BLP WK 3

Question 1

What are the key relationships in a company?

Answer 1

Manage the company daily, owe duties to the company, and need shareholder approval for certain actions.

Shareholders: Own the company and control key decisions (amending articles or management changes) via resolutions.

Question 2

What is the definition of a director?

Answer 2

Anyone occupying the position of director, regardless of title (s 250 CA 2006)

Question 3

What are the different types of directors?

Answer 3

○ De jure directors: Validly appointed.

○De facto directors: Act as directors without formal appointment.

○ Shadow directors: Influence the board without formal appointment, subject to the same duties.

Question 4

What are the minimum director requirements for private and public companies?

Answer 4

○ Private companies: 1 director (must be a natural person)

○ Public companies: 2 directors (must include a natural person)

Question 5

What are the roles of executive and non-executive directors?

Answer 5

Executive directors: Actively manage the company, act as both officers and employees.

Non-executive directors: Offer guidance, but do not manage daily operations, often protecting shareholders’ interests.

Question 6

What is the role of an alternate director?

Answer 6

To temporarily take over when the regular director is absent, holding the same voting rights.

Question 7

Is a company secretary mandatory for private and public companies?

Answer 7

Private companies: No, but directors assume the secretary’s responsibilities if one is not appointed.

Public companies: Yes, and they must be qualified.

Question 8

What does the Model Article 5 (MA 5) allow directors to do?

Answer 8

Delegate decisions to a director or committee, streamlining specific areas of management.

Question 9

How are directors held accountable for their actions?

Answer 9

Part 10 of CA 2006 outlines general duties, and breaches can have civil and criminal consequences.

Criminal charges are possible under laws like the Fraud Act 2006 and the Theft Act 1968, or for insider dealing (Criminal Justice Act 1993) and money laundering (Proceeds of Crime Act 2002).

Question 10

What are the main ways to appoint a company director?

Answer 10

Ordinary resolution of the shareholders.

Decision of the directors (more common due to ease of execution).

Question 11

What are service contracts and who typically has them?

Answer 11

Executive directors, as employees, usually have written contracts (service contracts) detailing employment terms, duties, and remuneration.

Question 12

When is shareholder approval required for a director’s service contract?

Answer 12

For long-term service contracts, specifically those exceeding two years (s 188 CA 2006).

Question 13

What are the statutory requirements for disclosing directors and the secretary?

Answer 13

Companies must maintain a register of directors (s 162(1) CA 2006) and secretaries (s 275(1) CA 2006), notifying Companies House of any changes.

Question 14

What information must be included in a company’s register of directors?

Answer 14

Name, former name, service address, country of residence, nationality, business occupation, and date of birth (s 163(1) CA 2006).

Question 15

What is the rule regarding directors’ residential addresses?

Answer 15

They are kept on a separate, secure register (s 165 CA 2006) and are not open to public inspection, ensuring privacy.

Question 16

What financial disclosures are required for directors in annual accounts?

Answer 16

s 412 CA 2006: Remuneration (salaries, bonuses, pensions), and compensation for loss of office.

s 413 CA 2006: Advances, credits, and guarantees given to directors.

Question 17

How can shareholders remove a director?

Answer 17

By passing an ordinary resolution (s 168(1) CA 2006)

Question 18

What is the special notice requirement for removing a director?

Answer 18

Shareholders must give 28 days’ notice for a removal resolution (s 168(2) CA 2006).

Question 19

Can the board of directors remove a director?

Answer 19

No, unless specifically permitted by the company’s articles.

Question 20

Can a director who is also a shareholder vote on their own removal?

Answer 20

Yes

Question 21

Besides removal, what are other ways a director can vacate office?

Answer 21

By submitting a letter of resignation to the board.

Automatic Termination: Due to disqualification, bankruptcy, or medical incapacity as defined in MA 18.

Question 22

What is the Company Directors Disqualification Act 1986 (CDDA)?

Answer 22

It empowers courts to issue disqualification orders, preventing individuals from acting as directors or participating in company management.

Question 23

What are some grounds for director disqualification under the CDDA?

Answer 23

Fraudulent or wrongful trading, or persistent breaches of company law.

Question 24

What is the potential duration of a disqualification order?

Answer 24

Up to 15 years.

Question 25

What is retirement by rotation?

Answer 25

A practice in public companies where directors must retire and seek reappointment every three years, ensuring accountability.

Question 26

What are the filing requirements when a director leaves office?

Answer 26

Companies must update their register of directors and notify Companies House using Form TM01.

Question 27

Explain a director’s duty to avoid conflicts of interest (s 175 CA 2006).

Answer 27

Directors must avoid situations where their personal interests clash with the company’s interests, even if the company couldn’t exploit the opportunity themselves.

Question 28

When does the duty to avoid conflicts of interest not apply?

Answer 28

○ If the situation cannot reasonably be seen as a potential conflict.

○ If the conflict involves a transaction with the company itself (s 175(3) CA 2006).

○ If authorised by the directors (s 175(4)(b) CA 2006).

Question 29

What is a director’s duty regarding accepting benefits from third parties?

Answer 29

Directors must not accept benefits from third parties if they could lead to a conflict of interest (s 176 CA 2006).

Question 30

How can a breach of s 176 CA 2006 (accepting third-party benefits) be addressed?

Answer 30

Unlike s 175, only shareholder approval (not just board authorisation) can ratify the arrangement (s 239 CA 2006).

Question 31

Explain a director’s duty to declare an interest in a proposed transaction (s 177 CA 2006).

Answer 31

Directors must declare any direct or indirect interest in a proposed transaction with the company, promoting transparency.

Question 32

What are the requirements for declaring an interest in a proposed transaction?

Answer 32

○ Declaration must be made before entering the transaction.

○ Declaration must be given at a board meeting or in writing beforehand.

○ A general notice covering future similar transactions is allowed (s 185 CA 2006).

Question 33

What are the procedural considerations for declaring an interest under s 177?

Answer 33

○ General notices of interests are allowed.

○ Disclosures can be in meetings or by written notice (shared electronically or in paper form with all directors (s 184 CA 2006)).

Question 34

When is a declaration of interest not required under s 177 CA 2006?

Answer 34

○ If the director is unaware of the conflict.

○ If the interest is unlikely to cause a conflict.

○ If other directors already know or should know about the conflict.

○ If the conflict is from the director’s service contract and the board is aware (s 177(5) and (6) CA 2006).

Question 35

How do s 177 and Model Article 14 (MA 14) interact?

Answer 35

While MA 14 restricts a conflicted director from voting or being part of the quorum on related resolutions, exceptions exist for unlikely conflicts or interests allowed under MA 14(4), including disapplication by ordinary resolution.

Question 36

What remedies does a company have for breaches of directors’ duties?

Answer 36

○ Injunction
○ Setting aside the transaction (making it voidable)
○ Restitution and account of profits
○ Restoration of company property
○ Damages (directors are jointly and severally liable)

Question 37

Can shareholder approval address breaches of directors’ duties?

Answer 37

Yes, shareholders can authorise actions that would otherwise be breaches, provided the action is not unlawful and involves full disclosure (s 180(4) CA 2006). They can also ratify breaches after they occur (s 239(2) CA 2006), but the director’s and connected persons’ votes are disregarded (s 252 and 253 CA 2006).

Question 38

Are there limitations to shareholder approval or ratification of breaches?

Answer 38

Yes, unlawful acts cannot be ratified, and in insolvency, directors owe duties to creditors, not shareholders.

Question 39

What is the rule on directors’ long-term service contracts?

Answer 39

Shareholder approval (ordinary resolution) is needed for contracts exceeding two years (s 188(2)(a) CA 2006), considering guaranteed terms and notice periods (s 188(3)).

Question 40

What are the consequences of non-compliance with long-term service contract rules?

Answer 40

The exceeding term becomes void, and the company can terminate with reasonable notice (s 189 CA 2006).

Question 41

Do wholly-owned subsidiaries need shareholder approval for directors’ service contracts?

Answer 41

No, they are exempt (s 188(6)(b) CA 2006).

Question 42

What are the disclosure requirements for directors’ service contracts?

Answer 42

While s 177(6)(c) CA 2006 doesn’t mandate disclosure, declaration is standard practice for transparency, often documented in board minutes. MA 14(1) prevents conflicted directors from voting or counting towards the quorum on related resolutions.

Question 43

Explain the rules for substantial property transactions between a company and its directors.

Answer 43

Shareholder approval (ordinary resolution) is needed for acquisitions or disposals of substantial non-cash assets (s 190 CA 2006).

Question 44

What defines a substantial non-cash asset?

Answer 44

○ Assets worth £5,000 or less are not substantial.

○ Assets worth over £100,000 are always substantial.

○ Assets between £5,000 and £100,000 are substantial if their value exceeds 10% of the company’s NAV.

Question 45

What are the consequences of non-compliance with substantial property transaction rules?

Answer 45

○ The transaction is voidable unless restitution is impossible, the company is indemnified, or third-party rights are affected.

○ Involved directors must account for profits and indemnify the company for losses (s 195(3) CA 2006).

Question 46

What are the shareholder approval requirements for loans and related transactions with directors?

Answer 46

They vary based on company type.

Question 47

What are the shareholder approval requirements for private companies (not associated with PLCs)?

Answer 47

Only loans (s 197) and guarantees/security for directors (s 197) require shareholder approval.