BL - 4 - Companies (2)

Question 1

What is a non-executive director?

Answer 1

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.

Question 2

What is an executive director?

Answer 2

It is a person who, as well as holding the office of director, also works for the company in a paid position.

Question 3

How can a non-executive director be appointed?

Answer 3

(a) ordinary resolution by shareholders
(b) board resolution by directors

Question 4

How can an executive director be appointed?

Answer 4

By board resolution

Question 5

What must happen after the appointment of a director?

Answer 5

• update register of director
• update register of directors’ residential addresses
• fill AP01 (individual directors) or AP02 (corporate directors) with Companies House

Question 6

What are a director’s duties?

Answer 6

• 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

Question 7

When will there be no breach of the duty to accept benefits from third parties?

Answer 7

When acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict (e.g. minimal, normal corporate hospitality, etc.)

Question 8

Who can take action against a director in breach?

Answer 8

the company: this is called “derivative action”

Question 9

How can a breach of duty be authorized?

Answer 9

Through ratification by ordinary resolution.

Question 10

When will a director be personally liable?

Answer 10

(a) director has given a personal guarantee
(b) director is guilty of wrongful trading, fraudulent trading or misfeasance

Question 11

What is wrongful trading?

Answer 11

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

Question 12

What is fraudulent trading?

Answer 12

The company carries on business with the intent to defraud creditors or for any fraudulent purpose

Question 13

Which one is harder to prove, wrongful trading or fraudulent trading and why?

Answer 13

Fraudulent trading since the intention to defraud must be shown

Question 14

What is misfeasance in German?

Answer 14

pflichtwidrige Handlung

Question 15

How are a director’s powers exercised?

Answer 15

(a) through decisions at board meetings
(b) by unanimous agreement

Question 16

Is it a must to maintain a register of directors?

Answer 16

Yes, unless the company applies for exemption

Question 17

Is it a must to maintain a register of directors’ residential addresses?

Answer 17

Yes, unless the company applies for exemption

Question 18

Is it possible to name the directors in business letters, etc.?

Answer 18

Yes, but then, all directors must be included

Question 19

Who has a right to inspect directors’ service contracts?

Answer 19

Members

Question 20

What are the restrictions on the decisions to be taken by directors?

Answer 20

• 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)

Question 21

What property transactions may directors approve?

Answer 21

all except for SPTs (substantial property transactions)

Question 22

What is a substantial property transaction?

Answer 22

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

Question 23

When is an asset substantial?

Answer 23

it is more than 5k AND
(a) more than 100k
OR
(b) 10% of company’s net asset value

Question 24

Who is a person connected to a director?

Answer 24

(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

Question 25

Is a brother/sister a connected person?

Answer 25

No

Question 26

How can a company enter into a service contract (guaranteed term) with a director?

Answer 26

(a) through board resolution if the contract term is two years or less
OR
(b) by way of ordinary resolution when the contract is longer than two years

Question 27

Does a non-guaranteed term service contract with a director require shareholder approval?

Answer 27

No

Question 28

When does a loan to a director require the member’s approval?

Answer 28

when the amount exceeds GBP 10k

Question 29

When does a payment for loss of office require approval?

Answer 29

When it exceeds 200k

Question 30

How can a director be removed?

Answer 30

(a) retirement/resignation (voluntary)
(b) bankruptcy order
(c) entering into composition with creditors
(d) physical/mental incapacity
(e) disqualification under Company Directors Disqualification Act

Question 31

What is the time limit for a removal of a director?

Answer 31

28 days (special notice for proposed resolution)

Question 32

What can a director do against his proposed approval?

Answer 32

he can make written representations and at the meeting itself

Question 33

What is a Bushell v Faith clause?

Answer 33

It is a clause in the company’s articles that gives a shareholder director two votes for every one they would normally have on a resolution to remove him

Question 34

When can a director be disqualified by court from acting as director?

Answer 34

Potential grounds include:
- conviction of an indictable offence
- persistent breaches of company legislation
- fraud in winding-up
- summary conviction for failure to comply with company legislation
- wrongful / fraudulent trading
- unfit director of insolvent company

Question 35

What is the company secretary usually responsible for?

Answer 35

• keeping records for the company
• filing documents at Companies House
• general administration

Question 36

Must a company keep a register of its members?

Answer 36

Yes, unless it has chosen to keep the records centrally

Question 37

Who may inspect a company’s register of members?

Answer 37

Only shareholders

Question 38

How is a member liable for the company?

Answer 38

(a) through the extent of his investment in that company
(b) through a personal guarantee

Question 39

What is a majority shareholder?

Answer 39

A shareholder who individually holds more than 50% of the voting shares

Question 40

What is a minority shareholder?

Answer 40

A shareholder who individually holds less than 50% of the voting shares

Question 41

How are minority shareholders protected?

Answer 41

(i) petition for unfairly prejudicial conduct
(ii) derivative action
(iii) winding-up on the just and equitable grounds

Question 42

What is winding-up on the just and equitable grounds?

Answer 42

It allows a member to wind up a company when it is just and equitable to do so, e.g.:

• total breakdown of communication
• total deadlock

Question 43

What is derivative action?

Answer 43

It is a claim by a shareholder for an act or omission of a director that did a wrong to the company

Question 44

What is a petition for unfairly prejudicial conduct?

Answer 44

A shareholder may claim that the company’s affairs have been or are proposed to be, conducted in a way that is both prejudicial and unfair to him