimes 36 2.2 Limited liability 40 A The meaning of limited liability 40 B The continuing debate about the desirability of limited liability 41 C Fraudulent trading and wrongful trading 42 2.3 Groups of companies 46 2.4 Incorporation 48 A Formal requirements 48 B Certificate of incorporation 52 C Publicity and the continuing role of the Registrar 52 D Promoters and pre-incorporation contracts 53 E Right of establishment 55 3 Legal theory and company law 57 3.1 The role of theory in company law 57 3.2 The nature and origins of the corporation 58 A The theories 58 B Rationale and application of the theories 59 3.3 Managerialism 60 3.4 Corporate governance 63 A Alignment 63 B The Cadbury Report and self-regulation 64 C Global convergence in corporate governance 64 3.5 Stakeholder company law 67 A Social responsibility 67 B Industrial democracy 69 C Stakeholder company law 70 D The Company Law Review and stakeholders 73 3.6 Law and economics 74 A Efficiency as a moral value 74 B The theory of the firm 76 3.7 Future issues 84 Part II The constitution of the company 87 4 Entrenchment of rights 89 4.1 Entrenchment of expectation versus flexibility 89 4.2 Articles of association 89 A The company’s objects 90 4.3 Shareholder agreements 95 Contents in detail xi 4.4 Changing the constitution and reconstruction 98 A Introduction 98 B Contract 99 C Alteration of articles 99 D Entrenchment provisions in the articles 101 E Variation of class rights 102 F Compromises and arrangements under s. 895 106 G Other methods of reconstruction 110 5 Organisation of functions and corporate powers 112 5.1 Introduction 112 5.2 The institutions of the company: the board and the shareholders 112 5.3 The ultra vires doctrine 114 A Introduction 114 B Reforming the rule: a historical overview 115 C Core provisions of the 2006 reforms: a company’s capacity and related matters 122 D Pulling it together 125 6 Relations with third parties: agency and constitutional limitations 127 6.1 Contractual relations with third parties 127 6.2 Agency 127 6.3 The Turquand doctrine 130 6.4 The ‘relationship’ between Turquand and agency 131 6.5 Section 40 of the Companies Act 2006 134 Part III Corporate governance 139 7 The governance problem and the mechanisms of meetings 141 7.1 Alignment of managerial and shareholder interests 141 7.2 The role and functioning of the board of directors 142 A Directors as managers and ‘alter ego’ 142 B Appointment and retirement of directors 143 C Proceedings at directors’ meetings 144 D Remuneration of directors 145 7.3 The role and functioning of the shareholders in general meeting 146 A The general meeting as the residual authority of the company 146 B Resolutions at meetings 147 C The shareholders’ general meetings 148 D Convening of meetings and notice 149 E Shareholder independence – meetings and resolutions 150 F Procedure at meetings 151 7.4 Problems with the meeting concept 152 7.5 Meetings in small closely-held companies 154 xii Contents in detail 8 Duties of directors 157 8.1 Introduction 157 8.2 The duties of directors under Part 10 160 A The duty to act within powers 160 B Duty to promote the success of the company 161 C Duty to exercise independent judgment 166 D Duty
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