Company Management and Control Flashcards
What are the individuals responsible for managing the company known as and how are their powers governed?
Officers - their duties and powers are governed by a combination of statute, common law, and regulations under a company’s articles of association
How does power differ between directors and members?
The power to take decisions on behalf of a company is divided between the directors and members.
There are a number of powers which are only exercisable by the members under provisions of the CA 2006 e.g the power to change the articles
In most instances, directors will be able to make decisions without shareholders due to the articles of association
What are the requirements for company directors?
- Every company must have at least 1, public companies must have 2
- At least one director is required to be a natural person
- A director is not required to be a shareholder unless an article says so
- Names of the first directors must be presented when registering a company and the company must keep a register of directors
What do legislation and articles provide for?
- Appointment: usually by ordinary resolution
- Retirement: effective by giving notice to the company, compulsory retirement age removed, retiring directors can stand for reappointment
- Removal: despite anything in the articles s.168 CA 2006 gives a company the power to remove a director by ordinary resolution with special notice, director can claim for unfair dismissal
- Vacation of office: by death, dissolution of the company, retirement by rotation
What is the case of Bushell v Faith [1970]?
Mr Faith - 100 shares
His sisters owned 200
Article 9 - resolution to remove a director: the director’s shares would carry 3 votes each so mr Faith had 300 votes when they tried to remove him
Held - the provision was valid because there was no express indication by parliament that it was intended otherwise
What is disqualification governed by?
Company Directors’ Disqualification Act 1986
What can disqualification be imposed for under the Companies Directors’ Disqualification Act 1986?
- Conviction for an indictable offence in connection with the management of a company
- A finding that an offence involving fraud has been committed in the course of winding up a company
- Persistent default in filing returns with the registrar
- A finding that a person is ‘unfit’ to be concerned in the management of a company (only applies where a company becomes insolvent)
What are the other disqualifications?
- Undischarged bankrupts - cannot be a director without permission of the court
- Where a director is suffering from a mental disorder and is admitted to hospital under the Mental Health Act
- Persons disqualified by the court - a disqualified person may not (without leave of the court) act as a director, liquidator, administrator or manager nor be involved in promoting, forming etc
- Where a director is absent from a directors’ meeting for at least 6 months and directors resolve that the office be vacated
What are the types of directors?
- Executive + non exec
- De facto: not formally appointed but openly adopted a directorial role
- Shadow: any person in accordance with whose directions or instructions the directors of a company are accustomed to act S.251 (1) CA 2006
What is the case of Re Hydrodam (Corby) Ltd [1984]?
2 corporate directors of a parent company of Hydrodam alleged to be liable fro wrongful trading and contended that they were also liable as shadow directors
Held: the directors of the parent were not shadow directors of the subsidiary, just by being on the parent company’s board
How did the judge outline the tests of shadow directors?
1) Actual directors of a company must be identifiable
2) Alleged shadow director must have directed those directors on how to act
3) Directors must have acted in accordance with his instructions
4) They must have been accustomed so to act
Who is likely to be found as a shadow director?
Controlling shareholders
What is the case of Re PFTZM Ltd [1995]?
A managing director is the director appointed by the directors. He has no specific functions except as given in such appointment.
The chair of the board is not necessarily an executive director; their function is to chair board meetings
Directors powers are to manage the company
Directors are agents of the company
What is the rule in Turquand’s case [1856]?
£2000 bond taken out by two directors and a secretary
Sued as directors were not authorised to borrow this amount
Held - people transacting with companies are entitled to assume that the internal rules are complied with, even if they are not
What are the duties of directors?
- Statutory
- Fiduciary
- To make returns for the Registrar of Companies
- To keep minutes of their own meetings
- To deliver accounts
Duties to third parties are limited to where a director acts in breach of warranty of authority
What is the company secretary?
The chief administrative officer of the company.
S.271 of the Act requires every public company to have a company secretary
Private companies need not (since the 2006 Act)
May also be a director, must be included in the register of directors, must be suitably qualified
An officer not a manager
Liable to a fine if in breach of the provisions of CA 2006
What professional qualifications might a company secretary have?
- Accountant
- UK qualified lawyer
- Member of the CIS
- Company Secretary of a public company for 3 of the past 5 years
What are a company secretary’s duties?
- To keep the company register up to date
- Send relevant information to the registrar
- Arrange meetings, send notices and resolutions
- Employ office staff
- Fiduciary duties
What are a company secretary’s responsibilities?
- Guiding the chairman and board on their responsibilities;
- Supporting the chairman in ensuring the board functions efficiently and effectively;
- Ensuring good information flows;
- Maintaining good shareholder relations;
- Developing and overseeing the systems that ensure that the company’s legal and statutory compliance;
- Monitoring changes in relevant legislation and the regulatory environment;
- Overseeing the day-to-day administration of the company, e.g. maintaining statutory books, including registers of members, directors and secretaries, organising board meetings and AGMs, preparing agendas and taking minutes.
What is the case of Panorama Dev’ts (Guildford) Ltd v. Fidelis Furnishing Fabrics Ltd [1971]?
Company secretary hired cars using company headed paper stating that it was for business. He was prosecuted and imprisoned. Hire company was still owed money.
Fidelis claimed that it was not bound to hire the contracts because Bayne didn’t have the authority to enter them
Held - Fidelis was nevertheless bound on contract. Mr Bayne, as company secretary had implied actual authority by virtue of his position as Company Secretary to enter into such agreements.
What is an auditor?
An auditor is required for all but very small companies
[note: even with small companies the members can exercise statutory powers to demand an audit]
Must be an accountant, appointed annually by BoD, independent of the company
Must be qualified, chartered or certified accountant on the register of auditors. Usually appointed at the AGM
How can an auditor be removed?
- By ordinary resolution, with special notice
- The auditor has the write to make written registrations to members
- May have a claim for compensation if removed before the end of their appointment.
What are the auditor’s duties?
- To audit the accounts
- To report to the members
They owe a duty of care and skill to the company but not to individual members
How can an auditor resign?
- By written notice to the registered office.
- The auditor may require the company to call a general meeting.
- Auditors may deposit an explanation of the circumstances connected with the resignation which must be sent to members with notice of the meeting.
What is the case of Caparo Industries Plc v. Dickman [1990]?
Caparo industries purchased shares in Fidelity Plc in reliance of accounts that the company had made profits when in reality it had made a loss.
Caparo brought an action against the auditors claiming they were negligent in certifying the accounts.
Held - no duty of care was owed, there was not sufficient proximity between Caparo and the auditors since the auditors were not aware of the existence of Caparo nor the purpose for which the accounts were being used by them.
