Company Management and Control

Question 1

What are the individuals responsible for managing the company known as and how are their powers governed?

Answer 1

Officers - their duties and powers are governed by a combination of statute, common law, and regulations under a company’s articles of association

Question 2

How does power differ between directors and members?

Answer 2

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

Question 3

What are the requirements for company directors?

Answer 3

• 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

Question 4

What do legislation and articles provide for?

Answer 4

• 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

Question 5

What is the case of Bushell v Faith [1970]?

Answer 5

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

Question 6

What is disqualification governed by?

Answer 6

Company Directors’ Disqualification Act 1986

Question 7

What can disqualification be imposed for under the Companies Directors’ Disqualification Act 1986?

Answer 7

• 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)

Question 8

What are the other disqualifications?

Answer 8

• 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

Question 9

What are the types of directors?

Answer 9

• 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

Question 10

What is the case of Re Hydrodam (Corby) Ltd [1984]?

Answer 10

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

Question 11

How did the judge outline the tests of shadow directors?

Answer 11

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

Question 12

Who is likely to be found as a shadow director?

Answer 12

Controlling shareholders

Question 13

What is the case of Re PFTZM Ltd [1995]?

Answer 13

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

Question 14

What is the rule in Turquand’s case [1856]?

Answer 14

£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

Question 15

What are the duties of directors?

Answer 15

• 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

Question 16

What is the company secretary?

Answer 16

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

Question 17

What professional qualifications might a company secretary have?

Answer 17

• Accountant
• UK qualified lawyer
• Member of the CIS
• Company Secretary of a public company for 3 of the past 5 years

Question 18

What are a company secretary’s duties?

Answer 18

• 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

Question 19

What are a company secretary’s responsibilities?

Answer 19

• 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.

Question 20

What is the case of Panorama Dev’ts (Guildford) Ltd v. Fidelis Furnishing Fabrics Ltd [1971]?

Answer 20

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.

Question 21

What is an auditor?

Answer 21

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

Question 22

How can an auditor be removed?

Answer 22

• 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.

Question 23

What are the auditor’s duties?

Answer 23

• 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

Question 24

How can an auditor resign?

Answer 24

• 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.

Question 25

What is the case of Caparo Industries Plc v. Dickman [1990]?

Answer 25

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.