Business 4: Directors

Question 1

What is a director

Answer 1

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

Question 2

What are directors responsible for?

Answer 2

day to day running, entering contracts, making business decisions

Question 3

What does MA 3 and MA 5 say?

Answer 3

○ 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.

Question 4

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

Answer 4

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

Question 5

How may directors must a company have?

Answer 5

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

Question 6

Restrictions on appointment as director?

Answer 6

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

Question 7

What are the types of directors?

Answer 7

Executive director
Non-executive director
Shadow Director
De facto Director

Question 8

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

Answer 8

De jure directors:

Executvie-formally appointed and service contract

Non-executive: formally appointed but no service contract

Question 9

What are shadow and de facto directors?

Answer 9

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

Question 10

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

Answer 10

All of them

Question 11

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

Answer 11

• 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

Question 12

How are directors appointed?

Answer 12

First dirs: those whose names in INO1
After incorporating: appointed in accordance with articles by board resolution or ordinary resolution of SH

Question 13

Administrative requirements for appointment of directors

Answer 13

Notify CH in 14 days via form AP01 (individual) or AP02 (corporate)

Enter onto register of directors and register of directors residential addresses

Question 14

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

Answer 14

Board under combination 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

Question 15

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

Answer 15

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.

Question 16

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

Answer 16

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

Question 17

Admin requirements after creation of directors service contract?

Answer 17

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

Question 18

Types of authority a director may have

Answer 18

Express actual authority: Permission from other Dirs to act in certain way

Implied actual authority: Implied by dirs role OR acted that way in past and board aware and not stopped in

Apparent authority: Co represented [by words or conduct] to the 3rd party, that the director was acting with the company’s authority estopped form denying authority

Question 19

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

Answer 19

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

Question 20

5 ways directorship can end

Answer 20

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

Question 21

How does a director resign?

Answer 21

TM01 (individual) or TM02(company) within 14d of resignation
Notify CH

Question 22

Process for removing a director?

Answer 22

1. By SH passing OR at GM (NOT written res)
2. Special notice: at least 28 clear days required
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
   3.Director entitled to speak/make representations at GM, and also to require Co to send copies of any written representations the director wishes to make to the SH

Question 23

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

Answer 23

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

Question 24

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

Answer 24

Register of directors containing required particulars inc dob/address: avalible for inspection by SH free and others for fee at RO/CH

Registers of directors residential address for individual directors: not open for inspection (can be at CH)

Question 25

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

Answer 25

Its a criminal offence

Question 26

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

Answer 26

CH01 and CH02

Question 27

How long can a court disqualify directors for?

Answer 27

2-15y

Question 28

Grounds for disqualification of directors?

Answer 28

○ Conviction of indictable offence
○ Persistent breaches of companies legislation
○ Fraud on winding up
○ Summary conviction for failure to file a required notice or document
○ Being an unfit director of an insolvent company
○ Following an investigation and a finding of unfitness
○ Fraudulent or wrongful trading ○Breach of competition law

Question 29

Effect of being disqualified as a director?

Answer 29

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

Question 30

Effect of breach of disqualification order?

Answer 30

criminal offence max 2y prison

Question 31

Who are directors duties owed to

Answer 31

Company itself (NOT shareholders/creditors)

Question 32

What are directors general duties?

Answer 32

Act within powers
Promote the success of the company
Exercise independent judgement
Exercise reasonable care, skill and diligence (negligence)
Avoid conflicts of interest
Not to accept benefits from third parties
Declare interest in a proposed transaction or arrangement

Question 33

What is a directors non general duty?

Answer 33

To declare interest in existing transaction/arrangement (s182)

Question 34

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

Answer 34

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

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

Question 35

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

Answer 35

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)

Question 36

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

Answer 36

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

Question 37

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

Answer 37

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.

Question 38

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

Answer 38

It is he 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.

Question 39

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

Answer 39

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)

Question 40

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

Answer 40

1. the situation cannot reasonably be regarded as likely to give rise to a conflict of interest
2. . the matter has been authorised by dirs before (Dir in q cant count in quorum to authorise infringement )).
3. Does NOT apply to a conflict of interest arising in relation to a transaction/arrangement with the company.

Question 41

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

Answer 41

Duty to avoid conflicts of interest

Question 42

Which directors duties also apply to former directors?

Answer 42

Avoid conflicts of interest
Not to accept benefits from third parties

Question 43

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

Answer 43

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

Question 44

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

Answer 44

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

Question 45

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

Answer 45

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

Question 46

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

Answer 46

yes

Question 47

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

Answer 47

a. Dir isnt aware of the interest, or of the transaction or arrangement (will be ‘aware’ of matters of which he ought reasonably to be aware)
b. interest cannot reasonably be regarded as likely to give rise to a conflict
c. other dirs already aware (or ought reasonably to be aware of it)
d. if it concerns the terms of the dir’s service contract
e. transaction is NOT with the company

Question 48

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

Answer 48

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.

Question 49

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

Answer 49

*at a meeting of the dirs,
* by notice in writing sent to all other dirs
* by general notice of the interest given at a board meeting

Question 50

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

Answer 50

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

Question 51

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

Answer 51

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)
   if it concerns the terms of the dirs service contract

Question 52

Remedies for breach of directors duty

Answer 52

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.

Question 53

How can a directors breach of duty be ratified?

Answer 53

SH can ratify breach/potential breach via ordinary res
Where Dir in q is also SH wont count as eligible member for WR or vote at GM

Question 54

What duty cant be ratified?

Answer 54

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

Question 55

What are directors other liabilities?

Answer 55

-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