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(APD) Business Law and Practice > 4. Directors > Flashcards

4. Directors Flashcards

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1
Q

What is a ‘De Facto Director’

A

(1) NOT validly appointed as a director
(2) Purports to be a director

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2
Q

What is a ‘Shadow Director’ ?

A

(1) NOT validly appointed as a director
(2) Does NOT purport to be a director BUT exerts influence / control over the company

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3
Q

What is the minimum number of directors for:
(a) Private company
(b) Public company

A

(a) Private - 1
(b) Public - 2

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4
Q

How many ‘human’ directors (i.e. not a company) must a public and private company have?

A

At least 1

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5
Q

What are the 4 requirements of a person to be a ‘human’ director?

A

(1) 16 or over
(2) Mentally / physically capable
(3) NOT bankrupt
(4) NOT disqualified from being a director

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6
Q

How are the initial / first director(s) appointed?

A

Automatically on incorporation - named on the form IN01

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7
Q

How many directors does the Model Articles assume and what is the rational behind this?

A

2
Why? - meet Quorum requirements in a BM

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8
Q

Under the Model Articles, what 2 groups of people can appoint a director and what must they each pass to do this?

A

(1) Directors - Board Resolution (BR)
(2) Shareholders - Ordinary Resolution (OR)

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9
Q

What is an ‘Executive Director’?

A

Director + Employee (of company)

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10
Q

What is a ‘Non-Executive Director’?

A

Director + NOT Employee (of company)

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11
Q

To appoint a ‘Non-executive Director’, they must be appointed as a Director.What 2 resolutions can be used to do this?

A

BR or OR

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12
Q

To appoint an ‘Executive Director’, they must be appointed as both a Director and then as an employee. What resolutions are required to do this?

A

Director - BR or OR
Employee - BR

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13
Q

What 3 steps must be taken after a new Director has been appointed?

A

(1) NOTIFY COMPANIES HOUSE within 14 days of the appointment by form AP01 (human) or AP02 (company)
(2) Enter director on its REGISTER OF DIRECTORS
(3) Enter director on its REGISTER OF DIRECTORS’ RESIDENTIAL ADDRESSES

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14
Q

When must Companies House be notified of the appointment of a new Director?

A

Within 14 days (of appointment)

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15
Q

What form is used for the appointment of a new director who is:
(1) Human
(2) Company

A

(1) AP01
(2) AP02

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16
Q

What type of duty do directors have to a company?

A

Fiduciary

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17
Q

What is Director’s Duty under s171?

A

Duty to act within company’s constitution (i.e. ARTICLES) and exercise their power for PROPER PURPOSES

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18
Q

Under s171 - the duty to act within company’s constitution (i.e. Articles) and exercise their power for proper purposes. What is the meaning of ‘exercise their power for a proper purpose’?

A

Director’s should act in the best interests of the company (NOT their personal interests)

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19
Q

Under s172 - Duty to promote the success of the company. What type of test is used to judge if a director did this?

A

Subjective (i.e. did the director in GOOD FAITH believe it would promote the success of the company?)

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20
Q

What is Director’s Duty under s172?

A

Duty to promote the SUCCESS of the company

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21
Q

Under a breach of s172 - Duty to promote the success of the company - is it likely to be established?

A

No (subjective test - did the director in GOOD FAITH believe it would promote the success of the company?)

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22
Q

What is Director’s Duty under s173?

A

Duty to exercise INDEPENDENT judgment

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23
Q

Is taking professional legal / financial advice a breach of a director’s duty under s173 -Duty to exercise independent judgment?

A

No

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24
Q

What is Director’s Duty under s174?

A

Duty to exercise REASONABLE care, skill and diligence (CSD)

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25
Q

Under Director’s duty s174 - Duty to exercise reasonable care, skill and diligence -
What standard will a director be held to?

A

Reasonably diligent person

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26
Q

Under Director’s duty s174 - Duty to exercise reasonable care, skill and diligence - a director will be held to the standard of a ‘reasonably diligent person’.

(1) What 2 components make up this test?
(2) Is each component subjective or objective?

A

(1) OBJECTIVE - knowledge, skill and experience that may REASONABLY be expected of a director in a similar position

(2) SUBJECTIVE - Raised based on the ACTUAL LEVEL of knowledge, skill and experience the person has

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27
Q

What is Director’s Duty under s175?

A

Duty to avoid conflicts of interest

28
Q

What 3 areas of conflict are likely to feature in a breach of Director’s Duty under s175 - Duty to avoid conflicts of interest?

A

(1) Property
(2) Information
(3) Opportunity

29
Q

What are the 2 exceptions that will stop a director breaching their duty under s175 - Duty to avoid conflicts of interest?

A

(1) Situation CANNOT REASONABLY be regarded as likely to give rise to a conflict of interest
(2) Directors AUTHORISE breach by Board Resolution (BR)

30
Q

(1) How can a director’s breach of s175 -Duty to avoid conflicts of interest - be authorised?
(2) Will the interested director be able to vote?

A

(1) Board Resolution (BR)
(2) No

31
Q

What is Director’s Duty under s176?

A

Duty to NOT accept benefits from third parties (e.g. a client)

32
Q

(1) What is the exception to the director breaching their duty under s176 - Duty to NOT accept benefits from third parties (e.g. a client)

(2) What is the main example of this?

A

(1) Acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict

(2) Normal corporate hospitality

33
Q

What is Director’s Duty under s177?

A

Duty to declare interest in a proposed transaction or arrangement

(SEE Deck 3)

34
Q

What are the 4 remedies available for a breach of Director’s Duties under s171-177 (NOT s174)?

A

(1) Account of profits
(2) Damages
(3) Rescission
(4) Injunction

35
Q

What is the 1 remedy available for a breach of Director’s Duties under s174 - Duty to exercise reasonable care, skill and diligence

A

Damages

36
Q

What are the 3 ways a Director can obtain relief from liability for a breach of Director’s Duties?

A

(1) Approval by Directors
(2) Approval by Shareholders
(3) Approval by Court

37
Q

A breach of Director’s Duties can be authorised by SHAREHOLDERS
(a) Through what resolution?
(b) Whose votes will be excluded?

A

(a) By ordinary resolution (OR)
(b) Any ‘interested’ director who is also a shareholder

38
Q

Relief from a breach of Director’s Duties can be authorised by the court. What 2 tests must the court be satisfied of - ‘The court believes the Director…

A

(1) Acted reasonably AND
(2) Best interests of the company

39
Q

What powers do the MA give to the Directors?

A

All power subject to any direction given by Special Resolution

40
Q

How are the 2 ways Director’s are able to make a decision?

A

(1) Pass a Board Resolution (BR) at a Board Meeting (BM)
(2) Unanimous agreement

41
Q

What are the 4 key restrictions on Director’s powers that require the involvement of shareholders?

A

(1) Substantial property contracts
(2) Director’s service contracts
(3) Loans to directors
(4) Loss of office payments

42
Q

How must a ‘substantial property transaction’ be approved and by whom?

A

Shareholders by Ordinary Resolution (OR)

43
Q

To be a ‘substantial property transaction’, 4 criteria have to be met. What are these?

A

(1) Acquisition / disposal of a non-cash asset
(2) Between the company and director OR a connected person
(3) Transaction must be worth > £5,000
(4) Transaction must be > £100,000 OR > 10% of company’s net asset value

44
Q

To be a ‘substantial property transaction’ the property must be worth more than £5,000 and be….?

A

Worth > £100,000 OR > 10% of company’s net asset value

45
Q

To be a ‘substantial property transaction’, the transaction must be between (a) AND (b) OR (c)?

A

(a) Company
(b) Director
(c) Connected person

46
Q

What are the two types of ‘connected people’ in a ‘substantial property transaction’?

A

(1) Family
(2) Body corporate

47
Q

A ‘connected person’ in a ‘substantial property transaction’ includes family. What are the 3 main categories of people NOT qualify as ‘family’?

A

(1) Siblings
(2) Grandparents
(3) Grandchildren

48
Q

A ‘body corporate’ can be a ‘connected person’ in a ‘substantial property transaction’. What does ‘body corporate’ mean?

A

Company where a
(a) Director OR
(b) Persons connected with a director own MIN 20% of the voting rights

49
Q

If a ‘substantial property transaction’ is made without obtaining the necessary approval (OR by shareholders), what will occur?

A

Transaction will be VOIDABLE

50
Q

A Director’s ‘service contract’ will need shareholder approval if there is a fixed term of what length?

A

Fixed term > 2 years

51
Q

If a Director’s ‘service contract’ with a fixed term > 2 years is made without shareholder approval, will the service contract be terminable?

A

YES - service contract terminable on REASONABLE notice

52
Q

(1) What is the general rule on whether shareholder approval is needed for LOANS / SECURITY given to a Director by the Company?
(2) What are the 3 exceptions to this?

A

(1) YES - shareholder approval by OR
(2)
(a) Loan £10,000 or less
(b) Used to meet company expenditure
(c) Companies in the same group

53
Q

(1) What is the general rule on whether shareholder approval is needed for ‘loss of office payments’ given to a Director?
(2) What are the 3 exceptions to this?

A

(1) YES - shareholder approval by OR
(2)
(a) £200 or <
(b) Existing contractual obligation
(c) Employment tribunal damages

54
Q

What are the 5 ways a Director will no longer serve as a Director? (clue - 2Ds3Rs)

A

(1) Death
(2) Retirement
(3) Resignation
(4) Removal (by shareholders)
(5) Disqualification (CCDA 1986)

2Ds3Rs

55
Q

A Director who wishes to retire or resign voluntarily, must serve what?

A

Serve a notice of resignation to the company

56
Q

What are the 2 key ways a Director can be removed?

A

(1) Bankruptcy Order
(2) Mentally / physically incapable

57
Q

For the shareholders to remove a Director:
(1) What must they call?
(2) What notice period must be given?
(3) What resolution must be passed at the meeting?

A

(1) General Meeting (GM)
(2) ‘Special notice’ - 28 CLEAR days
(3) Ordinary Resolution (OR)

58
Q

When removing a Director through a OR by the shareholders, what key clause in the Articles should be checked beforehand?

A

Bushell v Faith clause

59
Q

(1) What is a ‘Bushell v Faith’ clause?
(2) Is it contained in the Model Articles?

A

(1) Clause that gives shareholders who are also directors weighted voting rights on a resolution to remove them as a director (e.g. 2 votes per share)

(2) NO

60
Q

Following the appointment / removal of a Director, what 3 procedural steps must be taken?

A

(1) Update the ‘register of directors’
(2) Update the ‘register of director’s residential addresses (if held)’
(3) File relevant form (AP01, AP02, TM01, TM02) at Companies House within 14 days

61
Q

To appoint or remove a director, the relevant forms must be submitted at Companies House within 14 days. What form would be submitted for:
(1) Appointment of a human director
(2) Appointment of a company director
(3) Removal of a human director
(4) Removal of a company director

A

(1) AP01
(2) AP02
(3) TM01
(4) TM02

62
Q

Who can disqualify Directors?

A

The court

63
Q

How long can the court disqualify a director for?

A

2 to 15 years

64
Q

What are the 2 main grounds the court will disqualify a director under?

A

(1) UNFIT director of an INSOLVENT company (e.g. deliberate disregard for creditors like hiding stock)
(2) Wrongful / fraudulent trading

65
Q
A

(APD) Business Law and Practice (11 decks)

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