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Corporate Secretarial Practice > Chapter 2: The Directors > Flashcards

Chapter 2: The Directors Flashcards

1
Q

What is the difference between an executive and NED?

A

NED has no executive responsibilities.

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2
Q

What factors might prevent a person being eligible as an NED for a listed company?

A

Lack of independence:

  • ex-employee
  • recent business relationship with the company
  • receives additional remuneration
  • close family ties with management
  • represents a significant shareholder
  • served on the board for more than 9 years
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3
Q

Which section CA defines the minimum number of directors?

A

CA S 154.

Public = 2, private = 1

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4
Q

What is the definition of a director?

A

Any person occupying the role of director, by whatever name called. s 250 CA

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5
Q

What is the role of the SID?

A

Be available to shareholders if they have concerns that contact through the usual channels (Chairman, CEO, finance director) has failed to resolve.

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6
Q

Which law removed corporate directors?

A

SBEE 2015

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7
Q

Who is disqualified from acting as a director?

A
  • undischarged bankrupt
  • court disqualification
  • accepted a voluntary disqualification
  • auditor of the company
  • restrictions in the articles
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8
Q

How are the first company directors appointed?

A

By naming on IN01

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9
Q

How are directors appointed (other than the first directors) in a plc?

A

By ordinary resolution at the AGM.

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10
Q

What is the procedure for appointing a director?

A
  • board draws up profile of suitable person
  • select a candidate
  • send information on candidate to all board members
  • board resolves to appoint director
  • secretary writes to new director confirming appointment
  • update register of directors
  • send form AP01
  • amend stationary if needed
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11
Q

What does the UKCGC state about director inductions?

A
  • all directors should receive induction
  • chairman has responsibility for ensuring proper induction
  • company should offer major shareholders opportunity to meet new NED
  • specific training may be required for serving on key committees
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12
Q

Which ICSA guidance note concerns induction of directors?

A

“Induction of Directors” (2012)

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13
Q

What information should a directors’ service contract contain?

A
  • name of company
  • date of contract and details of notice period
  • remuneration, salary and benefits
  • commission or profit-sharing agreements
  • compensation for early termination
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14
Q

Which model article concerns directors’ remuneration?

A

19

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15
Q

If a director was not validly appointed, are their actions still binding?

A

Yes, s 161 CA.

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16
Q

What should be done on discovering that a director’s appointment was invalid?

A

Rectify the reason for invalidation.

Pass a special resolution validating the acts of the director, and all other directors.

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17
Q

What form should be completed for a change of directors’ particulars?

A

CH01

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18
Q

According to the model articles, how can a director vacate office?

A

Article 22 - a person ceases to be a director as soon as notification is received by the company from the director that they are resigning.

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19
Q

Which document must be filed with the registrar when a director vacates office?

A

TM01

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20
Q

What proportion of the board must offer themselves for reelection at the first AGM of a public company?

A

All directors must retire and be reappointed.

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21
Q

What are the model articles provisions for a public company on the reelection of directors?

A

Election and reelection should take place at the AGM

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22
Q

What steps should the CoSec take for removal of a director?

A
  • obtain letter of resignation / special notice
  • formally minute the vacation
  • update register of directors
  • complete TM01 and send to registrar
  • pay final fees and expenses
  • remove name from company stationary
  • inform the bank
  • ask the director to return all documents and company property
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23
Q

What steps should the CoSec take for removal of a director?

A
  • obtain letter of resignation / special notice
  • formally minute the vacation
  • update register of directors
  • complete TM01 and send to registrar
  • pay final fees and expenses
  • remove name from company stationary
  • inform the bank
  • ask the director to return all documents and company property
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24
Q

What steps should the CoSec take for removal of a director?

A
  • obtain letter of resignation / special notice
  • formally minute the vacation
  • update register of directors
  • complete TM01 and send to registrar
  • pay final fees and expenses
  • remove name from company stationary
  • inform the bank
  • ask the director to return all documents and company property
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25
Q

To whom do directors owe their duties?

A

To the company

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26
Q

What is required in s 182 CA?

A

Directors must declare a direct or indirect interest in an existing transaction or arrangement

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27
Q

What are the remedies for a breach of directors’ duties?

A

S178 CA

  • fail to disclose an interest allows company to void the contract and make the director account for any profits (+ criminal penalty)
  • directors liable for damage through negligence
  • dismissal
28
Q

Other than their duties in the CA, of what other legislation do directors need to be aware?

A
  • insider dealing and market abuse
  • health and safety
  • anti bribery and corruption
  • competition
  • data protection
  • enviromental
29
Q

Other than their duties in the CA, of what other legislation do directors need to be aware?

A
  • insider dealing and market abuse
  • health and safety
  • anti bribery and corruption
  • competition
  • data protection
  • enviromental
30
Q

Who can bring a derivative claim?

A

Any member, against a director for a actual or proposed act or omission involving breach of trust or duty.

31
Q

Against which liabilities can a company NOT indemnify a director?

A

Liability for negligence, default or breach of duty or trust

32
Q

To whom may directors delegate their powers?

A

To any person or committee they think fit. (Model Article 5)

33
Q

If a director delegates his responsibilities, is he absolved of responsibility?

A

No, he still has responsibility to supervise the delegated functions.

34
Q

When will the court not give permission to proceed with a derivative claim?

A
  • a director was acting in accordance with the duty to promote the success of the company
  • a director’s action was authorised or ratified by the company.
35
Q

What matters shall the court take into account before giving permission for a derivative claim to proceed?

A
  • the view of other shareholders
  • whether the claimant is acting in good faith
  • whether the subject of the claim is likely to be authorised by the company
  • if the company itself had not decided to bring the claim
  • the importance of the claim to someone seeking to promote the success of the company.
36
Q

What is required to allow a loan or quasi loan to a director?

A

Permission of the members by ordinary resolution (or higher if set out in the articles)

37
Q

What information must be contained in the memorandum to members for a resolution to approve a company loan to a director?

A
  • the purpose of the transaction
  • the value of the transaction
  • the liability to which the company with be exposed.
38
Q

What are the exceptions to requiring ordinary resolution for a loan to a director by the company?

A
  • loan up to £10000
  • less that £15000 for a deferred payment on goods bought from the company
  • up to $50000 on expenses
39
Q

Which sections CA set out the rules around substantial property transactions?

A

s 190-196

40
Q

What is the rule on substantial property transactions?

A

The company may not transfer to a director or connected person a non-cash asset if its value exceeds 10% of the company’s net assets (and is more than £5000), or exceeds £100000.

41
Q

When is a substantial property transaction permitted.

A

With shareholder approval.

42
Q

What is wrongful trading?

A

A company goes into insolvent liquidation, and the director knew or should have concluded that there was no reasonable prospect of avoiding insolvency.

43
Q

What is the leading case on a director’s duty of care?

A

Re City Equitable Fire Insurance Co Ltd [1925]

44
Q

What were the facts in Re City Equitable Fire Insurance Co Ltd [1925]

A

A director stole large amounts of cash from the company, largely because of poor supervision from the other directors. All directors were in breach of their duty to exercise skill and care.

45
Q

Which section of law deals with wrongful trading?

A

IA 1986 s 214

46
Q

In what circumstances does wrongful trading apply?

A
  • the company is being wound up
  • the company is insolvent
  • the liquidator applies to the court for a declaration that a director contribute an appropriate sum to the company’s assets.
47
Q

What is the test for a director’s liability in wrongful trading?

A

The director should have reached the conclusion based in:

  • the general knowledge, skills and experience that may be reasonably expected on someone carrying out the function of a director
  • the general knowledge, skill and experience that director has
48
Q

What steps may a director take to avoid wrongful trading?

A
  • be reasonable
  • plan ahead
  • prepare and use financial information
  • document the reasons for continuing to trade
  • take professional advice.
49
Q

Under which act may a director be disqualified?

A

Company Directors Disqualification Act 1986

50
Q

For how long may the court disqualify a director?

A

2 to 15 years

51
Q

For what reasons may the court disqualify a director? (6 reasons)

A

1 in charge of an insolvent company, where their conduct has made them unfit to be a director
2 director convicted of an indictable offence in connection with the management or formation of a company
3 Director persistently failed to file accounts
4 Guilty of fraudulent trading during winding up
5 Application by SoS on grounds of public interest
6 Breaching competition law under Enterprise Act 2002

52
Q

Which case demonstrated disqualification for Phoenix companies?

A

Re Ipcon fashions (1989) - repeated formation of companies for the same business on the same premises

53
Q

Which case demonstrated disqualification for arrears of crown debts?

A

Re Stanford Services Ltd (1987) - failulre to pay PAYE and NI contributions

54
Q

Which case demonstrated disqualification for directors’ remuneration?

A

Re D. F. Ltd (1987) - director continued to award himself high remuneration while allowing crown and trade debts to remain unsatisfied.

55
Q

Which case demonstrated disqualification for accounts and accounting records?

A

Re Rolus Properties (1988) - director failed to file returns or keep books.

56
Q

What is a “disqualification (voluntary) undertaking”?

A

An out of court procedure allowing the SoS to accept a binding undertaking from a director not to act as a director for a given amount of time. Same legal effect as a court disqualification.

57
Q

In what situations does a director gain personal liability for a company’s debts?

A
  • acting while disqualified
  • evading VAT payment
  • failing to show company name on correspondence etc
  • fraudulent trading
  • wrongful trading
  • employing workers without valid work permits.
58
Q

What is a shadow director and where is one defined?

A

s 252 CA:

A person in accordance with whose directors or instructions the directors of the company are accustomed to act.

59
Q

Is a professional adviser a shadow director?

A

No, as their advice is usually restricted to a specific part of the business.

60
Q

Why is it undesirable to have a shadow director?

A

Because a person acting in the capacity of director should be formalised and the appropriate disclosures made.

61
Q

What steps may be taken to avoid having advisers become shadow directors?

A
  • professional advisers should have a letter of engagement setting out the terms of their appointment
  • ensure third parties are made aware that professional advisers are not acting as directors
  • advisers should avoid frequent attendance at board meetings
62
Q

What is the significance of a person being a shadow director?

A

They will have all the liability of a director, and subject to the CA, IA, etc.

63
Q

What is the leading case on shadow directors?

A

Secretary of State vs Deverel (2000) - company went into liquidation with massive debt. It was held by the court of appeal that two “consultants” to the board were actually shadow directors.

64
Q

What is an alternate director?

A

A person appointed by a member of the board to speak and act during period of absence or incapacity.

65
Q

Where is the authority for an alternate director set out?

A

The model articles and CA 2006 are silent. An alternate may therefore only be appointed where bespoke articles permit.

66
Q

Should an alternate director be notified to the registrar?

A

Yes, on form AP01

67
Q

What rights does an alternate director have?

A

All the rights of a full director, other than the right to remuneration. However, they can negotiate a separate fee.

Corporate Secretarial Practice (20 decks)

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