his attention from abstract jurisprudence and from such concrete studies as Anglo-Saxon land tenure or the manumission of slaves in the reign of
Hadrian, and to concentrate upon a subject which really matters the huge resources of industry and learning which have already been lavished so unsparingly upon subjects which do not.
C . P. HARVEY.
SOME REFLECTIONS ON COMPANY
LAW REFORM
A
DISCUSSION of the problems connected with the reform of company law can take as its starting point one of the three social and economic needs to which a system of company law should respond.
It can either approach the problem from the angle of the shareholder, and consider as its principal theme the constitution of the company, the protection of the investor who is deprived of an effective share in the management, and the perennial conflict of interest between those responsible for the management of the business and those dependent on the assistance of the law for the safeguarding of adequate information and enforceable minority rights. Another approach would be the interests of the community itself in the distribution or investment of the profits of the concern, in the prevention of fraudulent manipulations, and in that measure of publicity which is the foundation of a well-functjoning machinery of company legislation. The present paper is concerned with a third kind of approach and with a more limited range of problems.
It tries to analyse a number of topical questions of company law from the point of view of the outside creditor. An attempt is made to help to find a way out of a situation in which originally wholesome institutions have been diverted to uses potentially and actually detrimental t o those who, by force of circumstances, may be compelled. t o give credit t o concerns camed on in the form of companies. Two special topics have been singled out for more detailed discussion: that of the abuse of corporate entity, and that of the undermining of the company's capital as a "guarantee fund" by the issue of shares in exchange for overvalued assets.
I
In this country as elsewhere company law has, to a large extent, changed its economic and social function. The privileges of incorporation and of limited liability were originally granted in order to enable a number of capitalists to embark upon risky adventures without shouldering the burden of personal liability. There was, in the second half of the nineteenth century, a definite commercial need for those measures which the various
Companies Acts introduced. However, owing t o the ease with which companies can be formed in this country, and owing to the rigidity with which the courts applied the corporate entity concept ever since the calamitous decision in Salomon v. Salomon G. Co., Ltd.,l a single trader or a group of traders are almost tempted by the law to conduct their business in the form of a limited company, even whereno particularbusiness risk is involved, and where no outside capital is required. The partnership
' [I8971 A.C. 22.
COMPANY LAW REFORM
55
which-either in its normal form or as a limited partnership-ought to be the usual type of business association, has, in many walks of commercial life, been almost completely displaced by the private company.
This state of affairs would not necessarily call for reform, if it were not for the fact that the courts have failed to give that protection to the business creditors which should beathe corollary of the privilege of limited liability. The courts have adapted the law of fiduciary relationships to the liabilities of promoters and directors.2 They have thus given a measure of protection t o the shareholders over and above that provided by Parliament, and they have succeeded in introducing into British company law a body of principles which, elsewhere, had to be formulated by legislation.*
The flexibility of the law
