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SQE 1 > Business 4: Directors > Flashcards

Business 4: Directors Flashcards

1
Q

What is a director

A

any person occupying the position of director by whatever name they are called

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2
Q

What are directors responsible for?

A

day to day running, entering contracts, making business decisions

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3
Q

What does MA 3 and MA 5 say?

A

○ MA3-grants board wide general management powers to run company, board has express actual authority to bind company.
○ MA5-can delegate powers as they see fit.

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4
Q

Does a 3rd party dealing with the company in good faith need to check the articles for restictions on the directors?

A

No, they can assume that the Board had power/authority to bind the company, when they executed the contract

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5
Q

How many directors must a company have?

A

All companies : at least 1 whose a natural person and at least 1 over 12
Public: at least 2

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6
Q

Restrictions on appointment as director?

A

-Disqualified
-Undischarged bankrupt/bankruptcy order
-Dr note to Co saying physically/mentally incapable and will remain so for 3mo

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7
Q

What are the types of directors?

A
  1. Executive director
  2. Non-executive director
  3. Shadow Director
  4. De facto Director
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8
Q

Which directors are formally appointed to the board and have service contracts?

A

De jure directors:
1. Executvie-formally appointed and service contract
2. Non-executive: formally appointed but no service contract

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9
Q

What are shadow and de facto directors?

A

Shadow: Person whose directions Dirs are accustomed to act, exerting real influence on a majority of the board on a regular basis

De facto: acts as Dir even though not formally appointed/appointed correctly

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10
Q

Which types of directors are subject to directors duties and liabilities?

A

All of them

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11
Q

What is the role of a charisperson (dir appointed to chair board meetings)?

A
  • Runs BM
  • Chairs GM if present and willing to do so
  • Has casting vote in tie-can ensure res passes by simple majority
  • For Plc-will act as figurehead for dealings with SH/anyone outside the co
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12
Q

How are the first and subsequent directors appointed?

A
  1. First: those whose names in INO1
  2. After incorporating: appointed in accordance with articles by board resolution or ordinary resolution of SH
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13
Q

Administrative requirements for appointment of directors

A
  1. Notify CH in 14 days via form AP01 (individual) or AP02 (corporate)
  2. Enter onto register of directors and register of directors residential addresses
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14
Q

Who decides on the terms/approves a directors service contract?

A
  • Board under combo of general powers to run the company (MA 3) and specific power to decide on directors’ remuneration (MA 19).
  • UNLESS long term service contract:(guaranteed/fixed term (notice period) of more than 2y)=need SH approval via OR
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15
Q

When SH are deciding on a long term service contract, what must be done before the meering or written resolution?

A

When passes OR, must keep copy of memorandum setting out the terms of the proposed service contract at RO for 15 days prior to general meeting. If written, must be circulated to SH.

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16
Q

What happens if SH approval isnt gained for a long-term service contract?

A

guaranteed term element void and contract can be terminated with reasonable notice

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17
Q

Admin requirements after creation of directors service contract?

A
  • Service contracts (or a memorandum setting out their terms) must be available for inspection by SH at RO during their term and until a year after termination of contract
  • SH can inspect without charge within 7days of requesting to see them
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18
Q

Types of authority a director may have

A
  1. Express actual: Permission from other Dirs
  2. Implied actual: Implied role OR acted that way in past and board aware and not stopped
  3. Apparent: Co represented [by words/conduct] to 3rd party, dir was acting with cos authority (=estopped form denying authority)
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19
Q

What happens if a director enters a contract they dont have the authority to?

A

Dir will be personally liable to 3rd party, Co is not party to contract

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20
Q

5 ways directorship can end

A
  1. Resignation
  2. Removal
  3. Bankruptcy
  4. Being perused for debts
  5. Not physically/mentally capable
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21
Q

How does a director resign?

A
  • TM01 (individual) or TM02(company) to CH within 14d of resignation
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22
Q

Process for removing a director?

A
  1. SH passing OR at GM (NOT written res)
  2. Special notice: at least 28 clear days
  3. Once notice received inform dir forthwith and SH in same way as notice of GM where practicable OR at least 14d before GM in paper having appropriate circulation
  4. Dir entitled to speak/make representations at GM, and require Co to send copies of written representations they wish to make to SH
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23
Q

What special provisions may be in articles/SH agreements regarding removal of a director?

A
  1. Bushell v Faith clause-gives someone who is both SH and dir greater voting rights as a SH on a resolution to remove that person as a dir
  2. Where some/all of SH also Dirs, may inc provision in SH agreement obliging them to vote against removal of fellow SH as Dir (if do, can sue for breach of SH agreement
24
Q

What registers must be kept in regards of directors and which are open for inspecition?

A
  1. Register of directors containing required particulars inc dob/address: avalible for inspection by SH free and others for fee at RO/CH
  2. Registers of directors residential address for individual directors: not open for inspection (can be at CH)
25
Q

What happens if a Co doesnt keep a register of directors or doesnt keep it open for inspection?

A

Its a criminal offence

26
Q

What forms are used to notify a change in particulars for natural persons/corporate directors?

A

CH01 and CH02

27
Q

How long can a court disqualify directors for?

A

2-15y

28
Q

8 Grounds for disqualification of directors?

A
  1. Conviction of indictable offence
  2. Summary conviction for failure to file a required notice or document
  3. Persistent breaches of companies legislation
  4. Breach of competition law
  5. Fraud on winding up
  6. Being an unfit director of an insolvent company
  7. Following an investigation and a finding of unfitness
  8. Fraudulent or wrongful trading
29
Q

Effect of being disqualified as a director?

A

□ Cant (without leave of court) be dir or in any way concerned in the promotion, formation or management of a co
□ Personally responsible for debts of co if involved in management while disqualified

30
Q

Effect of breach of disqualification order?

A

criminal offence max 2y prison

31
Q

Who are directors duties owed to

A

Company itself (NOT shareholders/creditors)

32
Q

What are directors 7 general duties?

A
  1. Act within powers
  2. Promote the success of the company
  3. Exercise independent judgement
  4. Exercise reasonable care, skill and diligence (negligence)
  5. Avoid conflicts of interest
  6. Not to accept benefits from third parties
  7. Declare interest in a proposed transaction or arrangement
33
Q

What is a directors non general duty?

A

To declare interest in existing transaction/arrangement (s182)

34
Q

What is included within a directors duty to act within powers?

A

(a) act in accordance with the cos consti (AoA and SRs)

(b) only exercise powers for the purposes for which they are conferred (objective)

35
Q

What must dirs consider to comply with their duty to promote the success of the company?

A
  1. Long term consequences of decision
  2. Employees interests
  3. Need to foster Co’s business relationships with suppliers, customers and others,
  4. Impact of operations on community/environment
  5. desirability of maintaining a reputation for high standards of business conduct
  6. need to act fairly as between SH
    (don’t have to give equal weight)
36
Q

When can a director prevent a breach of their duty to promote the success of the company?

A

Subjective test:
If they considered, in good faith, that their actions were most likely to promote the cos success.

37
Q

What will not infringe on a directors duty to exercise independent judgement?

A

Not infringed by the dir acting:
(a) in accordance with an agreement duly entered into by the co that restricts the future exercise of discretion by its dirs,

(b) in a way authorised by the constitution.

38
Q

What is included within a directors duty to exercise reasonable care, skill and diligence

A

The care, skill and diligence exercised by a reasonably diligent person with:

(a) objective: the general knowledge, skill and experience reasonably be expected of a person carrying out the functions carried out by the dir in relation to the co
(b) subjective: the general knowledge, skill and experience that the dir has.

39
Q

What is included within dirs duty to avoid a conflict of interest?

A

must avoid situations in which they have, or can have, a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the company (immaterial whether the company could have taken advantage of the opportunity but decided not to do so)

40
Q

When will there NOT be a breach of dirs duty to avoid a conflict of interest?

A
  1. Cannot reasonably be regarded as likely to give rise to a conflict
  2. Authorised by dirs before (Dir in q cant count in quorum to authorise)
  3. Does NOT apply to a conflict of interest arising in relation to a transaction/arrangement with the company.
41
Q

What is the only directors duty that can be pre authorised?

A

Duty to avoid conflicts of interest

42
Q

Which directors duties also apply to former directors?

A
  • Avoid conflicts of interest
  • Not to accept benefits from third parties
43
Q

What is included within a dirs duty to not to accept benefits from third parties

A

Must not accept a benefit from 3rd conferred by reason of them either being a dir, or doing (or not doing) anything as dir

44
Q

When will accepting a benefit from a 3rd party not be a breach of directors duty?

A

The acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

45
Q

What is included within a direcors duty to declare interest in a proposed transaction or arrangement (s177)

A

If directly/indirectly interested, must declare nature and extent of that interest to other directors BEFORE company enters into transaction/arrangement

46
Q

Does a dirs duty to declare interest under s177 still apply if company has disapplied MA 14

A

yes

47
Q

What prevents a breach of dirs duty to declare interest in a proposed transaction or arrangement?

A
  1. Dir isnt aware of the interest/transaction/arrangement (will be ‘aware’ of matters of which he ought reasonably to be aware)
  2. Cannot reasonably be regarded as likely to give rise to a conflict
  3. Other dirs are/ought to be already aware
  4. concerns the terms of the dir’s service contract
  5. transaction NOT with company
48
Q

What is included in a directors non general duty to declare interest in existing transaction/arrangement (s182)

A

If director is directly/indirectly interested in a transaction that has been entered into by the company, must declare nature and extent of interest as soon as reasonably practicable.

49
Q

When/how must a decleration of interest in an existing transaction/arrangment be made?

A
  1. at dirs meeting
  2. notice in writing to all other dirs
  3. general notice of interest given at board meeting
50
Q

Effect of faliure to comply with duty to declare interest in existing transaction/arrangement (s182)

A

Criminal offence punishable by a fine (contrasts with s 177, where failure to comply is a civil matter.

51
Q

When will there NOT be a breach of duty to declare interest in existing transaction/arrangement (s182)

A
  1. dir has already declared the interest under s 177 .
  2. Dir isnt aware of the interest, transaction or arrangement (will be ‘aware’ of matters of which he ought reasonably to be aware)
  3. interest cannot reasonably be regarded as likely to give rise to a conflict
  4. other dirs already aware (or ought reasonably to be aware of it)
  5. it concerns the terms of the dirs service contract
52
Q

Remedies for breach of directors duty

A

Duty to exercise reasonable care, skill and diligence: common law damages
Fiduciary duties:
○ An account of profits;
○ Equitable compensation for the loss
○ Rescission of any contract entered into as a direct or indirect result of the breach;
○ Injunction, to prevent further breaches/ a continuing breach;
○ Restoration of property transferred as a result of the breach of duty.

53
Q

How can a directors breach of duty be ratified?

A

SH can ratify breach/potential breach via OR

54
Q

When SH are voting to ratify a breach of dir duty, can the dir whos also a SH or a connected party also vote?

A

Yes but their votes will be disregarded if their votes resulted in the resolution passing

55
Q

What duty cant be ratified?

A

s182 (duty to declare interest in existing transaction) bc is a criminal offence

56
Q

What are directors other liabilities?

A

-Failure to maintain co records: fine
-Failure to file docs at CH
-Liability for financial records: civil/criminal
-Breach of health and safety legislation: max 2y prison/£20k fine/gross negligence manslaughter
-Bribery
-Making political donations without SH approval
Environmental legislation: civil/criminal

SQE 1 (46 decks)

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