COMMERCIAL LAW LAWS 223 Lecturer: Tariq Hassan E‐mail:
[email protected] Time and Venue: TBD A. OVERVIEW
This course will provide a sound foundation of Pakistan company law, a very important topic for legal practice and general legal knowledge. A good place to start is by taking heed of the of the warning sometimes made by textbook writers that company law is a subject fascinating for its content but daunting for its size and the challenge is discerning the broad principles and not to get bogged down in the details. The course is designed so that students are introduced to the nature of a of a corporation and the concept of a separate legal entity with limited liability. Students will come to appreciate the economic function of the company as a legal structure for business, its advantages and disadvantages compared to other structures available such as the partnership. From this foundation knowledge, the life cycle of a company will be discussed, commencing with the initial promotion and flotation of a of a company, to the allotment and issue of shares. of shares. The day to day issues of running of running a company will be considered, such as, the role of the of the board of directors of directors and their duties, and the rights of shareholders (including minority shareholders). This part of the course will conclude by considering the manner in which a company ceases to exist, reflecting upon the insolvency and liquidation of a of a company. The readings will include not only cases but also statutory provisions, stock market regulations, law reform papers and academic comment. After completing this part of the of the course, students will: (a) possess a knowledge of the of the law as it applies to the regulatory framework, types of companies, of companies, the company’s relations with outsiders, directors duties, rights of shareholders, of shareholders, statutory remedies, and corporate insolvency; and (b) apply their legal knowledge to complex factual situations in order to achieve a reasoned conclusion through oral and written communication. Students will also hone the ability to analyse and evaluate case law relevant to the Companies Ordinance, 1984. As Hicks and Goo, authors of the popular “Cases and Materials on Company Law” remind us, “[o]ne of the difficulties of company law cases is the mass of technical detail and facts that have to be observed in order to get a feel for the real nature of the of the dispute.” In addition to the law relating to companies, students will also learn about formation and functioning of partnerships, which are distinct business entities. Lower rates of taxation, of taxation, ease of set of set‐up and dissolution, and right to participate in management are some of the factors which contribute to the continuing
1
popularity of the partnership mode. No course on business entities can be complete without considering the impact of partnership law and full coverage of this important topic will be given in the course. Finally, we will also take a look at the Negotiable Instruments Act, 1881, which deals with instructions given by one person to another person to make payments to a third party at some point in future. What makes such promises particularly valuable is the principle of negotiation, whereby these instruments can pass from one hand to another without losing their acceptability. Statutory rules and case law dealing with the presentation and honouring of these instruments will be discussed along with the rules of evidence, in particular estoppel. The weekly teaching schedule is given below. Please note that while the teaching schedule will generally follow the table below, minor changes may be made during the semester (for example, if in the lecturer’s opinion material covered in Session 4 needs to be expanded on, or if there was insufficient time to cover the material, then it may be carried forward into Session 5 for a certain amount of time). The lecturer will let students know in lectures and through email if this is required. B. ASSESSMENT
The division of marks will be as under: i) Attendance/Class Participation: 10% ii) Two Quizzes: 40% (i.e. 20% each) iii) Essay: 20% iv) Final Exam: 30% C. SESSIONLY SCHEDULE
Session 1
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ SOURCES OF COMPANY LAW History of joint stock companies‐prior legislation‐Companies Ordinance 1984‐company law reform reports (SECP Corporate Laws Review Commission)‐life of a company
a) Northey & Leigh Introduction to Company Law (London, Butterworth, 1981) pgs 1‐8. b) The Life of a Company (story of the Baker brothers)from Hicks and Goo Cases & Materials on Company Law (London, 2001) , pgs 21‐29
c) Concept Paper for the Development and Regulation of the Corporate Sector (SECP Corporate Laws Review Commission , 2005), pgs, 3‐8
2
Session 2
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ INCORPORATION OF COMPANIES Why incorporate? Types of company‐single member‐private limited‐public limited‐pre‐incorporation contracts Readings a) Drury, Hicks and Smallcomb “Alternative Company Structures for the Small Business (London , Association of Chartered Certified Accountants, 1995) b) Hicks and Goo, Cases and Materials supra. pgs 76‐82 Case Law Muhammad Anwar v Muhammad Iqbal 1984 CLC 103
Session 3
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ SEPARATE LEGAL PERSONALITY Readings a) Hicks and Goo, Cases and Materials..., pgs 94‐100,102‐122 b) Andrew Hicks ‘Limiting the rise of Limited Liability” in R. Baldwin and P. Cane Law and Uncertainty (Kluwer, 1997)
c) F.G Rixon “Lifting the Veil between Holding and Subsidiary Companies” (1986) 102 LQR 415 d) Companies Ordinance, 1984 ss. 2 (8) and 32 Case Law i)
Union Council, Ali Wahan, Sukkur v. Associated Cement (Private) Limited 1993 SCMR 468
ii) Sakhi Datar Cotton Industries v. Mahmood Private Limited 2006 CLD 191
Session 4
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ MEMORANDUM OF ASSOCIATION 3
Form of memorandum of association‐objects clause and ultra vires‐difficulties of the doctrine a) Northey & Leigh Introduction to Company Law supra pgs 65‐86 b) Hicks and Goo, Cases and Materials... 165‐189 c) Modern Company Law for a Competitive Economy: The Strategic Framework (London: DTI, 1999) d) Companies Ordinance, 1984 ss. 14‐25 and First Schedule
[CASE LAW TO FOLLOW]
Session 5
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ARTICLES OF ASSOCIATION Contractual effect of articles of association‐alteration of articles‐effect of shareholders agreement on power to alter articles‐ Readings a) Northey & Leigh Introduction to Company Law supra 90‐99 b) K.M Wedderburn “Shareholders’ Rights and the Rule in Foss v Harbottle” [1957] CLJ 194 c) Law Commission, Shareholder Remedies (Law Commission Report No. 246) (London: Stationery Office, 1997)
d) Companies Ordinance, 1984 ss.26‐27 Case Law United Liner Agencies of Pakistan (Private) Limited v. Miss Mahenau Agha 2003 SCMR 132
Session 6
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Assessment Note: Quiz 1
Session 7
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ THE GENERAL MEETING Role of the general meeting‐procedures‐notice of meetings‐voting‐cutting corners in private companies‐ deregulation of private companies 4
Readings a) Northey & Leigh Introduction to Company Law supra pgs 219‐230 b) Lifting the Burden (Cmnd 9571) (London: HMSO, 1985) c) Companies Ordinance, 1984 157‐160A Case Law Naveed Textile Mills Ltd. v Central Cotton Textile Mills Ltd. PLD 1997 Kar 432
Session 8
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ THE BOARD OF DIRECTORS Separation of powers‐powers of the directors to bind the company‐constitutional limits on the board’s powers‐transactions by individual directors or committees‐corporate governance a) Northey & Leigh Introduction to Company Law supra pgs 108‐142 b) Report of the Committee on the Financial Aspects of Corporate Governance (The “Cadbury Report”) (London: Gee, 1992) c) Code of Corporate Governance d) Companies Ordinance, 1984 ss. 174, 176‐181, 185‐197A
[CASE LAW TO FOLLOW] Session 9
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Assessment note: Essay due
SHARES AND SHARE CAPITAL The nature of shares‐issue of shares‐transfer of shares‐class rights‐valuation of shares‐ Readings a) Northey & Leigh Introduction to Company Law supra pgs 231‐249 b) Robert Pennington “Can Shares in companies be defined” (1989) 10 Co Law 140 c) Hicks and Goo, Cases and Materials supra. pgs 267‐270 (Valuation of Shares) d) Companies Ordinance, 1984 ss. 86, 89‐90, 91‐92
Case Law 5
Rauf Baksh Kadri v National Technology Development Corporation 2005 CLD 747
Session 10
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ MAINTENANCE OF CAPITAL Meaning of maintenance of capital‐no issue at a discount‐issues in kind (public and private companies)‐ bonus issues‐purchase by a company of its own shares‐applications to court to reduce capital a) Hicks and Goo, Cases and Materials supra. pgs 274‐280 (The Meaning of Maintenance of Capital) b) Purchase by a Company of its Own Shares (Cmnd 7944) (London: HMSO, 1980) c) Companies Ordinance, 1984 ss. 95‐95A, 96‐98 [CASE LAW TO FOLLOW]
Session 11
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ DIVIDENDS AND STOCK OPTIONS Profits available for distribution‐consequences of an unlawful distribution a) Hicks and Goo, Cases and Materials supra. pgs 280‐284 b) Re Exchange Banking Co. (1882) 21 Ch D 519 Court of Appeal (liability of directors) c) Re Precision Pippings Ltd. v Precision Dippings Marketing Ltd [1986] Ch 447 Court of Appeal (recovery from members as constructive trustees) d) Companies Ordinance, 1984 ss. 248‐251 [CASE LAW TO FOLLOW] Session 12
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ THE POSITION OF DIRECTORS Directors as trustees‐non‐executive directors‐appointment of directors‐delegation of directors’ powers‐ delegation to committees‐delegation to chief executive officers‐remuneration of directors‐removal of directors‐disqualification of directors
6
a) Northey & Leigh Introduction to Company Law supra pgs 167‐187 b) Report of the Committee on the Financial Aspects of Corporate Governance (“The Cadbury Report”) (London: Gee, 1992) c) ProNed “A Brief Guide to Recommended Practice on Non Executive Directors (London: Pro Ned, 1993) d) Code of Corporate Governance (Pakistan)
[CASE LAW TO FOLLOW] Session 13
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ DIRECTOR’S DUTIES Duties are owed to the company‐duty of care and skill‐fiduciary duties‐to act bona fide in the interests of the company‐the no‐profits rules‐the no‐conflicts rule‐liability as constructive trustee‐relief from liability‐relief by ratification Readings a)
Northey & Leigh Introduction to Company Law supra 132‐142
b) LS Sealy “The Director as Trustee” [1967] CLJ 83 c) Hicks and Goo, Cases and Materials supra. pgs 303‐305 d) Companies Ordinance, 1984 ss. 214‐215 Case Law Fehmida Begum v Federation of Pakistan PLD 2000 602
Session 14
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ MAJORITY RULE AND PROTECTION OF MINORITIES Majority rule and minority remedies‐complaint procedure and investigation‐ oppression and unfair prejudice‐ just and equitable winding up Readings a) Hicks and Goo, Cases and Materials supra. pgs 423‐426 b) Report of the Committee on Company Law Amendment (“Cohen Committee”) (Cmnd 6659, 1945) 7
c)
Report of the Company Law Committee (“Jenkins Committee”) (Cmnd 1749, 1962)
d) Companies Ordinance, 1984 263‐282, 290‐295 Case Law I)
Brother Steel Mills Limited v Mian Ilyas Miraj and 14 others PLD 1996 SC 543
II)
Brother Steel Mills Limited v Mian Ilyas Miraj and 15 others PLD 1995 SC 320
III)
Pakistan WAPDA v KAPCO PLD 2000 Lahore 461
Session 15
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Assessment Note: Quiz 2
Session 16
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ BORROWING AND SECURITY Financing‐public offer of debentures‐bank borrowing‐types of security‐registration of charges‐perfection of security‐the mechanics of registration‐retention of title‐floating charges‐nature of floating charges‐ crystallisation‐weakness of floating charges‐strengths of floating charge‐administrative receivership‐ priority of charges a) Northey & Leigh Introduction to Company Law supra pgs 296‐313 (borrowing powers) b) Insolvency Law and Practice: Report of the Review Committee (the “Cork Report) (Cmnd 8558) (London, HMSO, 1982) c) AL Diamond “A Review of Security Interests in Property” (London: Department of Trade and Industry, 1981) [CASE LAW TO FOLLOW] Session 17
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ACCOUNTS AND AUDIT The duty to keep accounts‐auditors‐appointment and qualification‐the audit process‐liability of auditors to the company‐liability of auditors to third parties Readings
8
a) Northey & Leigh Introduction to Company Law supra pgs 145‐187 (Accounts, Directors’ Report and Audit) b) Companies Ordinance, 1984 ss. 230‐236 Case Law Institute of Chartered Accountants of Pakistan v Messrs Hyder Ali Bhimji & Co. Karachi 2002 CLD 1207
Session 18
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ OFFERING SHARES TO PUBLIC INVESTORS Official listing of securities a) Thomas Lee Hazen “The Law of Securities Regulation” pgs 8‐24 (an introduction to capital markets) b) Companies Ordinance, 1984 ss 52‐58, 61‐62, 65,68,71 c) Companies (Issue of Capital Rules), 1996 [CASE LAW TO FOLLOW] Session 19
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ TAKEOVERS AND MERGERS Takeovers‐The Take‐over Ordinance‐Directors’ duties in takeovers‐Mergers a) Listed Companies (Substantial Acquisition of Voting Shares and Take‐over) Ordinance, 2002 b) Companies Ordinance, 1984 ss. 284, 287 [CASE LAW TO FOLLOW] Session 20
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ CORPORATE INSOLVENCY Sources and scope company insolvency law‐purposes of company insolvency law‐members’ voluntary winding up‐creditors’ voluntary winding up‐winding up by the court‐grounds for winding up a) Hicks and Goo, Cases and Materials supra. pgs 659‐662
9
b) Insolvency Law and Practice: Report of the Review Committee (the “Cork Report”) (Cmnd 8558) (London: HMSO, 1982) c) A Revised Framework for Insolvency Law (Cmnd 9175) (London: HMSO, 1984) d) Part XI of the Companies Ordinance, 1984 Session 21
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ CORPORATE INSOLVENCY CONTINUED Pari passu principle‐preferential debts‐set‐off ‐contracting out of the pari passu principle‐overturning
prior transactions‐fraudulent and wrongful trading a) Part XI of the Companies Ordinance, 1984 b) Mst. Khurshid Ismail v Unichem Corporation 1996 CLC 1863 Karachi c) IFC v Hala Spinning Ltd PLD 2000 Lahore 323 d) Hali Spinning v IFC 2002 CLD 1487
Session 22
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ NATURE OF PARTNERSHIP Defining characteristic of partnership‐mutual rights and liabilities of partners‐conduct of business‐ property of the firm‐profits earned by partners Chapter I Partnership Act, 1932 Lindley on Partnership pgs‐ Session 23
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ RELATIONS OF PARTNERS TO THIRD PARTIES Partner to be agent of firm‐implied authority of partner to be agent of firm‐partners authority in an emergency‐liability of firm for wrongful act of partner Chapter IV Partnership Act, 1932 Lindley on Partnership pgs‐ Session 24 10
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ REGISTRATION, CHANGE OF CONSTITUTION AND DISSOLUTION OF PARTNERSHIP Advantage of registration and requirements‐introduction of partner‐retirement and expulsion of a partner‐dissolution of a firm‐mode of settlement of accounts Chapters V and VI Partnership Act, 1932 Lindley on Partnership pgs‐ [CASE LAW TO FOLLOW] Session 25
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ BASIC TERMINOLOGY OF NEGOTIABLE INSTRUMENTS, Promissory notes‐ bills of exchange‐ cheques‐ holder in due course‐ payable on demand or at a determinable future time Chapters II, III and IV of Negotiable Instruments Act, 1881 Session 26
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ PRINCIPLES OF NEGOTIATION By delivery or indorsement, presentment, dishonor by non‐acceptance, dishonor by non‐payment, noting and protest‐compensation Chapters IV, V, VIII, IX, X and XII of the Negotiable Instruments Act, 1881 Session 27
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ RULES OF EVIDENCE Statutory presumption‐estoppel against denying original validity, capacity of payee to indorse signature, capacity of prior provisions relating to cheques‐significance of crossing Chapters XII and XIV of Negotiable Instruments Act, 1881 [CASE LAW TO FOLLOW] Session 28
11
Review Assessment Note: Final Exam (30%)
12
