7c Duties Flashcards

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1
Q

What are the general duties of directors?

A
  • Act within powers
  • Promote success
  • Exercise independent judgement
  • Exercise reasonable care and dilengence
  • Avoid conflicts of interest
  • Not accept benefits from 3rd parties
  • Declare interest in a proposed transaction or arrangement
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2
Q

How would a director promote success of their company?

A
  • Act in the best interest of the company
  • Consider long term and short term effects of the company
  • Consider impact on stakeholders
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3
Q

How would a director exercise their independent judgement?

A
  • Ignore own personal interests and bias during decision making
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4
Q

How would a director exercise reasonable care and diligence

A
  • Objective test: have they displayed reasonable skill and care that a reasonable director would.
  • Subjective test: have they displayed reasonable skill and care that you would consider someone of their skill to do so.
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5
Q

How would a director disclose their interest in a proposed tranasaction?

A
  • Disclose to the board before the transaction has been entered into
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6
Q

If there is a breach of duty by the directors, what options does the company have?

A
  • Ratify his actions
  • Bring legal action - members are not allowed to do this.
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7
Q

What are the remedies for breach of duty?

A
  • Damages
  • Contracts between co and director become voidable
  • Recovery of property from director
  • Recovery of property from 3rd party (gained due to the breach by the director)
  • Injunction
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8
Q

What is fraudulent trading?

A

Trading with the intention to defraud creditors or someone else

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9
Q

What is wrongful trading?

A

Trading when they should have recognised no prospect of avoiding insolvency

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10
Q

What must be done to bring an action of fraudulent trading?

A

Prove intention

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11
Q

Who would an action of fraudulent trading be brought against?

A

Directors/anyone involved in the running of the business

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12
Q

What can fraudulent trading lead to with regards to civil and criminal action?

A
  • Civil action: defendant may be made to pay into the company to pay off debts or director may be disqualified.
  • Criminal: prison up to 10 years and or a fine.
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13
Q

How would you bring action against wrongful trading?

A

Prove that they should have recognised there was no prospect of avoiding insolvency.

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14
Q

Who would an action of wrongful trading be brought against?

A

Directors and shadow directors

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15
Q

When deciding whether a director should have recognised there was no prospect of avoiding insolvency, how will they be judged?

A

As a reasonable director - would a reasonable director be able to recognise that liquidation was inevitable?

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16
Q

What does it mean for a director to be disqualified?

A

A director is banned from being involved in the running of a business for a set period of time - up to 15 years.

17
Q

What are the grounds for disqualifying a director?

A
  • Breach of CA06
  • Conviction of serious offence
  • Fraudulent/wrongful trading
  • Found to be unfit
  • In the publics interest
  • Breach of competition law - 15 years
18
Q

Why would a director be disqualified for breaching CA06?

A

If they consistently breach CA06 e.g. consistently missing filing deadlines, they can be disqualified for up to 5 years

19
Q

What deems to be a serious offence when disqualifying a director and how long could they be disqualified for?

A

Bribery, fraud etc
15 years

20
Q

When would a director deem to be unfit as a director and how long could they be disqualified for?

A

If their company goes into liquidation
2-15 years

21
Q

What happens if a director is in breach of a disqualification order?

A
  • Criminal offence so could result in a fine or imprisonment.
  • Director becomes personally liable for the debts of the company while acting.