Company Law and Insolvency
What this domain tests
Company law and insolvency tests incorporation, corporate personality, governance, directors' duties and the consequences of financial failure under the Companies Act 2013 and insolvency legislation.
Core rules
- A company is incorporated on registration and becomes a separate legal person with perpetual succession and limited liability. Salomon v Salomon remains the foundational principle.
- The corporate veil may be lifted for fraud, sham, statutory liability or where the company is an agent of another.
- Directors owe fiduciary duties (good faith, proper purpose, avoiding conflicts) and duties of care, skill and diligence. They must act in the company's best interests.
- Shareholders exercise control through meetings and resolutions. Minority shareholders may use derivative actions or unfair prejudice remedies.
- Insolvency procedures include liquidation, receivership, administration and voluntary arrangements. Liquidation triggers a stay and collective process; preferential and secured claims are ranked.
- Transactions at undervalue, preferences and wrongful trading may be challenged by a liquidator.
Worked example
A shareholder suffers loss because a director diverts a company contract to another firm. The loss is primarily the company's, not the shareholder's. The shareholder cannot sue personally for reflective loss; the proper claimant is the company, or a derivative action may be brought with leave. An unfair prejudice petition may lie if the conduct is oppressive.
Traps
Do not treat directors and shareholders as the same. Do not say limited liability protects directors from personal liability for their own torts or fraud. Do not confuse liquidation with receivership. Do not ignore the stay once liquidation begins.