Company Officers Flashcards
Who can be a shareholder?
Individuals or companies
How can someone become a shareholder?
o On incorporation;
o Obtaining shares from an existing SH; or
o The company creating and selling new shares
What power do shareholder(s) with 5% or more of the company shares have?
If their shares give them voting rights, they can request directors requisition a written resolution or general meeting
What power do shareholder(s) with 10% or more of the company shares have?
If their shares give them voting rights, they can demand a poll vote
What power do shareholder(s) with more than 25% of the company shares have?
If their shares give them voting rights, they can block a special resolution on their own
What power do shareholder(s) with exactly 50% of the company shares have?
If their shares give them voting rights, they can block an ordinary resolution on their own
What power do shareholder(s) with more than 50% of the company shares have?
If their shares give them voting rights, they can block or pass an OR on their own
Can a shareholder with 25% of the company shares block an SR?
No, they must have more than 25%.
Can a shareholder with 50% of the company shares pass an OR?
No, they must have more than 50%. They can block an OR but not pass one.
What power do shareholder(s) with 75% or more of the company shares have?
Pass an SR on their own
What % shareholding is required to demand directors requisition a WR or GM?
5% or more
What % shareholding is required to demand a poll vote?
10% or more
What % shareholding is required to block an SR?
More than 25%
What % shareholding is required to block an OR?
At least 50%
What % shareholding is required to pass an OR?
More than 50%
What % shareholding is required to pass an SR?
75% or more
What is capital appreciation?
when the shares have increased in value since the purchase and the SH sells the shares for a profit.
What are dividends?
payment to SHs on a regular basis in accordance with the company’s policy (i.e. monthly, quarterly)
When can dividends be paid?
Dividends can only be paid if the company has profits available for purpose.
If a company has not made profits in this financial year, it can use profits from previous financial years to pay dividends
What is the calculation for distributable profits?
Accumulated realised profits - accumulated realised losses = distributable profits
Who decides the amount of dividends to pay? What is the procedure?
Directors recommend the sum of the dividends to be paid. This is the declared by OR by the SHs.
How are dividends declared?
By OR
Where do shareholders rights come from?
CA 2006, articles of association and any shareholder agreement
What are two rights under CA 2006?
o Right to receive a share certificate which must be issued within two months of transfer/allotment
o Right to receive dividends as long as there are profits for purpose
What actions can a shareholder take if another shareholder doesn’t adhere to the terms of the constitution? Why can they take this action?
The company’s constitution is a contract between each SH and the company and between SHs.
This means they can sue for breach of contract if someone doesn’t adhere to the terms of the constitution.
What actions can a shareholder take if another shareholder doesn’t adhere to the terms of a shareholder agreement? Why can they take this action?
This is a contract between shareholders. If a SH breaches this, they can be sued for breach of contract
What is a shareholder agreement? What must it comply with?
This is a private written agreement between some/all SHs. It must comply with the AAs.
Why might a shareholder agreement be entered into? Give an example.
It might be used to give minority SHs more protection
i.e. a clause stating that the shareholders who are party to the shareholders’ agreement must not vote in favour of changing the company’s articles unless all of the parties to the shareholders’ agreement are in favour of this
i.e. if SHs are also Ds they might agree not to vote in favour of removal of SH Ds
How are shareholder agreements restricted?
There are restrictions i.e. it cannot restrict SHs who are also Ds from voting in a particular way in a BM
Does a shareholder agreement need to be filed with Companies House?
No.
What is a summary of unfair prejudice petition?
This allows a SH to apply to the court for a remedy where they feel they have been unfairly prejudice as a SH
Re - unfair prejudice petition:
what must the SH prove?
o That the company’s affairs have been conducted in a manner that is unfairly prejudicial to the interests of all or some of the members (the SH must actually suffer prejudice which is unfair); or
o An actual or proposed act or omission of the company is or would be so prejudicial.
Re - unfair prejudice petition:
give examples of unfair prejudice
o Diverting opportunities to a competing business in which the majority SH(s) hold an interest in
o Awarding excessive pay to Ds
o Excluding a SH from management of the company where it has been previously agreed SHs would be involved in this way
o Removal of an auditor on the basis that there is divergence of opinion as to the accounting procedures or other improper grounds
Re - unfair prejudice petition:
what is the test for the court?
The court will apply an objective test i.e. whether a hypothetical bystander would believe the act or omission to be unfair.
Re - unfair prejudice petition:
when would it be difficult for a SH to prove this claim?
It will be difficult to provide this if the conduct is in accordance with the AAs
Re - unfair prejudice petition:
what orders can the court make?
The court has a wide discretion to make an order as it sees fit, i.e.:
o Most common - SHs shares to be bought by the other SHs or (in rare cases) the company itself
o Require the company to refrain from doing an act
o Place a restriction on the company altering its AAs without leave of the court
o Allow the SH to bring a derivative action
Re - unfair prejudice petition:
what is the problem with this type of claim?
It can be difficult to evidence and they are expensive and time consuming
When can a shareholder bring a statutory derivative claim?
A SH can bring a claim against a D in respect of a cause of action arising from a proposed act or omission involving:
o Negligence
o Failure to discharge their obligations to the company
o Breach of duty
o Breach of trust
Who can bring a statutory derivative claim?
Shareholders and any SH who has had their shares transferred but they are not registered
Who is the claimant to a statutory derivative claim?
The company
Who is the defendant to a statutory derivative claim?
It is usually a director. It can be a third party but the cause of action must arise from D’s conduct.
Re - statutory derivative claim:
is permission required to bring a claim?
Permission is not required to bring a claim, but it is required to continue the claim. This is a two stage process.
Re - statutory derivative claim:
what happens in permission stage 1?
- SH issues a claim.
- SH must then apply to the court for permission to continue with the claim.
a. The applicant must notify the company of the claim and permission application as soon as reasonably practicable after the claim form is issued. - The court will consider the application and evidence without a hearing.
- The SH must provide evidence that they have a prima facie case.
a. A prima facie case is a case which, on the face of it, has sufficient evidence to support it.
b. If a prima facie case is not established, the judge must dismiss the application. - If a prima facie case is established, the court will give directions for evidence as they see fit
Re - statutory derivative claim:
if a prima facie case is not established, what must the court do?
Dismiss the case.
Re - statutory derivative claim:
what happens in permission stage 2?
- There will then be a substantive hearing of the application for permission
- If the pre-conditions are satisfied, the court has discretion whether to allow the claim to continue. It must have regard to all relevant facts, in particular those listed
- If permission is granted, the court will give directions and list for trial
Re - statutory derivative claim:
what are the conditions upon which the court must refuse a claim at permission stage 2?
- A D acting in accordance with S172 CA 2006 (i.e. promoting the success of the company) would not seek to continue the claim; or
- The act or omission was either authorised before it occurred or ratified after it occurred
Re - statutory derivative claim ‘a D acting in accordance with s172 would not seek to continue the claim’:
what type of test is this?
Subjective
Re - statutory derivative claim ‘a D acting in accordance with s172 would not seek to continue the claim’:
when will a claim fail this hurdle?
A claim will only fail this hurdle if it can be said that no D acting in accordance with s172 would continue the claim
Re - statutory derivative claim ‘a D acting in accordance with s172 would not seek to continue the claim’:
what are the considerations under this limb?
s172 considerations:
* Likely long term consequences
* Impact on employees, community and the environment
* The need to foster relationships
* Desirability to maintain a high standard
Had the SH acted in good faith in bringing the claim? Are the actions of the SH in order to improve the company? Has the company suffered loss/harm?
Re - statutory derivative claim ‘the act / omission was authorised’:
What acts cannot be authorised/ratified?
If Ds act was unlawful or fraudulent acts
Acts prejudicing creditors
Re - statutory derivative claim re stage 2:
Where is has been established the claim need not be struck out, what are the relevant factors the court must consider when deciding whether to allow the case to continue?
All relevant matters, in particular:
a. Whether the SH is acting in good faith
b. The importance that someone acting in accordance with S172 would attach to continuing the claim
c. Whether the past or future action or omission was authorised, or if not, would be likely to be ratified;
d. Whether the company has decided not to pursue the claim; and
e. Whether the act or omission gives rise to a cause of action that a member could pursue in their own right.
f. The views of any SHs who have no personal interest in the matter
What are the consequences for the unsuccessful party to a statutory derivative claim?
Unsuccessful party will pay the costs of the successful party, but the court has discretion to make a different order (usual CPR rules)
How are SHs taxed?
Individual SH will pay income tax on their personal income from dividends
If they sell their shares back to the company (i.e. share buyback), any profit will either be subject to capital gains tax or income tax. CGT is the preference as there is greater tax relief available, but certain criteria must be met
Can shareholders override or retrospectively alter D decisions?
No, but they can veto them in certain circumstances i.e. substantial property transactions
How many SHs must an LTD have?
1
How many SHs must a PLC have?
2
What is the definition of a D?
any person occupying the position of D, whatever they are called
What are the types of D? How are they similar?
- Executive
- Non-executive
- Shadow
- De facto
They are all bound by the directors’ duties
How are executive and non-executive D similar?
Directors’ duties apply to them both
Both must be registered at CH
How are executive directors appointed?
By the board of directors
Explain the position of executive directors
They are employees and will have a service contract
What is the executive director in charge called?
The D in charge of the company is usually called the managing director or chief executive
What is the position of the non-executive D?
Not part of the executive management team. They are a member of the BOD and attend BMs but they are not employees of the company. They generally distance themselves from the daily operations of the business
What is the purpose of a non-executive D?
Their purpose is to act objectively and scrutinise business performance and offer strategic guidance
Do non-executive Ds receive a salary?
They do not receive a salary but are often compensated
In what type of company is it more common for there to be a non-executive director?
More common in PLCs as in some circumstances it is a legal requirement to have one
When is it advisable to have a non-executive director?
Where the BOD is too invested in a decision to act objectively
How are shadow and de facto directors different from other types of director?
They have not been formally appointed, they have gained status as a D because they are influential over the bod
What is the main difference between a de facto D and shadow D?
A shadow D doesn’t hold themselves out to be a D
What is a de facto D?
This is someone who acts as a D even though they have never been appointed or validly appointed
How can a de facto D arise?
This can arise from an invalid application being made to CH to register the D
What is a shadow director?
A shadow director is a person who gives directions / instructions to Ds of the company and D’s are accustomed to act in line with these directions
Examples of a shadow director
a major SH or management consultant (in extreme cases)
Give more detail about a shadow directors directions
Shadow Ds are more likely to be in the background but have a real influence over the company’s decision-making.
It is not necessary for all of the BOD to follow the directions, nor is it necessary for every direction to be followed for the individual to be a shadow director
How are the first Ds appointed?
The first Ds are named under ‘proposed officers’ on Form 1N01 and will take office from incorporation
How are subsequent Ds appointed?
MA provides by either:
1. OR;
2. Board resolution (quicker)
Who cannot be a D?
Anyone disqualified from being a D
If there are only two Ds, why can they not decide the terms of Ds service contract?
Because they would not count in quorum under MA14 as they would have a personal interest. They would either need to change the company’s articles or the SHs could temporarily suspend MA14 by OR under MA14(3)
When can the BOD not decide upon the terms of a D’s service contract?
- If there are only 2 Ds; or
- It is a long term service contract
What is a long term service contract?
A contract with a guaranteed term of more than 2 years
Who and how are long term service contracts authorised?
SHs by OR.
What is the effect if the long term service contract has not been authorised?
The guaranteed term will be void but the rest of the contract will be enforceable
What is a guaranteed term?
It is a clause which states D cannot be terminated for a certain period of time. If the service contract was for 5 years, but contained the ability to terminate at any point, this would not need SH approval.
What is the process for Ds to take to obtain approval for a long term service contract?
Requisition either:
GM to pass OR - keep a copy of the memorandum setting out the proposed terms of service contract at the OR for 15 days prior to the GM and have a copy at the GM
WR to pass OR - circulate a copy of the memorandum with the OR
What are the administrative requirements relating to a long term service contract once approved?
- Service contracts must be available for inspection at the RO during their term and 1 year after termination
- SHs have the right to inspect without charge and within 7 days of request
What happens if D enters into a contract on behalf of the company and they do not have actual or apparent authority?
D will be personally liable to the third party
What is actual authority?
Where D has consent to act in a certain way. There are two types:
o Express i.e. the authority to act is set out in the service contract or discussed at the BM
o Implied i.e. not expressly permitted but D has acted this way in the past and the BOD hasn’t stopped them
What is apparent authority?
Where D acts without consent of the company but it appears to the third party, based on words or conduct, that D is acting with the company’s authority
What is the role of a D and SH? What must a person do when they hold both roles?
Ds’ role - promote the success of the company without thinking about personal interests, personal interests must be declared
SHs - when attending GMs, they can vote to promote their own interests
They must act in accordance with the capacity they are acting under at the time (i.e. at a BM, the D must vote in the best interests of the company, and not their own interests)
What is a Bushell v Faith clause?
This is a clause within the company’s articles that gives a SH who is also a D greater voting rights when the resolution pertains to their removal as a D (i.e. the articles may state that they have 3x more votes than usual)
What is the position in regard to Bushell v Faith clauses and the model articles?
This is not in the model articles and would need to be specifically added
Who does a D owe its duties to?
The company. Not the SHs or creditors.
What are a directors’ duties?
s171 - Duty to act within powers
s172 - Duty to promote the success of the company
s173 – Duty to exercise independent judgment
s174 – Duty to exercise reasonable care, skill and diligence
s175 - Duty to avoid conflicts of interest
s176 – Duty not to accept benefits from third parties
s177 – Duty to disclose interest in proposed transaction
s182 – Duty to disclose interest in existing transaction
Explain s171 - Duty to act within powers
D must act in accordance with the company’s constitution and only exercise powers for which they are conferred (i.e. to promote the company’s success)
Give 2 examples of s171 - Duty to act within powers
- D must get agreement from the BOD to enter into contracts above £5k. D enters into a contract for £13k without authorisation. They would be in breach as they are not acting in accordance with the company’s constitution.
- Example D enters into a contract to buy materials from another company that they own, even though there are other suppliers that sell the same quality materials for a cheaper price. D is likely to be in breach because it appears they entered into this contract to make money for themselves and not find the best deal for the company, they have therefore failed to exercise their powers for the purpose they were conferred (i.e. to promote success of the company)
Explain s172 - Duty to promote the success of the company
D must act in a way that they consider, in good faith, would most likely promote the success of the company. In doing so, they have regard to:
o Possible long term consequences of the decision;
o Interest of the employees;
o Need to foster the company’s relationships;
o The impact the company’s operations will have on the community and environment;
o Desirability to maintain a high standard;
o The need to act fairly as between SHs
What are the factors D must have regard to under s172?
o Possible long term consequences of the decision;
o Interest of the employees;
o Need to foster the company’s relationships;
o The impact the company’s operations will have on the community and environment;
o Desirability to maintain a high standard;
o The need to act fairly as between SHs
Explain ‘have regard to’ under s172
D’s only need to ‘have regard’ to to the factors. These factors don’t necessarily determine the decision, but D must have considered them
When considering the duty under s172, what type of test will the court apply?
It is a subjective test i.e. what did D honestly believe? If D made a bad decision but genuinely believed it would benefit the company, the test is satisfied. Therefore, this is difficult to prove.
Example of s172 duty to promote the success of the company
Example - Ds agree to purchase a new factory that will cause lots of pollution. Even though this will have a negative impact on the community, they have considered the above factors and still believe purchasing the factory will promote the success of the company. There is no breach of s172
Explain s173 – Duty to exercise independent judgment
D must exercise their powers without being influenced by others, UNLESS:
o They are acting in accordance with an agreement entered into by the company; or
o In a way that is authorised by the company’s constitution
Example of s173 – Duty to exercise independent judgment
A company 1 owns 60% of the shares in Company 2. Company 1 appoints one of their Ds to the board of Company 2. The D must not let any professional loyalty to Company 1 affect her judgment, she must vote and act in the best interests of Company 2.
Explain s174 – Duty to exercise reasonable care, skill and diligence
2 parts:
1. The minimum standard expected of all Ds is that they must exercise reasonable care, skill and diligence;
2. A higher standard of care is imposed based on the knowledge, skill and experience that specific D has
How can a D’s specific skill impact their duty under s174?
It can increase the standard expected, but not lower the minimum standard of reasonable care, skill and diligence
Example of s174 – Duty to exercise reasonable care, skill and diligence
D is the finance D with 10 years’ experience. D is asked to produce a report on the value of a company they are considering purchasing. The BOD purchase the company based on the report. It transpires that the company is not worth as much as the report indicated, and this was evidence from the documents D used to prepare the report.
- Apply stage 1 - you would reasonably expect a finance D to have enough knowledge and experience to assess the company, and if not to seek advise from a manager.
- Apply stage 2 - what additional skills and experience did the specific D have? D was the finance experience with 10 years’ experience. Seems likely she breached both limbs of the duty.
Explain s175 - Duty to avoid conflicts of interest
D must not place themselves in a situation where there is a real or potential conflict between D’s interests and the company’s interests.
It is immaterial if the company could have taken advantage of the property, information and/or opportunity and chose not to, D will still be in breach of this duty, unless:
o The situation could not reasonably be regarded as likely to give rise to a conflict of interest; or
o It has been authorised by board resolution (remember, D couldn’t vote in this)
Where D has taken advantage of property, information or opportunity, when will they not be in breach of s175?
o The situation could not reasonably be regarded as likely to give rise to a conflict of interest; or
o It has been authorised by board resolution (remember, D couldn’t vote in this)
When is s175 (COI) not applicable?
This is not applicable to transactions with the company as this is dealt with under s177
Example of s175 duty to avoid conflicts
D is product designer on the BOD. A client asks the company to design something, they decline. D approaches the client in a personal capacity and offers their services. The client agrees. This is a breach of s175 unless the BOD authorise this.
Explain s176 – Duty not to accept benefits from third parties
D must not accept a benefit from a third party that they have received due to them being a D or doing/not doing anything as a D
When will s176 – Duty not to accept benefits from third parties not be breached?
If acceptance of the benefit cannot reasonably be regarded as likely to give rise to a COI i.e. normal corporate hospitality is not caught by this unless it can be reasonably regarded to give rise to a COI
Example of s176 – Duty not to accept benefits from third parties
D enjoys corporate hospitality in the box at the football match. The client then offers him a week in the Caribbean free of charge and says ‘you always do what you can when it’s time to renew the contract’. The box would not be a breach but accepting the holiday would.
Explain s177 – Duty to disclose interest in proposed transaction
If D is directly or indirectly interested in a proposed transaction or arrangement with the company, they must disclose the nature and extent of the interest
It is also not enough to say that they merely have an interest, there must be full and frank disclosure
How must a s177 disclosure be made?
There are no specific rules on how the disclosure must be made, but s177(2) states the declaration may be made at a BM, giving notice in writing or general notice
What happens once a s177 disclosure is made?
The BOD must authorise the transaction.
If the nature of the disclosure changes after authorisation but before the transaction takes place, D must make a new disclosure
When does D not have to declare an interest under s177?
o There is only 1 D in the company;
o The Ds already knew or ought to have reasonably known about the interest
o D was not aware of the interest (this is an objective test – should D have reasonably been aware?)
o The interest cannot reasonably be regarded as likely to give rise to a conflict of interest
o If it concerns the terms of D’s service contract
Can s177 be disapplied by the articles?
No. MA14 which prohibits Ds from voting and counting in quorum where they have a personal interest can be disapplied, but not s177
Example of s177
D is a D of Company A. D also owns Company B. Company A is going to buy some property from Company B. D is clearly likely to benefit from the transaction and must declare his interest before it takes place.
Explain s182 – Duty to disclose interest in existing transaction
If D is directly or indirectly interested in an existing transaction or arrangement with the company, they must disclose the nature and extent of the interest, unless:
o It was already declared under s177
o D was not aware of the interest or the transaction (this is an objective test – should D have reasonably been aware?)
o The interest cannot be regarded as likely to give rise to a COI
o The other Ds are already aware of the COI
o It concerns D’s service contact
When does D not need to disclose a s182 interest?
o It was already declared under s177
o D was not aware of the interest or the transaction (this is an objective test – should D have reasonably been aware?)
o The interest cannot be regarded as likely to give rise to a COI
o The other Ds are already aware of the COI
o It concerns D’s service contact
When must a s182 disclosure be made and how can it be made?
The declaration must be made as soon as reasonably practicable at either a BM, by written notice or general notice
What is the consequence of not declaring a s182 interest?
Failure to comply is a criminal offence and punishable by fine (this is different to the other duties where the remedy is under civil law)
Give 2 examples of s182 interests
- D is appointed. Two months prior, the company entered into a contract with a company D has shares in. Once D becomes aware of this, D must disclose her interest in the existing transaction otherwise she will be in breach.
- Company A enters into a deal with Company B. At the time of the transaction, no Ds of Company A had an interest in the transaction. A few years later, D invests in Company B. D must make a declaration under s182.
What is the key distinctions between s175, s177 and s182?
s175 - this applies when there is some type of dealing between D and a third party that the company also had an interest and could have taken advantage of (the key is that the company is not party to the transaction)
s177 & s182 only applies to proposed/existing transactions where the company is a party to the transaction.
What is a breach of directors’ duty?
A breach of fiduciary duty
What are the remedies for breach of fiduciary duty?
o Account of profits
o Equitable compensation for the loss suffered by the company
o Recission of any contract entered into as a direct or indirect result of the breach
o An injunction to prevent further / continuing breaches
o Restoration of property transferred as a result of the breach
What is the remedy where there has been a breach of s174 duty of care?
cause of action is tort of negligence and award is common law damages
What is the remedy where there has been a breach of s182 disclosing an interest in an existing transaction?
A breach is a criminal matter, not a civil matter
What does it mean if a directors’ breach is authorised?
It is authorised by SHs before it happens
What does it mean if a directors’ breach is ratified?
The breach is retrospective authorised by OR
Why would a company authorise a breach?
It allows D’s can to breach their duty on the condition they won’t face any consequences
When someone is a D and SH, can they vote to ratify / authorise their own breach at a GM?
No.
How is a directorship ended?
By either:
o Automatic termination
o D’s resignation
o Removal by SHs
Explain the relationship between the office of the director and service contract
They are separate.
Removing a D will not terminate their service contract. The service contract can only be terminated in accordance with its terms, unless there has been a repudiatory breach.
Similarly, ending a service contract does not automatically end D’s office, this is done by filing TM01 with CH.
How is a directorship formally ended?
By filing the relevant form with Companies House within 14 days
What form must be filed to end a directorship?
o Form TM01 - individual D
o Form TM02 - corporate D
When is a directorship automatically terminated?
o They are prohibited by law;
o A bankruptcy order is made against them; or
o A medical practitioner has declared them physically or mentally incapable for more than 3 months
What gives SHs the right to remove Ds?
Statute
Can SHs statutory right to remove Ds be excluded from the AAs?
No
What is the procedure for SHs to remove a D?
The SHs must pass an OR at a GM and special notice of the resolution is required.
The OR cannot be passed by WR.
If the BOD refuse to call a GM, what must the SHs do to remove the D?
Requisition a GM
Can Ds instigate the removal of another D?
The BOD can propose an OR to the SHs that a D should be dismissed
o If they do this they will need to prepare a formal notice of intention to propose the OR which is kept at the RO
o They will need to inform the concerned D forthwith
What is s312 special notice and when is it used?
Certain resolutions (i.e. an OR to remove a D or resolutions which can’t be passed by WR) require special notice and a specific procedure must be followed
What is the s312 special notice procedure?
SHs must give written notice of their intention to pass the resolution to the company 28 clear days before the GM in which the OR is to be moved
The company must immediately inform the D concerned
The company will need to give SHs notice of the GM. If practicable, they should give notice of the OR at the same time. If not, SHs must be given at least 14 days notice of the OR before the GM by newspaper or any other method allowed by the AA
What happens if s312 special notice is not satisfied?
Any OR passed will be ineffective
What happens if the BOD call a meeting within the special notice period?
Special notice will be deemed to have been properly given (this is to prevent Ds frustrating the OR)
What rights does D have at the GM regarding the OR to terminate their office?
D is entitled to make written resolutions that are reasonable in length and require the company to give copies of these to the SHs
D is entitled to speak at the GM
When is D entitled to payment for loss of office?
D may be entitled to a payment when a directorship ends, if:
o The service contract provides for it (i.e. on retirement); or
o As compensation for unfair or wrongful dismissal
What payments for loss of office need approval? How are they approved?
Payments over £200 (inc. selling shares at a premium) to D, past Ds or a person connected to D must be approved by SH OR
What are the administrative requirements when making a payment for loss of office which requires approval?
A memorandum setting out the particulars of the payment must be at the GM and available for inspection at the RO 15 days before the GM or circulated to the SHs
What happens if an unauthorised payment for loss of office is made?
The money is held by the recipient on trust for the company and any D who authorises payment is jointly and severally liable to indemnify the company for any loss resulting from the transaction
How long can the court disqualify a D for?
2 - 15 years
On what grounds can a D be disqualified?
o Conviction for an indictable offence
o Persistent breaches of companies legislation
o Fraud on a winding up
o Summary conviction for failure to file a required notice or document
o Being an unfit director of an insolvent company (the most common)
o Following an investigation and a finding of unfitness
o Fraudulent or wrongful trading
o Breach of competition law
What factors would support the disqualification of a D? (non-exhaustive list)
o using money meant for paying VAT, PAYE or national insurance contributions as the company’s working capital (known as trading on Crown monies);
o paying excessive directors’ remuneration; and
o recklessly trading while insolvent.
What factors do not support the disqualification of a D? (non-exhaustive list)
o employing qualified financial staff;
o taking professional advice; and
o a personal financial investment in the company.
What are the consequences of a disqualification order being made?
D cannot be a D or concerned with the management, promotion or formation of a company without leave from the court
A disqualified director is personally responsible for debtors of the company if they are involved in management whilst disqualified
When might a court give leave for a disqualified D to be concerned with the company?
This would be rare but might be allowed if D was not dishonest, the company made profits and other Ds could keep an eye on D
What are the consequences of breaching a disqualification order?
It is a criminal offence with a penalty of a fine or up to 2 years in prison
What is the position under MA5 (re: powers)?
Ds can delegate their powers as they see fit (i.e. to employees)
What does MA17 provide (appointment of Ds)?
Ds who are willing and legally able to act can be appointed by OR or board resolution.
What does MA18 provide (end of directorship)?
a person ceases to be a D if they are prohibited by law, a bankruptcy order is made against them or a medical practitioner has declared them physically or mentally incapable for more than 3 months
What does MA19 provide (services and renumeration)?
Ds can undertake any services for the company that the Ds decide. They can also decide upon Ds renumeration and benefits.
How many company secretaries are required?
LTDs do not need one
PLCs must have one
there can be more than 1
Who can be a company secretary?
D or someone else
What happens if Company Act 2006 states the company secretary is to undertake a task but there isn’t one?
D or someone authorised by D can carry out the task
Who decides upon the secretaries contractual terms?
Directors
What is the role of the company secretary?
To deal with the legal administrative requirements
What authority does a company secretary have?
They normally have apparent authority to enter into administrative contracts, but not trading contracts
How is a company secretary appointed?
by either being named in Form 1N01 on incorporation or by board resolution
What are the administrative requirements following the appointment of the company secretary?
ROC must be informed within 14 days of a new appointment:
Form AP03 - human secretary
Form AP04 - corporate secretary
The CS register would also need to be updated
How are company secretaries removed?
by board resolution, subject to the terms of any contract
What are the administrative requirements following the termination of the company secretary?
ROC must be informed within 14 days of any resignation/removal (Form TM01)
The CS register would also need to be updated
Which companies must have an auditor?
All companies must have an auditor unless they are exempt:
o Small companies
o Dormant companies
o Group companies
o Qualifying subsidiaries
What companies are exempt from having an auditor?
o Small companies
o Dormant companies
o Group companies
o Qualifying subsidiaries
What are the requirements of the auditor?
They must be legally qualified (the company can hire an accounting firm)
What is the main role of the auditor?
To prepare a report for SHs on the company’s annual accounts
What requirement must the auditor report satisfy?
The reports must give a true and fair view of their opinion on the accounts (this is to ensure Ds aren’t defrauding the company)
How is the auditor appointed?
Ds usually appoint the first auditor and then it is done by the SHs by passing an OR
What is the position on reappointment of the auditor?
The auditor in office will be deemed to be re-appointed each year unless:
o It is the first auditor and they were appointed by Ds;
o The AAs require re-appointment; or
o It has been resolved that the auditor should not be reappointed
How does the auditor resign?
The auditor can resign at any time by writing to the company’s RO
How is the auditor removed?
The auditor be removed at any time by the SHs by giving special notice (s312) to the company and passing an OR
What must the auditor do when they resign/are removed?
They must provide a statement to the company explaining why they are ceasing to hold office
What is the liability of auditors?
They do not own a duty of care to SHs
They can be sued in negligence by the company
They can be criminally liable under s507 if:
They knowingly or recklessly include misleading, false or deceptive material in the auditor’s report; or
Omit legally required statements from the report
When will an auditor be criminally liable?
They knowingly or recklessly include misleading, false or deceptive material in the auditor’s report; or
Omit legally required statements from the report
what are accumulated realised profits/losses?
‘Accumulated’ because these include profits and losses carried over from previous years and ‘realised’ as the profit or loss must relate to actual physical income and costs, and must exclude such items as revaluation of a capital asset that the business still owns
what are distributable reserves?
Distributable reserves (aka distributable reserves) are the profits that a limited company has available for distribution to its shareholders
