Durham University Law School

LAW3347:

CORPORATE FINANCE
(LLB)

MODULE HANDBOOK

Epiphany Term
2022-23

Dr Clara Martins Pereira

clara.martins-pereira@durham.ac.uk
 This handbook contains most of the administrative
information that you need to know for this module.
Please take some time to familiarise yourself with its
contents.

A. Instructors and contact details:

• Dr Clara Martins Pereira (module leader)

Email: clara.martins-pereira@durham.ac.uk
Office: PCL 133 (during office hours) | PCL 128 (otherwise)
Office Hours: Thursdays 10.00 – 12.00 hrs
(Please email me ahead to book a slot)

• Dr Lukas Simkus
Email: lukas.simkus@durham.ac.uk

B. Module description:

This module is an introduction to the English Law that governs corporate finance,
i.e., how companies raise funds to further their activities. This module will build
on the students’ existing knowledge of Contract Law, Commercial Law and
Company Law, and will introduce them to the means by which companies raise
financing and the regulatory regime which governs corporate funding.

The approach we will take in this module is informed by a ‘law and economics’
methodology. Specifically, we will examine the divergent interests which different
corporate stakeholders (e.g., shareholders, creditors, directors, and managers)
have, how the relevant stakeholders might act to advance their own interests (at
the expense of the interests of other classes of stakeholders), and how the
regulatory structure responds to this. Although this methodology is described as
a ‘law and economics’ methodology, no previous knowledge of economics (and,
indeed, no mathematical background) is required—as all concepts we will use are
readily (and intuitively) understandable.
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Prerequisites

• Introduction to English Law and Legal Method (LAW 1121) [OR Legal
Skills (LAW 1107) AND Legal System of England and Wales (LAW 1117);
OR Legal Skills (LAW 1041)], Contract Law (LAW 1071) and Commercial
Law (LAW 2241)

Corequisites

• Company Law (LAW 3031)

Excluded combination of modules

• None

Aims

• To build on foundations laid in Contract Law and Commercial Law with

specific reference to retention of title and sale and supply of goods;
• To complement the knowledge acquired in Company Law with specific
reference to how businesses are financed;
• To help students acquire sound and accurate knowledge of these areas,
providing them with a useful source both for future practice, as well as for
their everyday lives, in the form of commercial awareness;
• To develop students’ facility in the handling of ‘blackletter law’ areas, and,
in particular, their ability to comprehend and apply relevant statutes, as
well as to analyse and reason from decided cases. It also seeks to identify
areas of law appropriate for reform.

Content

• Basics of corporations: incorporation and financing;

• Financing options (equity, debt, hybrid financing, retained profits, etc);
• Corporate financial structure and relationship between equity and debt
(shareholders, creditors, and their protection);
• Capital (raising and maintenance of capital);
• Share offerings and regulation of equity capital markets;
• Types of lenders and types of debt financing;
• Contractual creditor protection (negative pledge, set-off, subordination,
etc);
• Proprietary creditor protection (security for credit, types of security
interests and retention of title), creation, perfection, priority, and
enforcement of security interests; assignment of debt;
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• Regulation of debt markets;

• Takeovers, mergers, and their regulation;
• Private equity.

Learning outcomes

Subject-Specific Knowledge:

• By the end of the module, students should be able to demonstrate:

o Knowledge of the main principles, rules, and doctrines of Corporate
Finance Law;
o Knowledge of key academic, political, and judicial debates about
Corporate Finance Law and how they stand to be affected by
economic and political pressures;
o An understanding of how Corporate Finance Law operates in practice
in the commercial world and how the law is influenced by
international legislative activities in this field.

Subject-Specific Skills:

• Students should be able to:

o Apply the existing law to given factual scenarios and advise
accordingly;
o Analyse and evaluate the existing law in terms of its legal and
commercial context.

Key Skills:

• Students should be able to:

o Demonstrate skill at communicating complex ideas and arguments
in clear written form.

Learning Hours

Activity Number Frequency Duration Total

Hours
Roughly
biweekly in
Seminars 8 2 hours 16
Epiphany
Term
Preparation
118
and reading
TOTAL 134
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C. Modes of Teaching:

The core principles of the module will be conveyed by seminars. Additional reading
will be set to ensure that more complex aspects of the principles are investigated
by students in their own time. Seminars will be used to ensure that the reading
has been understood, and to develop subject-knowledge and subject-skills as
outlined above. A formative essay will be used to develop both subject-skills and
communication skills.

Class Format

Over the course of the term, we will meet eight times—each time for a two-hour
seminar. The first meeting of the class will be an introductory session, where we
will introduce the course, cover some basic concepts which we will use throughout
the term, and review some fundamental principles of Company Law.

In seminars two through seven, we will discuss the topics which constitute the
subject matter of the module. The provisional plan for these seminars is that in
the first half of each session we introduce the topics. To aid in this, we will prepare
(and post on Blackboard) slides in advance of the classes. These slides can serve
as notes for the class.

In the second half of each class, we will discuss that week’s material. We have
provided some questions to promote and guide this discussion. Students at
Durham Law School are expected to come to class prepared and able to discuss the
material, hence we expect a high degree of participation by all students taking the
course.

Seminar 8 will be a revision seminar, where we will review key concepts and ideas
covered throughout the course and discuss the summative assessment.

Please note that there are three seminar sections, one on each of Wednesdays,
Thursdays, and Fridays. You need only attend the section in which you are
enrolled.

D. Evaluation:

Summative assessment

The summative assessment comprises one summative essay of 3,000 words.

Students are given a choice of questions on which to write their summative essays,
but the questions are structured in such a way as to assess students on all the
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specific outcomes. The summative essay tests the ability to focus on relevant legal
issues and organise knowledge and argument appropriate to questions raised. The
summative essay questions will provide the means for students to demonstrate
the acquisition of subject knowledge and the development of their problem-solving
skills.

Formative assessment

There will be an optional opportunity to submit one piece if formative work. This
will be an essay of about 1,500 words.

An initial deadline will be set for the formative assessment, which you are strongly
encouraged to meet. If you are not able to do so, you are permitted an extension of
one week and you do not need to request an extension for this.

If you choose to submit your formative one week later than the initial deadline,
your feedback will be provided to you a week later than the formative feedback
date.1

Only in the most severe of circumstances will any further extension for your
formative work be considered, as we expect the 1-week extension to be sufficient
in the overwhelming majority of cases. To request any further extension, you must
contact the Learning & Teaching Team (law.taughtprogrammes@durham.ac.uk)
more than 24 hours ahead of your deadline and you must provide appropriate
medical or other supporting evidence.

All formative work handed in late without an extension will be awarded a mark of
Zero and returned to the student unmarked without feedback. Late submission of
formative work also amounts to a missed academic commitment and may result
in you being referred to the Directors of Undergraduate Studies.

Additionally, please do not forget that you can get help from your college for
support and advice on managing life as a student, or from specialist support
services such as Disability Support, Counselling and/or seek medical support
outside the University.’

The actual questions and deadlines for the 2022/23 run of the module will be
posted in due course.

1Note: This process is in place of the self-certification process, to save you from submitting a self-
certification if you require a one-week extension. Self-certification cannot be used for any further
extension to your formative deadline beyond the initial week.
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E. Textbooks and Reading:

Note: This module requires a significant amount of reading. Part of success as a

legal practitioner (or in any graduate job) is the ability (and willingness) to read
and digest large amounts of material and know what is essential (which must be
read with care) and what is extraneous (which can be skimmed).
In addition to the list of texts below, the readings assigned to specific weeks may
contain other material (required or otherwise). This material is listed below in the
class schedule.

Required

• Louise Gullifer and Jennifer Payne Corporate Finance Law: Principles and
Policy (Oxford: Hart, third edition, 2020)
Note: Students are encouraged to purchase this book, or otherwise secure
a copy that they can access easily.

• Reiner Kraakman et al The Anatomy of Corporate Law: A Comparative and

Functional Approach (Oxford: Oxford University Press; third edition, 2017)
Note: Only some chapters are required, the remainder is recommended—
this book is available on-line through the library.

Recommended

Corporate Finance Law

• Eilís Ferran and Look Chan Ho Principles of Corporate Finance (Oxford:

Oxford University Press; second edition, 2014)

• Alexis Mavrikakis Public Companies and Equity Finance 2021 (Guildford:

College of Law Publishing, 2021)

Corporate Law (and Insolvency)

• Arad Reisberg and Anna Donovan Pettet, Lowry and Reisberg’s Company
Law (Harlow: Pearson; fifth edition, 2018)

• Brenda Hannigan Company Law (Oxford: Oxford University Press; sixth

edition, 2021)
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• Paul L Davies, Sarah Worthington and Christopher Hare Gower: Principles

of Modern Company Law (London: Sweet and Maxwell, eleventh edition,
2021)

• Brian R Cheffins Company Law: Theory, Structure and Operation (Oxford:

Oxford University Press, 2000)

• Vanessa Finch and David Milman Corporate Insolvency Law: Perspectives

and Principles (Cambridge: Cambridge University Press; third edition,
2017)

• Louise Gullifer Goode and Gullifer on Legal Problems of Credit and Security
(London: Sweet and Maxwell; seventh student edition, 2022)

Supplementary Readings

Taxation

• Geoffrey Morse and Sandra Eden Davies: Principles of Tax Law (London:
Sweet and Maxwell; ninth edition, 2020)

Competition (Merger Control)

• Richard Whish and David Bailey Competition Law (Oxford: Oxford

University Press; tenth edition, 2021)

• Alison Jones, Brenda Sufrin and Niamh Dunne Jones and Suffrin’s EU
Competition Law: Text, Cases and Materials (Oxford: Oxford University
Press; seventh edition, 2019)

• Ioannis Lianos, Vaalentine Korah and Paolo Siciliani Competition Law:

Analysis, Cases and Materials (Oxford: Oxford University Press, 2019)

Corporate Finance (Business School / Economics Perspective)

• Raghavendra Rau Short Introduction to Corporate Finance (Cambridge:

Cambridge University Press, 2016)

• Richard A. Brealey, Stewart C. Myers and Franklin Allen Principles of

Corporate Finance (New York: McGraw Hill Education, thirteenth edition,
2019)
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Statutes

We will pay attention to several statutes, in particular the Companies Act 2006
and the Insolvency Act 1986. These, and others can be found in e.g., Derek
French’s Blackstone’s Statutes on Company Law 2022-2023 (Oxford: Oxford
University Press, 2022). There is no need to buy the most recent edition (though
you may have bought this for Company Law), and you can use / download the
statutes from the Government’s site.

You will need to refer to the statutes when you are reading the texts and other
assigned materials.

There is a good guide to the FSMA: Michael Blair QC’s Blackstone’s Guide to The
Financial Services and Markets Act 2000 (Oxford: Oxford University Press; second
edition, 2010)

Other Materials

Any European materials (e.g., the European Union Merger Regulation and ECJ
Cases) can be readily downloaded from the Internet.

We will also look at (and you should be familiar with what is contained in) codes
such as the City Code on Take Overs and Mergers (‘The Takeover Code’) and the
Financial Conduct Authority Handbook. These materials are also available from
the Internet.

We strongly urge you to inform themselves of current commercial affairs by

reading the business sections of the newspapers on a regular basis. Lawyers are
expected to be aware of their clients’ business and the industry conditions that
those clients are facing. The Financial Times is the best newspaper for commercial
law issues. The University Library has an institutional subscription which grants
staff and students premium access and we strongly recommend that you look at it
regularly.
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F. SCHEDULE:

Part I: INTRODUCTORY MATTERS

Seminar 1: 11, 12, or 13 January

• Introduction
• Basic concepts: players and types of finance
• Consequences of incorporation: corporate personality, limited liability, and
piercing the veil

Required:

• Gullifer and Payne, pp 9 – 59

• Salomon v Salomon & Co Ltd [1897] AC 22
• Prest v Petrodel Resources Ltd [2013] UKSC 34 (noted Lim, (2013) 129 LQR
480; Hare, (2013) 72 CLJ 511; George, (2014) 130 LQR 373; Tijo, [2014]
LMCLQ 19; Day, [2014] LMCLQ 269)

Recommended:

• Ferran and Ho, pp 3 – 10, 11 – 41

Review (it is enough to browse the Table of Contents of the different Acts):

• Companies Act 2006

• Insolvency Act 1986
• Financial Services and Markets Act 2000
• Financial Services Act 2012, especially ss 89 – 93
• Financial Services Act 2021

Questions for Discussion:

1. What are the different options for conducting a business activity?

2. What are the main characteristics of the corporate form?
3. What does it mean for a company to have separate (corporate) personality?
4. Why is limited liability often regarded as a cornerstone of English Company
Law? Are there circumstances in which this principle should be curtailed or
set aside?
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Seminar 2: 18, 19, or 20 January

• Consequences of incorporation (continued)

• Insolvency: priorities
• Agency theory / lemons and asymmetry of information
• Directors’ duties—generally and in the case of solvency and insolvency of
the company

Required:

• Gullifer and Payne, pp 60 - 126

• BTI v Sequana [2022] UKSC 25

• John Armour “What is Corporate Law” in Kraakman et al., pp 1 – 28
• John Armour, Henry Hansman and Reinier Kraakman, “Agency Problems
and Legal Strategies” in Kraakman et al., pp 29 – 47
• Eugene F. Fama and Michael C Jensen, “Separation of Ownership and
Control” (1983) 26 Journal of Law & Economics 301
• George A. Akerlof, “The Market for ‘Lemons’: Quality Uncertainty and the
Market Mechanism” (1970) 84 Quarterly Journal of Economics 488

• Insolvency Act 1986 s 107 and Part IV

• Company Act 2006 ss 170 – 181

Recommended:

• Ferran and Ho, pp 10 – 42

• Finch and Milman, pp 511 – 535, 536 – 576, 579 – 644

• Michael C Jensen and William H Meckling, “Theory of the Firm:

Managerial Behavior, Agency Costs and Ownership Structure” (1976) 3
Journal of Financial Economics 305

Questions for Discussion:

1. Describe the key corporate constituencies / stakeholders and explain how

their interests might differ. How do those interests change in the vicinity of
insolvency?
2. Describe what information asymmetry is.
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3. Given what you know about companies and company law, explain how
various stakeholders can exploit information asymmetries to their
advantage. (And, if you can, explain how English law controls this.)
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Part II: EQUITY FINANCING

Seminar 3: 2, 3, or 4 February

• Types of corporate finance

• Issuing shares
• Share capital
• Types of shares
• Redemption / buy-backs of shares
• Minority shareholders

Required:

• Gullifer and Payne, pp 127 – 149, 150 – 197

Recommended:

• Ferran and Ho, pp 42 – 70, 71 – 122, 128 – 154, 155 – 177, 178 – 201, 202 –
231, 232 – 268

Questions for Discussion:

1. Why would a company want to issue differing classes of shares? What is

the legal regime that governs this under English Company Law?
2. Which stakeholders should be concerned about a company issuing more
shares (and why)? What rules protect these stakeholders when further
shares are issued? Are these rules adequate?
3. How else does English Company Law protect minority shareholders? Are
the protections in place sufficient?
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Seminar 4: 9, 10, or 11 February

• Public offerings
• Equity capital markets regulation
• Market abuse
• Short selling
• Contemporary issues in equity capital markets regulation

Required:

• Gullifer and Payne, pp 487 – 541, 542 – 602, 603 – 662

• Criminal Justice Act 1993, ss 52 – 64
• Financial Services Act 2012, ss 89 – 91
• Kun Li, Xin (Kelly) Liu, and Shang-Jin Wei, “Is Stock Index Membership
for Sale” National Bureau of Economic Research Working Paper 29365
(Cambridge MA, 2021) (available at: http://www.nber.org/papers/w29365)

Recommended:

• Ferran and Ho, pp 351 – 413, 414 – 446

Questions for Discussion:

1. Why should equity capital markets be regulated?

2. Is there a need for different types of regulation pre- and post-IPO? If so, what
should these different types of regulation focus on?
3. What are the UK rules regarding pre-IPO information disclosure, and how do
they remedy information asymmetry?
4. What UK rules regulate information disclosure in the secondary markets (i.e.,
post-IPO), and do they adequately address information asymmetry?
5. Why should market abuse (i.e., insider trading and market manipulation) be
regulated? Is the UK’s regulatory regime appropriate (or should it be
strengthened—and, if so, how)?
6. What is short selling and how should it be regulated?
7. How do algorithmic and high frequency trading impact modern equity capital
markets? What should be done about it?
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Part III: DEBT FINANCING

Seminar 5: 22, 23, or 24 February

• Use of debt and the need for creditor protection

• Proprietary remedies
• Contractual remedies
• Fixed vs floating charges
• Registration of charges
• Factoring
• Supply chain financing

Required:

• Gullifer and Payne, pp 41 – 43, 1988 – 273, 274 – 370

• Robert Smith and Joshua Franklin, “Mastercard bets on supply chain
finance despite Greensill collapse” Financial Times October 21, 2021
• Robert Smith, “Greensill and supply-chain finance: how a contentious
funding tool works” Financial Times March 2, 2021

Recommended:

• Ferran and Ho, pp 268 – 348

Questions for Discussion:

1. Why might shareholders prefer to use debt as a means of financing new

projects?
2. List the (or some of the) means by which creditors can protect their interests
against: (i) other creditors and (ii) further (or excessive) borrowing by a firm.
3. What information asymmetries can arise between the creditors of a firm
and the firm’s managers, and how does English Company Law control these
information asymmetries?
4. Describe how charges over a company’s goods and accounts are currently
regulated under English Commercial Law; assess whether this regime is
adequate (and if not, how it can be improved).
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Seminar 6: 1, 2, or 3 March

• Multiple lenders and debt transfer

• Regulation of debt markets
• Credit Rating Agencies (and their role in the 2007-2009 Global Financial
Crisis)

Required:

• Gullifer and Payne, pp 371 – 434, 435 – 486, 663 – 764

• John C Coffee Jr, “What Went Wrong? An Initial Inquiry into the Causes of
the 2008 Financial Crisis” (2009) 9 Journal of Corporate Law Studies 1

Recommended:

• Ferran and Ho, pp 447 – 465

• Reisberg and Donovan, pp 447 – 486

Questions for Discussion:

1. What parties are affected by the restructuring of corporate debt, what are
their interests and how to these interests differ from other parties’
interests? What are the legal rules surrounding the restructuring of debt?
How do these rules protect the interests of the parties affected by
restructuring?
2. What public interest functions do (or should) Credit Rating Agencies
perform? What incentives do Credit Rating Agencies have in evaluating
debt? How can the public interest and the incentives facing Credit Rating
Agencies be better aligned?
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Part IV: MISCELLANEOUS ISSUES

Seminar 7: 8, 9, or 10 March

• ‘Takeovers’ and Mergers

• Merger regulation (UK and EU)
• Merger defences
• Failing firm defence
• Private equity

Required:

• Gullifer and Payne, pp 807 – 846

• Suzanne S. Dawson, Robert J. Pence and David S. Stone, “Poison Pill
Defensive Measures” (1987) 42 The Business Lawyer 423

• Companies Act 2006, ss 942 – 992

• Enterprise Act 2002, ss 22 – 70

• Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of

concentrations between undertakings (‘EU Merger Regulation’ or ‘EUMR’)
[2004] OJ L-24/1, in particular Arts 1 – 9 and 14 – 15

• Commission Decision of 11 July 2001 declaring a concentration to be

compatible with the common market and the functioning of the EEA
Agreement (Case COMP/M.2314 — BASF/Eurodiol/Pantochim) [2002] OJ
L-132/45 paras 135 – 163

• Commission Decision of 3 February 1999 relating to proceedings under

Council Regulation (EEC) No 4064/89 (Case No IV/M.1221 - Rewe/Meinl)
[1999] OJ L 274/1, paras 62 – 70

• Commission, Press Release “Mergers: Commission fines Canon €28 million

for partially implementing its acquisition of Toshiba Medical Systems
Corporation before notification and merger control approval” (27 June 2019)
available at:
https://ec.europa.eu/commission/presscorner/detail/en/IP_19_3429
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Recommended:

• Takeover Code (browse through)

• Mavrikakis, Chs 19 – 22, i.e., pp 255 – 336

Questions for Discussion:

1. Describe the UK’s current Takeover regime. What protections does it offer
for shareholders, particularly those who may not agree with the Takeover.
2. What is the ‘poison pill’ defence? What provisions in English law prevent it
from being used in the UK?
3. Should it be easy to takeover a company?
4. What are the general features of the EU’s and UK’s merger regimes?
5. Is private equity (and its manner of acquiring companies) a problem in
today’s economy?
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Part V: REVISION

Seminar 8: 15, 16, or 17 March

• Modes of assessment
• Revision
• Q&A