1.4 Business - Directors Flashcards
What are directors’ powers?
Section 250 CA
AA
Direct/Govern/Control policy or company management
SHs can NOT exercise Ds’ powers in GM
What is a Register of Directors?
Include particulars of each D
- Name
- Address
- Country of residency
- Nationality
- Business occupation
- DOB
Available for inspection at Co’s registered office
Open to inspection of any member w/o charge
How can private companies elect to keep register of directors in public?
Hold Ds’ info on public record at CH (election in force)
- NOT keep in own Co books
- Include D’s DOB in public register (otherwise if no election > Withhold DOB + only publicly include month and year)
- In force until Co ceases to be private company/withholds election
UNLESS Co decides to keep register of Ds
- Must give notice of withdrawal + changes to Registrar
What is the difference between shareholders and directors?
D
- D2D management
- Public Co (at least 2 Ds)
- Private Co (at least 1 D)
SHs
- Appoint/Remove D
- Change Articles
- Allow Co to buy back shares
How are Directors’ duties enforceable?
S. 171 CA > AA > D’s powers
Owed to Co
- Co can enforce vs Ds
- TP (including workforce) can NOT enforce vs Ds
Where do directors derive their powers from?
Board to delegate powers to D (MD/Agent/Committee) (subject to Articles)
- NO actual authority (Model Articles/Table A)
- Law of agency rules
- To extent Ds think fit re such works + on such t&c
- BM > Should discuss power limitations (financial limits, areas of competence)
How can directors’ powers bind companies?
Actual authority
- Principal-Agent relationship (consensual + principles of contract construction (express words implication/trade usage/course of business between parties)
a) Express - A expressly told he may act on P’s behalf
b) Implied (usual auth) - Agent’s authority reasonably necessary to carry out express auth
Apparent/Ostensible authority
1) Rep that Agent had auth to enter said contract
2) Rep made by persons with actual auth (generally/said contract)
3) Rep induced TP w/ reliance
4) Memorandum/Articles > Co NOT deprived of capacity to enter said contract/delegate auth to enter
What is Director’s duty to promote Company’s success?
S. 172
Good faith + for SHs’ benefit as whole
Non-exhaustive list of factors
- Long-term consequences
- Employees’ interests
- Relationship with suppliers + customers
- Impact on community + environment
- Co’s desirability > Maintain reputation for business conduct high standards
- Need to act fairly between members
What is Director’s duty to exercise independent judgment?
S. 173
1) Make own judgment
2) Exercise judgment independently
- NOT blindly follow others’ views
- Consider Co’s interests
What is Director’s duty to exercise reasonable care, skill and diligence?
S. 174(1)
- Common law rule of duty of care and skill
S. 174(4) > Exercised by reasonably diligent person with general knowledge, skill and experience of;
- Reasonably expected of person carrying out D’s functions
- Particular D
What is Director’s duty to avoid conflicts of interest?
S. 175
1) Transaction between D + Co/TP
- Conflict (may/actual)
- Interest (Direct/NOT direct)
- Exploitation of property/info/opportunity
2) Authorisation
- Public Co (Constitution gives authority)
- Private Co (D has authority (if Constitution gives NO authority))
3) Quorum > Board authorisation
- NOT including Ds in question/other related Ds
- Agreed/Would be agreed w/o such Ds’ vote
What is Director’s duty not to accept TP benefits?
S. 176
Conferred by reason of;
- D being director
- D doing/NOT doing anything as director
What is Director’s duty to declare interests in proposed transaction/arrangement with Company?
S. 177
D ‘ought to reasonably be aware of’ conflicting interesst
- Includes with spouse/children
Must declare before Co enters deal
- At BM
- Notice to Ds in writing/general notice at BM
Must make further declaration
- If declaration becomes/proves to be inaccurate or incomplete
UNLESS
- D not aware of interest
- NOT reasonably regarded as likely lead to conflict
- Other Ds already aware/’ought reasonably be aware’ of D’s interest
- Concerns D’s service contract terms considered at BM/Board Committee
What are the consequences of Directors’ breach of duties?
Civil and criminal liabilities
Risk of disqualification
Personally liable to pay damages/compensation
Restore property/Account for profits (as appropriate)
Legal proceedings in Co’s name vs Ds (Articles)
- Court approval => SH can sue via derivative action
How can directors’ breaches be rectified?
1) D’s acts/omissions amounted to;
- Negligence
- Default
- Breach of duty
- Breach of trust
- NOT unlawful conduct (fraud)
2) Ratification (s. 239 CA)
a) Members’ resolution
- In writing (NOT include D/connected member)
- Meeting + Maj vote (NOT include D/connected member’s votes in favour of resolution)
Meeting
- D can still attend to reach quorum/participate where decision is considered
- If D controls voting at meeting > Can vote in favour of ratification (even though breaches duty of disclosure, NOT breach of duty in making contract per se)
b) If SHs not willing to ratify > Ds’ petition for relief from liability at court
- Must appear to court that D acted honestly + reasonably
- Based on circumstances => D ought to be fairly excused
What provisions cannot protect D from liability for breach of duty?
Provision exempting D from liability (s. 232 CA)
- Connected to negligence/default/breach of duty or trust
- AA/Contract with Co
=> VOID
Provision indemnifying D/associated Co for liability (s. 233-235 CA)
- Connected to negligence/default/breach of duty or trust
=> VOID
- Except as permitted by insurance/qualifying TP indemnity provision/qualifying pension scheme indemnity provision
What is required for appointing directors?
Initial Ds
- Ds must send details > Registrar
- Once Co is registered => Ds are appointed
- Registrar must send notice of appointment + info re office and duties => Ds
Subsequent Ds (initial Ds cease to hold office/die/desire to increase board size) - AA > OR (GM) required
At least 1 D must be natural person
- NOT all companies
1 or more full-time Ds > Appointed as MD
+16 yo (SoS can make exceptions)
NOT disqualified by court from being D
NOT undischarged bankrupt
- Otherwise court permission required
What is required for appointing directors at public companies?
S. 160
- Vote individually
- 2 or more persons as Ds appt by single resolution (unanimous) at GM
What documents must be sent to Companies House for appointing directors?
1) Prescribed forms
- Within 14 days after Ds’ appointment (Form AP01)
- Within 14 days after D terminates appointment (Form TM01)
- Change in Ds’ details (name/address) > Natural persons (Form CH01); Corporate D (Form CH02)
2) Statement re D’s consent to act in its capacity
- CH to notify new Ds their appointment + info re office and duties
3) Ds’ addresses
- Usual residential address (protected)
- Service address (on public record) (can also use as residential address > public record, both protected)
Are Directors’ acts still valid if not properly appointed?
Yes
- Even if resolution for appointment is void under s. 160
UNLESS later discovered info > NO
- Defect in appointment
- Disqualified from holding office
- Ceased to hold office
- NOT entitled to vote on concerned matter
How may directors be removed from office?
By rotation at AGM
Any time
- Before office term expires
- SHs’ OR
- Special notice given to D at least 28 days before GM (D can still be heard at GM) (s. 168, 288(2) CA)
Disqualified by court/under AA
Who are shadow directors?
NOT appointed as director
- But acts on directions/instructions as Ds accustomed to acting
- NOT acting on advice given by him in professional capacity (lawyer/accountant)
Owes D’s general duties (to extent possible)
- Small Business, Enterprise and Employment Act 2015
Liable for wrongful trading (s. 214 IA)
What is required for loans to directors?
S. 197 CA
1) SHs’ OR
- Co’s SHs
- Co’s SHs + Holding Co’s (if loan made to Holding Co’s D)
- UNLESS Limited Co is NOT UK-registered/wholly owned subsidiary
2) Memorandum > SHs (in advance of meeting)
- Nature of deal
- Amount
- Purpose
- Extent of Co’s liability under connected deal
What happens if SHs’ OR is not reached to make Ds’ loans?
Voidable (at Co’s option) (subject to exceptions like TP rights acquired in good faith)
If exercised;
- D to pay back Co loan + gains (direct/indirect)
- D + authorised Ds to indemnify Co for loss/damage
- Even if these provisions are breached => NO criminal penalties
What type of loans do not require SHs’ OR?
Sections 204-207 CA
- Allow D to meet Co’s expenditures
- Allow D to properly perform duties + loan < £50k (aggregate)
- Advance for criminal/civil proceedings re negligence
- D’s default/breach of duty or trust
- Small loans to D < £10k
- Credit transaction < £10k
- Credit transaction in Co’s ordinary course of business
When must directors declare interests in contracts?
1) D interested (directly/indirectly) in contract/proposed contract with Co
2) Must declare nature of interest
- At BM where said contract disclosed
- Written notice => Ds (full and precise info + that D is member of special company/particular firm)
3) If D is director (not member) of other Co
- Must be necessary to disclose interest re transactions
- Otherwise crime punishable by fine
- UNLESS SHs ratify through written resolution/GM
When must directors not declare interests in contracts?
NOT likely CoI
Other Ds are/should be already aware of interest
Interest arises out of D’s service contract w/ Co + considered by Board
=> Can use these as defences for breach of duty where D did not declare due to;
- Confidentiality reasons
- D NOT being aware of declaring obligation
- D neglecting to fulfil obligation
What is a substantial property transaction?
Sale/Purchase of ‘substantial non-cash asset’ (land) to/from D (family/trust/partnership/connected company)
Value (whichever is lower)
- X > £100k
- 10% of net asset value [Assets LESS liabilities] (by reference to special value that asset may have to relevant D) > £5k
Requires either;
- OR (GM)
- WR
Prevents D from manipulating price paid
- NOT buy assets at less than true value
- NOT transfer own property to Co at above value without approval
What happens if the requirements for a substantial property transaction are contravened?
Voidable (at Co’s option)
- D to account for profits
- D + authorised Ds to indemnify Co for loss/damage
NOT voidable
- Contract subsequently affirmed by SHs within reasonable period
- Co is indemnified by others for losses
- TP rights (acquired in good faith, for value, no notice of contravention by non-parties) would be affected by avoidance
What is an Executive Director? How are they employed?
1) Appointment
2) Enter service contract
- Rights (salary, ancillary remuneration)
- Duties (defined obligations)
- NOT more than 2 years’ guaranteed employment (CA)
Specified role in management
- Finance/Sales/Marketing/Production director
What is a Non-Executive Director?
Planning + policy-making
- NOT D2D management
Prestige, experience, contacts, specialist knowledge
Contract governed by AA/common law/statutes
How is a director’s remuneration determined?
Executive directors
- At Ds’ discretion
Non-executive directors
- AA > Compensation
- OR > Fees
SoS can request more info (s. 142)
Disclosure of D’s remuneration and benefits (advances, loans) (CA)
Co must keep copy of service contract (at least 1 year after expiration)
- Helps determine cost of removal of D in damages (wrongful/constructive/unfair dismissal or redundancy payment) => Helps SH remove D before term expires by inspecting service contract
How may a director be disqualified?
AA
- D suffers mental disorder
- D resigns
- D goes bankrupt
- D absent from BM for 6 month w/o Board approval
Company Directors’ Disqualification Act (CDDA) 1986) > Disqualification for 2-15 years
- Guilty of general misconduct connected to Co
- Guilty of relevant foreign office
- Provides directions/instructions to another person who is subject to disqualification order/gives disqualification undertaking
- Director of insolvent company (unfit for company management > Court will consider past duty breaches re Co which D is/has been director OR wrongful trading)
Is a company bound by a director’s non-authorised transactions?
D NOT authorised
- NO actual/apparent auth
- Exceeds powers given by Ds/AA
- Normally can enter with express/implied auth + in writing under common seal/Co’s behalf (except in Scotland) (s. 43)
Section 39
- TP can NOT question validity of D’s act (even if beyond Co’s constitution)
Section 40
- TPs NOT to enquire Ds’ powers (assumed unlimited powers)
- TPs presumed to act in good faith (UNLESS contrary provisions) (even if deal event beyond Ds’ powers)
Sections 39 + 40 NOT applicable
- TP is D
- TP is D’s holding company
- TP is connected w/ Co (TP holds +20% share capital; TP exercises +20% voting power at GM)
Section 41 > Voidable (at Co’s option)
Section 41 > NOT voidable
- Restitution of money/asset subject matter of proceedings => NO longer possible
- Co indemnified for loss/damage
- Rights acquired bona fide for value + w/o actual notice of Ds exceeding powers by non-party affected by avoidance
- Transaction affected by Co
Authorising TPs/Ds are liable to indemnify Co for loss/damage + accounting for gains
What are irregular contracts?
D NOT properly authorised
- Appears about to exceed powers
Co has NO legal obligation to TP yet
SH to seek injunction to restrain D
D liable for gains + indemnify Co for loss/damage
When may directors be personally liable?
Fraud/Negligent misrepresentation
During WU/Admin => Appears that D was knowingly party carrying on business w/ intent to defraud creditors
=> Court may order D to contribute to Co’s assets
BEFORE incorporation => Contract signed by D on Co’s behalf
When may directors be personally liable?
Fraud/Negligent misrepresentation
During WU/Admin => Appears that D was knowingly party carrying on business w/ intent to defraud creditors
=> Court may order D to contribute to Co’s assets
BEFORE incorporation => Contract signed by D on Co’s behalf (s. 51 CA)
D to personally guarantee Co’s debts/contracts
- Provide security (D’s personal assets - mortgage/charge over D’s home)
During liquidation/insolvent administration => Appears that D knew/ought to conclude (before such event) NO reasonable prospect of Co avoiding liquidation/admin
=> Court may order Ds to contribute to Co’s assets
- UNLESS Ds can show they took every step available to minimise loss to creditors
What is required for board meetings?
1) Secretary/D to circulate BM agenda/details > ALL Ds (NOT D absent from UK)
2) Articles > Specified no. Ds (fixed by Ds)
a) Board meeting
1) Quorum (+2 Ds present physically/telephone call)
2) Either;
- Maj. vote of Ds present + one-person one-vote basis
- Equal vote (Articles > Chairman (elected by Ds) as casting vote)
b) Written decisions (NOT under CA)
- Unanimous vote
- ALL eligible Ds indicate to each other they share common view
- Shares same effect as BM decisions
What is the rule for keeping record of board meetings?
Ds (NOT SHs) to inspect;
- All proceedings’ minutes
- All proceedings at Ds’ meeting for +10 years since BM
Chairman (current/next BM) to authenticate records => Thus;
- Counts as evidence of BM
- Meeting duly held and convened
- All proceedings deemed duly taken place
- All appointments at meeting deemed valid
