Directors Duties and Corporate Law

1.) This question is centred around director’s duties; it is a relevant area of corporate law and corporate governance. The meaning of wrongful trading was against a person who, at some time before beginning of winding up, was a director of the firm and knew or ought to have recognized at the time that there was no arguable view, that the firm would avoid going into insolvent liquidation but persists to trade and did not take rational steps to reduce losses. The director could also be liable to contribute to the company’s assets, the amount should be which the companies assets have been depleted by their behaviour. Disqualification order can also be made by the courts, however if the courts do not make a declaration about person liability, then disqualification order cannot be made. Directors may also have a protection against personal liability of wrongful trading; they can show this by that they took every step which he ought to have taken to reduce the potential loss to the company’s creditors. If directors can make a defence, then the courts cannot make a disqualification order against them. Applying the case of Re Produce Marketing Consortium Ltd (1989), were two directors were liable to pay money back, when they ought to have known that their firm could not avoid insolvent liquidation, instead of later time when they truly realized that fact. Applying the ruling of Re Produce Marketing Consortium Ltd to the question it is clear this provides us that jack as a director of the firm will be liable to contribute to the assets of the company under s.214. Also ken and Barbie is also likely to be liable as they should have been aware of the situation.

2.) The Company Directors Disqualification Act (CDDA) 1986 was introduced to control people who constantly harmed the variety rights that associate with incorporation, most mainly the privilege of limited liability. The effects of this act are, it prevents an individual from being a director, administrator, receiver, liquidator or manager of a company property or any different way from being involved, either directly or indirectly, in formation, management or promotion of a company. Also the minimum period of disqualification is 2 years and the maximum is 15 years, depending upon which acts it applies to and the offence. They may also individually liable for the debts of a company and contribute towards the assets of the company. Other effects maybe. However if anyone acts in breaking of a disqualification order is liable for a fine, and imprisonment on conviction on indictment. Apply this case

3.) Third party means someone apart from the company, a linked body business or a person acting on part of the company or an associate body corporate. The requirements are directors of a company must not accept a benefit from a third party, discussed by reason of his duty as director or whatever he does or doesn’t do as director. Also Directors must not make secret profits; this is based on the fiduciary duty.

Disclosure of interest- A director is required to disclose nature and extent of any proposed or existing contracts with the company in which he has direct or indirect interest to all the other directors. The requirements are a director must make a declaration, to different directors; this will be made at a meeting, or by general notices, or notice in writing he has an interest in a third party. A failure to make a declaration in the set manner will cause the declaration to become incomplete or erroneous and another declaration will be required. Any such declaration must be made as soon as it is fairly within the realm of possibility. Applying the case IDC v. Cooley (1972) were Cooley pretended to be ill and was released from the company IDC and secured a contract with another company, however the third party decided to give the contract to him personally and not to the company. He didn’t disclose his reason to the firm/board, and he left to take the contract personally. Cleary this was the same situation with Barbie, she was also pretended that due to her health she wanted to leave the company because she was in talks with a third party, but they did not want to deal with Luxor Ltd, and also didn’t disclose her interest to its board. Therefore Barbie was dishonest about this case and the benefits acquired from the contract should be disgorged back to Luxor Ltd.

4.) The grounds in which to control a director are, it’s ultimately controlled by its members, most decisions require majority vote, they are not required to act for the benefit of the company. Certain matters require approval if it is deemed a “substantial property transaction”. S190 states substantial is an asset that exceeds “100k or exceeds 10% of the Co’s assets value and is more than £5k. This can be applied to ken as he should have got approval at that point when he was going to do a transaction over a 100k. Ken could have got majority of the vote for this transaction to happen.

Section 2

This question is centred around employment law under the Employment Rights Act 1996 section 230. People working under a contract of service are employees, and those who work under contract for services are self employed contractors. If there are problems with your vehicle, then you may take it to a big garage, and let one of its mechanics check the problem out. The employee would be the mechanic of the garage and work under a contract of service, with his employers. The contract wouldn’t be with the mechanic but with his employer, the garage. Instead the car maybe taken to a one man garage and get the person to look at the car, in this circumstance the mechanic is self employed and both you and he are accessing into a contract for service. Distinguishing between the two types are vital, as substantial legal outcome of action follow from the allocating of a person in one or other of the categories. For instance even thought employees are guarded by different common law and legal rights in relative to their employment, however no broad scale protection is offered to the self employed. Also final liability for breach of contract or liability in tort relies upon on the person’s position as a self employed or employee.

Apply this to Sarah and Perry

2) A control test is applied by the courts; the essential factor in using this test is the amount of control exercised by one individual over the other. The question to be decided is the amount as to which the person who is using others service absolutely controls, not simply by what they do, but how they do it. The use of the test which can be seen in Walker v Crystal Palace Football Club (1910), it was said that a professional football player was an employee of his club, as he was account to control in relative to his training and process of play. We can see that Perry was an employee because he was subject to control in relation to training for their clients.

The integration test changed the importance from the amount of control exercised of an individual to the range to which the person was integrated into the firm of their accepted employer. An example of the integration test is Whittaker v Minister of Pensions & National Insurance (1967) were the court found that the amount which a circus trapeze artist was asked to do other common jobs in relative to the process of the circus in which she occurred, signified that she was an employee instead of self employed. We can see that Perry was asked to do job that Adele provided, which shows that he was an employee.

The multiple or economic reality test determines whether someone is an employee or independent contractor. When deciding, the courts will not be destined by how the individual explain the relationship. Applying the case Market Investigations v Minister of Social Security (1969), were it was said that an individual was not an employee because she was not in business on her own account. The economic reality test was first recognized in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968), there were some circumstances of a contract of employment: the employee agree to offer his own work and skill in arrival for a wage, the employee agrees, either specifically or impliedly, they will work under the control of the employer. We can see that Sarah was not an employee because she was not in business on her own account and took no risk.

3) Perry is described as self employed and pays tax as a self employed person. He has been there for over 2 years and works on delivering and designing training for clients. He has to attend the premises everyday from 8.00-4.30pm and work solely on the projects that Adele provided. Perry would have to check with Adele when he wanted to take some leave. He also receives payments when he is ill-Employee

Sarah also works as self employed for Adele, she pays tax as a self employed person. Sarah has the option to work from home and also works on the same project as Perry but is allowed to work on other projects. Sarah can also use someone else to do the work for Adele is she was too busy to do it personally. However Sarah doesn’t receive payment if she is ill or any other circumstances. Self Employed

Adele ran the training business and was controlling Sarah and Perry; she also provided all the equipment such as computers, flipcharts, pens etc. She didn’t have anyone above her, as she ran the training business herself, so she can work from home because she is working for herself. She is also required to pay her own tax and NI-Self Employed

For example in Nethermore (St Neots) v Gardiner & Taverna (1984), a group of home workers, i.e. people who carried out paid work in their own homes, were held to be employees on the grounds that they were subject to an irreducible minimum obligation to work for their employer.

Applying the case Nethermore (St Neots) v Gardiner & Taverna (1984),

Applying the case O’kelly v trusthouse forte