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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
What is the duty to promote success?
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
26
What is the **holding company** exemption, and what are its implications in transactions with directors?
where loan is made to a director of a wholly-owned subsidary, no shareholder approval is needed from its holding company.
27
What is the concept of **enlightened shareholder value**?
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
28
If a company is insolvent or on the brink of such, to whom is the director's duty to *shareholders* displaced?
To the **creditors**
29
Who fall in the category of a **connected person** in directors' transactions with the company (governed by the CA '06)?
**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)
30
What are the objective and subjective limbs of a director's duty to exercise care, skill, and diligence?
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)*
31
What standard will a director be judged by?
Whichever imposes the higher obligation
32
What is the duty to exercise independent judgment?
Director must exercise independent judgment, without subordinating their powers to the will of others
33
When will a director not be deemed to have *subordinated their powers to the will of others*?
When they act in accordance with an agreement entered into by the company, or in a way authorised by the articles
34
What else does the duty to exercise independent judgment *not* prevent?
**Seeking advice** from experts, as long as the director makes the final decision as does not delegate this to the expert
35
What is the duty to avoid conflicts of interest?
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
36
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?
No, it is still a conflict
37
In what three situations will a conflict of interest between director and company not arise?
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
38
What is an exception to the duty not to accept a benefit from third party conferred by reason of being a director?
Where the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest
39
What is the duty to declare interest in a transaction?
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
In what form must the notice of an interest be, and what must it include?
Written, or oral at a meeting, and it must include the nature and extent of the interest
41
Is a director interested in a transaction counted toward the quorum *on that decision*?
No
42
In what three situations will a director not have to declare an interest in a transaction?
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
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?
Shareholder approval
44
Under the model articles, what is required for any director to call a board meeting?
Giving reasonable notice to other members, or authorising the company secretary to give notice
45
What are the two ways a director can be removed from office?
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
What are the filing and administrative requirements upon a director's exit? | form name
File Form TM10 at Companies House and update Register of Directors
47
How is *reasonable notice* determined?
Based on the situation
48
Does the notice need to be in writing?
No
49
What three things must the notice of a board meeting contain?
1. Date/time 2. Location 3. How the meeting should be held if all directors won't be in the same place
50
Notice of a board meeting must be given to all directors unless...?
Unless the director has waived entitlement to notice of that meeting
51
What is the usual threshold for votes on an issue at a board meeting?
Simple majority
52
Who has the casting vote in the event of a deadlock, and what is the effect of this?
The chairman, effectively giving them a second vote on the issue
53
What is the minimum amount of directors need for a quorum?
Two
54
What is required for a director to pass a written resolution without a meeting?
Approval of **all** directors, not just a majority
55
Does a director whose service contract is being agreed at a meeting form part of the quorum or the vote on that issue?
No
56
Who has the power to remove directors, and what is the vote threshold?
Shareholders, by simple majority
57
Can a director be removed by written resolution?
No
58
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?
It gives weighted voting rights to a *director* who is also a shareholder in the event of a resolution to remove a director
59
How much special notice are members required to give to the company when intending to pass an OR to remove a director?
at least 28 days before convening GM
60
Can the written resolution procedure be used to remove a director from office?
No - in-person GM needs to be held.
61
How should the board proceed once it has received special notice to remove a director?
Must send a copy of the special notice to the concerned director.
62
What rights does the director have at the shareholder meeting to remove them?
1. Make a written representation 2. Speak at the *shareholders* meetings, even if not a shareholder
63
Under Plc's model articles, how often must directors' be reappointed?
occur every 3 years
64
What three things is a disqualified director prohibited from doing?
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
What four categories of things can a director be disqualified for?
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
How can a director be disqualified for wrongful trading?
If the company was insolvent when they traded and they knew
67
Who appoints and removes the company secretary?
Directors
68
To be a secretary of a Plc, a person must have one of what four qualifications?
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
What are a secretary's three responsibilities?
1. Maintaining books and records 2. Taking minutes at meetings 3. Making sure company is in compliance with statutory obligations
70
What types of dealings can a secretary bind a company on?
Dealings of an **administrative nature,** of the type that a third party could *reasonably assume are within a secretary's powers.*
71
Distinction between executive and non-executive directors
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
Is a private company required to have a secretary?
no
73
What obligation does a company have in respect of its directors' service contracts?
kept at the company's registered office + available for inspection by company's members
74
Directors' conflict duties
- 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
Directors' general duties
- 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
What underpins directors' duty to promote company's success?
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
Statutory factors directors should 'have regard' to when considering whether decision is in the best interests of the company
- 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
When determining whether directors have complied with their duty to exercise reasonable care, against what standard is their conduct judged?
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
What principle duty underpins directors' conflict duties?
fiduciary duty - no conflict/profit rules
80
Are retired directors still under a duty to avoid conflicts of interests?
yes - duty applies even as retired director regarding property/information/opportunity D became aware of as a director
81
Will a conflict of interest arise even where company could/would not have taken advantage of the opportunity?
Yes
82
Who can approve a directors' receipt of third-party benefits in relation to s.176?
shareholders only or Company's Articles
83
In what circumstances should a director declare their interest in a proposed transactions under s.177?
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
To whom, and when should a director declare their interest in company transaction under s.177?
Full disclosure must be given to the board of directors **before** transaction is entered into - in writing or at Board meeting.
85
Restrictions on director's decision-making when approving s.177
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
When is disclosure not required under s.177?
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
Remedies for breach of directors' duties
depend on duty breached - s.174 - damages (tort) - s.171-173 + conflict duties - equitable and common law damages, equitable remedies (ie. injunction).
88
How a director's breach be remedied after it has already taken place?
shareholders ratify breach by O.R
89
What acts/breaches can shareholders not ratify?
illegal acts - ie. wrongful/fraudulent trading. - Any breaches of fiduciary duty occurring at insolvency stage.
90
Under the Model Articles, does the Board have power to appoint alternate directors, and if not, what solution is available?
No - will need to pass a SR to amend the articles to allow for this.
91
What is a key point to remember about the context where a *proxy* versus an *alternate* is appointed?
**Proxy** -attends GM on shareholder's behalf. **Alternate** - attends Board meeting on a director's behalf.
92
What procedure might provide a quicker way for the board to make decisions?
taking a decision by written resolution
93
What is required for a director to be absolved on any liability for breaching their no-conflict duty under s.175?
obtain approval from the Board
94
Can the board approve a breach of s.177 to accept benefits from third-parties?
no... offence under the Bribery Act

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