5. The board of directors

Question 1

What is a director?

Answer 1

S. 250 CA2006 states that director is “Any person occupying the position of director, by whatever name called”.

Question 2

What is the difference between the @de facto and @de jure director?

Answer 2

De facto - acts as director, but not validly appointed

De jure - validly appointed as a director

Question 3

What are:
shadow director
alternate director
nominee director?

Answer 3

Shadow - in accordance with whose directions the directors are accustomed to act
Alternate - appointed to act as a director
Nominee - appointed to the board on behalf of another person (creditor or shareholder)

Question 4

Who cannot act as directors?

Answer 4

The following are illegible to act as director:

• a legal person, unless provided by regulations
• minor
• auditor
• person subject to disqualification order, unless permitted by court
• undischarged bankrupt, unless permitted by court

Question 5

Who has the power to appoint a director?

Answer 5

Co’s first directors will be appointed on incorporation.
After that, appointment is a matter for the AA (articles).
If AA does not specify, then Model Articles apply.
If excluded in the AA, then the power is with the members by passing an ordinary resolution

Question 6

What is in s.161? When it does not apply?

Answer 6

S.161 state that the acts of person acting as a director are valid notwithstanding that it is afterwards discovered that:

1. there was a defect in the appointment
2. there were disqualified from holding office
3. they had ceased to hold office
4. there were not entitled to vote on the matter in question

S. 161 will not apply in the following situations:

1. when the applicant (the person relying on s.161 has not acted in good faith) - case of Channel Collieries vs Dover Railway
2. when the applicant knew of the defect in the appointment
3. there was no purported appointment in the first place

Question 7

Are directors entitled to be paid for the services?

Answer 7

A director is a prima facie office holder, and such not entitled to be paid, unless authorised (by articles or service contract)

Question 8

Who determines the remuneration?

Answer 8

Company’s AA. If not stated in the AA, then at the co’s general meeting.
MA state that D can determine their own remuneration or payment for services
In larger co, the role is delegated to Remco.

Question 9

Four ways in which the directors can vacate office?

Answer 9

1. Resignation
2. In accordance with AA
3. Removal
4. Disqualification

Question 10

How can a director be removed from office?

Answer 10

Can be removed in 2 ways:

1. By passing ordinary resolution (special notice)
2. By exercising power of removal in the AA.

Question 11

What are the grounds for disqualification?

Answer 11

1. Convicted of an indictable offence in connection with promotion, formation, management liquidation or striking off of a Co, or with the receivership of the Co porperty
   2, Have been in default re compliance
2. Fraudulent trading
3. Convicted of summary offence during the five year period prior to conviction
4. Convicted of indictable offences that involve the promotion, formation, management etc
5. Have been a director/shadow director that become insolvent
6. In the public interest to be disqualified (in the opinion of the Sec of State
7. Have exercised requisite influence over the person disqualified under s.6 or s.8
8. Breached competition law
9. Found liable for fraudulent or wrongful trading
10. Undischarged bankrupt

Question 12

What is the difference between a disqualification order and a disqualification undertaking?

Answer 12

A disqualification order is an order of the court providing that a person is to be disqualified.

Undertaking - is an undertaking from the director that he will not, for a specified period, act as director of company.

Question 13

What does article 2 and 3 of Model Articles (MA) state?

Answer 13

Articles Pt 2 Model Articles for PLCs and Private Cos gives them control of the day-to-day running of the company.

Article 3 Part 2 Articles of Association confirms that Directors have authority to “COLLECTIVELY exercise” all the powers of the company. Anyone dealing with a company director in good faith and for value is entitled to assume that the director has acted properly and within his powers. Sec. 40 CA 2006.

Question 14

Division of power within a company

Answer 14

Smith –v- Henniker-Major & Co (a firm) (2002)

The Board and nominated individuals can bind a company in contract (i.e. a nominated director (as decided at a Board Meeting)). Contracts can be made under seal and countersigned by a director and the Secretary or by two directors, or simply signed by two directors or one director and the Secretary or signed by one director and his signature witnessed. Sec. 44 CA2006.

If the contract is in writing and sealed or executed (as per Sec. 44) the company is bound.

Question 15

How members can control the directors

Answer 15

Removal (s.168/169 Co Act 2006)
Fail to re-elect them
Amend articles
By Article 4 PLCs and private Cos can pass a special resolution telling the directors what to do.

Question 16

Long term fixed service contracts

Answer 16

By s.188, any fixed term contract made to the director entitling him to more than two years notice requires the consent of the members in general meeting.

Irregularity in qualification

By s.161 Co. Act 2006, the acts of the director are valid and binding upon the company notwithstanding any defect in his appointment or qualification.

Question 17

Is holding of qualification shares required by law?

Answer 17

A company may, by its Articles, require that a director must hold qualification shares before he can hold office as a director.
If qualification shares are required by the company’s articles, the director must acquire the same within two months or such shorter period as provided for by the articles.

N.B. Neither the Co Act 2006 nor the Model Articles provide for the holding of qualification shares.
Therefore, the Model Articles will have to be amended accordingly.

Question 18

Liabilities of a Secretary

Answer 18

The Companies Acts impose liability on a Company Secretary when he is in default of his duties.
A qualified Company Secretary will know the penalties for default and there will be no excuse. The penalty depends upon the offence e.g.:-
Company failing to keep accounting records: on indictment two years imprisonment or a fine or both.
Company with share capital, failing to file annual returns: the statutory maximum.
Default in filing Forms AP/TM. The statutory maximum.
Corporate Manslaughter and Corporate Homicide Act 2007. Although the Act does not provide for any offences which individual directors of a company will be liable, it does provide for unlimited fines to be imposed on companies – and other organizations – for gross failings in Health & Safety management if they lead to fatalities.
Individual officers may be severally liable in the event of fraud arising from an audit. Companies should effect insurance to cover such risks.
In England and Wales the statutory maximum means:- the prescribed sum under the Magistrates Courts Act 1980. In Scotland, the prescribed sum under sec.289B Criminal Procedure (Scotland) Act 1975.
Sec 1112 Co Act 2006. It is an offence to knowingly or recklessly provide false or misleading information to Registrar of Companies.

Question 19

S.168

Answer 19

Director removal
s. 168(5) provides that removal as a director pursuant to s.168 does not prejudice director’s entitlement to compensation for early termination of service contract should it have terminated with her ceasing to be a director.