Chapter 6 - Position of directors in insolvency situations Flashcards
What is a De jure director?
Anyone properly appointed as a director. eg its filed at CH
Executive directors - usually employees of company and responsible for day to day running of company
Non-executive directors - usually retained to attend board meetings, their role is to being objectivity to the decisions of the board, not usually employees.
What is a De factor director?
Anyone who acts as a director and is treated like a director by the board despite a lack of formal appointment.
What is a shadow director?
A person in accordance with whose instruction the directors of the company are accustom to act.
Professional advisors are not usually shadow directors.
Explain the effect of insolvency proceedings on the position of directors in a liquidation
Liquidation - directors power cease on appointment of liquidator.
Between commencement of liquidation and appointment of liquidator the directors can only act with the sanction of the court.
Two exceptions:
-to act in connections with the creditors appointment of liquidator and preparation of SOA in a CVL
- to dispose of perishable goods or take action necessary to protect the company’s assets
Explain the effect of insolvency proceedings on the position of directors:
Administration
Receivership
Administrative Receivership
CVA
Administration - directors remain in office unless removed, but can only act with administrators consent. Administrator has power to appoint and remove directors.
Receivership - except in relation to the management and realisation of assets subject to fixed charge the directors usually retain their usual powers
Administrative Receivership - AR takes on management of company and the realisation of assets subject to the charge. However directors remain in office and continue to extent doesn’t interfere with AR
CVA - directors carry on as normal subject to the supervision of the supervisors
List the directors general duties to the company:
-Act in accordance with company’s constitution
-Act in good faith to promote success of company
- exercise independent judgement
- exercise reasonable care, sill and diligence
-avoid conflicts of interest
- not accept benefits from 3rd parties given by reason of his directorship
- declare to other directors the nature and extent of any direct or indirect interest that he may have in any proposed transaction/arrangement with Co.
For the purposes of legislation, directors are ‘relevant persons’, which definition also includes who?
- Those who are or have been officers of the company
- Those in the 12 months prior to commencement took part in the company’s formation or were employed by the company
- Those in the 12 months prior to commencement were officers or employees of the company which is (has been) an officer of the company. (eg employee of the company’s auditors)
List three duties directors have to office holders (not CVAs or fixed charged receiverships)
- Providing statement of affairs
- co-operating with the office holder
- attending on the office holder at such times as he may reasonable require
Directors must also attend an initial meeting of creditors if required to do so by either the liquidator or administrator.
S212
Breach of duty or misfeasance
Can apply to court for an order compelling a director to pay compensation for breach of duty or misfeasance or make good any loss suffered by the company because of the misapplication of company funds or assets. eg if liquidator finds director caused loss by preference, undervalue or negligence/
Action can be brought against directors, former directors and also former liquidator or administrative receiver. Administrators not subject to S212
S214
Wrongful trading
Was suspended
Directors may be liable to contribute to assets of the company if the company is allowed to continue trading at a time when a director knew, or ought to have known that there was no reasonable prospect of the company avoiding insolvency ‘relevant time’
S213
Fraudulent trading
Where there is an element of dishonesty in the directors actions - like wrongful trading but with added possibility of criminal proceedings being bought under CA06.
If convicted, could face up to 10 years imprisonment.
S216/S217
Re-use of company name
S216 director of insolvent company is prohibited from being a director of a company known by a prohibited name for 5 years
Individual must have been a director of insolvent company in the 12 months ending the day before went into liquidation.
if breached, the person becomes liable for relevant debts (being all the liabilities of the new company
Exceptions to S216
- Sanction of court
- R22.4 - IP arranged for transfer of the whole or substaintialy the whole business to sucessor company. Notice must be given to creditors within 28 days
- R22.6 applies whilst waiting for court sanction within 7 business days from date went into liquidation, applicant can use name until earlier of 6 weeks or the day the court disposes of the application
- R22.7 - when successor company has been known by the name for 12 constitutive months prior to the date insolvent company went into liquidation and that it was not dormant in those 12 months
Office holders are required to make a report on the directors contact within how many months of the relevant date?
What is the relevant date for:
CVL
MVL
AR
Administration
Three months
Relevant date:
CVL - date of resolution to wind up
MVL - date liquidator formed opnion that company was unable to meet its liabilities
AR - date of appointment of the receiver
Administration - date administration order was made by court
How long does secretary of state have to make an application for a disqualification order?
3 years from relevant date
