Company Law

Company Law

In British company law, the merits of the liquidator’s arguments are that Mr. Lay cannot recover his loan from the company and that he should instead be made to contribute to the company’s debt because there is no difference between him and the company. Do not deal with any criminal element involved (40 marks).

The claim by the liquidator to have Mr. Lay take responsibility for the company’s losses and that he should not seek to recover the money he invested in the company is null and void according to British company law. According to Lim (2014), Enron and Mr. Lay are distinct legal entities, each enjoying the rights of a legal entity. According to Wymeersch (2001), a company can easily be defined as a legal entity brought about by the laid down procedures in the British companies act 2006, with its evidence being the issuance of a certificate of incorporation, also, according to the decision in the Solomon vs. Solomon co. Ltd, the legal status of a company run by an individual can have the trader not only limit the liabilities of the company to the contributions he made to the business enterprise but also evade the severe risks to a great extent by subscribing for debentures of the company as opposed to shares he owns in the company (Rickford, 2005).

British company law allows the owner of a company to sue his company in case of a loss and eventual liquidation. In the case of Solomon vs. Solomon Company Limited, the House of Lords has been satisfied that Solomon Company Limited’s formation was according to the company’s act. Therefore the founder is a separate entity and should not be viewed as an agent or controller of the company. According to Lim (2014), the company’s assets and liabilities belong to it; this gives Mr. Lay the legal right to recover the money owed to him by Enron. The implication of this law is to shield the company’s owner from the company’s liabilities in case one occurs.

Mr Louis Bourget’s and Mr. Andrew Fastow’s duties as directors of Enron, explaining which duty, if any, they breached under the Companies Act 2006 (60 marks).

Mr.  Louis Bourget and Mr. Andrew Fastow are senior employees of the Enron company, and it required them to make reasonable decisions for the company’s good and bear the responsibility for the company’s losses that occurred on their watch. The Company’s Act 2006 stipulates that employees who occupy senior positions in the company where they are required to make standard, reasonable business decisions at their discretion can be held responsible for actions that go below expectations (Naniwadekar, 2008).

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The law would have been lenient to the two individuals if their actions benefitted the business enterprise, especially where the company’s owners were directly involved. This was, however, not the case because Mr.  Louis Bourget’s decision to divert the company’s funds internal account and Mr. Andrew Factor’s use of the company’s funds to set up multiple business enterprises he used to defraud the company can be termed as actions amounting to crimactivitiestions. This will, therefore, require that the two individuals be held responsible for their actions which led to financial losses to the company. The reason for this is that the two senior employees of the company acted fraudulently by intentional wrongdoing beyond the authority bestowed on them by the employer (Teklè, 20Ins, this liquidator ase, will be keen to pursue those responsible for the day-to-day running of the company’s affairs for the two to be charged for going against their principal responsibility to the affairs of the company (Lim, 2014).

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References

Lim, E. (2014). Attribution in Company Law. The Modern Law Review, 77(5), pp.794-807.

Naniwadekar, M. (2008). The Law of Agency as applied in Company Transactions. European Company and Financial Law Review, 5(3).

Rickford, J. (2005). Fundamentals, Developments, and Trends in British Company Law – Some Wider Reflections Second Part: Current British Priorities and Wider Reflections. European Company and Financial Law Review, 2(1).

Teklè, T. (2018). Labour Rights and the Case Law of the European Court of Justice. European Labour Law Journal, 9(3), pp.236-262.

Wymeersch, E. (2001). Company Law in Europe and European Company Law. SSRN Electronic Journal.

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Coursework Week 8: Company Law

Documentary Film – Enron: The Smartest Guys in the Room (2005)

Film Summary

‘Enron: The Smartest Guys in the Room’ is a 2005 documentary film detailing American history’stmost most significant corporate scandal and corollary. Enron is the story of insatiable greed made possible by the perpetratorcrecreativeability to invent highly questionable methods to portray the company as a success and win the trust and admiration unsuspectingly public with devastating outcomes. The outcomes include suicides by corporate executives, jail sentences, the dismissal of more than 20,000 employees, yees, and the loss of life savings by thousands more. At the same time, the company’s top exec walks away with more than $1 billion. The company gave itself an appearance of profitability by inflating its profits and concealing its losses through corrupt bookkeeping practices, with the surrender of its highly paid firm of accountants, Arthur Anderson.

Within two years of its founding in 1985 by Kenneth Lay, the compbecameomes embroiled in a scandal after two of its trabeganbegin betting on the oil market resulting in consistent profits. But betting and the publication of consistent profits, which very few questioned, would be the company’s hallmarkpany right up to its collapse.

Enron aimed to reinvent the energy industry marketplace where gas and electricity could be traded like shares and bonds. Enron gambled in the energy m, manipulatedlated it and other common cities, and even considered ‘trading weather’ at some point.

Company Law

Its executive officers were involved in the company’s unethical and often criminal activities. These include:

• Its founder Kenneth Lay, gambled away all of the company’s assets and reserves and encouraged the company’s president to risk more in trading and also claimed that the company was the ‘best energy company in the world when he should have known that the company was bankrupt and had been worthless for years;
• its president Louise Bourget who diverted the company’s profits into his personal bank account destroyed the company’s record, and gambled the company’s money;
• its new CEO, Jeffrey Skilling, used an accounting tactic, mark-to-market, to record the company’s projected future profits as its current income as soon as a contract was signed, regardless of the actual profit that the agreement would generate;
• Lou Pai, the elusive CEO of Enron Energy Ser, was obsessed with gambling and visiting strip clubs using shareholder money. They left with a $250 million payout when his department was $1 billion in debt.
• Andrew Fastow, the Chief Financial Officer, breached his duty to Enron and its shareholders and made over $45 million by creating several front companies to hide Enron’s losses.

By maintaining an appearance of profitability, the company’s executives consistently rewarded themselves with huge bonuses.

Question

Assume that Mr. Kenneth Lay, the founder of Enron, had provided a loan of £1 million to the company and that following the company’s collapse, Mr. Lay attempted to recover his money. Still, the liquidator resisted his claim that there was no difference between Mr. Lay and the company since he had overall control over the company and that he should be made liable for its debts instead of trying to claim money from the company,

In the film, Mr. Louis Bourget, the president of Enron, diverted the company’s profit into his account, destroyed the company’s records, and gambled the company’s money. Mr. Andrew Fastow, the company’s Chief Financial Officer, created several companies he used to defraud Enron for tens of millions of dollars.

You are a legal team summoned to attend a case conference. The liquidator of the company has asked your team to prepare a legal analysis of the company law issues raised in the film and advise on the following:

1. In British company law, the merits of the liquidator’s arguments are that Mr. Lay cannot recover his loan from the company and that he should instead be made to contribute to the company’s debt because there is no difference between him and the company. Do not deal with any criminal element involved (40 marks).
2. Mr. Louis Bourget’s and Mr. Andrew Fastow’s duties as directors of Enron, explaining which duty, if any, they breached under the Companies Act 2006 (60 marks).

The answer should be between 750 – 1000 words long and address all the questions raised. The written response carries 50% of the marks available for this case conference. The group presentation brings the remaining 50%. Effects may be deducted if you do not keep within the word margin. You are expected to word count your work and note this at the end. You are reminded that you must support your answer with relevant company law cases and statutory provisions.

Assessment Rationale and Criteria

The assessment method for this part of the module is designed to meet the module’s objectives and facilitate its outcomes. The coursework will allow students to develop their research and data interpretation skills as team members, regarding the group presentation, and as individuals in the care of the written answers. The written part of the coursework will allow students to develop their legal writing skills. Students must ensure they satisfy the assessment criteria their work will be marked against.

Grade A

• Precise identification of the legal issue.
• Precise identification of all the relevant areas of law.
• Demonstrate a thorough knowledge and understanding of the relevant principles and case law, including a critical analysis thereof.
• Accurate application of law to question addresses precisely the legal issues raised therein.
• Use authority (cases and statutes) to support the arguments, advanced, ed, and conclusions reached.
• Presentation of work which is legible.
• Clarity of expression.