Introduction
This essay examines two key legal issues arising from the scenario involving Rivertown plc (‘Rivertown’) and its subsidiary, Herbivore Ltd (‘Herbivore’). Firstly, it addresses whether and how Rivertown can remove Indira from her position as managing director of Herbivore, considering the legal framework governing directorships and the company’s adoption of the Model Articles for Private Companies Limited by Shares. Secondly, it advises Lyla, a former employee of Herbivore, on her potential right to bring a negligence claim for ill health allegedly caused by exposure to the pesticide Tox, and evaluates the practicality of pursuing such a claim given Herbivore’s current financial and operational status. Through a detailed analysis of relevant UK company law and tort law principles, supported by academic sources, this essay aims to provide clear guidance on these complex matters while identifying potential challenges and limitations in both cases.
Removal of Indira as Managing Director of Herbivore
The removal of a director in a UK private company limited by shares is governed by the Companies Act 2006 (CA 2006) and the company’s articles of association. Since Herbivore’s articles are based on the Model Articles for Private Companies Limited by Shares, these provide the starting point for assessing Rivertown’s ability to remove Indira from her role as managing director. Under Article 18 of the Model Articles, a director can be removed by a decision of the other directors, provided there is a majority vote in favor of the removal (UK Government, 2006). As Rivertown owns 85% of the shares in Herbivore, it likely controls the board composition or can influence decisions through its majority shareholding, making the removal of Indira feasible under this provision.
However, another avenue for removal exists under Section 168 of the CA 2006, which allows shareholders to remove a director by an ordinary resolution with a simple majority vote (Sealy and Worthington, 2013). Given Rivertown’s 85% shareholding, passing such a resolution would be straightforward, as it far exceeds the 50% threshold required. This statutory power cannot be overridden by the company’s articles, providing a clear legal mechanism for Rivertown to act, even if opposition arises from the minority shareholder owning 15% of the shares.
A critical complicating factor, however, is Indira’s four-year service contract with Herbivore. If Rivertown proceeds with her removal, Herbivore remains obligated to fulfill the terms of this contract, which may include payment for the remaining duration or compensation for early termination. As noted by Davies (2012), removing a director does not automatically terminate their employment contract, and failure to honor contractual obligations could result in a claim for wrongful dismissal. Rivertown must therefore weigh the financial implications of removal against the perceived underperformance of Indira. Indeed, it may be prudent for Rivertown to negotiate a mutual termination agreement to mitigate potential legal and financial risks.
In summary, Rivertown has the legal authority to remove Indira either through a board decision under the Model Articles or via an ordinary resolution under Section 168 of the CA 2006. However, the existence of her service contract introduces a potential cost that Rivertown must carefully consider before proceeding.
Lyla’s Potential Negligence Claim Against Herbivore
Turning to Lyla’s situation, her claim for ill health allegedly caused by exposure to the pesticide Tox raises issues of negligence under UK tort law. To succeed in a negligence claim, Lyla must establish that Herbivore owed her a duty of care, breached that duty, and that the breach caused her harm, as outlined in the seminal case of Donoghue v Stevenson [1932] AC 562 (Harpwood, 2009). As her employer, Herbivore undoubtedly owed Lyla a duty of care to ensure a safe working environment under both common law and statutory provisions such as the Health and Safety at Work etc. Act 1974 (HSE, 1974). Specifically, employers are required to protect employees from foreseeable risks, including exposure to hazardous substances like pesticides.
The critical question is whether Herbivore breached this duty. If Lyla can demonstrate that Herbivore failed to implement adequate safety measures—such as providing protective equipment, training, or proper ventilation—this could constitute a breach. Furthermore, if Tox is a known harmful substance and Herbivore did not adhere to regulatory guidelines, such as those under the Control of Substances Hazardous to Health Regulations 2002 (COSHH), this would strengthen her case (HSE, 2002). However, without specific evidence of Herbivore’s safety protocols, it remains unclear whether a breach occurred, and Lyla would need to gather documentation or witness statements to substantiate her claim.
Causation poses another hurdle. Lyla must prove, on the balance of probabilities, that her ill health is directly attributable to Tox exposure during her employment at Herbivore. Medical evidence linking her condition to the pesticide would be essential, as courts require a clear causal connection (Harpwood, 2009). If alternative causes for her ill health exist, this could undermine her claim, highlighting the importance of expert testimony in such cases.
Even if Lyla establishes negligence, the practicality of pursuing a claim against Herbivore is highly problematic. Following the restructuring programme, Herbivore’s premises and land have been transferred to Rivertown in repayment of an intra-group loan, leaving Herbivore with no active business operations and few assets. As a result, even a successful claim may yield no financial recovery, as Herbivore lacks the means to pay damages. Furthermore, the group-wide insurance policies held by Rivertown explicitly exclude liability for personal injury caused by Tox, meaning Lyla cannot rely on insurance coverage to satisfy a potential award. Generally, pursuing a claim against an insolvent or asset-less entity is futile unless alternative legal strategies, such as piercing the corporate veil to hold Rivertown liable, are viable. However, such an approach is rarely successful in UK courts unless there is evidence of fraud or improper conduct by the parent company (Sealy and Worthington, 2013).
Consequently, while Lyla may have a theoretical basis for a negligence claim, the likelihood of recovering damages appears minimal due to Herbivore’s financial position and the limitations of Rivertown’s insurance policies. She may wish to explore alternative avenues, such as seeking compensation through a government scheme for workplace injuries, though these are typically limited in scope.
Conclusion
This essay has examined two distinct legal issues facing Rivertown plc and its subsidiary, Herbivore Ltd. Regarding Indira’s removal as managing director, Rivertown has clear legal mechanisms under both the Companies Act 2006 and the Model Articles to effect her dismissal, either through a board decision or shareholder resolution. However, the financial implications of her service contract must be carefully managed to avoid potential claims for wrongful dismissal. As for Lyla’s potential negligence claim, while she may have grounds to argue that Herbivore breached its duty of care, the practical worth of pursuing such a claim is severely limited by Herbivore’s lack of assets and the exclusion of Tox-related injuries from Rivertown’s insurance coverage. These cases underscore the complexities of corporate governance and tort liability within group structures, highlighting the need for strategic decision-making to balance legal rights with financial realities. Ultimately, both Rivertown and Lyla face significant challenges in achieving their respective objectives, necessitating careful consideration of the legal and practical constraints at play.
References
- Davies, P. L. (2012) Gower and Davies: Principles of Modern Company Law. 9th ed. Sweet & Maxwell.
- Harpwood, V. (2009) Modern Tort Law. 7th ed. Routledge-Cavendish.
- HSE (1974) Health and Safety at Work etc. Act 1974. UK Government Legislation.
- HSE (2002) Control of Substances Hazardous to Health Regulations 2002. UK Government Legislation.
- Sealy, L. and Worthington, S. (2013) Sealy & Worthington’s Cases and Materials in Company Law. 10th ed. Oxford University Press.
- UK Government (2006) Companies Act 2006. UK Government Legislation.
