Sarah Worthington

Reforming Directors’ Duties

Introduction: Taken together, the English and Scottish Law Commissions, the DTI and the Company Law Review Steering Group (‘CLRSG’) have produced hundreds of pages on the subject of directors’ duties during the last three years. All of this work is just a small part of the DTI’s current review of the whole system of core company law, a review billed as the most comprehensive ever undertaken in the UK. This note cannot do justice to the detailed work of all these bodies, but aims simply to summarise the principal directions of the work so far produced – and only so far as it relates to directors’ duties – and to highlight some aspects which give cause for concern. In doing that, it is consciously biased towards consideration of the perceived problems, rather than praise for noteworthy advances. The reason is simple. This mammoth review process is not yet completed. The CLRSG is due to produce its final report in Spring 2001. Before that date, it seems important to cast a critical eye over the work completed so far. That said, it would be surprising if the CLRSG did not already intend to address some of the issues raised here. Its work to date has always been presented as part of a consultation process aimed at discovering the optimum solution. The need for a comprehensive reform of UK company law is not doubted. The UK rules have long ceased to provide an enviable model for other countries to adopt. The current companies legislation is widely regarded as being too complex and detailed, and as containing rules which are now either obsolete or unwarranted. The DTI’s stated aim is to produce a simple, rational framework which is modern and competitive, and which facilitates enterprise and promotes transparency and fair dealing. It is against this that its efforts need to be judged.

Floating Charges—An Alternative Theory

Floating charges have been an integral part of company financing for over 100 years, and yet their most fundamental characteristic remains the subject of debate: what interest does the floating chargee have prior to crystallisation? The answer to this question is not academic: disputes between the chargee and interested third parties depend for their resolution on the view taken. Moreover, it is becoming increasingly difficult to rely upon precedent or statutory provisions for simple rules to resolve these disputes: the complexity of modern commercial transactions and the ingenuity of advisers now give rise to rights which cannot always be equated with more traditional security devices and which may not need to be registered. This makes resort to fundamental principles necessary, and the elucidation of those principles crucial.

FIDUCIARY DUTIES AND PROPRIETARY REMEDIES: ADDRESSING THE FAILURE OF EQUITABLE FORMULAE

This article proposes a new framework for determining the availability of proprietary remedies for breach of the fiduciary duty of loyalty. It examines the alternative and conflicting arguments put forward in the leading cases, and suggests that they fail to justify their conclusions, either under- or over-estimating the incidence of proprietary relief for fiduciary disloyalty. These shortcomings appear to be the result of inappropriate reliance on familiar equitable formulae, in particular the routine equitable duty to account, the seemingly inescapable maxim that “equity treats as done that which ought to be done”, and the potent rules of tracing.

Four Questions on Fiduciaries

This article explores four pressing analytical challenges in fiduciary law. The problems are exposed by seeking answers to the pointed “who, what, and so what?” questions on fiduciaries. In short, “Who is a fiduciary?” and just how far does this protective jurisdiction stretch. Secondly, “What distinctive obligations rest on a fiduciary’s shoulders?” — what is it that defines and sets apart the fiduciary regime, providing it with mechanisms which differ from the routine restrictions applying to anyone who acts for others? And, finally, “What particular and distinguishing consequences follow upon a breach of these special restrictions?” This last question breaks down into two familiar but seemingly intractable parts: when and how do profits need to be disgorged; and when and how do losses need to be compensated? The answers to these four questions have never proved easy, yet these are the questions we must answer. Here it is suggested that a tightly rationalised (and, as it turns out, rather narrow) answer to the first question leads inescapably to more readily defensible answers to the three questions which follow it.

The Death of Penalties in Two Legal Cultures

For anyone interested in private law in general, and commercial endeavours in particular, the penalties jurisdiction is inherently fascinating. This is the jurisdiction which entitles courts to review an agreed contractual term and declare it void if it is a penalty. In the UK at least, a clause is a penalty if, in substance, it imposes consequences for breach of contract that are extravagant, exorbitant, unconscionable or out of all proportion to any legitimate interest of the innocent party in performance of the contract.1 It is irrelevant that the parties have fully agreed to the term, or that its inclusion has been priced into the contract.