BL - 4 - Companies (2) Flashcards
What is a non-executive director?
It is a person who holds the office of director, but does not work for the company in a paid position. There is no employment/service contract.
What is an executive director?
It is a person who, as well as holding the office of director, also works for the company in a paid position.
How can a non-executive director be appointed?
(a) ordinary resolution by shareholders
(b) board resolution by directors
How can an executive director be appointed?
By board resolution
What must happen after the appointment of a director?
- update register of director
- update register of directors’ residential addresses
- fill AP01 (individual directors) or AP02 (corporate directors) with Companies House
What are a director’s duties?
- act within company’s constitution and exercise power for proper purposes
- promote company’s success
- exercise independent judgement
- exercise reasonable care, skill and diligence
- avoid conflicts of interest
- not accept benefits from third parties
- declare interest in a proposed transaction with the company
When will there be no breach of the duty to accept benefits from third parties?
When acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict (e.g. minimal, normal corporate hospitality, etc.)
Who can take action against a director in breach?
the company: this is called “derivative action”
How can a breach of duty be authorized?
Through ratification by ordinary resolution.
When will a director be personally liable?
(a) director has given a personal guarantee
(b) director is guilty of wrongful trading, fraudulent trading or misfeasance
What is wrongful trading?
It is a director’s liability when when the company continued to trade and the director knew/ought to have known that there was no reasonable prospect of avoiding insolvency
What is fraudulent trading?
The company carries on business with the intent to defraud creditors or for any fraudulent purpose
Which one is harder to prove, wrongful trading or fraudulent trading and why?
Fraudulent trading since the intention to defraud must be shown
What is misfeasance in German?
pflichtwidrige Handlung
How are a director’s powers exercised?
(a) through decisions at board meetings
(b) by unanimous agreement
Is it a must to maintain a register of directors?
Yes, unless the company applies for exemption
Is it a must to maintain a register of directors’ residential addresses?
Yes, unless the company applies for exemption
Is it possible to name the directors in business letters, etc.?
Yes, but then, all directors must be included
Who has a right to inspect directors’ service contracts?
Members
What are the restrictions on the decisions to be taken by directors?
- service contracts with guaranteed term
- substantial property transactions
- loans to directors (with a few exceptions)
- payments for loss of office (outside of payments properly due under existing contracts)
What property transactions may directors approve?
all except for SPTs (substantial property transactions)
What is a substantial property transaction?
acquisition/disposal of a non-cash asset where:
(i) parties are company and director or someone connected to a director; AND
(ii) asset is substantial
When is an asset substantial?
it is more than 5k AND
(a) more than 100k
OR
(b) 10% of company’s net asset value
Who is a person connected to a director?
(i) family: includes
- partners (even if romantic in enduring relationship
- (step)children (also of partners)
- parents
(ii) body corporate:
- director and persons connected with the director who own at least 20% of the company’s voting shares
