Ch13 - Company Directors Flashcards
the role of a non-executive director;
This is a Director appointed to the Board but who plays no regular role in the day-to-day management of the
business– more involved in strategic management at board level, not involved in the operational day to day
running of the company.
They are appointed due to their expert knowledge, experience, attainment or skills, reputation etc. They are
not required to give continuous attention to the affairs of the business.
They perform a monitoring role and are involved in governance rather than management, and may be
involved in determining executive directors’ remuneration. Their overall role is to provide an independent
view, provide effective leadership and ensure high standards.
the procedures to appoint a company director;
The registration documents will state the names of the first directors of a company – thereafter all
subsequent appointments are governed by Articles of Association.
An appointment may arise following a retirement by rotation process provided the person is eligible for
re-election, and wishes to be re-appointed.
Such a re-appointment is made by an ordinary resolution of the shareholders at a General Meeting as is the
appointment of any persons wishing to become a director at a General Meeting.
The Board of Directors can also appoint a person to act as a director where a casual vacancy arises but at
the next AGM this person must resign and if they desire/are eligible they can ask the shareholders for
re-election.
the eligibility requirements to be a company director
A person is only eligible if they are:
(i) not an un-discharged bankrupt;
(ii) a corporate or human person (at least one director must be a natural person Section 155);
(iii) not the auditor of a company or its holding company;
(iv) a person not subject to a disqualification order or other court order restraining them to be a director;
(v) over 16 years (minimum age requirement by Section 157 CA 2006).
In order to be appointed as a director James must resign his position as auditor as he cannot act in both positions simultaneously.
the distinction between executive and non-executive directors;
Executive Directors are directors who are involved in the operational management of the business. They
provide continuous attention to the affairs of the business. The model articles of association set out in CA
2006 list the powers of executive directors.
They are often employees, for example a Managing Director, and they usually hold important positions within
the day to day running of the business.
Non-executive Directors are directors appointed to manage the business on a transient basis.
They are more involved in strategic management at board level and not usually involved in the operational
running.
They are appointed due to their expert knowledge, experience, attainment or skills.
Their role is to act as monitors of the executive directors (by ensuring that they are acting within their powers
and the companies objectives) and to provide the board of directors with additional expertise and an
objective view point.
the role of a managing director;
This is a Director to whom the Board of Directors has delegated power to carry on the day-to-day
management of the company - his appointment is authorised by the Articles, which also provide that he has a
second or casting vote in the event of the vote being tied at a Board Meeting.
The Managing Director is an agent of the company and will have the authority to bind a company to all
contracts - generally, the Managing Director is given the responsibility of ensuring that the objectives and
policies formulated by the Board of Directors are implemented.
There may be more than one MD appointed and they will have more extensive powers than the ordinary
director.
the procedure for removal of a company director
Section 168 Companies Act 2006
Call a General Meeting of the shareholders informing them that an ordinary resolution is proposed to remove
a Director and provide the shareholders with 28 days notice of the meeting.
Inform the Director of the meeting and allow him fair procedures as guaranteed by the constitution and
natural justice.
The Director is entitled to address the meeting and he may require the company to circulate to the
shareholders his representations.
The power to remove a director is limited: in order to propose a resolution to remove director the shareholder
must call a general meeting and to call a meeting the shareholder must own 10% of the paid-up shares or
10% voting rights.
Also any director sought to be removed may hold weighted voting rights under the company constitution and
be able to outvote the other members.
The basic rule, the permissible exceptions to the rule and the definition of a connected person;
A connected person includes:
a civil partner, a person whom the director lives “as partner in an enduring family relationship,” the directors
parents, children or step children over 18 years or children and step children of the director’s unmarried
partner if they live with the director and are under 18
Outline loans to directors.
Loans to Directors: Sections 197-214 CA 2006
All companies will be able to make loans to their own directors or directors of their holding company with
shareholder approval – thus the basic rule is that any loan to a director requires members consent.
However there are some exceptions to requiring members approval including:
(i) loans, quasi- loans, guarantees, security to meet expenditure on company business of less than £50k;
(ii) money lent to a director to fund legal proceedings in relation to any action by him in relation to the company;
(iii) small loans under £10k to director or connected person;
(iv) expenditure related to any action taken against a director by a regulatory authority.
Explain the offence of wrongful trading. Outline both sanctions that may be imposed where the offence is
proven.
Wrongful Trading arises where:
(i) a company has gone into insolvent liquidation;
(ii) before commencement of the winding up of the company, that person knew or ought to have known that
there was no reasonable prospect that the company would have avoided insolvent liquidation;
(iii) that person is a director- i.e. the offence can only be committed by a director (including shadow and de jure
directors). Two examples are included in the legislation:
1. a director of the insolvent company knew or should have known that there was no reasonable prospect that
the company could have avoided going into insolvent liquidation;
2. a directors did not take sufficient steps to minimise the potential loss to creditors.
Sanctions - civil liability attaches in that a person may be held personally liable in the civil courts for the debts
of the company arises from wrongful trading.
The court may also make a disqualification order against them, disqualifying them from acting as a director,
auditor, receiver, officer, liquidator or examiner, or being involved in the promotion, formation or management
of a company for up to fifteen years or such other period that the court may direct.
Define the term ‘money laundering’
Money laundering is the way in which criminals attempt to turn cash and other assets obtained from criminal
activities into genuine assets through the financial services system and through established businesses.
Outline the elements of the offence of money laundering as established by the Proceeds of Crime Act 2002
(as amended by the Serious Organised Crime and Police Act 2005, the Money Laundering,Terrorist
Financing Regulations 2017 and 2019 and The Criminal Finances Act 2017).
Elements of the offence: the offence is regulated in Northern Ireland by the Proceeds of Crime Act 2002.
According to Section 327 money laundering arises where a person:
(i) conceals or disguises the nature, source, location, movement or ownership of criminal property;
(ii) converts or transfers that property from one form into another e.g. from cash into property; or
(iii) transfers or removes it from the State, e.g., from Northern Ireland/UK into Ireland (or provides advice or
assistance in relation to conversion or transfer).
Explain three processes by which money laundering can take place.
Processes - the offence can be achieved by:
(i) placement: this is the initial disposal of the proceeds of criminal activity into an apparently legitimate business
activity or property;
(ii) layering: this involves the transfer of money from business to business, or place to place in order to conceal
its initial source;
(iii) integration: this is the culmination of the previous procedures through which the money takes on the
appearance of coming from a legitimate source.
Outline the other two criminal offences relating to money laundering under the Proceeds of Crime Act 2002
(as amended).
(i) Failure to report: it is an offence for a person employed in the regulated sector not to report someone they
suspect of money laundering to the relevant authority;
(ii) Tipping off: it is an offence to make a disclosure that is likely to prejudice a money laundering investigation
for example, a solicitor tips off his client that he may be investigated for money laundering.
State the sanctions/penalties that can be imposed where a person is found guilty of money laundering and of
the other two criminal offences related to money laundering.
Sanctions: a person guilty of a money laundering offence is liable to imprisonment for a term not exceeding
15 years and/or a fine.
A person found guilty of failure to report/tipping off a suspicion of money laundering is liable to the imposition
of a fine or a term of imprisonment of up to 5 years, or both.
Explain the three offences relating to money laundering.
Three offences:
(i) laundering- involves placement, layering, and integration;
(ii) failure to report- if you suspect or know that someone is laundering money, you must report them to the
authority;
(iii) tipping off- it is an offence to tip someone off that a report has been made about them on suspicion of money
laundering.
