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SQE1 - BLP > 5. Companies: Directors and Officers > Flashcards

5. Companies: Directors and Officers Flashcards

1
Q

How is a director appointed in a company limited by shares?

A
  1. Ordinary shareholder resolution if contract is for a term longer than 2 years
    or
  2. Board resolution if contract is for a lesser duration.
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2
Q

What is the criteria to be satisfied for a transaction with directors to be classed as a substantial property transaction?

A

Acquisition or disposal of a substantial non-cash asset by a director of the company, connected person, or director of holding company.

Substantial if asset is worth more than £100k.
* below £5k - not substantial
* between £5k-100k - only if it exceeds 10% of company’s net asset value.**

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3
Q

When is shareholder approval not needed for a loan made to a director by the company?

A

1) Aggregate value of the loan (or series of loans) is less than £10,000;

2) Loan is for less than £50,000 and is intended for expenditure on company business;

3) Loan is made to a director to fund the defence of civil or criminal proceedings brought in connection with the company.

4) Credit transaction of up to £15,000
* transaction between director and company where it agrees to provide directors with goods or services on the understanding these will later be repaid.

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4
Q

Within what time period of a director appointment or a change to a director’s details must the Registrar be notified?

A

14 days

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5
Q

What is a de jure director?

A

Director who is formally appointed and registered with the Registrar

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6
Q

What is a de facto director?

A

Individual who acts/hold themselves out as a director, despite not being appointed as one.

Subject to the same fiduciary duties + liability as de jure Ds.

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7
Q

What is a shadow director?

A

Individual who, although, not properly appointed as a director exercises major influence over other directors, who are accustomed to act in accordance with their instructions (‘pupeteer’)

note
professional advisers are expressly excluded from presumption.

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8
Q

What is an alternate director?

A

Someone appointed by a director to attend and vote at board meetings when unavailable.

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9
Q

What is a nominee director?

A

Person appointed by the board to represent particular stakeholder’s interests (ie. investor in company).

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10
Q

What is the maximum length a director’s employment contract can be before it needs shareholder approval?

A

Two years

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11
Q

What is a director’s status from an agency perspective?

A

Directors are agents of the company, and can bind the company in contract, and in tort (if acting with authority)

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12
Q

How can the board reach a decision without requiring a board meeting?

A

unanimously agree, and indicate to each other that they share share a common view by any means.

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13
Q

What four things will not affect the validity of acts of a person acting as a director, if they are subsequently discovered?

A
  1. Defect in appointment
  2. Disqualified from holding office
  3. Ceased to hold office
  4. Not entitled to vote on the matter in question
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14
Q

How is actual authority granted expressly?

A

In the articles, or by resolution

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15
Q

Although the articles generally require the board to act collectively, may the board delegate authority over specific matters to a particular director or group of directors?

A

Yes

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16
Q

Why does apparent authority not arise frequently in a company, and what is one situation where it might?

A

Because a director will generally not have the power to bind the company, except when the directors act as a board.

Apparent authority could arise through past dealings.

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17
Q

What are the two ways a company can execute a document?

A
  1. Affixing their seal
  2. Signature (2 directors, 1 directors and secretary)
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18
Q

What are the three ways a company can execute a document by signature?

A

Signature of:

  1. Two directors
  2. One director and a secretary
  3. One director, if signed in the presence of a witness who attests
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19
Q

What is required for shareholders to ratify a director’s conduct which was in breach of their duty, and whose vote would be disregarded?

A

Ordinary shareholders resolution

(excluding director’s own vote if also a shareholder)

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20
Q

What is a director’s common law duty?

A

Fiduciary duty to act in good faith and in the best interests of the company

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21
Q

Is it possible to exempt a directors from liability, otherwise attaching through breach of duty, negligence, or breach of trust?

A

No - any such provision is void.

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22
Q

What are the limits on a company’s ability to indemnify directors against claims brought by third parties concerning the director’s actions for the company?

A

Cannot be used for criminal or regulatory fines

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23
Q

Can a director still be subject to a statutory and fiduciary duty for the period they were a director, even after they cease to be one?

A

Yes, e.g. cannot act on an opportunity after you cease to be a director that you learned about whilst you were one

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24
Q

What is the limit on a director’s powers?

A

They must exercise powers only for the purpose for which they were conferred

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25
Q

What is the duty to promote success?

A

A director must act in the way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole

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26
Q

What is the holding company exemption, and what are its implications in transactions with directors?

A

where loan is made to a director of a wholly-owned subsidary, no shareholder approval is needed from its holding company.

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27
Q

What is the concept of enlightened shareholder value?

A

In promoting the success of the company, the directors need not focus solely on maximizing profit, and can consider other things like:

  1. Long term consequences of a decision
  2. Interests of company employees and other stakeholders
  3. Need to foster business relationships
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28
Q

If a company is insolvent or on the brink of such, to whom is the director’s duty to shareholders displaced?

A

To the creditors

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29
Q

Who fall in the category of a connected person in directors’ transactions with the company (governed by the CA ‘06)?

A

Member of the director’s family
Spouse, civil partner, co-habiting partner, child, or step child (if under 18 yrs old and living with director), parents.
* note - it does not include lateral relative (ie. siblings, aunts, uncles, etc)

Connected company where director or connected persons has 20% or more of its shareholding.

Trustee (or connected party) in trust where directior is a beneficairy.
Business partner (or connected party)

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30
Q

What are the objective and subjective limbs of a director’s duty to exercise care, skill, and diligence?

A

A director must exercise the care, skill, and diligence that would be exercised by a reasonably diligent person with:

  1. The general knowledge, skill and experience that may be expected of a director (objective), and
  2. The general knowledge, skill and experience the director in question actually has (subjective)
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31
Q

What standard will a director be judged by?

A

Whichever imposes the higher obligation

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32
Q

What is the duty to exercise independent judgment?

A

Director must exercise independent judgment, without subordinating their powers to the will of others

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33
Q

When will a director not be deemed to have subordinated their powers to the will of others?

A

When they act in accordance with an agreement entered into by the company, or in a way authorised by the articles

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34
Q

What else does the duty to exercise independent judgment not prevent?

A

Seeking advice from experts, as long as the director makes the final decision as does not delegate this to the expert

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35
Q

What is the duty to avoid conflicts of interest?

A

Director must avoid a situation in which they have or can have a direct or indirect interest that conflicts or may conflict with the interests of the company

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36
Q

In determining whether a conflict exists between a director and the company, is it relevant that the company was not able to take advantage of a particular opportunity themselves?

A

No, it is still a conflict

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37
Q

In what three situations will a conflict of interest between director and company not arise?

A
  1. Transaction is with the company itself, and the board knows of the director’s interest
  2. Situation cannot reasonably be regarded as likely to give rise to a conflict
  3. Matter has been authorised by the directors
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38
Q

What is an exception to the duty not to accept a benefit from third party conferred by reason of being a director?

A

Where the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest

39
Q

What is the duty to declare interest in a transaction?

A

If a director is directly or indirectly interested in a proposed transaction with the company, or becomes such, they must give notice to the other directors before entering into or continuing

40
Q

In what form must the notice of an interest be, and what must it include?

A

Written, or oral at a meeting, and it must include the nature and extent of the interest

41
Q

Is a director interested in a transaction counted toward the quorum on that decision?

A

No

42
Q

In what three situations will a director not have to declare an interest in a transaction?

A
  1. Transaction cannot reasonably be regarded as likely to give rise to a conflict
  2. Other directors are already aware
  3. Concerns director’s service contract which has already been considered by the board
43
Q

What is required for a company to make a loan to a director, or to guarantee or give security for a loan to a director by a third party?

A

Shareholder approval

44
Q

Under the model articles, what is required for any director to call a board meeting?

A

Giving reasonable notice to other members, or authorising the company secretary to give notice

45
Q

What are the two ways a director can be removed from office?

A
  1. Majority vote by board of directors
  2. Ordinary resolution passed by shareholders
    OR
  3. Director’s own resignation by giving notice to the company
46
Q

What are the filing and administrative requirements upon a director’s exit?

form name

A

File Form TM10 at Companies House and update Register of Directors

47
Q

How is reasonable notice determined?

A

Based on the situation

48
Q

Does the notice need to be in writing?

A

No

49
Q

What three things must the notice of a board meeting contain?

A
  1. Date/time
  2. Location
  3. How the meeting should be held if all directors won’t be in the same place
50
Q

Notice of a board meeting must be given to all directors unless…?

A

Unless the director has waived entitlement to notice of that meeting

51
Q

What is the usual threshold for votes on an issue at a board meeting?

A

Simple majority

52
Q

Who has the casting vote in the event of a deadlock, and what is the effect of this?

A

The chairman, effectively giving them a second vote on the issue

53
Q

What is the minimum amount of directors need for a quorum?

A

Two

54
Q

What is required for a director to pass a written resolution without a meeting?

A

Approval of all directors, not just a majority

55
Q

Does a director whose service contract is being agreed at a meeting form part of the quorum or the vote on that issue?

A

No

56
Q

Who has the power to remove directors, and what is the vote threshold?

A

Shareholders, by simple majority

57
Q

Can a director be removed by written resolution?

A

No

58
Q

Although the shareholders’ statutory right to remove a director overrides most provisions to the contrary in the articles, what does a Bushell v Faith clause provide?

A

It gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove a director

59
Q

How much special notice are members required to give to the company when intending to pass an OR to remove a director?

A

at least 28 days before convening GM

60
Q

Can the written resolution procedure be used to remove a director from office?

A

No - in-person GM needs to be held.

61
Q

How should the board proceed once it has received special notice to remove a director?

A

Must send a copy of the special notice to the concerned director.

62
Q

What rights does the director have at the shareholder meeting to remove them?

A
  1. Make a written representation
  2. Speak at the shareholders meetings, even if not a shareholder
63
Q

Under Plc’s model articles, how often must directors’ be reappointed?

A

occur every 3 years

64
Q

What three things is a disqualified director prohibited from doing?

A
  1. Act as a director
  2. Act as a receiver of a company’s property
  3. Take party in any way in promotion, formation, or management of a company
65
Q

What four categories of things can a director be disqualified for?

A
  1. Conviction of indictable offence related to a company
  2. Persistent breaches of companies’ legislation
  3. Fraud
  4. Summary conviction of offence relating to failure to comply with filing requirements
66
Q

How can a director be disqualified for wrongful trading?

A

If the company was insolvent when they traded and they knew

67
Q

Who appoints and removes the company secretary?

A

Directors

68
Q

To be a secretary of a Plc, a person must have one of what four qualifications?

A
  1. Held office of secretary of a Plc for three of the five years preceding appointment;
  2. Member of specified list of accountancy/secretarial bodies
  3. Barrister/solicitor in the UK, or;
  4. Anyone who appears to the directors of being capable of discharging the functions of secretary.
69
Q

What are a secretary’s three responsibilities?

A
  1. Maintaining books and records
  2. Taking minutes at meetings
  3. Making sure company is in compliance with statutory obligations
70
Q

What types of dealings can a secretary bind a company on?

A

Dealings of an administrative nature, of the type that a third party could reasonably assume are within a secretary’s powers.

71
Q

Distinction between executive and non-executive directors

A

executive director is involved in day-to-day management of the company and receives a salary under employment contract.

Non-executive directors - intended to provide company w/ independent advice and know-how.
- Role is limited to attending/voting in board meets and not an employee.

72
Q

Is a private company required to have a secretary?

A

no

73
Q

What obligation does a company have in respect of its directors’ service contracts?

A

kept at the company’s registered office + available for inspection by company’s members

74
Q

Directors’ conflict duties

A
  • duty to avoid conflict of interest
  • duty not to accept benefits from 3rd parties
  • duty to declare an interest in a proposed transaction or arrangement with the company
75
Q

Directors’ general duties

A
  • duty to act within powers
  • duty to promote the success of the company
  • duty to exercise independent judgment
  • duty to exercise reasonable care, skill, and diligence
76
Q

What underpins directors’ duty to promote company’s success?

A

Promote company’s success for benefit of its members as a whole while having regard to interests of wider stakeholders.
- non-exhaustive list of factors listed.

77
Q

Statutory factors directors should ‘have regard’ to when considering whether decision is in the best interests of the company

A
  • consequences in long-term
  • need to foster business relationships with suppliers, customers, and others.
  • impact of company’s operations on the community and environment
  • need to act fairly between members
  • desirability of maintain a reputation for high standards of business and conduct.
78
Q

When determining whether directors have complied with their duty to exercise reasonable care, against what standard is their conduct judged?

A

Tort principles apply - apply higher of the two thresholds.

Objective limb:
How a person with same skills, knowledge, and experience carrying out the same functions in relation to the company would have acted.

Subjective limb:
take into account any special knowledge/skills possessed by director in question.

79
Q

What principle duty underpins directors’ conflict duties?

A

fiduciary duty
- no conflict/profit rules

80
Q

Are retired directors still under a duty to avoid conflicts of interests?

A

yes - duty applies even as retired director regarding property/information/opportunity D became aware of as a director

81
Q

Will a conflict of interest arise even where company could/would not have taken advantage of the opportunity?

A

Yes

82
Q

Who can approve a directors’ receipt of third-party benefits in relation to s.176?

A

shareholders only or Company’s Articles

83
Q

In what circumstances should a director declare their interest in a proposed transactions under s.177?

A

where indirect or direct interest arises in a proposed transaction with the company.
- conflict may arise via connected persons (ie. D’s spouse or relatives)

84
Q

To whom, and when should a director declare their interest in company transaction under s.177?

A

Full disclosure must be given to the board of directors
before transaction is entered into - in writing or at Board meeting.

85
Q

Restrictions on director’s decision-making when approving s.177

A

Under MA 14(1) - director who made declaration of interest -
1. cannot vote as a D concerning transaction’s contract;
2. form part of the B.M quorum

86
Q

When is disclosure not required under s.177?

A
  1. where director is unaware of interest/transaction;
  2. interest cannot reasonably be regarded as giving rise to conflict of interest;
  3. directors knew/ought to have known about D’s conflict;
  4. concerns D’s service contract
87
Q

Remedies for breach of directors’ duties

A

depend on duty breached
- s.174 - damages (tort)

  • s.171-173 + conflict duties - equitable and common law damages, equitable remedies (ie. injunction).
88
Q

How a director’s breach be remedied after it has already taken place?

A

shareholders ratify breach by O.R

89
Q

What acts/breaches can shareholders not ratify?

A

illegal acts - ie. wrongful/fraudulent trading.

  • Any breaches of fiduciary duty occurring at insolvency stage.
90
Q

Under the Model Articles, does the Board have power to appoint alternate directors, and if not, what solution is available?

A

No - will need to pass a SR to amend the articles to allow for this.

91
Q

What is a key point to remember about the context where a proxy versus an alternate is appointed?

A

Proxy -attends GM on shareholder’s behalf.

Alternate - attends Board meeting on a director’s behalf.

92
Q

What procedure might provide a quicker way for the board to make decisions?

A

taking a decision by written resolution

93
Q

What is required for a director to be absolved on any liability for breaching their no-conflict duty under s.175?

A

obtain approval from the Board

94
Q

Can the board approve a breach of s.177 to accept benefits from third-parties?

A

no… offence under the Bribery Act

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