Judicial concepts Research Essay

The Role of Law in Regulating Business

The boundaries of politics are no longer relevant in the global community that has emerged. In order to ensure that businesses are developed and expanded by investors, whether they are locals or foreigners in their nation of operation, legal frameworks have been put in place. In reality, every nation relies on the law to keep things as they are and ensure that the status quo is preserved. It is crucial in making sure that change in the business world is regulated and approved. Law also ensures that conflicting interests are always balanced and serves as a tool to ensure the orderly development of company. These laws are also aimed at attracting both local and foreign investors by providing a conducive business environment. For instance, the rule of law is credited with creating a stable and predictable business environment since the rights to properties are protected, contracts are honored and risks in business can be assessed. As a result, private investment has developed and prospered (Shihata, 1996).

Procedures for Valid Decision Making in Companies

There are a set of procedures which are strictly put in place and have to be followed by ordinary directors when passing resolutions or finding solutions. These procedures are important as they ensure that any decisions that have been passed can be held valid. The procedures have been laid down in the Companies Act 2006 whose main duty is to ensure that the interests of the shareholders are always protected (French, 2016). A case between Euro Brokers Holdings Ltd and Monecor proved that the decisions can still be valid even in situations where such procedures are not followed strictly. However, in such a situation, for these decisions to be valid, they must be protecting the interests of the decision makers. Provided that all the represented shareholders are present and vote to assent the decision, then the decision will be valid even though the laid procedures were not followed strictly. Notably, it situations where third parties are involved, these procedures have to be followed in order for such decision to be valid (French, 2016).

An Example Case: EBF Holding and the Duomatic Principle

The above case was associated with a joint venture company known as EBF holding. In one of its articles, EBF had capital requirement whose minimum was above that set by the Financial Services Authority(FSA). The two shareholders involved in this case, the Euro Brokers Holdings Ltd and Monecor, each has a fifty percent shareholding in EBF. It is these two shareholders who agreed that a failure to pay the set capital requirement in the companies’ articles would compel the director of the company to sell the shares. Given that the director had resigned, the required quorum had not been met, but the meeting was held by the two shareholders only. Although a notice had not been issued by the board, the shareholders made a decision to meet the capital requirement as if the notice had been issued. Since all the interested parties had voted, this decision was considered valid.

Monecor however, took to the court to dispute arguing that since the quorum requirement of the meeting had not been met, the decision made would be considered invalid. They also urged that the capital requirement had exceeded the requirements set by FSA. The court, however, maintained that the decision was valid by applying the Duomatic principle. Although the strict procedures had not been followed, the decision was made for the benefit of the shareholders, and all the shareholders voted to assent the decision, making it valid. The court also stated that since Monecor had agreed to pay the agreed capital, the estoppel was applicable and prohibited Monecor from pressing further. It also ordered Monecor to sell its shares as it had not met the set capital call (Lawteacher.net, n.d.). In conclusion, the court was fair to hold the decision valid in accordance with the Duomatic principle. However, it was unfair to force Monecor to sell its shares to Euro Brokers Holdings since at the moment of the ruling, Monecor was not even given a chance to meet the set capital call.

References

F.I. Shihata, I. (1996). The Role of Law in Business Development. Fordham International Law Journal, 20(2), 1577-1579.

French, D. (2016). Mayson, French & Ryan on Company Law. Oxford: Oxford University Press.

Lawteacher.net. Euro Brokers Holdings Ltd v Monecor (London) Ltd. Lawteacher.net. Retrieved 9 June 2017, from https://www.lawteacher.net/cases/company-law/euro-brokers-holdings-v-monecor.php