England and Wales: Controlling shareholders as employees

It is well established that a controlling shareholder can be regarded as an employee of the company. The Privy Council, in an appeal from New Zealand, confirmed this position in Lee v Lee's Air Farming [1961] AC 12 (about which see the London University External LLB company law guide (2006), available here).

In Clark v Clark Construction Initiatives Ltd. [2008] UKEAT 0225_07_2902, Elias J. (the president of the Employment Appeal Tribunal) identified three circumstances where it may be legitimate not to give effect to an alleged contract of employment between a company and a controlling shareholder:

(1) where the company is a sham;
(2) where the contract is entered for an ulterior purpose (e.g., to secure a statutory payment from the Secretary of State); and
(3) where the parties do not in fact conduct their relationship in accordance with the contract.

Elias J. also identified, at para. [98], eight (non-exhaustive) factors for Tribunals to consider when determining whether to give effect to a contract of employment.

New Zealand: Company boards and gender inequality

The New Zealand Human Rights Commission has published its Census of Women's Participation 2008. The report indicates that women account for 8.65% of the directors of the largest 100 companies listed on the New Zealand Stock Exchange. 60 of these 100 companies have no female directors. The proportion of female directors of companies listed on the New Zealand Alternative Market has fallen from 16.39% in 2004 to 5.07 in 2008. The report contains international comparisons and it also indicates that female representation is much higher in other professions. For example, over a quarter of New Zealand judges are female.

England and Wales: The meaning of 'de facto' director

In Gemma Ltd (in liquidation) v Davies and another [2008] EWHC 546 (Ch), [2008] WLR (D) 89, the High Court explored the circumstances in which an individual would be regarded as a de facto director for the purposes of Section 212 of the Insolvency Act (1986). The judgment, which has not yet been published on BAILII, contains a useful overview of the authorities. The trial judge outlined several principles:

(1) It must be proved that the alleged de facto director performed functions that could only be discharged by a director.

(2) There is no need to prove that a de facto director was held out as a director.

(3) The director must have participated on an equal footing with the other directors and not in a subordinate role.

NB: The Companies Act (2006) does not contain a specific definition for de facto director. Section 250 does, however, define the term "director" (in such a way as to include de facto directors) and Section 251 defines the term "shadow director".

Canada: Ontario: The Relationship between the Oppression Remedy and Derivative Action

Many jurisdictions provide shareholders with the right (a) to seek relief in respect of oppressive or unfairly prejudicial conduct, and (b) to instigate legal action on the company's behalf where the company has suffered harm (often described as a derivative action). In Canada, Part XVII of the Business Corporations Act, R.S.O. 1990 (c. B.16) provides shareholders with relief in respect of oppression (Section 248) and the ability to instigate a derivative action (Section 246). The Ontario Court of Appeal in Malata Group (HK) Limited v. Jung, 2008 ONCA 111 has recently considered the relationship and differences between these two remedies, against the background of the English decision Foss v Harbottle (1843) 2 Hare 461 (available here and discussed here). Armstrong JA (with whom MacPherson JA and Epstein JA agreed) observed (paras. [34] - [35]):

"In my view, allowing s. 248 oppression claims to proceed where there is harm to the corporation would not nullify s. 246, because the two sections involve different threshold tests. Section 246 simply requires a violation of the corporation’s legal rights. On the other hand, s. 248 requires, in the case of harm to the corporation, a violation of corporate legal rights that is oppressive or unfairly prejudicial, or that unfairly disregards the complainant’s interests"

"It is perhaps worth noting that another relevant difference between the derivative action and the oppression remedy relates to costs. Subsection 247(d) explicitly allows a court to order the corporation to pay the legal fees or other costs reasonably incurred in connection with a derivative action. The oppression remedy section of the Act, though it invests courts with broad remedial authority, contains no such provision".

India: New Companies Legislation

In 2005 the Irani Report, on the reform of India's company law, was published. Legislation, to replace the Companies Act 1956, has been expected for some time. It has now been reported that a Companies Bill will soon be forthcoming. Corporate Affairs Minister Prem Chand Gupta has been reported as saying:

"[A] Draft of the new Company Law Bill is being given final touches. The new law will promote shareholders' democracy, replace approval-based system with responsible disclosures, promote good corporate governance and effective protection of investors".