Board Structure and Composition

Question 1

Role of directors in relation to SHs?

Answer 1

• Manage the company on a day to
day basis
• Certain actions can only be taken
by directors if the shareholders
have given authority
• Owe duties to the company

Question 2

Role of SHs in relation to directors?

Answer 2

Own the company
• Are able to control key decisions
through shareholder resolutions eg
shareholders need to vote to give
directors authority to change the
articles, or name of the company, to
vary class rights etc

Question 3

What does MA 3 say on the responsibility for company management?

Answer 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.’

Question 4

Which MA states who is responsible for management of company business?

Answer 4

MA 3

Question 5

Which MA protects SHs from a rogue director?

Answer 5

MA 4

Question 6

What power does MA 4 give SHs?

Answer 6

The shareholders may, by special resolution, direct the directors to take, or
refrain from taking, specified action.

Question 7

What other specific powers does the CA 2006 give to SHs

Answer 7

Power to control amendments to company’s articles - requires SH approval by special resolution (s21 CA 2006)
Removal of a director by ordinary resolution (s168 CA 2006)

Question 8

Which case makes it clear that directors are agents of the company, not agents of the SHs?

Answer 8

Howard Smith Ltd v Ampol Petroleum Ltd [1974]

Directors can take decisions even against the wishes of the majority of SHs

Question 9

The 3 categories of director?

Answer 9

1. At law: de jure, de facto and shadow directors
2. In practice: executive and non executive directors

The company’s articles may also provide for alternate directors

Question 10

What is a de jure director?

Answer 10

A de jure director is a director who has been validly appointed at law

CA 2006 sets out several requirements for directors

Question 11

s54 CA 2006?

Answer 11

Under s 154 CA 2006 a private limited company must have at least one director and a public limited company must have at least two directors. Although a company can be appointed as a director, every company must have at least one director who is a
natural person (s 155(1)

Question 12

s157 CA 2006?

Answer 12

Under s 157 CA 2006 a person may not be appointed as a director unless they are at
least 16 years old (or if so appointed, the appointment is not effective until they reach the
age of 16).

Question 13

What is a de facto director ?

Answer 13

A de facto director is someone who assumes to act as a director but has in fact not
been validly appointed

Question 14

What is the test for a de facto director?

Answer 14

No standard test, but Re Hyrodoam [1994] stated 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

Question 15

Why is it important to recognise when someone is a de facto director?

Answer 15

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

Question 16

What is a shadow director?

Answer 16

Section 251(1) CA 2006 defines a shadow director as ‘a person in accordance with
whose directions or instructions the directors of the company are accustomed to
act

Question 17

Why do shadow directors exist?

Answer 17

This legislation is designed to ensure that anyone who acts as a director, even if they are
not technically appointed as one, is subject to the duties and restrictions which apply to
all directors

Question 18

Which section of CA 2006 defines a shadow director?

Answer 18

s25 (1)

Question 19

Case law example of a de facto director?

Answer 19

The Commissioners for HM Revenue and Customs v Holland (2010)

Question 20

Ruling in The Commissioners for HM Revenue and Customs v Holland (2010)?

Answer 20

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 Company B as the acts he undertook were within the scope of his duties and responsibilities as a director of Company A

Question 21

Shadow directors case law?

Answer 21

Re Hydrodam (Corby) Ltd [1994]

Question 22

Re Hydrodam (Corby) Ltd [1994] ?

Answer 22

Millett J said that to establish if a
person is 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 affairs;
3. That those directors acted in accordance with that person’s directions, and
4. That the directors were accustomed to act in that manner.

Question 23

Which case highlighted the difference between shadow and de facto directors

Answer 23

Re Hydrodam (Corby) Ltd [1994]

Question 24

As per Millet J in Re Hydrodam (Corby) Ltd [1994, what is the difference between shadow and de facto directors?

Answer 24

A de facto director is a person who assumes to act as a director. He is
held out as a director by the company, and claims and purports to be a
director, although never actually or validly appointed as such. To establish
that a person was a de facto director of a company it is necessary to
plead and prove that he undertook functions in relation to the company
which could properly be discharged only by a director… A shadow director,
by contrast, does not claim or purport to act as a director. On the contrary,
he claims not to be a director. - Millet J

Question 25

What is the difference between executive and non-executive directors?

Answer 25

CA 2006 does not differentiate, but in practice there is a distinction

Question 26

What is an executive director?

Answer 26

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 and will be both an officer and an employee of his
company.
Examples include a Finance Director, Managing Director, Marketing Director

Question 27

What is a non-executive director?

Answer 27

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.

Question 28

What is a an alternate director?

Answer 28

However, some companies in their

articles provide for alternate directors to take the place of a director where one or more directors are absent.

Question 29

How is a director appointed?

Answer 29

CA 2006 doesn’t stipulate a procedure, so it is governed by a companies articles

Question 30

Which MA dictates how a director is appointed

Answer 30

MA 17

Question 31

How does MA 17 say a director can be appointed?

Answer 31

Any person who is willing to act as a director, and is permitted by law to
do so, may be appointed to be a director:
(a) by ordinary resolution (of the shareholders), or
(b) by a decision of the directors.’

Question 32

What is the effect of MA 19?

Answer 32

Terms of an individual director’s service
contract, including remuneration, are for the board to determine. As a general rule, a director’s service agreement will only require the approval of a resolution
of the board of directors. SH approval is required to enter into long-term service contracts.

Question 33

What does s188 CA 2006 dictate?

Answer 33

Where a service contract provides for a director’s
employment to have a ‘guaranteed term’ which is, longer than two years.
If s 188 CA 2006 applies, the relevant provision of the service contract requires SH approval by ordinary resolution.

Question 34

What if SH approval is not give under s188 CA 2006?

Answer 34

The term of directors contract is void under 189(a) CA 2006

Question 35

3 ways a director will be terminated?

Answer 35

1) Resignation
2) Vacation
3) Removal

Question 36

Case for director resignation?

Answer 36

Glossop v Glossop [1907]

Question 37

Under MA 18, when is a director automatically deemed to have vacated office?

Answer 37

Where that
person becomes prohibited from being a director, bankrupt, subject to a composition
order made with creditors, or physically or mentally incapable for more than three months

Question 38

Which section of CA 2006 applies to removing a director?

Answer 38

s168

- Director can be removed by ordinary resolution

Question 39

What is a Bushell v Faith clause?

Answer 39

Allow a company to insert into it’s articles a clause for weighted voting rights to allow director/SHs to block attempts to remove them at ordinary resolution

Question 40

What are the two types of disqualification of directors?

Answer 40

Discretionary
Mandatory

(CDDA 1986)

Question 41

What does s1(1) of the Company Directors Disqualification Act (1986) state?

Answer 41

Where a person is disqualified, that person shall not,
without the leave of the court, “be a director of a company, or a liquidator or administrator
of a company, or be a receiver or manager of a company’s property, or, in any way,
whether directly or indirectly, be concerned or take part in the promotion, formation or
management of a company, for a specified period beginning with the date of the order.

Question 42

How long is a mandatory disqualification order for?

Answer 42

2-15 years

Question 43

How long can a discretionary disqualification order last for?

Answer 43

10/15 years depending on the ground for disqualification

Question 44

When will a mandatory disqualification order be made?

Answer 44

When the court is satisfied that:
“(a) that he is or has been a director of a company which has at any time
become insolvent (whether while he was a director or subsequently), and
(b) that his conduct as a director of that company makes him
unfit to be concerned in the management of a company.”

Question 45

Which section of the CDDA 1986 applies to mandatory disqualification orders?

Answer 45

s6(1) CDDA 1986

Question 46

What have the courts taken s6 CDDA 1986 to mean?

Answer 46

Essentially that the director has
abused the privilege of limited liability in some way, either by gross negligence or
deliberate disregard of creditors’ interests

Question 47

Case for court application of s6 CDDA 1986?

Answer 47

Secretary of Trade and Industry v

Blunt (2005)

Question 48

Which 4 sections of the CDDA 1986 apply to discretionary disqualification orders?

Answer 48

s2
s3
s4
s8

Question 49

s2 CDDA 1986?

Answer 49

Conviction of an indictable offence in connection with the management of
the company or company property

Question 50

s3 CDDA 1986?

Answer 50

Persistent breaches of company legislation requiring returns or notices to be given to
the Registrar (s 3)

Question 51

s4 CDDA 1986?

Answer 51

Fraud – either fraudulent trading under s 993 CA 2006, wrongful or fraudulent
trading under s 213 and s 214 Insolvency Act 1986 or fraud in relation to the company
or its property

Question 52

s8 CDDA 1986?

Answer 52

Disqualification after investigation of the company – this ground is used where it seems to the Secretary of State that it would be in the public interest for a
disqualification order to be made (s8)