Jennifer Payne

Lifting the Corporate Veil: A Reassessment of the Fraud Exception

If students of company law know just one case, that case will be Salomon v. A. Salomon & Co. Ltd. which firmly established the English law principle that a company is a legal person entirely separate and distinct from the members ofthat company. It is trite law that a rather hefty veil is drawn between these two that can be lifted only in a limited number of circumstances that seem to fluctuate according to current judicial thinking. However, it “is well established that the courts will not allow the corporate form to be used for the purposes of fraud or as a device to evade a contractual or other legal obligation”, a principle which is referred to hereafter as the “fraud exception” to the Salomon principle.

Sections 459-461 Companies Act 1985 in flux: the future of shareholder protection

Sections 459-461 of the Companies Act 1985 are at the forefront of the remedies available to protect minority shareholders from oppression in the UK. The danger is that companies will be run exclusively in the interests of the controlling shareholders, and that the interests of the minority shareholders will be ignored, or at least not fully recognised. These sections provide general protection from oppression for minority shareholders. They are drafted in deliberately wide terms. A number of important recent decisions, in particular that of the Court of Appeal in Clark v. Cutland, have provided substantial guidance as to the role and scope of section 459. This article will examine these new developments and their implications for the future of shareholder protection. In particular, it is suggested that the decision in Clark v. Cutland has expanded the potential use of section 459, to enable it to be used as a real alternative to the derivative action for minority shareholders who wish to pursue a substantive remedy for their company. This article analyses the differences between a section 459 petition and a derivative action for such shareholders. This analysis suggests that section 459 may provide a more flexible and useful route for shareholders seeking to pursue a corporate claim in some circumstances.

Cross-Border Schemes of Arrangement and Forum Shopping

In recent years, there has been a growth in the use of English schemes of arrangement by companies registered in other EU Member States. Recent high-profile examples include TeleColumbas GmbH, Rodenstock GmbH, Primacom Holdings GmbH, Re Metrovacesa SA and Re Seat Pagine Gialle SpA, although there are many more. In each case, these companies were able to access the English scheme jurisdiction without shifting their seat or COMI to the UK. This paper investigates this phenomenon, explaining the use of an English scheme of arrangement and why it might be regarded as valuable to these companies. The paper then tackles two issues. First, it assesses how these companies are able to access the English scheme jurisdiction, and, in particular, it analyses the potential application of both the Insolvency Regulation and the Judgments Regulation in this regard. As part of this analysis, the recognition and enforcement of English schemes of arrangement in other Member States is discussed. Second, it considers whether this use of English schemes by companies registered in Germany, Spain, Italy and elsewhere gives rise to issues of forum shopping. This paper rejects the idea that forum shopping should be regarded as a concern in this context.

The Oxford Handbook of Financial Regulation

The financial system and its regulation have undergone exponential growth and dramatic reform over the last thirty years. This period has witnessed major developments in the nature and intensity of financial markets, as well as repeated cycles of regulatory reform and development, often linked to crisis conditions. The recent financial crisis has led to unparalleled interest in financial regulation from policymakers, economists, legal practitioners, and the academic community, and has prompted large-scale regulatory reform. The Oxford Handbook of Financial Regulation is the first comprehensive, authoritative, and state-of-the-art account of the nature of financial regulation. Written by an international team of leading scholars in the field, it takes a contextual and comparative approach to examine scholarly, policy, and regulatory developments in the past three decades. The first three Parts of the Handbook address the underpinning horizontal themes which arise in financial regulation: financial systems and regulation; the organization of financial system regulation, including regional examples from the EU and the US; and the delivery of outcomes and regulatory techniques. The final three Parts address the major reoccurring objectives of financial regulation, widely regarded as the anchors of financial regulation internationally: financial stability; market efficiency, integrity, and transparency; and consumer protection. The Oxford Handbook of Financial Regulation will be an invaluable resource for scholars and students of financial regulation, and for economists, policy-makers and regulators. Contributors to this volume - Kern Alexander is the Chair of Law and Finance at the University of Zurich, and Senior Research Fellow at the Centre for Financial Analysis & Policy, University of Cambridge. John Armour is the Hogan Lovells Professor of Law and Finance at the University of Oxford and a Fellow of Oriel College. Douglas Arner is a Professor in the Faculty of Law of the University of Hong Kong and Co-Director of the Duke University-HKU Asia-America Institute in Transnational Law. Emilios Avgouleas holds the International Banking Law and Finance Chair at the University of Edinburgh. Julia Black is Professor of Law and Pro Director for Research at the London School of Economics Christopher Brummer is Professor of Law at Georgetown University. Simon Deakin is Professor of Law at the University of Cambridge and a Fellow of Peterhouse. Olivia Dixon is a Lecturer in the Regulation of Investment and Financial Markets at the University of Sydney Law School. Luca Enriques is the Allen & Overy Professor of Corporate Law at the University of Oxford, and a Fellow of Jesus College. Michelle Everson is Professor of Law in the School of Law at Birkbeck, University of London. Eilis Ferran is Professor of Company and Securities Law at the University of Cambridge, the University JM Keynes Fellow in Financial Economics, and a Fellow of St Catharines College, Cambridge. Guido Ferrarini is Professor of Business Law and Capital Markets Law at the University of Genoa. Andreas Fleckner is a Senior Research Fellow at the Max Planck Institute for Comparative and International Private Law, Hamburg. Sergio Gilotta is Assistant Professor at the University of Bologna Faculty of Law. Brigitte Haar is the Chair for Private Law, German, European, and International Business Law, Law and Finance, and Comparative Law at the Johann Wolfgang Goethe-University in Frankfurt. Rosa Lastra is Professor in International Financial and Monetary Law at the Centre for Commercial Law Studies, Queen Mary University of London. Iain MacNeil is the Alexander Stone Chair of Commercial Law at the University of Glasgow. Colin Mayer is the Peter Moores Professor of Management Studies at the Said Business School, University of Oxford. Harry McVea is Professor of Law at the University of Bristol. Niamh Moloney is Professor of Financial Markets Law at the London School of Economics and Political Science. Peter O. Mulbert is Professor of Law at the Faculty of Law and Economics, and Director of the Center for German and International Law of Financial Services, University of Mainz and a Fellow of Gutenberg Research College. Eric Pan is Associate Professor of Law at the Benjamin N. Cardozo School of Law, Yeshiva University. Frank Partnoy is the George E. Barrett Professor of Law and Finance at the University of San Diego School of Law. Jennifer Payne is Professor of Corporate Finance Law at the University of Oxford and a Fellow of Merton College. Paolo Saguato is an LSE Fellow in Financial Regulation at the London School of Economics and Political Science. Matt Smallcomb is at Georgetown University School of Law. Dimity Kingsford Smith is Professor of Law at the University of New South Wales. Andrew Tuch is Associate Professor of Law at Washington University Law.

The Regulation of Short Selling and Its Reform in Europe

The issue of whether and how to regulate short selling has vexed regulators for some time. While there are a number of potentially damaging consequences that are said to stem from short selling, there is also evidence that it can have beneficial effects on financial markets. In the wake of the collapse of Lehman Brothers in September 2008, and more particularly the falls in the prices of listed financial securities that followed, the regulation of short selling has come back onto the regulatory agenda with a vengeance. Various regulatory techniques, some temporary and some more permanent, have been adopted to deal with short selling. This paper explores those implemented in the US, the UK, Germany and France. The EU has also been developing its regulatory response and in March 2012 the final text of a Regulation dealing with short selling was published. This paper considers the arguments for and against the regulation of short selling, and considers the EU’s Short Selling Regulation in the light of these arguments. It is suggested that although the provisions of the EU’s Regulation introducing disclosure to the regulator are broadly sensible, as are the provisions designed to foster a stricter settlement regime, other provisions are more problematic and have the potential to cause damage to European financial markets.

The Future of UK Debt Restructuring

The importance of regimes containing an effective mechanism to enable the rescue of distressed but viable businesses is increasingly recognised. In the UK the importance of developing a rescue culture has been appreciated for some time and a number of different mechanisms exist which can be used to restructure the debt of distressed companies. The purpose of this paper is to assess the debt restructuring mechanisms currently available to companies in English law and to consider whether reform is needed. There have been a number of calls for the reform of English debt restructuring mechanisms in recent years, most recently by the UK Insolvency Service in 2016, and these reform proposals are analysed and assessed. It is suggested that reform is needed, but that these reforms will need to be introduced with skill and care in order to ensure that the UK’s regime remains fit for purpose for the future.

The Role of Gatekeepers

Gatekeepers are financial intermediaries that operate between issuers and investors and have a potentially valuable role to play in the financial market. This paper, which has been written for the Oxford Handbook on Financial Regulation (Moloney, Ferran and Payne (eds) OUP, 2014), considers the role of gatekeepers, examines gatekeeper failure and analyses recent attempts at regulation. There are a number of limitations on the effectiveness of gatekeepers as an investor protection device, largely concerning the conflict of interest arising from the funding model for gatekeepers, but exacerbated by factors which reduce a gatekeeper’s incentive to perform its role well, including a lack of competition in the market, a lack of litigation risk and, in relation to Credit Rating Agencies, the development of a regulatory licence. This paper assesses the likely success of the regulatory measures that have been put in place to address these issues to date. It concludes that, despite the raft of measures that have been introduced, regulators have largely failed to tackle the core issues that lead to gatekeeper failure. As a result, although many measures that have been implemented are valuable, the overall effectiveness of the regulatory response may be doubted.

Minority Shareholder Protection in Takeovers: A UK Perspective

This article examines the shareholder-centric model of takeover regulation in the UK, and explores two recent developments that potentially impact on this model. The first is the rise of schemes of arrangement as an alternative mechanism for effecting takeovers. Schemes have become the mechanism of choice for recommended bids in the UK, and yet they offer significantly less protection to minority shareholders than traditional bids. The justifications for this discrepancy are explored and it is suggested that the lower level of minority protection is explicable, and acceptable, once the different reasons for minority protection in a traditional bid and in a scheme are understood. The second development follows the successful takeover of Cadbury by Kraft in 2010, and comprises various suggestions for the reform of the UK takeover regime put forward by the Code Committee of the Takeover Panel. This article concentrates on a number of recommendations which, if accepted, would impact on the existing shareholder-centric nature of the UK model. In particular the position of non-shareholder stakeholders in a takeover is examined, as is the role of short term shareholders in the target, and the position of the bidder shareholders is also considered. The Code Committees proposals in relation to these matters are assessed, but it is suggested that no reform of UK takeover law is required to deal with these issues at the present time.

The Creation of a European Capital Market

The origins of European capital market regulation can be traced back to the seminal Segre report in 1966. Over the intervening years there have been times of both significant regulatory change, specifically during the Financial Services Action Plan (‘FSAP’) period and again following the recent financial crisis, but also times of relative inactivity such as in the immediate post-FSAP period. This paper analyses the creation of the European capital market, and the regulatory and institutional reforms that have occurred in this context, particularly in the light of the recent crisis. Specifically, the financial crisis has prompted a major regulatory overhaul within the EU. In particular the legislative reforms have focused on greater centralisation of powers at the European level, increased and more intensive regulation, and an extension of the regulatory perimeter to capture a broad array of firms, instruments, and trading practices within the EU regime. The scale of change has been enormous, with the development of the ‘single European rulebook’ illustrating just how far the European capital market project has come. Nonetheless, it is also remains clear that regulatory reforms that represent a ‘knee-jerk’ reaction to a crisis tend to be poorly designed, and are rarely the changes that are required and it remains to be seen how well the rules will stand up in a future crisis.

Schemes of Arrangement, Takeovers and Minority Shareholder Protection

Schemes of arrangement are an extremely valuable tool for manipulating a companys capital. Nothing in the Companies Act 2006 prescribes the subject matter of a scheme. In theory a scheme could be a compromise or arrangement between a company and its creditors or members about anything which they can properly agree amongst themselves. However, one of the most common uses of a scheme is as an alternative to a takeover offer. Indeed, in recent years schemes of arrangement have become the structure of choice for recommended bids. This paper examines the use of schemes of arrangement as an alternative to takeover offers, and in particular compares the level of protection for minority shareholders available under both structures. It might be expected that the level of protection would be equivalent, but this is not the case in practice. Significantly greater protection is put in place for minority shareholders in the target company by takeover regulation than exists in the context of a scheme. However, the purpose of minority protection is quite different within these two structures. This article suggests that the lower level of protection available for minority shareholders in schemes is justified within this context.