Board Structure And Composition Flashcards
Directors:
- have day to day control of company power derived from model articles or if a company amends the MA or adopt its own
MA 3- MA 3: ‘Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company’ (default position of Articles)
Shareholders = owners of the company
– how are they protected from a rogue director
MA 4 Shareholders may by special resolution, direct the directors to take/refrain from taking, specified action
s21 CA06 Shareholders have the power to control amendments to the company’s articles, which require approval by the shareholders by way of special resolution
s168 CA06 - ultimate sanction- shareholders can remove director by ordinary resolution
Directors:
-significant amount of power as shareholders aren’t involved in management of the company
- Case law is clear that directors are the agents of the company – not agents of the shareholders
Howard Smith Ltd v Ampol Petroleum Ltd (1974): directors may take decisions against shareholders’ wishes
- Director = not defined in CA06, instead s250 states that ‘director’ includes any person occupying the position of the director, by whatever named called. There are a number of categories of director:
o At law = de jure, de factor, and shadow directors
o In practice = executive and non-executive directors
o Company’s Articles = might also provide for alternate directors
De Jure directors:
- A director who has been validly appointed at law.
S153 CA06 a private limited company must have at least one director and a public limited company at least two
S155(1) A company can be appointed as a director, every company must have at least one director who is human
- N.B. the Small Business, Enterprise and Employment Act 2015 requires all company directors to be natural persons and prohibits the appointment of corporate directors subject to certain exceptions (provisions not yet in force)
CA 2006 and MA do not prescribe a maximum number of directors (company can put a limit in their articles though) : directors need to be at least 16 years old (if appointed, appointment is not efective until they’re 16
DE facto directors
- person assumes to act as director but not been validly appointed (no single definitive test)
- Re Hydrodam (Corby) Ltd (1994): it must be established whether someone is part of the corporate governance of the company and undertook decisions which would normally be taken by a director rather than tasks which could have been performed by a manager or another person below board level.
Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar (2014):
- it is necessary to consider the acts performed
by the person: whether those acts were directorial in nature, looking at the context and cumulative effects of what the individual has done.
-point to consider is whether the company considered the person to be a director and held them out as such and whether any third parties considered them as such (question of fact in each case)
- The importance of recognising where a person is a de facto director is that the same fiduciary duties and liabilities in insolvency apply to all directors including de facto directors
commissioners for HM revenue & customs v Holland:
- Mr holland was de jure director for company a which was A itself a corporate director of Company B. Question was whether H should be considered as a de facto director of Comp B and thus whether H owed fiduciary duties to Comp B. The court held that the basis of liability for a de facto director is an assumption of liability together with his being a part of a company’s corporate governance structure. In this case H was not held to be a de facto director of Comp B – the acts he undertook were within the scope of his duties and responsibilities as a director of Com
Shadow director- SD
A person (usually a shareholder) may try to exert influence over the board but without being appointed as a director, in an effort to avoid the duties imposed on directors under CA 2006 and the common law
CA06: SD = ‘a person in accordance with whose direction/instructions the directors are accustomed to act’ :
general rule - professional advisers are not to be regarded as shadow directors, BUT if they go beyond the normal scope of professional capacity and are efectively controlling the company’s afairs they will be held to be shadow directors - RE tasbian LTD
RE hydrogen LTD= issue, whether 2 directors or parent company can be deemed as SD of its subsidiary company and therefore liable for wrongful trading under s214 insolvency act 1986
SD test= Millett J set out that for someone to be a shadow director, it is necessary to prove:
1. The identity of the formally-appointed directors of the company;
2. That the person in question directed those formally appointed directors as to how to act in
relation to the company’s afairs;
3. That those directors acted in accordance with that person’s directions, and
4. That the directors were accustomed to act in that manner.
It is a question of fact in every case
Secretary of State for Trade and Industry v Deverell (2000) will… be sufficient to show [that] the properly appointed directors […] cast themselves in a subservient role or surrendered their respective discretions (persons in Q were consultants and companys board were accustomed to act in accordance with directors and suggestions, thus deemed SD
Ultraframe (UK) Ltd v Fielding (2005)
A position of influence does not necessarily mean there is a shadow director
It must be shown that the governing majority of the board are accustomed to act in accordance with the directions of the alleged shadow directo
De facto director
- Assumes to act as a director and claims to be one despite never validly being appointed as such
- Held out as a director by the company
-To establish whether someone is a de facto director, it is necessary to plead and prove that he undertook functions in relation to the company which could only be discharged properly by a director
Shadow director
-Does not claim or purport to act as a director
- Claims not to be a director
-Not held out as a director by the company
-“He lurks in the shadows, sheltering behind others who, he claims are the only directors of the company to the exclusion of himself” (Millett J in Re Hydrodam)
Executive and non-executive director
-CA 06 does not diferentiate between executive and non-executive directors, but in practice there is a distinction.
- N.B. duties, obligations/restrictions placed on directors under apply to all directors (executive/non-exec)
Executive director
- An executive director is a director who has been appointed to executive office
- Such a director will generally spend the majority, if not all, of his working time on the business of the company
- Will be both an officer and an employee of his company. Examples include a Finance Director, Managing Director, Marketing Director.
- Art 5 MA permits the directors to delegate specific powers to an individual director and may be used to delegate specific powers to an executive direct
None executive director
- A non-executive director is also an officer of the company but will not be an employee of the company.
- Non-executive directors do not take part in the day-to- day running of the company
- Their role is generally to provide independent guidance and advice to the board and to protect the interests of shareholders
Alternate directors
-Some companies in their articles provide for alternate directors to take the place of a director where one or more directors are absent (usually a fellow director of the comp. or someone approved by a resolution of the board
- Alternate director has voting powers of the absent director
- The MA do not provide for the appointment of alternate directors and use of them rare due to virtual meetings etc.
- Whether or not the provisions of CA 2006 apply to alternate directors is a matter of construction, but it is thought
that the duties of directors will apply equally to alternate director
