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
