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SQE2 - Business Organisations > 1.4 Business - Directors > Flashcards

1.4 Business - Directors Flashcards

1
Q

What are directors’ powers?

A

Section 250 CA

AA

Direct/Govern/Control policy or company management

SHs can NOT exercise Ds’ powers in GM

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2
Q

What is a Register of Directors?

A

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

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3
Q

How can private companies elect to keep register of directors in public?

A

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

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4
Q

What is the difference between shareholders and directors?

A

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
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5
Q

How are Directors’ duties enforceable?

A

S. 171 CA > AA > D’s powers

Owed to Co

  • Co can enforce vs Ds
  • TP (including workforce) can NOT enforce vs Ds
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6
Q

Where do directors derive their powers from?

A

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)
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7
Q

How can directors’ powers bind companies?

A

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

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8
Q

What is Director’s duty to promote Company’s success?

A

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
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9
Q

What is Director’s duty to exercise independent judgment?

A

S. 173

1) Make own judgment
2) Exercise judgment independently
- NOT blindly follow others’ views
- Consider Co’s interests

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10
Q

What is Director’s duty to exercise reasonable care, skill and diligence?

A

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
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11
Q

What is Director’s duty to avoid conflicts of interest?

A

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

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12
Q

What is Director’s duty not to accept TP benefits?

A

S. 176

Conferred by reason of;

  • D being director
  • D doing/NOT doing anything as director
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13
Q

What is Director’s duty to declare interests in proposed transaction/arrangement with Company?

A

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
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14
Q

What are the consequences of Directors’ breach of duties?

A

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

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15
Q

How can directors’ breaches be rectified?

A

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

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16
Q

What provisions cannot protect D from liability for breach of duty?

A

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

17
Q

What is required for appointing directors?

A

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

18
Q

What is required for appointing directors at public companies?

A

S. 160

  • Vote individually
  • 2 or more persons as Ds appt by single resolution (unanimous) at GM
19
Q

What documents must be sent to Companies House for appointing directors?

A

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)

20
Q

Are Directors’ acts still valid if not properly appointed?

A

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
21
Q

How may directors be removed from office?

A

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

22
Q

Who are shadow directors?

A

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)

23
Q

What is required for loans to directors?

A

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

24
Q

What happens if SHs’ OR is not reached to make Ds’ loans?

A

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
25
Q

What type of loans do not require SHs’ OR?

A

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
26
Q

When must directors declare interests in contracts?

A

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

27
Q

When must directors not declare interests in contracts?

A

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
28
Q

What is a substantial property transaction?

A

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
29
Q

What happens if the requirements for a substantial property transaction are contravened?

A

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
30
Q

What is an Executive Director? How are they employed?

A

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

31
Q

What is a Non-Executive Director?

A

Planning + policy-making
- NOT D2D management

Prestige, experience, contacts, specialist knowledge

Contract governed by AA/common law/statutes

32
Q

How is a director’s remuneration determined?

A

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

33
Q

How may a director be disqualified?

A

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)
34
Q

Is a company bound by a director’s non-authorised transactions?

A

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

35
Q

What are irregular contracts?

A

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

36
Q

When may directors be personally liable?

A

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

37
Q

When may directors be personally liable?

A

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

38
Q

What is required for board meetings?

A

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

39
Q

What is the rule for keeping record of board meetings?

A

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

SQE2 - Business Organisations (16 decks)

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