Board Structure & Composition

Question 1

What are the different categories of director? At law and in practice.

Answer 1

At law:
- de jure
- de facto 
- shadow 
In practice:
executive
non-executive directors

Question 2

What is a de jure director?

Answer 2

a director who has been validly appointed at law

- must be at least 16

Question 3

What is a de facto director?

Answer 3

someone who assumes to act as a director but has in fact not been validly appointed.

Question 4

What is a shadow director?

Answer 4

• a person (usually a shareholder) who exerts influence over the board but hasn’t been appointed as a director, in an effort to avoid the duties imposed on directors under CA 2006 and the common law.
• a shadow director as ‘a person in accordance with whose directions or instructions the directors of the company are accustomed to act’. s251(1) CA 2006
• professional advisers not shadow directors s251(2)

Question 5

What is an executive director?

Answer 5

• a director who has been appointed to executive office

- will be both an officer and an employee of his company.

Question 6

What is a non-executive director?

Answer 6

• 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

Question 7

What are alternate directors?

Answer 7

• takes the place of a director where one or more directors is absent
• they have voting powers

Question 8

How are directors appointed?

Answer 8

MA 17(1)

• by ordinary resolution
• by a decision of the directors
• must consent (fill out AP01 form)

Question 9

What is a service contract?

Answer 9

• a directors written contract of employment

Question 10

What needs to be done to approve a long-term service contracts?

Answer 10

• for terms longer than 2 years, shareholder approval
• if they don’t approve, then the term incorporated into the service contract is void
• the company can terminate the contract at any time (with reasonable notice)

Question 11

How can you terminate an appointment of a director?

Answer 11

1. resignation
2. vacation
3. removal (by ordinary resolution)

Question 12

What is a Bushell v Faith clause?

Answer 12

• gives weighted voting rights allowing director/shareholders to block resolutions for removal for a director.

Question 13

What are the 2 types of disqualification orders?

Answer 13

○ A mandatory disqualification order
- can last between 2 to 15 years.
○ A discretionary disqualification order
- can last for up to 10/15 years depending on the grounds for disqualification.

Question 14

When can a mandatory disqualification be used?

Answer 14

• if they were a director of a company that became insolvent and
• their conduct makes them unfit to be in the management of a company
  s6(1) CDDA 1986
• if the director has abused the privilege of limited liability in some way, either by gross negligence or deliberate disregard of creditors’ interests

Question 15

When can a discretionary disqualification be used?

Answer 15

• Conviction of an indictable offence in connection with the management of the company or company property
• Persistent breaches of company legislation requiring returns or notices to be given to the Registrar (s 3);
• Fraud
• Disqualification after investigation of the company – in the public interest for a disqualification order to be made (s8).

Question 16

What happens if someone acts in contravention to a disqualification order?

Answer 16

• it is a criminal offence
• there will be criminal penalties (fines/ imprisonment)
• liable to pay for all of the debts the company incurred during the time