UK: England and Wales: winding-up in the public interest

Yesterday the Court of Appeal gave judgment in Secretary of State for Business, Enterprise and Regulatory Reform v Amway (UK) Ltd [2009] EWCA Civ 32. The case concerned an application for the winding-up of a company under Section 124A of the Insolvency Act (1986) by the Secretary of State for the Department for Business, Enterprise and Regulatory Reform. Section 124A provides the Secretary of State with the power to petition for the winding-up of a company where this is "expedient in the public interest"; the court must be satisfied that it is "just and equitable" for the company to be wound-up. 

At first instance, the trial judge refused to grant the petition sought by the Secretary of State (see [2008] EWHC 1054 (Ch)). The Secretary of State appealed, submitting that the trial judge had "fundamentally misunderstood his jurisdiction" by declining to grant the winding-up where he found that the company's old business model commercially unacceptable. The company had, however, changed its business model and the trial judge also accepted undertakings about future conduct. 

The trial judge's approach was endorsed by the Court of Appeal. Rix LJ (with whom Rimer and Toulson LJJ concurred) held that previous decisions did not prevent the court from accepting undertakings. His Lordship also held that counsel for the Secretary of State had not identified any error of law or principle in the judgment at first instance. Moreover, Rix LJ concluded (para. [82]):

I would repeat that this is an unusual, indeed exceptional case. A review of the factual histories of the other authorities placed before us in the bundle shows that that is so. They also show the dangers and difficulties of trying to put into any single straightjacket the philosophy of section 124A petitions. Of course, the Secretary of State seeks to act in the public interest: and the court will continue to be conscious of the need to maintain and vindicate appropriate business standards, to deter other wrongdoers, and to express its disapproval of dishonesty and other misconduct which would make it just and equitable to wind up companies, and to do so despite late and inadequate protestations of change from unreliable and untrustworthy owners, directors and managers. However, in my judgment the judge's solution in this case has not been in breach of that jurisprudence, but in fulfilment of it. I would therefore dismiss this appeal on the merits".

Canada: CCGG executive compensation principles

The Canadian Coalition for Good Governance (an organisation representing the interests of institutional investors) has published for comment draft executive compensation principles. Of interest is the (perhaps surprising) position taken by the CCGG with regard to shareholder advisory votes on remuneration:

CCGG does not, for the time being, support regulatory changes to mandate advisory shareholder votes on compensation reports. CCGG and its members believe that constructive engagement with boards and compensation committees to explain the shareholders’ perspective on compensation practices and disclosure is preferable to a 'Yes' or 'No' advisory vote".

Australia: shareholder claims against insolvent companies

In Sons of Gwalia Ltd v Margaretic [2007] HCA 1, the High Court held (by majority of 6 to 1) that a claim by a shareholder in respect of a loss caused by a company's misrepresentation or defective market disclosure which induced the purchase of shares ranked alongside the claims of unsecured creditors. This proved controversial because it was widely believed that such a claim would rank below the unsecured creditors because it was a claim by the shareholder as a member of the company (in accordance with Section 563A of the Corporations Act 2001).

The Government referred the matter to the Corporations and Markets Advisory Committee (CAMAC).  A discussion paper was published in 2007. The Committee's final report has now been published along with a summary of responses. The Committee has recommended no change in the position established by Sons of Gwalia. In doing so, it noted:

...the issue has arisen in the context of a significant shift in Australian corporate regulation. The provision to shareholders and others over recent years of direct rights of action in respect of corporate misconduct, and the strengthening of the regime for timely and reliable corporate reporting, reflect clear legislative objectives ... Any move to curtail the rights of recourse of aggrieved shareholders where a company is financially distressed could be seen as undermining the apparent legislative intent to empower shareholders".

USA: Is Delaware superior?

A recent post on the excellent Delaware Corporate and Commercial Litigation Blog brought to my attention several articles in the University of Illinois Law Review, volume 2009, issue 1, which explore the reasons for Delaware being the most popular state for company incorporation. According to the State of Delaware website, over half of all US publicly traded companies and 63% of the Fortune 500 are incorporated in Delaware.

Issue 1 begins with an article by Professors William J. Carney and George B. Shepherd, titled "The Mystery of Delaware Law's Continuing Success", which challenges the view that Delaware's popularity is explained by its superiority. A response is provided by William B. Chandler III (the Chancellor of the Delaware Court of Chancery) and Anthony A. Rickey. Other articles explore: Delaware law with regard to limited partnerships; the balance between state and federal law; and role of independent directors.

Germany: Hermes calls for say on pay

It is reported in today's Financial Times that Hermes is calling for Germany to provide shareholders with an advisory vote over directors' remuneration. The report also notes concerns over the pay of supervisory board members at Siemens and the company's lack of consultation with shareholders. Siemens' annual meeting takes place today. The proposed pay for supervisory board members, outlined in the meeting notice, has proved controversial because it includes a variable element linked to the company's performance.