Chapter 8 - Companies: ownership and management Flashcards
Types of director - De facto director
Anyone who acts as a director, although not validly appointed as one
Types of director - Shadow director
Someone ‘in accordance with whose directions or instructions the directors are accustomed to act’
Types of director - Alternate director
A director may appoint an alternate director to attend and vote at board meetings when he is unable to
Types of director - Executive director
In charge with performing a specific role e.g finance director
Types of director - Non-executive director
Who does not have a particular function but generally just attend board meetings
Types of director - Managing director
Usually provide for the directors to appoint one or more of their number to be managing director, carrying out day-to-day functions
Removal of a director
Might leave in any of the following ways:
- Death
- Removal
- Disqualification
- Resignation
- Required to do by article
- Prohibition by law
- Result of bankruptcy
Director’s powers - Statutory (general)
The directors are statutorily bound to exercise powers only ‘for the purpose for which they are conferred’
Director’s powers - Statutory (specific)
For example alteration of the articles and reduction of capital need a special resolution, which the directors must secure from the shareholders in general meeting before they can act
Director’s powers - Articles
For example the articles may set a maximum amount that the directors are entitled to borrow, any greater amount needing approval
Director’s powers - Members
The members can exercise control over the directors’ powers:
- By passing special resolution to alter the articles
- Removing directors
Directors’ authority - Express actual
The actions of a director with express authority will bind the company
Directors’ authority - Implied
Managing directors and to some extent other executive directors, are much more likely to bind the company by their actions.
A company secretary has limited authority to enter into contracts.
Directors’ authority - Ostensible
If the board permits a director to behave as if he were a managing director or give the impression that he is one, that director will have apparent or ostensible authority to enter a contract
Directors’ duties - To act within powers
A director must:
- Act in accordance with the company’s constitution
- Exercise powers only for the purpose for which they were conferred
If director act outside their powers the transaction will be invalid
Directors’ duties - To promote the success of the company
A director must act in the way he considers, in good faith, would be most likely to promote success of company.
He should have regard to:
- Long term consequences of any decision
- Interest of employees
- Impact on operations
Directors’ duties - To exercise independent judgement
It does not mean that he is not exercising independent judgment where he acts in accordance with:
- The company’s constitution
- An agreement duty entered into by the company that restricts the future exercise of discretion by its directors
Directors’ duties - To exercise reasonable skill and care
This means the level of skill, care, and diligence that would be exercised by a reasonably diligent person with:
- The knowledge, skill and experience expected of a person performing his functions as director
Directors’ duties - To avoid a conflict of interest
A director must avoid a situation in which he has or can have a direct or indirect conflict of interest
Directors’ duties - Not to accept benefits from third parties
A director must not accept a benefit from a third party by reason
Directors’ duties - To declare an interest in proposed transaction
Provided the director, aware of the situation he must declare the nature and extent of any such interest to the other directors.
Breach of director duties
Duties are owed to the company and not to the shareholders. Consequences includes:
- To make good any loss suffered (secret profits)
- Any contracts between director may be rendered voidable
- Injunction if breach continuing
Wrongful trading
- Where a company goes into insolvent liquidation and
- Before winding up trading knowing there’s no reasonable prospect the company would have avoided liquidation
Wrongful trading - Consequences
The court can order him to ‘make such contribution to the assets of the company as the court thinks proper’
Fraudulent trading
Where any business of a company is carried on with intent to defraud creditors.
Fraudulent trading - Consequences
Can give rise to civil or criminal offence.
Civil - ‘make such contribution to the assets of the company as the court thinks proper’
Criminal - Fine or imprisonment up to 10 years
Member rights
- To be sent copy of accounts and reports
- Require directors to call general meeting
- Appoint a proxy
What are the required amount of shares to - Cancellation of variation of class rights
> / 15% class of shares
What are the required amount of shares to - Right to call a company meeting
> / 5% of shares
What are the required amount of shares to - Notice of members’ resolutions
> / 5% of shares
Notice when a company director calls a general meeting
14 days clear notice
Notice when members with >/ 5% of shares calls a general meeting
Directors have 21 days to call and must be held within 28 days
Notice for the AGM
21 days and must not be more than 6 months after reference date
