Hajji Katz 2019

Management of Companies
Company management is vested in two basic organs: the shareholders in a
general meeting or the directors through BOD meetings.
Shareholders' meeting
Meeting of all shareholders aka "company meeting"-avenue to control and
supervise the mgt of a company by formulation of policy, appointment,
dismissal of directors, etc.
Three types of shareholder meetings
(i) Statutory meeting (S.137 of CA)
Is a general meeting for shareholders and must be held no less than 1 month
from date of commencement of business but not more than 3 months. The
directors must forward a statutory report at least 4 days before the meeting to
each member of the company (S.137(2)) and a certified copy of the same to
the registrar (S.137(60 CA)(Read what should be in this report).
(ii) The Annual general meeting (AGM) (S.138 CA)
A company shall in each year hold a meeting in addition to other meeting and
shall specify it as an Annual general meeting in notices calling it.
First general meeting should not exceed 15 months before being called
(S.138(1) CA)
A private Company- Can hold its AGM at the requisition of members.
In an AGM members look at balance sheet, appoint or dismiss directors and/or
auditors and formulate Company policies.
(iii) Extra General meeting (S.139 CA)
These are extra ordinarily called usually on requisition of a member(s) holding
at least one tenth (1/10) of the paid-up capital/voting power of the Co.
The requisition must state objects of the meeting, signed by requisitionist and
deposited at Co.'s registered office
Directors must call the meeting within 21 days after deposit any reasonable
expenses incurred by the requisitionist must be paid by the Co.
No EGM should be convened after 3 months from date of deposit.
EGM generally are conducted like those convened by directors.
Notices (S.140&141of CA)
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S.140 CA -all meetings (except adjourned ones) shall be by notice, any
provision in the memarts that contravenes this is void
Notice should be given 21 days before the meeting.
Must be in writing, in English and served on every member in a manner as per
Table A.
The 21-day notice requirement is to accord members adequate time to
prepare their views and protect them against ambush.
Excepts
Shorter notice may pass if all members attend for an AGM or if majority attend
for other meetings (S.141(4) of CA)
Under Art.51 Table A accidental omission of giving notice or non-receipt of
notice by a person entitled to attend doesn't invalidate the proceedings at a
meeting. In Kaye v Croydon Tramways court held that where a notice has
been artfully framed to mislead shareholders ,it didn't fairly disclose the
purpose of the meeting and didn't comply with the CA.His lordship noted that
a notice must not be couched in a manner to mislead shareholders; it’s always
dangerous to give notice by advertisement.
In Winklaimer v E.A Plans members passed resolutions beyond terms of notice
for a meeting. Court held that since the resolutions were for the benefit of the
Co.as opposed to individual directors, the excess of the notice of meeting did
not per se invalidate the meeting nor the resolutions passed.
In Re West Canadian Collieries court held that:
(i) a resolution has to be passed at a meeting of which no less than 21 days’
notice has been duly given in accordance with the Act.
(ii) accidental omission to give notice of a meeting to a member or failure of
a member to receive notice doesn't invalidate the proceedings.
Generally, where directors don't disclose the full extent of the objects of the
meeting and they personally benefit the resolutions passed are invalid and not
binding on the Co (Baillie v Oriental Telephone Co)
However, if the directors are also the sole shareholders they can waive the
technicality of notice Re Express Engineering works and where a shareholder
waive a notice, attends a meeting he cannot claim later that the resolutions
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were passed in contravention of notice. This was the holding in (Wagaba v
Butambala United Growers)
Power of court to call a meeting
Under S.142 of CA, where for any reason it is impractical to call a meeting,
court may of its own motion or on application of any director or member
entitled to vote at a meeting order a meeting to be called ,held and
conducted as court considers fit.
In Re El Sombrero impractical was defined to mean whether in the
circumstances, the desired meeting could as a practical matter be
conducted. That impractical is not synonymous with impossible.
In Uganda Ey’eddembe publications-shareholders had freed the country
during a war, the only director in the country called a meeting to appoint
directors and allot shares and Court allowed this application to call such a
meeting even though the sole shareholder present was to pass resolutions and
allot the shares.
General provisions for meetings (S.141 CA)
a) Notice as per Table A
b) Two or more members holding1/10th of voting powers for a limited company
or at least 5% for a Co with no capital may call meeting
c) Quorum-2 members for a private Co and 3 personally present for a public
Co.
d) Any member can be elected as chairperson of the meeting.
e) Every member shall have one vote
Informal meetings
Where there is informal agreement without convening a formal meeting and
a doc is passed and members execute it, such a meeting is valid on condition
all members agree and it's intra vires, honest and beneficial to the Co.
In Re Express Engineering, sole directors and shareholders of a Co resolved at
a directors'
meeting to purchase property from a syndicate in which they were themselves
interested, but the Memarts forbade a director from voting on Ks in which one
had an interest. The action of a liquidator to have the K set aside failed, court
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stating that since all the directors had unanimously agreed although informally,
the Co was bound.
In Parker & Cooper v Reading, the memarts allowed the Co to borrow by
issuing debentures and for a director to participate even when they had
interest if declared to the BOD.There was an arrangement of such and later
the Co went into liquidation. Held that a Co is bound in a matter intra vires if
by unanimous agreement by all corporators,if all assent and transaction is intra
vires,it is not necessary that they should hold a meeting in one room or one
place to express that assent ,this is more so if it's beneficial to the Co.
However in this case the action of the shareholders of calling a meeting only
to sign approval of a transaction which wasn't beneficial to the Co without a
formal meeting was held to be invalid. (this distinguished Re Express
Engineering)
Voting at meetings
General rule is that every shareholder is entitled to vote as he wishes. An interest
in shares creates a property right in which the proprietor has a right to deal as
he pleases.
Every member in a Co with share capital has one vote in respect of each share
where voting is by proxy and in other cases every member has one vote (S.
141(e) of CA)
In Northwest Transport Co. v Beatty, it was held that every member has a
perfect right to vote on a question presented before the GM although he may
have an interest in the SM opposed to the general or particular interests of the
Co.
That this right is proprietary, and no officer/ director can /should divest him/her
of this right.
That a director who is also a shareholder is not precluded from voting as such
on a matter and it is immaterial that he/she is personally interested, unless
prohibited by a provision in the articles.
As a general rule voting is by show of hands but where a provision in the
articles allow then a poll
This was the position in Re Harbury Coal, Iron & Wagon Co where court held
that at common law voting at all meetings is by show of hands but that this
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may not be satisfactory as people attending in large numbers may be small
shareholder while those in small numbers may be large shareholders.
Otherwise if a company's articles provide for a poll, votes are counted
according to number of shares in most cases one vote for every share. There is
no limit to the number of shares a member can have unless expressly provided
for.
In Pender v Lushington at a meeting to end some controversy, voting was by
show of hands. Pender being dissatisfied demanded a poll and the meeting
was adjourned. At the adjourned meeting Pender and other members votes
were rejected while those who had very limited interest in the Co as proxies
were considered. He brought an action for an injunction to restrain the
directors on the footing that the voting was bad.
Held: Every shareholder has a right to vote has he deems fit, to give his vote for
the motives or promptings he considers his own individual interest. Accordingly,
such a member may vote by show of hands or where need arises he/she has
a right to demand a poll.
Also, court may intervene to nullify members voting if it was not bona fide.
This was the decision in Clemens v Clemens where court held that a decision
carried by a vote of majority shareholders may be set aside if it is oppressive of
the minority. That majority rights should be enjoyed within the fair and equitable
considerations. In this case originally the plaintiff had 45% shareholding with an
auntie who held the remaining share in a Co. The auntie with directors
proposed to issue new shares that would reduce his shareholding to below
25%. A meeting was called, and the plaintiff's attorney attended as proxy to
vote on the new proposal which he opposed, but nonetheless the vote was
carried by the majority. He sued and court affirmed. (Also read Puddephatt v
Leith)
Proxies (S.143 CA & Art 67,68,69 of Table A)
A member entitled to attend and vote at a meeting is entitled to appoint
another person whether a member or not tax his proxy to attend and vote on
his/ her behalf. The proxy shall act as an agent of the principal shareholder and
shall have the same right as a member to speak at the meeting.
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Unless provided for voting by proxy doesn't apply for companies not having
share capital.
For private Cos, every member can only appoint one proxy.
A proxy is not entitled to his own view. A proxy is appointed by an instrument
which is in writing, signed by the appointer or his/her attorney duly authorised.
(Refer to Art.67,68,69& 72,73 of Table A)
The BOD
Directors in principle don't act individually but collectively as a BOD. The BOD
is entrusted with mgt and administration of a Co and in doing so, it must be
done with formality.
Decisions of BOD essentially govern internal matters such as capital exposure,
personnel policies and Co dealings with third parties.
S.185 CA every private Co must have at least one director and two for public
Cos.
S.186 of CA even a single member Co must have a nominee director to take
on the operations of the Co. In case of death of the single member and an
alternate nominee director who shall perform the functions of the Co. in case
of non-availability of the nominee director.
A director cannot double as secretary (S.188 CA)
Directors are appointed by shareholders in a GM and each director is voted
individually.
A person must have consented in writing and delivered for registration.
Must have signed a memo for shares not less than his qualification shares.
Must have signed and delivered for registration a statutory declaration to the
effect that the number of shares are registered in his/her names.
That he has taken from the Co and paid or agreed to pay for his/qualification
shares (S.192 CA)
Only a person aged 18 can be appointed a director (S.196) and every person
has a duty to disclose his age (S.197CA)
The following are ineligible:
1) undischarged bankrupt unless with leave of court (S.200 CA)
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2) fraudulent persons convicted of any offence in connection with promotion,
formation or management of a Co or in case of a winding up. (S.201 CA) (Refer
to Art 75 of Table A)
Note that though the law requires formal appointment, a de facto director
can bind a Co. In R v Camps a director who had been appointed by not paid
for his qualification shares was convicted of various offences. When
prosecuted he denied that he was a director and challenged attempts to
prosecute him as such. Held: that a person who is validly appointed a de facto
director and continues to act as such although not formally appointed as such
is occupying the position of a director.
S.2 CA definition of a director includes a de facto director.
Remuneration
Directors are paid for their services however in law there is no general right to
payment for the services. In Re George Newman & Co it was held that directors
have no right to be paid for services mad cannot pay themselves unless
authorised by a doc which regulates the Co or by shareholders in a properly
convened meeting. (see Guinness Plc v Saunders & Re Halt Garages)
Indemnity where a director incurs costs in the carrying on of Co business he
may be paid such expenses if properly incurred. It was held in Re Formatina
Development Corp that a director as an agent of a Co had a right to be
indemnified against all losses and liabilities and to be reimbursed for all
expenses incurred by him in the execution of his authority. (see Highland Union
v Jamal & The James Seddon)
Removal
A Co may by ordinary resolution remove a director before expiry of his term of
office not withstanding anything agreed to the contrary. But this shall not in the
case of a private company apply to a director holding office for life at the
commencement of this Act(S.195(1) CA).In Bell v Liver Bros it was held that a
Co may be at the risk of claims for unfair removal of its directors unless the
removal is done fairly.
S.195(2) of CA Special notice shall be required of any resolution to remove a
director under this section or to appoint somebody instead of a director so
removed at the meeting at which he or she is removed.
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S.195(3) of CA On receipt of notice of an intended resolution to remove a
director under this section the company shall send a copy of the notice to the
director concerned and the director whether or not he or she is a member of
the company shall be entitled to be heard on the resolution at the meeting.
S.195(4) CA Where notice is given of an intended resolution to remove a
director under this section and the director concerned makes with respect to
it representations in writing to the company in respect of the intended
resolution and requests their notification to members of the company, the
company shall as soon as practicable.
In Imperial Hydro Hotel v Hampson, it was held that a Co. may in a GM by a
special resolution remove any director before the expiration of term and may
by ordinary resolution appoint another person instead.
In Bugerere Coffee Growers v Ssebaduka Court held that the intention to
remove a director must be notified by specific and clear notice to that effect.
Proceedings at meetings
Art 98 of Tab A is to the effect that subject to provisions of the Articles directors
may regulate the proceedings as they deem fit. Courts have held that deem
fit must be interpreted in a reasonable way and not an abuse of the powers of
the BOD.
In Re Portuguese Consolidated it was held that "when you talk about thinking
fit, must they not meet to think?”. That the only way directors can exercise their
constitution Powers is under the authority of a meeting of a BOD which is
properly convened, and proper notice has been given to all directors entitled
to attend.
Directors are supposed to act collectively through the BOD.A section of them
shouldn't exclude others as this may prejudice the general interest of the Co.
In Fulbrook v Richmond Consolidated it was held that a director of a Co if
qualified may sustain an action in his own name against other directors on
ground of individual injury to himself for an injunction restraining them from
wrongfully excluding from acting as director. This is because he has a right
given by the constitution of the Co to take part in the mgt of the Co, to be
present and vote at meetings of the BOD. Therefore, this was a deprivation of
his legal right for which the directors were individually liable.
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In Walugembe Lugobe &Co v Ziwa it was held that the directors of a Co must
act as a BOD and cannot act in their individual capacities. Where there is no
evidence of a BOD meeting authorising an act, the act is invalid.
Read Industrial coffee Growers v Tamale & Re Homer District Consolidated -
both are to the effect that where a director had not been given notice or
given inadequate notice, the decisions or acts are not acts of the BOD and
cannot bind the Co.
The duty to act collectively requires that all directors entitled to attend should
be given adequate notice.
Under S.232 CA a BOD can't assign its duties to any other person, except with
special resolution of the Co. However, the BOD can delegate any of its powers
to committees (Art.102(1) of Tab A)
Art 98 directors may meet together for dispatch of Co. business, adjourn and
otherwise regulate the meeting as they think fit.
Decisions are by majority vote, where there is equality, the chairperson has a
casting vote.
Meeting may be summoned by a director or secretary one requisition of a
director.
Quorum is two or may be fixed by the directors (Art 99 of Table A)
Meetings may be held informally if resolutions are agreed to unanimously by
all directors (Barron v Potter -a BOD can be held under informal circumstances
but a casual meeting by two directors cannot be treated as a BOD meeting
against the will and intention of others.
The BOD has powers to fill vacancies.

Loan capital
General principles
Issues
1) whether the company has power to borrow and create security over its
obligations
2) whether there is a general power to create security over its assets (a
resolution to that effect is required)
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3) whether the borrowing and issuing of security though ultra vires is capable
of ratification
Debenture
S.2 of CA defines a debenture to include debenture stock, bonds, and any
other securities of a company whether constituting a charge on the assets of
the company or not. In Levy v Abercorris a debenture was defined as a debt
that creates a debt or acknowledges it or any document which fulfills any of
these obligations.
Charges
Sealey defines a charge as a security interest created over an asset(s) by the
chargor(owner) by which it is agreed that that property shall be appropriated
to the discharge of a debt or other obligation.
S.2 of the CA defines a charge as a form of security for the payment of a debt
or performance of an obligation; consisting of the right of the creditor to
receive payment out of some fund or out of the proceeds the realisation of
specific property and includes a mortgage.
In the case of Government Stock & other Securities investment Co v Manila
Railway Co it was held that a floating charge is an equitable charge on the
assets in the time being of a going concern(a Co is a going concern if it's likely
to continue in existence in the foreseeable future usually 12 months).
In Illingworth v Houldsworth a fixed charge was held to be one that fastens on
ascertained & definite property or property capable of being ascertained and
defined; while a floating charge is ambulatory and shifting in its nature
,hovering over and so to speak floating with the property which it is intended
to affect until some event occurs or some act is done which causes it to settle
and fasten on the subject of the charge within its reach of grasp(crystallise).
In Re Bondworth .court held that a floating charge by its nature leaves a Co at
liberty to deal with the assets charge in the _ordinary course of business_
without regard to the charge until the winding up or by the appointment of a
receiver or the happening of some other agreed event. A charge is a floating
charge if it has the following characteristics
i) it is a charge on a class of assets of a Co present and future
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ii) if that class is one in the ordinary course of business of that Co would be
charging from time to time.
iii) as regards to the class of goods a Co. may carry on its business in the
ordinary way.
Priority
A fixed charge may be created having priority over an earlier floating charge.
This was the case in Castell v Brown Ltd where court said that " the effect of a
floating charge is that notwithstanding the charge, the company should have
power as long as it is a going concern, to deal with the property as absolute
owner. The mortgagor then can deal with the property as if it had not been
encumbered and can create a fixed charge which ranks in priority of a prior
floating charge except where there is a negative pledge clause to which the
bank has notice."
A floating charge crystallizes and becomes fixed attaching to the assets of the
Co when:
i) a receiver is appointed
ii)when the Co goes into liquidation
iii) when the Co ceases to carry on business or is sold
iv) where a debenture empowers the debenture holder to convert a floating
charge into a fixed charge by giving notice to the Co, where such notice is
given.
v) on the occurrence of an event where under the terms of the debenture
causes automatic crystallisation. Look at the case of Steven Lubega v Barclay's
Bank (appointment of a receiver) Diversey Lever EA v Mohanson Food
Distributors and Fina Bank v Spares & Industry Ltd
Debentures are enforced on accordance with common law priority of charges
1) The basic principle is that charges are ranked primarily in the order of their
creation. However, where a legal charge(fixed) and an equitable
charge(floating) have equal claims the legal charge prevails (equity follows
the law)
2) If both are fixed the first in time prevails (first in time, first in right)
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3) where the first is fixed and the other floating the first takes priority except in
cases of fraud,estoppel or negligence (Zaabwe v Orient Bank -definition of
Fraud)
4) If the first is floating and the other fixed the later takes priority provided the
fixed charges interest is bona fide for value without notice of the earlier floating
charge.
5) If both are floating, the first in time takes priority unless they were both
created pari passu in which case the proceeds are distributed pro rata. (see
Diversey supra)
6) where the first is fixed, the subsequent charges (fixed or floating) are created
pari passu, proceeds are distributed pro rata
7) where there is a legal mortgaging the security of the Co, duly registered
before the charge, the mortgage takes priority over all subsequent charges
Liability of a company for acts of its directors
As general rule a company being a separate and distinct entity from its
corporators has ability to contract, sue be sued per McNaughten (Salomon v
Salomon case)
In Ferguson v Wilson a company not being a human means it can be held
liable for acts of its human officers but who should represent the mind of the
company?
In Lennard's carrying Co v Asiatic Petroleum it was held that a company is an
abstraction with no mind of its own. It’s active and directing will must be
subsequently sought in the person of somebody who for some purposes may
be called an agent but who really is the directing mind and will of the
corporation.
In H.L Bolton Engineering v Graham, Lord Denning compared the Co to a
human being with a brain and nerve centre which controls what it does as well
as hands which hold the tools to do particular acts. Under Art.80 of Table A, the
directors are vested with power to regulate and govern the affairs of a Co as
are not reserved expressly or by implication in a GM.
First consideration is whether the act is intra vires (look at Memarts)- Hely
Hutchinson v Brayhead
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Second consideration is the power of the agent/officers of the Co to act with
the authority - Re Ashbury Railway Co & Henry Ernest v Nicholls held that a K
by directors is not binding on the Co unless authorised by the deed of
settlement (Co constitution)
All persons are presumed to be put on notice, if they don't choose to acquaint
themselves with the powers of the of the directors, it is his own fault
Company officers (Agency)
To be bound the officer must have authority either actual or ostensible. In Hely
Hutchinson ostensible authority was defined as authority as it appears to others.
It often coincides with actual authority though at times it may exceed actual
authority.
The basis of this authority is estoppel.
In Freeman & Lockyer v Buckhurst Park Lane that the following must be
satisfied.
(i) a representation that the agent has the authority to enter the K on behalf of
the Co
(ii) that such a representation was made by a person who had actual authority
either generally or specifically in respect of matters of the K.
(iii) that the representee was induced by that representation to enter the K and
that he in fact relied on it
(iv) that under the memarts the Co has authority to enter the K of the kind.
Synopsis
When dealing with Co Ks the two key considerations are:
(i) corporate authority to K and
(ii) corporate benefit.
For corporate authority look at whether the officer has the requisite authority
to perform a given act/K.
For corporate benefit the question is whether in the exercise of the power the
officer did so in good faith and for the benefit of the Co. In the first question
where the answer is no the K is void and if the answer to the second question
is no the K is voidable at the option of the Co.
Duties of Directors
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With emergency of CG, specific duties are imposed on directors. In general, a
director must act in the best interest of the Co.
Two dimensions
(1) A director must act with skill, care and diligence
(2) Duty to act in good faith
In Re City Equitable Fire Insurance it was held that a director must act honestly
and must exercise a degree of skill and diligence. The nature of the duty
depends on the nature of the Co.and it's biz and the position of the director
within the Co. Else he will be guilty of culpable negligence in the business sense.
The standard of skill or diligence is that reasonably expected of an ordinary
person with the knowledge and experience.
In Re Brazilian Rubber Plantation& Estates it was held that as long as directors
act honestly they cannot be made responsible in damages except on cases
of gross negligence but not mere errors of judgement.
Duty to act bona fide
This duty is broad and is subdivided
(i) the director must at all times act in the best interest of the Co.
Smith v Fawcett directors must act bona-fide by doing what he considers as
being in the interest of the Co and not for any collateral.
Percival v Wright- that directors have a fiduciary duty to the Co not individual
shareholders.
In Allen v Hyatt in some cases directors owe a fiduciary duty to shareholders
(ii) duty to exercise power for proper purpose
Behrens- that proper purpose means anything reasonably incidental to the
carrying on Co Business.
(iii) when dealing with Co property, the duty of good faith the directors only
use it for purposes which benefit the Co and use it to protect the property
George Newman & Co -directors gave themselves presents from borrowed
money. Held Co property is for the Co and not property of the shareholders.
When misapplied the directors should be held liable for the misapplication.
In Cook v Deek a director being in a fiduciary position is accountable to the
Co for secret profits which he has made by reason of that position. Read
Aberdeen Rly Co v Braillie, Northwestern v Beatty, Hutchinson and Regal
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(Hastings) Ltd v Gulliver-the rule is a rule of equity and a person who makes a
profit is liable to account for the profits depends on fraud or absence of bona
fides or on questions of whether the plaintiff has been in fact damaged/
benefitted from the action.
Note that inside trading is not void and a Co. can in fact contract with its
directors or a firm in which such director has interest such a K is not void but
voidable at the instance of the Co.