Chapter 8 - Companies: Ownership and management Flashcards
How many directors does a company need?
Privatecompany -Min 1
Public company - min 2
What kind of director is a chairman?
Non-executive
What is the role of a managing director?
Carry out day-to-day management functions
Can directors be removed by ordinary resolution?
Yes
Special notice of 28 days must be given
What does the company directors disqualification act 1986 allow the courts to do?
Formally disqualify any person from being a director (without the leave of court)
What may constrain director’s powers?
Statute
Articles
Members
What are the duties of a director under the Companies Act 2006?
Act within powers
Promote success of the company
Exercise independent judgement
Exercise reasonable skill care and diligence
Avoid conflict of interest
Not accept benefits from 3rd party
Declare interest in proposed transaction or arrangement
What happens if there is a breach of a director’s duties?
May be required to make good any loss suffered by the company
Contract may be rendered voidable by breach of duty
Property taken by director can be recovered
Joint and several liability if another director is in breach
How must ratification of action be made?
By ordinary resolution
Is provision to exempt a director or indemnify them against a breach of duty or negligence void?
Yes
How may a court relieve a director of liability?
If they think he acted honestly and reasonably
What does wrongful trading only apply to?
Where a company goes into insolvent liquidation
Directors knew/should’ve known that there was no reasonable prospect of avoiding insolvent liquidadtion
When does fraudulent trading occur?
If there is intent to defraud creditors or any other person
Director must decide to carry on in this way or play an active role
What is the punishment for fraudulent trading?
Fine and/or up to 10 years in prison
Civil liability or company’s debts on a winding up
What is the Company Directors Disqualification Act 1986 designed to do?
Designed to prevent directors walking away from wreckage of a company with no personal liability
What roles can the court disqualify someone from?
- Director
- Insolvency practitioner/reciever
- Company manager
What is the punishment for a serious offence or fraudulent trading in the course of winding up?
Mandatory 15 years disqualification
What is the punishment for the persistent default of provisions of company legislation?
Up to 5 years disqualification
3 convictions in 5 years is conclusive evidence of persistent default
What is the punishment if director at company became insolvent and conduct indicates that unfit to be concerned in management of a company?
Disqualification order of min 2 years and max 15
What does a bankruptcy order do?
Automatically disqualifies from acting as director
What offences have directors been disqualified for?
- Insider dealing
- Failure to keep records
- Failure to read accounts
- Loans associated to companies on uncommercial terms to detriment of creditors
What is a member?
Subscriber of a company’s memorandum
Any person entered o the register as a member
Can a company be formed with a single member?
Yes
What rights do members have?
Sent a copy of annual accounts and reports
To require directors to call a general meeting
Appoint a proxy
Who manages and controls a company?
Directors manage
Members ultimately control
what % is required to have complete control of a ompany?
75%
What % is required to be given the power to appoint/remove directors?
Min 50%
Are members required to act for the benefit of the company?
No
When can the minority take action?
- Where statute provides
- Derivative action for negligence
- Breach of duty
What is there statutory protection on?
- Variation of class rights
- Company meetings
- Notice of members resolutions
- Registration of limited company as unlimited
Who are the director’s duties owed to?
Company so company is proper claimant for any breach of duty
Can a member bring a derivative claim?
Yes, in respect of an actual proposed act/omission by a director that involves negligence/breach of duty
How will removal of a company’s auditor on improper grounds be treated?
Unfairly prejudicial
Effect of the conduct that is considered
What are some examples of case law for unfair prejudice?
Exclusion/removal from board
Improper allotment of shares
Inaccurate statement to shareholders
What are some examples of case law for unfair prejudice that failed?
Failure to pay debts of subsidiary company
Non-compliance with stock exchange rules
Will the court intervene in cases of dispute about management?
No
May intervene if serious financial damage has been done
Is a breach of company law unfairly prejudicial conduct?
Not necessarily
What are the remedies available to the court for unfair prejudice?
Regulating future conduct
Authorising any person to bring legal proceedings on company’s behalf
Requiring company to alter its articles
What is the most common type of relief?
To order controlling shareholder/company to purchase shares of petitioner at a fair price
Who may call a general meeting?
Directors
5% of members
Court
Auditor giving notice
When must a general meeting be called in a public company?
Where the net assets fall to half or less of its called up share capital
What must happen within a 21 days of any requirement to hold a meeting?
Directors must call a meeting to take place within 28 days
When must a public company hold an annual general meeting?
During the 6 months following its accounting reference date
Failure to do so can lead to fines
How much notice must be given for AGMs?
At least 21 days
Must also state that the meeting is an AGM
When is a notice of resolution to be moved given to members?
Members represent 5% of total voting rights or at least 100 with shares of an average of more than £100 per member
Are general meetings requires to pass a resolution?
Public - yes
Private - no, can be written or at general meeting
What is a quorum?
Min number of people required to be at a general meeting
Generally 2
Single member companies allowed 1
What records of meetings must companies keep for 10 years?
All resolutions passed
Minutes
Details of decisions by sole member companies
What did the Hashmi v Lorimer case do?
Revealed that 2 directors are needed to hold a board meeting
Any decision made by sole director is invalid
What’s the youngest age a director can be?
16
Are directors agents of the members?
No
Can a director exercise powers outside of the purpose for which they were conferred.
No
If a director has a conflict of interest what should they do?
Disclose to the board
After a director vacates office, do they cease to be subject to any statutory duties as a company director?
No
May still be subject to the duty to avoid conflicts of interest and not to accept benefits from third parties.
Is a director held to a higher standard of care?
No
Director is also judged by reference to their own skill, knowledge and experience
Relief under s.994 will not be granted unless there has been a breach of company law, true or false?
False
In a private company, shareholders representing what minimum percentage of the nominal value of
shares with voting rights must agree to shorter notice than 14 days for a general meeting, in the
absence of any provision in the articles of association?
90%
Can a public limited company can use the written resolution procedure provided its articles of
association expressly authorise it.
No, resolutions must be passed in a general meeting
What is required to remove an auditor?
Passing of an ordinary resolution with 28 days special notice
Does the duty to exercise independent judgement override any agreement or provision that restricts
discretion by a director.
No
A director is not in breach of this duty where they act in accordance with the company’s constitution
or with an agreement, entered into after due consideration, that restricts the future exercise of a
director’s discretion.
Can members amend articles?
Yes, by approving a resolution containing the change
