Chapter 15: Meetings of the Board and its Committees Flashcards
How do the rules for directors’ meetings differ from those for members’ meetings?
Compared to detailed regulations governing members’ meetings, the Act and company Articles provide much fewer details on how directors should conduct their meetings.
Directors have more flexibility and are allowed to decide their own procedures within broad legal parameters.
What are the different types of meetings held by directors?
Board meetings – Formal meetings where:
Corporate strategy is set.
Executive performance is evaluated against strategy.
Executive/Management meetings – More informal meetings where:
Day-to-day business decisions are made.
Performance is reviewed against key performance indicators (KPIs).
Key Differences:
Board Meetings
Purpose Strategy & oversight
Frequency Less frequent
Records Formal minutes with rationale
Management Meetings
Purpose Operational decisions
Frequency Weekly, fortnightly, or monthly
Records Informal, action points only
What types of meetings are covered under the Act and Articles?
The Act and Articles only regulate formal board meetings.
Day-to-day management meetings are not covered by these provisions.
Model Articles (Plc reg. 19, Ltd reg. 16) allow directors to conduct meetings as they see fit.
Key Difference from Members’ Meetings:
No formal notice periods required.
No fixed format or content requirements for meeting notices.
How do board meetings vary based on company size and structure?
Small businesses & private companies:
Rarely hold formal board meetings.
Rely on informal discussions and written resolutions.
Larger companies & listed companies:
Hold regularly scheduled board meetings.
Maintain a corporate governance structure.
Board schedules are disclosed in annual reports.
Common Board Meeting Practices:
Some companies schedule meetings in advance.
Listed companies follow stricter governance rules.
No legal minimum number of board meetings, but one meeting per year is recommended to approve financial statements.
What are the characteristics of management meetin
Held frequently – Can be weekly, fortnightly, or monthly.
Agenda focuses on actual performance of departments or divisions.
Discussions are fluid and based on current concerns.
Minutes are brief, often limited to action points only.
How frequently are board meetings held, and how are they documented?
Less frequent than management meetings.
Frequency depends on company needs:
Early-stage companies may have more frequent meetings.
Mature companies may need fewer meetings.
Minutes must include:
Decisions taken.
Rationale behind decisions (especially for regulatory compliance).
Historical vs. Modern Practices:
Historically: Minutes were internal records of business decisions.
Now: Minutes are often written for external regulators.
How are decisions made at board meetings?
Formal votes are rare – decisions are usually made by consensus.
If a director disagrees, their dissent should be recorded in the minutes.
If no consensus is reached, the matter is usually deferred for further discussion.
Board discussions are open-ended – no requirement for formal resolutions unless needed.
Who can convene a directors’ meeting?
The chair usually instructs the company secretary to convene a meeting.
However, any director or the company secretary (at a director’s request) may convene a meeting.
What is the role of virtual meetings in board governance?
Board meetings can be held virtually using audio/audio-visual technology.
This avoids the need for directors to be physically present.
Adoption of virtual meetings increased dramatically due to COVID-19 (2020/21).
Best Practices for Virtual Meetings:
Directors should follow formal procedures and etiquette.
Institute of Chartered Secretaries and Administrators (ICSA) has issued guidelines for effective virtual meetings.
Hybrid meetings (physical + virtual) are becoming the norm.
What are the key advantages and challenges of virtual board meetings?
Advantages
Eliminates travel costs
Enables global participation
More flexible scheduling
Can improve attendance
Challenges
Technical difficulties
Ensuring security & confidentiality
Risk of disengagement
Harder to read body language
Is there a minimum notice period for directors’ meetings?
No, there is no legal minimum notice period.
Any reasonable notice must be given, but what is reasonable depends on the company.
What information is typically included in a meeting notice?
Place, date, and time of the meeting.
Agenda of topics to be discussed.
Notices can be sent verbally, via letter, fax, email, or hand-delivery.
How should board papers be circulated?
For complex matters, it is helpful to circulate papers before the meeting, especially for non-executive directors.
For virtual meetings:
Shorter attention spans require shorter meetings and more breaks.
Consideration should be given to different time zones to ensure correct scheduling.
What is the minimum quorum for board meetings?
Set in the company’s Articles.
Model Articles state that a quorum is two directors:
Model Articles Plc reg. 10
Model Articles Ltd reg. 11
The quorum does not have to be in one location (audio/video participation is allowed).
Special Case – If the Number of Directors Falls Below the Minimum:
If only one director remains The remaining director can appoint another director.
If no directors remain The members must call a general meeting to appoint new directors.
Some private companies modify their Articles to allow a sole director to act, even when the quorum is not met.
How does the style of board minutes vary?
Historically, board minutes were internal records of business decisions.
Now, external regulators often review minutes, so they focus more on:
Challenges raised by specific directors.
Actions taken to review challenges.
Key takeaway:
Accurate minute-taking is crucial, as minutes serve as legal records and evidence of decision-making.
Who decides how much discussion is recorded in minutes?
The chair, in conjunction with the company secretary, decides how much discussion is included in the minutes and whether in the form of suitable narrative or formal resolutions, action points and follow-up actions.
What are the legal requirements for keeping board minutes?
Companies Act 2006 (CA2006 s. 248) requires all companies to keep minutes.
Minimum retention periods:
Meetings after 1 October 2007 → Minutes must be kept for at least 10 years.
Meetings before 1 October 2007 → Permanent record required (CA1985 s. 382).
Who can elect the chairman of the board?
The directors
Where are the rules and procedures governing the holding of directors’ meetings?
The company’s articles.
How is the chair of the board elected?
The board members collectively elect one of their number as the chair.
Model Articles (Plc & Ltd reg. 12) provide this rule.
For listed companies, the Governance Code offers guidance to ensure the chair’s independence from executive management.
Why is an effective chair crucial to board success?
The chair guides the board’s strategic focus and ensures accountability.
An effective chair:
Facilitates fair and structured discussions.
Allocates time efficiently to each agenda item.
Ensures all opinions are heard and given equal weight.
Potential Issue:
A domineering, outspoken chair can suppress debate, leading to poor decision-making and reduced board effectiveness.
What are the main responsibilities of the chair?
Facilitate discussions, ensuring all points of view are heard.
Prevent repetition and off-topic discussions.
Encourage a strategic focus while maintaining effective oversight.
Lead by example, providing ethical leadership and supporting the executive team, especially the CEO, while not interfering in executive decision-making.
Promote good relationships among directors and senior managers, ensuring all skills and experience are used effectively.
Ensure the board regularly reviews its own performance, both collectively and individually.
Foster effective communication with shareholders, particularly major shareholders.
Key point: The chair should not dominate discussions but should facilitate balanced contributions.
Can the chair use a casting vote in case of a tie?
The Articles may grant the chair a casting vote if there is a tie:
Plc Model Articles reg. 14
Ltd Model Articles reg. 13
If granted, using the casting vote is discretionary, but it is recommended to use it only to defeat a resolution (since there is no majority in favor).
In practice, boards generally seek unanimity or at least a clear majority before making decisions.
How does the chair’s role change in virtual meetings?
Ensuring all views are heard is more challenging in virtual meetings.
Clear ground rules should be set for speaking and formality must be observed (e.g., speaking only with the chair’s consent).
Participants are more likely to talk over each other or interrupt during pauses.
A skilled chair will manage discussions effectively, ensuring smooth communication.
What tasks does the company secretary perform during the meeting?
The company secretary is responsible for recording key details and ensuring the meeting runs smoothly. Tasks include:
Recording attendance: Noting present directors and any apologies for absence.
Checking for quorum: Ensuring the required number of directors is present, including for virtual meetings.
Taking meeting notes:
Documenting decisions and actions taken.
Recording justifications for decisions where necessary.
Avoiding verbatim transcripts, which may cause legal complications.
Documenting director arrivals and departures: Noting any late arrivals or early exits.
Advising on legal and procedural matters: Intervening only when something unlawful or against the Articles is proposed.
Managing guest speakers: Ensuring invited managers or specialists are ready to join when required.
Maintaining confidentiality:
Collecting confidential documents after the meeting.
Clearing flipcharts, whiteboards, and other notes before cleaning staff enter the room.
What is the role of the company secretary before a board meeting?
The company secretary ensures all logistical and administrative aspects of the board meeting are managed. This includes:
Issuing board papers: Sending requests to relevant directors and managers for reports.
Sending meeting notices: Informing directors of the time, date, and place, along with the agenda and supporting documents.
Notifying attending managers: Ensuring managers attending part of the meeting receive only relevant documents.
Providing extra copies of the agenda and reports: Ensuring spare materials are available.
Managing recurring agenda items: Reminding departments to prepare necessary reports, e.g., half-yearly staff updates.
Drafting formal resolutions: Preparing resolutions in advance to save time.
Setting up the meeting room: Arranging necessary materials such as company Articles, the Act, and legal reference books.
Preparing for virtual meetings: Ensuring all participants have the correct software installed. Conducting test calls for first-time attendees. Securing virtual meetings to prevent unauthorized access.
Assisting the chair in setting up the meeting: Acting as a meeting host. Providing clear instructions for joining and using the platform. Ensuring the chair understands the technology. Establishing alternative communication methods (e.g., text, email, or chat functions). Considering two screens (one for video, one for documents).
What post-meeting actions must the company secretary complete?
After the meeting, the company secretary finalizes documentation, communicates decisions, and prepares minutes. Tasks include:
Immediate Actions
(Listed companies) Making a Regulatory Information Service (RIS) announcement if:
A dividend has been declared.
Yearly or half-yearly accounts are approved.
A director is appointed or resigns.
Shares or debentures are issued.
A preference dividend or interest payment is postponed.
Notifying company managers: Informing them of board decisions requiring action.
Tracking deferred items: Listing unresolved matters for follow-up in future meetings.
Ensuring requested reports are prepared: Reminding managers responsible for next-meeting reports.
Preparing and Finalizing Meeting Minutes
Drafting meeting minutes:
Recording names of attendees and absentees.
Noting director arrivals and departures.
Reviewing draft minutes: Sending drafts to directors for comments by a set deadline.
Finalizing minutes:
Incorporating agreed amendments.
Chair reviewing and signing final minutes.
Ensuring changes only reflect what was actually said (not what a director later wished they had said).
Why is the company secretary’s role crucial in board meetings?
The company secretary ensures that board meetings are effectively planned, legally compliant, and accurately recorded. They:
Facilitate communication between directors and managers.
Maintain proper governance procedures.
Ensure decisions are documented for legal and regulatory compliance.
Provide administrative support to keep meetings efficient.
What must be included in the written terms of reference for board committees?
Board committees must have formal written terms of reference that outline:
Membership – Who can be part of the committee.
Quorum – Minimum number of members required to make decisions.
Frequency – How often meetings should be held.
Secretary – The person responsible for administrative support.
Notice – How meetings are convened.
Minutes – Recording decisions made.
Duties – Responsibilities of the committee.
Reporting Responsibilities – How decisions are communicated to the board.
The Institute provides standard templates for board committees’ terms of reference.
What is the general responsibility of directors in a company?
Directors are responsible for managing the company’s business, as defined in the Companies Act and the company’s Articles of Association. According to Model Articles Plc reg. 3, directors have the power to exercise all the company’s powers unless restricted by the Articles.
Why is it important to document delegation policies?
Since overlaps between the board and executive team responsibilities can occur, clear documentation is necessary to:
Define decisions reserved for the board vs. those delegated to management.
Provide transparency in authority delegation.
Establish reporting mechanisms for monitoring performance.
Ensure compliance and address breaches when necessary.
Each director should receive a copy of these procedures, and compliance should be monitored by the chair and board.
What must the board ensure when exercising its governance responsibilities?
The board must ensure that senior executive management:
Establish and maintain risk management systems to identify, monitor, and control risks.
Develop clear policies that define responsibilities and authorities between the board and the executive management team.
Implement oversight and reporting mechanisms to monitor executive management’s actions.
Evaluate corporate strategy implementation and ensure compliance with governance frameworks.
Where must the delegation of directors’ authority be documented?
Delegation of authority must be contained in the company’s Articles, whether to:
Board committees (e.g., audit, risk, remuneration, nomination committees).
Senior management or executive committees (under the CEO’s remit).
(Model Articles Plc & Ltd regs. 5 and 6)
What is the role of an executive committee?
An executive committee is formed under the CEO’s authority to assist in corporate strategy execution and operational decisions. Unlike board committees, its authority comes from its individual members rather than from the board directly. The CEO often reports executive committee actions to the board.
What should be included in the terms of reference for an executive committee?
The executive committee’s terms of reference should define:
Purpose and authority – What the committee is responsible for.
Membership – Who is included.
Chair – Who leads the committee.
Secretary – Who provides administrative support.
Quorum – Minimum attendance requirements.
Frequency of meetings – Regularity of committee meetings.
Notice – How meetings are scheduled.
Duties, including:
Preparing business plans, budgets, and strategies.
Executing strategies and managing budgets.
Identifying and monitoring risks.
Establishing financial and reporting systems.
Providing governance-related information to the board.
Implementing company policies and procedures.
Reporting requirements – How committee actions are reported to the board.
Can directors delegate their responsibilities entirely to committees or executives?
No. While directors can delegate authority to board committees or management, they cannot delegate their legal duties under the Companies Act (CA2006). Directors remain ultimately responsible for governance and corporate strategy.
Key duties that cannot be delegated:
Act within their powers (CA2006 s. 171).
Promote the success of the company (CA2006 s. 172).
Exercise independent judgment (CA2006 s. 173).
Exercise reasonable care, skill, and diligence (CA2006 s. 174).
Avoid conflicts of interest (CA2006 s. 175).
Not accept benefits from third parties (CA2006 s. 176).
Declare interests in transactions or arrangements (CA2006 s. 177).
What are the key responsibilities of executive management?
Executive management, led by the CEO, is responsible for:
Implementing the strategic objectives set by the board.
Handling day-to-day operations of the business.
Managing financial, human, and operational resources efficiently.
Developing and executing business plans and budgets.
Reporting to the board on performance, risks, and key issues.
Ensuring compliance with internal policies and external regulations.
What happens if an executive or committee exceeds its delegated authority?
If a breach of delegation occurs, the board must:
Review the breach and its impact.
Investigate if it was intentional or accidental.
Take corrective action, such as:
Issuing formal warnings.
Adjusting delegation terms.
Removing delegated authority if necessary.
Ensure future compliance by improving oversight mechanisms.
How does the board maintain control over delegated authority?
Even after delegating tasks to executives or committees, the board retains ultimate accountability by:
Receiving regular reports on delegated tasks.
Setting up monitoring mechanisms for compliance.
Evaluating strategy implementation through periodic reviews.
Ensuring breaches of authority are addressed by the chair and board.
Why is delegation essential for effective corporate governance?
Delegation ensures that:
The board can focus on high-level strategy rather than daily operations.
Senior management efficiently executes operational decisions.
Risk management, reporting, and compliance processes are properly handled.
Clear decision-making responsibilities are maintained between the board and management.
However, directors must not fully relinquish oversight and remain responsible for ensuring the company operates lawfully and ethically.
Why is it essential to have a documented separation of roles between the board and executive management?
In companies with non-executive directors, a documented separation of roles is crucial to:
Avoid overlapping responsibilities between the board and senior management.
Prevent conflicting messages from being communicated internally and externally.
Ensure clarity in decision-making by defining which matters are for board-level oversight and which are for executive management.
Enhance corporate governance by maintaining proper checks and balances between oversight and execution.
What are the key responsibilities of the board of directors?
The board of directors is primarily responsible for:
Setting the strategic direction of the company.
Overseeing corporate governance and ensuring compliance with laws and regulations.
Monitoring risk management and financial performance.
Appointing and supervising executive management.
Ensuring shareholder interests are protected.
Making major corporate decisions, such as mergers, acquisitions, and capital allo
How can companies ensure a clear separation of roles between the board and executive management?
Companies can ensure a clear separation of roles by:
Documenting authority boundaries – Establish clear guidelines on decisions that require board approval vs. those managed by executives.
Defining roles in company policies – Clearly outline board and management responsibilities in corporate governance documents.
Establishing board committees – Committees such as audit, risk, remuneration, and nomination committees can focus on oversight while leaving daily operations to executives.
Requiring regular reporting – Executives must provide structured reports to the board to ensure transparency.
Encouraging non-executive directors’ independence – NEDs should challenge and review management decisions without interfering in daily operations.
Conducting board evaluations – Regularly reviewing board and management effectiveness ensures that governance structures remain effective.
What are the risks of not maintaining a proper separation between board and management?
If the roles are not properly separated, risks include:
Conflicting messages from management and the board, leading to confusion.
Interference in operational matters by the board, which can reduce management’s ability to execute effectively.
Loss of accountability, as responsibilities become blurred.
Weak corporate governance, which can expose the company to regulatory and financial risks.
Inefficiency in decision-making, slowing down business operations and strategic initiatives.
Why has government attention focused on corporate governance and director behaviour?
Due to high-profile business failures attributed to poor management, the government has prioritized corporate governance reforms to strengthen director accountability, transparency, and stewardship of public companies.
How do non-executive directors (NEDs) contribute to maintaining the separation of roles?
NEDs play a crucial role by:
Providing independent oversight without engaging in daily management.
Acting as a link between the board and shareholders, ensuring their interests are represented.
Challenging executive decisions constructively to enhance governance.
Ensuring compliance with corporate governance standards and ethical practices.
Serving on board committees to review management performance and policies.
What key reforms were proposed by the government to address insolvency issues?
The government announced measures to:
Increase director accountability in group companies when selling distressed subsidiaries.
Enhance recovery powers for insolvency practitioners against value extraction schemes.
Empower the Insolvency Service to investigate directors of dissolved companies.
Strengthen insolvency laws to protect creditors from unethical business practices.
What was the purpose of the BEIS Insolvency and Corporate Governance consultation?
The consultation, published on 26 August 2018, aimed to:
Identify governance failures leading to corporate collapse.
Strengthen corporate governance and director accountability in financially distressed companies.
Improve the insolvency regime to protect creditors and stakeholders.
Ensure directors of dissolved companies can be held accountable for misconduct.
What corporate governance reforms were proposed?
The corporate governance proposals included:
Greater transparency in complex group structures.
Enhancing shareholder stewardship to improve oversight.
Strengthening rules on dividend payments to prevent unsustainable distributions.
Improving boardroom effectiveness through clearer regulations.
How can directors ensure they discharge their duties properly?
Directors can meet their duties under CA2006 s. 172 (Promoting Success of the Company) and s. 174 (Duty of Care, Skill, and Diligence) by:
Seeking comprehensive advice from qualified professionals or company management.
Acting in good faith on the advice received.
Reviewing and challenging any advice that appears misleading or inconsistent with facts.
Ensuring transparency in decision-making and corporate governance.
How does a director’s professional background impact their responsibilities?
A director’s qualification and expertise determine the level of responsibility they hold. Courts apply higher standards of accountability to directors with professional qualifications relevant to a decision.
Example: A chartered surveyor with expertise in property valuation will be held to a higher standard in financial decisions involving real estate than a director with an IT background.
Case reference: Re Peppermint Park Limited (1998) BCC 23 – A non-executive director received a lighter penalty than an executive director who had daily control over company affairs.
How should directors handle professional advice?
Directors should:
Seek advice from multiple professional sources to ensure a balanced view.
Avoid blindly accepting advice and instead challenge any aspects that seem questionable.
Attempt to understand the advice and its consequences to make informed decisions.
Document advisory engagements through formal letters of engagement outlining the scope of advice.
What are the risks of relying on a single professional adviser?
If directors only seek advice from one professional firm, they risk:
Receiving biased or client-friendly advice, rather than objective guidance.
Accepting advice tailored to management’s preferred outcome, rather than sound corporate governance.
Creating legal and ethical concerns if the adviser’s opinion conflicts with the majority of other experts.
Potential regulatory scrutiny for failing to exercise due diligence in governance decisions.
What is the main risk associated with having professional advisers present at all directors’ meetings?
Might be deemed to be a shadow director
What is the role of professional advisers at board meetings?
Professional advisers should:
Attend board meetings only when required for specific matters within their expertise.
Restrict their advice to relevant areas, such as accounting, legal, or property matters.
Avoid offering broad management advice to prevent being classified as shadow directors.
Maintain written engagement terms to document their role and limit liability.
Why is it important for non-executive directors (NEDs) to challenge advice?
NEDs must ensure governance integrity by:
Critically evaluating professional advice before approving decisions.
Verifying whether multiple firms have been consulted for impartial guidance.
Detecting “outlier advice”, where only one firm supports a risky decision while others reject it.
Preventing conflicts of interest and ensuring decisions align with shareholder and company interests.
Why do boards establish committees?
Boards, especially those with both executive and non-executive directors, create committees to provide specialist oversight in specific areas.
Committees allow for detailed scrutiny, specialised knowledge application, and better accountability.
Listed companies are recommended by the Governance Code to establish key committees (audit, remuneration, nomination) or explain their absence.
What do committees of the board, and especially non-executive members contribute to the board?
More in-depth analysis and review of topics. Committee members tend to have greater experience/interest in the committee’s brief than the full board
What are the four main benefits of board committees?
Member knowledge specialisation – Directors with relevant expertise (e.g., an accountant in the audit committee) enhance decision-making.
Committee specialism – Complex areas (e.g., risk, health & safety, remuneration) receive detailed review.
Better accountability – Smaller groups ensure greater individual responsibility and oversight.
More in-depth analysis – Committees have more time to scrutinise matters before presenting to the full board.
What legal basis allows directors to delegate authority to committees?
Model Articles Plc & Ltd regulations 5 and 6 allow directors to delegate authority to committees.
Committees operate under board-delegated powers, but their decisions may still need board or shareholder validation in some cases.
What risks exist with knowledge specialisation within committees?
While specialisation improves expertise, it can lead to:
Over-reliance on committee members for specific knowledge.
Limited contributions from non-committee board members due to lack of subject familiarity.
Potential exclusion of other directors from key decisions.
How do board committees improve corporate governance?
By allowing more detailed oversight of key areas (e.g., remuneration, risk management).
By enhancing accountability among board members.
By reducing time pressure on full board meetings.
By empowering non-executive directors in a smaller, less intimidating setting.
Do committees make final decisions on their areas of responsibility?
No, committees only advise and oversee their specific area.
The full board retains ultimate responsibility and makes final decisions.
Committees prepare recommendations, but the board reviews and approves them.
What is the difference between the board of directors and senior executive management?:
In smaller companies, there is often no difference between the board of directors and executive management.
In larger or listed companies, the board is mostly non-executive directors, while executive management handles daily operations.
Executive committees operate below the board, focusing on implementing strategy and business management.
What are ‘matters reserved for the board’?
A formal list of decisions that require prior board approval before implementation.
Ensures that major corporate decisions remain under board control.
Prevents executives from making strategic or high-risk decisions without oversight.
What is the required composition of board committees in listed companies?
A majority of committee members should be independent of executive management.
The chair of each committee should have appropriate qualifications and experience.
Audit and remuneration committees should consist entirely of independent non-executive directors to maintain neutrality.
What are the key responsibilities of the audit and remuneration committees?
Audit Committee: Oversees financial reporting, risk management, and external audits.
Remuneration Committee: Sets executive compensation policies and director pay structures.
Nomination Committee: Oversees board appointments and succession planning.
What corporate governance reporting requirements apply to board committees?
The Governance Code recommends that committee work be disclosed in the annual financial statements.
The reports should include contributions from the audit, remuneration, and nomination committees.
How should committee decisions be communicated to the full board?
Committee minutes (or written summaries) must be circulated before the next board meeting.
Board members should be given the opportunity to question the committee chair.
Why is it important to document the separation of responsibilities between the board and executive management?
To avoid confusion regarding decision-making authority.
To ensure clear governance structures and accountability.
To document which decisions require board approval and which can be handled by executives.
What categories of matters are typically reserved for the board?
Matters typically requiring board approval include:
Strategy & Management – Approval of corporate strategy, business plans, and major investments.
Financial Matters – Approval of budgets, major expenditures, and financial reporting.
Risk & Compliance – Oversight of risk management, legal compliance, and internal controls.
Corporate Structure – Major acquisitions, mergers, or disposals.
Senior Appointments – Hiring or removal of key executives, directors, and auditors.
Governance & Policies – Approval of governance policies, ethical standards, and regulatory compliance.
Why is executive discretion necessary in companies?
Full board meetings are usually held monthly or quarterly, making day-to-day management by executive directors essential.
Authority must be delegated to executive directors and senior managers to allow efficient decision-making.
Without executive discretion, companies would lack agility in responding to operational needs.
What types of contracts should always be referred to the board for approval?
All material contracts, especially those that are:
High value or strategic to the business.
Not in the ordinary course of business (e.g., significant acquisitions, joint ventures).
The board should define ‘materiality’ and ‘ordinary course of business’ to avoid ambiguity.
What should be done if there is uncertainty about the materiality of a contract?
Best practice is to bring the contract before the board for discussion.
This ensures transparency and avoids unintended risks.
How should the board handle urgent decisions that arise between scheduled meetings?
A clear procedure should be in place for urgent decisions.
The chair or a designated committee may approve decisions in exceptional cases.
Any such decisions should be reported and ratified at the next full board meeting.
Where can companies find guidance on structuring a schedule of board-reserved matters?
The Chartered Governance Institute (CGI) provides a generic schedule of matters reserved for the board.
This serves as a reference for companies to develop their own governance framework.
What is a written resolution, and how can directors pass resolutions without a formal meeting?
A written resolution allows directors to pass resolutions without a formal board meeting.
Model Articles Plc regs. 17 & 18, Ltd reg. 8 permit a resolution signed by all directors to be as valid as if passed in a meeting.
This resolution can be:
A single document signed by all directors.
Separate copies signed by each director and compiled later.
The signed resolution should be inserted into the directors’ minute book for official records.
Can board meetings be held via video or phone calls?
Yes, many companies now permit board meetings via:
Video conferencing (e.g., Zoom, Microsoft Teams).
Telephone conferences with multiple directors.
Resolutions can also be agreed upon via:
Faxed documents.
Emails, but ideally signed for record-keeping.
How can directors make decisions informally?
Model Articles Ltd reg. 8 allows private company directors to make decisions by indicating agreement through any means, such as:
Emails exchanged between directors.
Verbal agreements (e.g., in office meetings or phone calls).
Model Articles Ltd reg. 15 requires a written record of such unanimous decisions but does not mandate director signatures.
Best practice: The chair or company secretary should authenticate the record.
What is the duty of executive directors when exercising discretion?
Directors must act bona fide (in good faith) in the company’s best interests.
The duty is subjective, meaning directors decide what is in the company’s interest, but with an objective threshold ensuring reasonableness.
Their decisions should align with statutory duties under CA2006, including:
Promoting the success of the company (CA2006 s. 172).
Exercising independent judgment (CA2006 s. 173).
What are conflicts of interest, and why must directors avoid them?
Conflicts of interest arise when a director’s personal interests interfere with the company’s interests.
To protect shareholders, directors must disclose any conflicts and not exploit their position for personal gain.
Companies must comply with:
Companies Act 2006 (CA2006 s. 175).
UK MAR (Market Abuse Regulation).
UK Corporate Governance Code (for listed companies).
What happens if a director acts outside their delegated authority?
Under agency law, the company is generally bound by the decisions of a director acting within their apparent authority.
If a director exceeds their authority, the company may still be bound under CA2006 s. 40, which protects third parties acting in good faith.
However, a company shareholder can challenge an unauthorized action through a restraining order, unless the act was necessary to fulfil existing legal obligations.
What must a director do if they have an interest in a contract with the company?
Declare the nature of their interest before the company enters into the contract (CA2006 s. 177).
Model Articles (Plc reg. 16, Ltd reg. 14) restrict a director from voting on matters where they have a personal interest.
The definition of an interest includes:
Being a director in another company involved in the contract.
Having financial interests in the transaction.
Exception: If the director only holds a minor shareholding (below material level) in the company involved, it does not require disclosure.
How should executive discretion be documented?
Clearly defined delegation is crucial to ensure accountability.
Documentation should include:
Terms of reference for each executive committee.
Employment contracts outlining authority limits.
Signing authority schedules, often defining monetary limits on approvals.
Can conflicts of interest be authorised?
Yes, but only under certain conditions:
Private companies: Directors may approve conflicts unless the Articles prohibit it.
Public companies: Conflicts can be approved only if the Articles explicitly allow it.
Approval is valid only if:
The conflicted director is excluded from quorum & voting.
The remaining directors form a valid quorum and approve the matter (CA2006 s. 175(6)).
Can the board delegate powers the company does not possess?
No. Directors can only be delegated powers that the company itself legally possesses.
If the company does not have a legal right to perform an action, it cannot delegate that right to its executives.
When must directors declare conflicts of interest?
Directors should declare general interests:
On appointment.
Regularly (e.g., annually, half-yearly, or quarterly).
At the start of board meetings for agenda items.
If a director has a significant conflict, shareholder approval might be required (e.g., buying a property developed by the company).
What is the legal duty of directors regarding conflicts of interest?
CA2006 s. 175 states directors must avoid conflicts of interest in:
Property transactions.
Use of company information.
Business opportunities (even if the company is not pursuing them).
How can a director give general notice of interests?
A general notice can be given in:
Writing to each director (CA2006 s. 184).
Declared at a board meeting and recorded in the minutes.
If a transaction involves a party where the director previously declared an interest, the board should still be reminded of the director’s involvement.
Sole directors must provide written notification of their interests (CA2006 s. 186).
What happens if a director fails to disclose their interest in a material transaction?
The transaction may become voidable at the company’s discretion (CA2006 s. 195(2)).
The director may have to:
Return any personal gains made from the contract.
Indemnify the company for any financial losses.
Remedy: If approval was not obtained beforehand, it can still be ratified later by members (CA2006 s. 196).
What are the risks of making an unauthorised loan to a director?
If an unauthorised loan is made:
The director must repay it immediately.
The directors who approved it are personally liable.
Regulators may investigate if loans are used improperly.
What are substantial property transactions, and why do they require approval?
If a director (or connected person) wants to buy from or sell to the company a non-cash asset, members must approve it by ordinary resolution (CA2006 s. 190).
Applies to directors, shadow directors, and connected persons.
Definition of “substantial” (CA2006 s. 191):
If above £5,000, AND
Exceeds 10% of net assets or is worth over £100,000.
Transactions NOT requiring approval:
Valued below £5,000.
Between a wholly owned subsidiary and its holding company.
During a liquidation (except voluntary liquidation).
Where the director is acting as a shareholder, not a director (e.g., rights issues).
What happens if a substantial property transaction occurs without approval?
Directors and connected persons involved may have to:
Repay profits made from the transaction.
Indemnify the company for losses.
The transaction may also be voidable unless later ratified (CA2006 s. 195(2)).
Who qualifies as a “connected person” for director loans?
Immediate family members (CA2006 s. 253):
Spouse/civil partner.
Parents.
Children/stepchildren.
Exclusions: Grandparents, siblings, aunts, uncles, nieces, nephews.
Connected companies (CA2006 s. 254):
Where the director has at least 20% control.
Trusts/settlements benefiting the director or their family.
When can a company legally give a loan to a director?
General Rule: Loans to directors or their connected persons require member approval (CA2006 ss. 197–214).
Exceptions (no member approval needed):
Up to £50,000 to help a director perform duties (CA2006 s. 204).
Covering legal expenses for defending a case (repayable if the director loses) (CA2006 s. 205).
Regulatory investigations (CA2006 s. 206).
Loans under £10,000 (CA2006 s. 207(1)).
Credit transactions up to £15,000 (CA2006 s. 207(2)).
Ordinary business transactions at standard terms (CA2006 s. 207(3)).
Loans from banks/money-lenders as part of their regular business (CA2006 s. 209).
What must be disclosed before a director loan is approved?
A memorandum must be provided to members stating:
Purpose of the loan.
Loan amount or transaction value.
Potential company liability under the loan.
If approval is by written resolution, the memorandum must be circulated.
If approval is at a general meeting, the memorandum must be available for 15 days before the meeting.
