To all those reading this I am David Gibbs; I am a Lecturer in Law at the University of East Anglia.

I created this blog as a general out-let of ideas for my research, as well as keeping those interested up-to-date on my research and general interests.

I completed my PhD thesis at the University of East Anglia in 2014. The thesis was recommended for the award of PhD with no corrections. My external examiner was Prof. Simon Deakin (Cambridge) and internal examiner was Prof. Morten Hviid.
My PhD research centred on directors' duties and company law. The thesis was titled 'Non-Executive Self-Interest: Fiduciary Duties and Corporate Governance'. It was a doctrinal and empirical study on whether self-interest was suitably controlled amongst non-executive directors.

My supervisors were Prof. Mathias Siems, Prof. Duncan Sheehan, Dr. Sara Connolly and Dr. Rob Heywood

All opinions of any existing or future blogpost are my own. They do not necessarily represent the views of any of my associated institutions.
ORCID 0000-0002-6596-8536

Thursday, 25 August 2011

EC publishes Green Paper on Modernising the Professional Qualifications Directives

The EC have published a Green Paper on 'Modernising the Professional Qualifications Directive' (COM) 2011. This Green Paper seeks to modernise professional qualifications within the EU where the service sector accounts for 70% of GDP whereas intra-EU trade in services only accounts for 25% of overall trade in the EU.

According to a recent report there will be a need for 16 million more high-skilled professionals by 2020, which under current trends will leave a severe shortage, in particular in the health sector. 

The view of the Green Paper is to enable citizens to realise their right to work anywhere in the EU and to have their professional qualifications recognised anywhere in the EU. The implications of regulatory competition within the EU may play a part in the formation of clearer and simpler rules. If different EU states have different requirements to qualify then such asymmetries must be addressed by creating a uniform approach.  

Thursday, 18 August 2011

Directors' Duties: Unforeseen consequences of a statutory footing?

Placing directors' duties on a statutory footing opened the floodgates for debate about interpretation of these duties as to whether the new statutory duties conflicted with the old common law duties.

However, an overlooked issue is the way in which fiduciary duties are applied. The statutory duties ignores the distinction between executives and non-executives on the premise that parliament do not want directors falling in to less onerous categories. But this presumes directors owe fiduciary duties because they are directors. This seems contradictory to the well established notion articulated by the then Dr Finn that a person "is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary" (see Bristol and West Building Society v Mothew [1998] Ch 1 at 18).

This view comes across in other judicial statements such as Henderson v Merret Syndicates Ltd (No 1) [1995] 2 AC 145 HL at 205 where Lord Browne-Wilkinson stated that duties do not arise from a person's status or description. Similarly in America in the case of Chenery Corporation 318 US 80 *85-6 (1943) it was stated that to call someone a fiduciary was only the beginning of the analysis.

What the statutory duties potentially do is assume that all directors owe the same duties once they have been determined as a director. This creates the assumption that directors are fiduciaries because of their status rather than their nature or their nature of relationship with the company/principal. It also creates the assumption all directors owe the same duties although their is considerable doubt over this matter.

If one looks to what determines a director the case law is relatively clear that being "held" out as a director - at least in terms of de facto directors - does not make you a director. The courts have preferred an "equal footing" test to determine whether someone is a director - Kaytech International, Re [1999] BCC 390. This basically looks to see whether the individual has assumed the functions of a director and is a fact sensitive situation.

With this in mind if the law determines a director by their functions on a purely fact sensitive basis, imposing duties by law ignores the specific nature of the relationship. Thus Part 10 of the Companies Act 2006 subscribes to the idea that the fiduciary duties are prophylactic and imposed by law designed to react to someone assuming the role of director; rather than to reflect on the nature of the relationship.

These are very much some early thoughts and need to be developed further. If the legislation is suggesting, and I find no evidence yet to say otherwise, that all directors owe the same duties under part 10 is important to remember that although they are held to the same standard, the application of that duty will differ depending on whether they were executive or non-executive - Equitable Life Assurance Society v Bowley [2000] EWHC 2263 at [35]. 

Tuesday, 16 August 2011

Wheeler v Ross (unreported): Power of court to order meeting under s306 Companies Act 2006 approved

Last month the Chancery Division used the power under s306 of the Companies Act 2006 to order a meeting of the company. s306 states:

(1) This section applies if for any reason it is impracticable-
          (a) to call a meeting of the company in any manner which meetings of that company may be called
          (b) to conduct that meeting in the manner prescribed by the company's articles or this act

(2) The court may, either of its own motion or on the application-
          (a) of a director of the company, or
          (b) of a member of the company who would be entitled to vote at a meeting,
order a meeting to be called, held and conducted in any manner the court thinks fit.

(4) Such directions may include a direction that one member of the company present at the meeting be deemed to constitute a quorum

In this instance the company was deadlocked. The applicant majority shareholder and director (W) had accused the respondent's (R) husband (X), who handled the company's finances from withdrawing money from the company account without authorisation. The respondent was the other director of the company and X's daughter was employed by the company. As a result the working relationship between those involved deteriorated. W, as majority shareholder, dismissed X and Y and replaced R as a director; however they continued to be active in the company.

W then called an extraordinary meeting to ratify X and Y's dismissal and R's replacement as a director. R, as minority shareholder, did not respond as to whether they would attend. Without R's attendance the meeting would have been inquorate (see s318) under the company's articles. W then made the instant application under s306 for a court ordered meeting.

The power to remove a director is given to the company under the Companies Act s168 and can be done via an ordinary resolution (50%+) with special notice of the resolution (s312 - 28 days notice by the proposer).  

The court granted the application holding that "the purpose of s306 order was to allow W to enforce his rights as a majority shareholder by overcoming the deficiency in him holding an inquorate extraordinary general meeting; the order was merely one of the steps necessary to put the governance of the company into a viable state".

Although R feared that the s306 order would place control of the company in to one person's hands; R was reminded of her rights under s994 of unfairly prejudicial treatment as a minority shareholder even in the face of a s306 order. According to the judge, the purpose of placing the company in the control of one person by ordering a meeting under s306 would be to allow the company's objectives to be achieved

The use of the word "impracticable" in s306 seems to be very broad. It seems logical that that power would extend to a situation where a company with two shareholders/directors were deadlocked. In that instance it is impossible to call and conduct a meeting, and impracticality would logically encompass impossibility (see for example Edinburgh Workmen's Houses Improvement Co Ltd [1935] SC 56). 

However, the decision to approve the application under s306 on the rationale that the company is deadlocked is not an uncontentious issue. For one it is at the courts discretion as to whether a meeting should be convened. Prof. Davies notes in Gower and Davies: Principles of Modern Company Law that this section can be used to break a deadlock and the principle of majority rule is being frustrated. In the case of El Sombrero Ltd, Re [1958] Ch 900 - a shareholder with 900 of 1000 shares wished to remove the two directors who owned the remaining 100. The directors refused to attend the meeting and the court ordered that a one person meeting should constitute a quorate meeting.

Prof. Davies goes on to note though that a company may deliberately set quorum requirements to create a deadlock situation.  If this is the purpose then it is unlikely that the court will make such an order.

The point to distinguish though is creating quorum requirements to create a deadlock on points that cannot be agreed and just refusing to turn up to a meeting. Thus, the courts discretion under s306 is going to be fact sensitive and a judge is unlikely to be sensitive to a minority shareholder serving as a director who just refuses to attend a meeting; especially under the considerations of majority rule and s994.

Based on the rationale of this case though, it is hard to envisage a situation where there is a deadlock and a s306 order will not be made. The court granted an s306 order on the premise that it would allow the company to achieve its objectives. If the company reaches a position of deadlock then it is most likely going to have the consequence of making the company's objectives difficult, if not impossible, to pursue.

On a final note, since part of the resolution concerned director removal the possibility of a written resolution for the majority shareholder was unavailable under s168. Under the written resolution procedure the holder of the majority can pass an ordinary resolution via a written resolution. Thus the need to convene a meeting is unnecessary. However ratification of the removal of X and Y who were not directors or shareholders it seems that ratification could have been dealt with via a written resolution unless the company's articles stated otherwise. From the case analysis it is unclear, but is presumed so.

Tuesday, 9 August 2011

Coding, Coding...Gone

Data collected and coded: It seems like one of those moments where one sits back and reflects on what one has done or an optimist may refer to as "accomplished".

After completing the coding of all the fields in to an excel spreadsheet I decided to read the chapter in Lawless, Robbennolt and Ulen's book - empirical methods in law - on coding. I do not need hindsight to tell me I obviously did this the wrong way round, but fortunately coding is more stressful than it is difficult.

What have I learnt from coding?
1) Know exactly what you are coding - To a lay person this may sound simple. Take the variable in my data of multiple directorships. An onlooker may say "he is counting all the other positions the director holds".

It is however not as simple as that. It had to be determined what exactly was another position. Since my research focuses on not networks but multiple directorships I was specifically looking for positions on other boards vis-a-vis other positions where directors' duties will be owed and thus board positions. This still needed further refinement as I needed to determine whether board positions included charitable, trustee, advisory, governmental boards and so on. 

Similar issues were faced on the variables such as remuneration and what would be classed in to this category as well as the sub categories; or independence and how that would be determined. 

2) Bigger is better - collect more rather than less. Do things systematically was part of the lesson. Lawless et al bluntly point out data can be aggregated but you cannot "unaggregate" it (or at least not without re-doing it all again). For example, if I collected the data on directors' remuneration and rounded the figures up or grouped them in to ranges, but later found I wanted to work with the exact figures it would most likely involve recoding the whole category again. 

3) Make it understandable - When designing a database or in my case a spreadsheet, make it understandable. Do not try fancy names for headings, an example used by Lawless et al. Although, you may understand what they mean when you write them, it will be more of an annoyance when you go back to them three weeks later and cannot remember what the acronym stood for.

4) Keep a record of it all - All those decisions one makes need to be recorded. Who is being studied? What is classed as remuneration? Where did the data come from? These records allow you to show the data you collected is comparable and the methodology has not lead to some fatal errors.

So coding is not one of those difficult tasks. It is just one of those tasks that requires patience. Believe it or not, when companies published their annual reports they did not have my data and I in mind. Fortunately, there was a lot of uniformity across the annual reports as I was sensible enough to base my variables on the relevant pieces of legislation and regulations, unlike some other studies in this area. Where there was biggest lack of uniformity was determining whether an exterior position fell in to my definition of the variable. For example, some President positions were board positions whereas others were not.

What else have I been doing?
Since this is a reflective piece I thought I might as well look at what else I have accomplished since my upgrade from Mphil to PhD.

1) I have completed a first draft of a theoretical chapter of around 10,000 words taking a running total to 44,000. That leaves me with around 13 months to finish.

2) I redesigned my thesis plan based on my developments of the theory chapter and coding. Since theses are not written, or rarely written, in a logical order this undoubtedly results in the need to move things around; either in the plan or from chapters. For example, the first chapter I wrote will be my actual chapter 4. Part of that chapter details why the chapter is being written and encompasses some of the problems the thesis as a whole is trying to address. Most of this can be moved form part of chapter 1 in the introduction. 

3) I joined the academia network. I am still getting to grips with it but seems like it has some good aspects to network with people in academia and more precisely in my field.

Going forward:
I have just begun work on my chapter 3 - and quickly begun to procrastinate by writing this blog post. This chapter is looking at who owes a duty of loyalty and the executive-non-executive distinction. There appears to be little academic discussion on this point with the term directors or managers used interchangeably with little definition of who they refer to when they use these terms. Furthermore, this chapter aims to highlight an anomaly of different interpretations of the function of a non-executive from a legal and business view point.

Wednesday, 3 August 2011

Changes to Cross-Border Merger Notification Requirements

On Monday amendments to the Companies (Cross-Border Merger) Regulations 2007 were made under the Companies (Reporting Requirements in Mergers and Divisions) Regulations 2011.

This amendment introduces a facility for companies to publish draft terms of the Merger on a website.

For more information see the Companies House website here.