Hudson says he took huge pleasure in writing the book, and it shows on every page.

Legal doctrinal textbooks usually focus on principles: the motivation for the area of law is usually not expressly stated (or stated at any length.)

In many areas, this is not a problem. One has a rough “feel” or mental model of what problems that area of law is trying to solve. On a very broad brush, public law is there to stop abuses by public bodies, contract is about enforcing people’s bargains with each other, tort law (under the shadow of negligence) is about defining what happens when A harms B and B wants to seek remedy on her own. Ditto criminal law, wills and probate etc.

But what is company law all about?

It is often said (e.g. in Paul Davies’s Introduction to Company law) that it exists to solve agency problems and to enable commerce to happen.

This may well be right as a theoretical justification for company law, but it doesn’t seem to reflect the materials typically covered in a company law syllabus.

For example, when one thinks of companies, the images that spring to mind are multi-national conglomerates listed on various stock exchanges with an instantly recognisable brand name, e.g. Nike or Google.

But legal matters touching such companies rarely feature in the legislation or the case law.

Instead, most of the legislation seems only to provide very dry administrative rules; whereas most of the case law seems to be either (1) abuses that raise the question of whether the corporate veil should be respected at all or (2) fights between/among boards and shareholders with no obvious morally right answer.

Hudson book takes a very different and very intriguing approach. Themes that recur throughout the book are

  • Company law had its origins in the law of unincorporated associations (e.g. clubs and guilds). And in all instances of business associations (incorporated or otherwise), there is a constant tension between the policy objective of ease of commerce and prevention of fraud.

  • The recognition of a company as a separate legal entity in Salomon v A Salomon & Co Ltd[1897] AC 22 by the House of Lords (reversing both the first instance judge and the Court of Appeal) was based on an application of statute without detailed consideration of the consequences that followed.

  • This is why unlike many other areas, company law doesn’t have an overarching paradigm or ideal. Instead the many consequences of the legal fiction of separate legal personality then had to be worked out by statute and case law, with many ad hoc patches and fixes that are still not settled today.

Some illustrations:

  • A clear and rational way for shareholders to vote would be to vote by proportion of shares. But the default position provided by legislation is by show of hand, but poll votes can be demanded once certain conditions are met.

  • This cannot be explained otherwise than from the origin of company law from the law of clubs and unincorporated association (one can’t help but think of Bertie Wooster’s Drones Club).

  • While shares are in many respects freely transferrable property (esp. stocks in public companies listed in stock exchanges), it is up to the Board of Directors whether too approve a transfer of shares.

  • If the transferees of the shares are unhappy about the refusal, they then need to apply for leave to commence derivative action and sue the Board: cf. Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71. (I use the phrase “derivative action” because of CA judgment para.34; but this is wrong according to this note which regards the action as a personal claim.)

  • Again, this is not readily explainable until one remembers shares are not just there to provide investment value: they are also about the management of the company. The Directors should have a say about how the company is managed, hence they are given the right to refuse the transfer for a proper purpose. Again one thinks of Wooster’s Drones Club and how it would react if someone tried to effect massive membership transfer and dismantling of the club.

  • The transferability of shares is therefore dependent on market infrastructure of stock markets. It is not baked into the structure of company law itself.

So perhaps one could quip that company law works very well in practice, but not in theory. Like family law, in the vast majority of cases parties cooperate and “work things out” without difficulty; but once trust and confidence breaks down, there is almost no good way of working out in general what the correct intervention from the court should be.