Company assignment Essay Example | Topics and Well Written Essays - 2750 words

Company assignment - Essay Example These statutory provisions applied in conjunction with established principles of common law and equity in relation to directors duties2. However, in the consultation phase leading to the implementation of the CA 2006, the Government expressed dissatisfaction at the inherent uncertainty of these provisions and have attempted to codify both the common law and statutory provisions pertaining to directors duties under the CA 20063. In turn this has lead to some commentators arguing that the CA 2006 codification of directors’ duties has resulted in tighter controls on the exercise of director’s duties. This paper critically evaluates this argument with a comparative analysis of the previous legal position and how far this has been changed by the CA 2006 provisions. If we firstly consider the previous position under common law and equity, the issue of fiduciary duty has commonly arisen in constructive trust and tracing cases. Additionally, issues have arisen regarding the int errelationship between director’s duties and the abuse of the corporate structure as exemplified by phoenix company syndrome4. The term â€Å"phoenix† company is utilised to define a corporate structure where assets of one limited company are moved to another legal entity5. Commonly, some or all of the directors and management will remain directors in the successor company and in some instances the successor company will have the same or similar name to the failed business6. In simple terms, a phoenix company is a limited liability company: â€Å"housing individuals, or the directors by name or otherwise, who abuse the corporate form by dissolving one company and creating another to avoid payment of debt†7. Furthermore, it has been commented that the Register of Companies is â€Å"littered with cases involving phoenix companies†¦Ã¢â‚¬ ¦ ones which fail and then seemingly reappear overnight in substantially the same form and with substantially the same mana gement8†. Typically, a phoenix company will use all or some of the assets of the insolvent company and will trade in the same industry and similar manner to the failed predecessor9. Whilst it is perfectly legal to form a new company from the debris of a failed company, â€Å"phoenix syndrome† has repeatedly been criticised as a means of abusing the statutory provisions implemented to protect against wrongful trading and abuse of position10. For example, a director of a failed company can become a director of a new company unless they are bankrupt or subject to a disqualification11. One the hand, it is clear that not all legitimate businesses will succeed on first attempt and the Small Business Service12 estimates that one in three businesses shuts down within three years13. Nevertheless, it is submitted that reasons for failure are multifarious and it would be undesirable for the law to penalise honest individuals from acting as directors simply due to difficulties in r unning a business. Accordingly, it is propounded that in such circumstances, the phoenix company arrangement is beneficial in allowing a business to start again14. Moreover, the phoenix arrangement enables profitable aspects of the failed business to survive into the successor company, thereby preserving an element of continuity for both suppliers and employees15. Conversely however, in the