Company Management and Finance Flashcards
Within how many days must the registrar be notified of a change in directors?
14 days
How can members remove directors?
By ordinary resolution (50% of members vote in favour) with special notice (28 days)
Has to be a meeting to which the director can address
Are the following statements true or false?
a) Directors can be found guilty of fraudulent trading even if their company has not been wound up.
b) Directors can only be found to have committed wrongful trading if their company has been wound up.
a) True
b) True
Criminal liability may arise (but civil liability only arises on a winding up). Wrongful trading only applies when a company is wound up.
Which of the following types of director has the same powers as a properly appointed director even though they have not been formally appointed to the board?
a) Executive director.
b) Non-executive director.
c) De facto director.
d) Managing director.
c) De facto director.
A de facto director is anyone who acts as a director even though they are not validly appointed as such. The other types of director are all formally appointed.
Farah is a director of In Tunes Ltd, a company selling modern sheet music and a small range of musical instruments. He is also a FCA with 20 years’ experience as an accountant in private practice. Nathalie is also a director. She ran her own retail business for ten years but doesn’t play much part in the management of the business of In Tunes Ltd, except that she attends board meetings. She tends to leave the routine conduct of the business in the hands of Farah and, the finance director, Amy.
a) Is Farah’s personal skill and experience as a chartered accountant relevant to the standard of care that he must demonstrate as a company director?
b) Is Nathalie acting in breach of her director’s duty to exercise reasonable care, skill and diligence, since she has not concerned herself with the company’s affairs in between board meetings?
a) Yes.
Usually the standard is that of a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of someone performing their functions as director. However, the actual experience, knowledge and skill is also taken into account and may result in a higher standard being applied.
b) Yes.
Simply attending board meetings is not likely to be sufficient in the light of her business experience.
Which of the following is NOT one of the matters to which directors must have regard when discharging their duty to promote the success of the company?
a) The impact of the company’s operations on the community and the environment.
b) The interests of the creditors of the company.
c) The need to act fairly as between the members of the company.
d) The desirability of maintaining a reputation of high standards of business conduct.
b) The interests of the creditors of the company.
This is not one of the six matters listed. However, the duty is expressly subject to any enactment or rule of law requiring directors to consider or act in the interests of creditors of the company.
What are the Substantial property transaction thresholds?
A transaction deemed significant thus requiring members approval
Lower of £100,000 or 10% net assets
Minimum £5,000
Which of the following best defines a debenture?
a) A charge over a company’s goodwill.
b) The registration document used to register a fixed or floating charge.
c) A document that records the terms of any loan.
d) A document that records the terms of any secured loan.
c) A document that records the terms of any loan.
Whether a loan is secured or unsecured, the written acknowledgement of its terms is called a debenture.
In relation to the transfer of shares by electronic means:
a) Does the CREST transfer system operate in respect of all shares?
b) Are companies obliged to permit paperless transfers of shares?
a) No.
Only in respect of listed shares.
b) No.
However regulations may be made (under the Companies Act 2006) by the Treasury or Secretary of State which will make it compulsory.
In which of the following cases, do statutory rights of pre-emption apply?
i. The allotment of equity securities for cash.
ii. The issue of bonus shares.
iii. The allotment of equity securities otherwise than for cash.
iv. The allotment of securities in relation to an employees’ shares scheme.
(i) only. (iii) only. (ii) and (iv) only. All of the above.
(i) only.
The pre-emption rights are expressed (by the Companies Act 2006) not to apply to (ii), (iii) and (iv).
What is the minimum age of a director?
16y
What are the minimum number of directors for private and public companies?
Private: 1 director
Public: 2 directors
What are the three ways that directors can be appointed?
Upon registration of a company
At AGM (via ordinary resolution)
Casual vacancy
Can a director be removed via a written notice?
No, they are entitled to address the meeting at which they are removed
The following instances are examples of when a court MAY or MUST remove a director. Indicate which is which;
a) The director is in breach of the companies act
b) The director has committed a serious offence
c) The director has been found guilt of fraudulent trading
d) The director has been found guilt of wrongful trading
e) The secretary of state considers it to be in the public interest
f) The director’s company ahs become insolvent and they are deemed unfit to manage
What is the disqualification time period for instances when a court MAY or MUST remove a director?
MAY - a- e. 5-15Y disqualification time
MUST - f. 2-15Y disqualification time
In what situations may a court reduce the disqualification period of a director?
If they have shown truthfulness,
Loss of directors own money,
Absence of personal gain,
Efforts to mitigate losses,
Low likelihood of reoffending,
Co-operation
What is the key difference between wrongful and fraudulent trading?
Fraudulent trading has the intent to defraud
In what instance may a director’s act to bind the company be voidable?
If the person is connected to the company
If the director has been in breach of their duties
What are the seven general duties of directors?
- Act within powers
- Promote success of company
- Independent judgement
- Reasonable skill, care and diligence
- Avoid conflicts of interest
- Avoid benefits from third parties
- Disclose interest in transactions
Can shares be issued in order to;
a) Raise finance
b) Facilitate a takeover bid
a) Yes
b) No - even if in best interest of co
What matters concerning directors require members approval in order to be valid?
For each one, what is the consequence of non-approval?
Directors employment contracts lasting >2Y - or will be terminated
Substantial property transactions - limit is lower of £100,000 or 10% net assets with a £5,000 min.
Contract is voidable if approval not obtained
Loans to directors - unless they are for business/group expenses, or are a money lending company.
Loan is voidable if approval not obtained
Payments for loss of office
Not transferred until approved
In what situations do minority shareholders have statutory rights?
- Variation of class rights. Hold >15% of class
- Call meetings. >5% voting rights
- Any member or creditor can apply to prohibit share buyback
- Registration of limited company as unlimited can be prevented by individual members
- Unfairly prejudicial acts against the interests of any members and creditors
Which of the following constitute unfairly prejudicial conduct?
a) Late presentation of company’s accounts
b) Making inaccurate statement to shareholders
c) Improper allotment of shares
d) Failure of a parent company to pay debts of a subsidiary
e) Failure to call a general meeting
a) No - this is just bad management
b) Yes
c) Yes
d) No
e) Yes
Who can call general meetings?
The directors
5% of members
Court
Resigning auditor
When MUST a general meeting be called for a public company?
When Net Assets fall to half or less of its called up share capital
If members (with 5% of share capital) request a general meeting;
a) Within how many days of receiving the request must the directors call the meeting
b) Within how many days of the directors calling the meeting must it be held
c) If directors fail to call and hold a general meeting, what can the members do?
a) Directors must call a general meeting within 21 days of receiving a request from members
b) Directors must hold a general meeting within 28 days of calling it
c) Call a meeting to take place within three months of the initial request to the directors
What is the general notice period for general meetings?
14 days
When can a short notice period be given for general meetings?
If supported by members holding 90% of nominal value of shares, or 90% of voting rights
95% in the case of public companies
