COMPANY LAW REFORM: A REVIEW OF THE REPORT OF THE COMMITTEE ON COMPANY LAW AMENDMENT
| DOI | http://doi.org/10.1111/j.1468-2230.1946.tb01011.x |
| Published date | 01 October 1946 |
| Date | 01 October 1946 |
285
COMPANY
LAW
REFORM
A
REVIEW
OF
THE
REPORT
OF
THE
COMMITTEE
ON
COMPANY
LAW
AMENDMENT
COMPANY
law is in effect the sum total of those legal principles
which regulate the large-scale organisation of industrial and
business management and finance in most branches
of
economic life. The more popular the use of the joint stock
company in business, the larger is the claim of the law to
submit the relationship between manager and investor to rules
and regulations guaranteed by legal sanctions. One need not
endorse the thesis of the
'
managerial revolution
'
and can
nevertheless be aware of the inexorable forces which, in the
course of the last fifty years
or
so,
have resulted in
a
con-
siderable ascendancy of the managerial over the financial
power in economic life. Business organisation
is
in
a
constant state of flux, and the law cannot hope to keep
abreast of developments if it ascribes to its own provisions
the quality of immutability. Other branches of commercial
law-the law of sale of goods, the law of carriage, even the
law
of
insurance-may content themselves with the setting
up
of
a
stable framework and leave the function of adaptation to
the contractual practice of the business community itself.
Company law cannot afford to do this.
As
soon
as
the
privileges of corporate pcrsonality and limited liability have
been made available to the business world, as soon as the
handling of vast funds contributed by large and small
investors has been entrusted to managers who are not subject
to the law of loan and debt, the law must be on the alert
to protect against abuses the investor, the outside creditor,
and the public itself. Company law can never reach
a
stage
of
'
finality
',
it
is
in need of constant revision and, as was
pointed out in
a
leading article in the
Times,
July
18,
1945,
'
experience shows that these changes [in commercial and
financial practice] have in the past demanded a major recasting
of
the
law
not less than about once in fifteen years
'.
I
The
'
major recasting
'
which the Cohen Committee had to
undertake did not amount to a codification of company law.
The Committee's terms of reference made
it
clear that
its
286
MODERN
LAW
REVIEW
VOL.
9
duty was to consider amendments in the Companies Act,
1929.
That Act
is
a
consolidating, not
a
codifying statute, and,
although the Committee do recommend
(No.
10)
the passing
of
a
new consolidating Act, they do not suggest that the
codification
of
company law as
a
whole is desirable. Even
if
all the recommendations of the Report were carried into
effect, some
of
the paramount principles
of
company law,
especially those protecting the company’s share capital
(Trevor
v.
Whitworth
(1887),
12
App.Cas.
409
;
Ooregum
Gold Mining
Co.
v.
Roper,
118921
A.C.
125),
would remain
outside the purview
of
statute law. On the whole, the
Report touches ‘company case law’ only at its
fr;qp,
e.g.,
in
connection with the certification of transfers
(No.
189)
and
with the financing of transactions in the company’s own
shares
(No.
170).
There is, however, embodied in the Report
one recommendation designed to change
a
basic principle
which has emanated from the Courts and not from Parliament.
The
ultra vires
rule, which has long outlived whatever usefulness
it may have had
m
the past, is to disappear in the limbo of
legal history.
Ashbury
Railwag Carn‘age
Co.
v.
Riche
(1875),
L.R.
7
H.L.
671,
is to die an unlamented death, and will drag
down into the abyss
a
whole volume of casuistry.
‘
A stroke
of the pen of the legislator and libraries become wastepaper.’
Practitioners, students, and,
if
it is permitted
t,o
say
so,
teachers of the law will join in a chorus of praise for the
recommendation
(No.
12)
that
‘
every company, whether
incorporated before
or
after the passing of the new Com-
panies Act, should, notwithstanding anything omitted from
its memorandum
of
association, have as regards third parties
the same powers as an individual
’.
The objects clause in the
memorandum
is
to operate, like the articles
of
association,
‘as
a contract between the company and its shareholders as
to
the powers exercisable by its directors
’.
In other words:
the distinction between acts
ultra
vires
the company and acts
outside the directors’ authority will cease to exist, the objects
clause will be subject to the rule in
Royal British Bank
v.
Turquand
(1857),
6
E.
&
B.
827,
what was
a
matter of
capacity will be
a
matter of agency. The objects clause will
be alterable-like the articles-by special resolution, without
the sanction of tlir Court.
One
is
tempted
TCC
ask why the Committee did not go one
step further along
the
road
of
reform
so
as to suggest the
abolition
of
the dichotomy of memorandum and articles.
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