Company & Partnership

Where an employee or executive has breached their contract the Company will need to consider whether it is entitled to (and if so whether it wishes to) bring the contract to an end. It is common for such contracts to contain (or purport to contain) restrictions on the employment that such persons can take up after their contracts have come to an end and to provide prohibitions on the use of confidential business information. Seeking damages and injunctive relief in respect of such restrictive covenants and their enforceability is a specialist area where swift and accurate advice is particularly important.

The statutory provision allowing a person to step in when those with effective control of a Company refuse to take action on its behalf provides a valuable remedy against damage done to the Company by those who should be promoting its interests. However, the procedure for bringing a derivative claim needs careful navigation and the underlying merits need a proper dispassionate assessment if the Court is to grant permission for it to be continued. The pre-existing common law remedy also needs to be considered if the context is that of a Limited Liability Partnership.

The statutory and fiduciary duties owed by directors and other senior employees offer a wide range of remedies for companies. But it is always important to identify the precise extent of those duties which will depend upon the nature and context of the relationship. A proper assessment can then be made as to whether there has been a breach of those obligations and what remedies may be available to the company in respect of the losses it has suffered, or the profits made by the director or employee. In many cases urgent relief may be needed to prevent the dissipation or concealment of the proceeds of the breaches and to secure information from third parties to whom those proceeds may have been transferred.

Where the Insolvency Service investigates the management of a (typically, insolvent) company and concludes that it is in the public interest to do so, the Secretary of State has the power to seek an order from the Court disqualifying a person from being a director of a company, or being concerned in the management of a company, without the Court’s permission, for a specified period. The Court is empowered to make such orders not only where a relevant person has been convicted of an indictable offence in connection with the management of a company, for persistent breaches of Companies Act legislation, for fraudulent trading, or for breaches of competition law, but also, and frequently, where the Court otherwise concludes that the person’s conduct makes them ‘unfit’ to be concerned in the management of a company. That final ground in particular, requires a careful assessment – by both claimant and defendant – of whether the conduct complained of truly merits a disqualification order and, if so, the period of disqualification the Court might impose and the aggravating and mitigating factors to be taken into account.

A Company’s failure – before, during or after the instigation of a statutory scheme of arrangement – is a fertile ground for disputes, as creditors, members and office-holders all investigate the causes of that failure and whether those involved in the management of the Company could and should have taken steps to avoid the inevitable third-party losses. The various insolvency schemes and causes of action likely to arise in that context are described further on our insolvency practice area page.

Whether the terms of the partnership are governed by the default terms contained in the Partnership Act 1890 or are set out in the partnership agreement, partners will require careful and considered advice on how best to protect and enforce their rights and to meet their obligations in relation to the wide range of contentious and non-contentious incidents arising in the course of the partnership’s operation and/ or its eventual dissolution, including in cases where the partnership becomes insolvent.

Contracts under which interests in companies are transferred need to protect the buyer against hidden issues known to the seller and to protect the seller against manipulation of future accounting processes to depress the metrics by which any continuing remuneration is calculated or to exclude the seller from future participation. It is essential both that the sale documents and warranties are carefully drafted and that the merits of any emerging dispute are quickly and reliably assessed.

The ability to frame the relationship between those who found a company is as fraught with difficulty as it is valuable. It is crucial to ensure that any agreement contains clear mechanisms for providing the protections agreed between the founders both as to the management of the company and as to the return on investment to those who, for whatever reason, choose to leave.

The scope to call on the Court to intervene by way of an unfair prejudice petition will depends upon the underlying nature of the Company. Whilst it is more usually association with companies that are quasi-partnerships (or Limited Liability Partnerships), the Court is entitled to intervene in any Company if its affairs are being managed in a manner that is unfairly prejudicial to one or more members. Identifying whether the conduct complained of is likely to attract such intervention requires a proper appreciation of the applicable principles.