Corporate Governance

Question 1

What is corporate governance?

Answer 1

The oversight and exercise of control of an enterprise by its owners

The goal is to ensure that the objectives of the enterprise are being followed and met

Key objective is shareholder value

Question 2

What are the 5 principles of corporate governance?

Answer 2

1. Rights and equitable treatment of shareholders
2. Interests of other stakeholders such as creditors
3. Role and responsibilities of the board
4. Integrity and ethical behaviour
5. Disclosure and transparency

Question 3

Why does CG matter?

Answer 3

Easier to raise capital/borrow money
Improved reputation
Improved systems and controls
Improved risk management

Question 4

Rolls Royce case?

Answer 4

Accounting and governance issue
Bribery investigated
poor governance and failures in accountability - if governance was up to date this wouldnt happen

Question 5

Mirror group (Maxwell)

Answer 5

Maxwell raided pension fund and left lots without a pension

Question 6

What do many of these cases have in common?

Answer 6

Management acted alone - didn’t tell others
Management acted negligently and criminally
Shareholders discovered too late the importance management practices and decisions

Question 7

Section 155 of CA?

Answer 7

Every company must have atleast one natural person as a director

Question 8

Directorial autonomy?

Answer 8

Directors are not delegates or agents of the general meeting, but are under a duty to act bona fide in the interests of the company as a whole.

In the case of Automatic Self-Cleansing Filter Syndicate Co v Cunningham [1906], the articles of association gave the management powers to the board of directors. - Therefore, in these circumstances, the general meeting has no power to interfere with the management of the company by the directors by simply passing an ordinary resolution.

However, the general meeting can remove a director by ordinary resolution (s.168 CA 2006).

Question 9

AGM

Answer 9

Annual general meeting

Question 10

Section 336 CA 2006 ?

Answer 10

Optional for private company; compulsory for public company (s.336 CA 2006).

Question 11

Section 336 (1) ?

Answer 11

Public company must hold an annual general meeting once in each calendar year within 6 months of accounting reference date (s. 336(1).

Question 12

Section 437 and 439 CA 2006?

Answer 12

Deals usually with appointment of auditors, approval of accounts and related documents, declaration of dividends, election, re-election and remuneration of directors.

Question 13

Section 307 CA 2006?

Answer 13

21 days notice required of public company for an A.G.M. but 14 days notice required of any other meeting of either public or private company. (shorter notice can be agreed upon for meetings.) Notice can be in hard copy or electronic form or by website ss.308-9.

Question 14

Section 311?

Answer 14

Notice must specify date, place and time of meeting and should indicate general nature of business

Question 15

Section 168 CA 2006?

Answer 15

Special notice to the company is sometimes required e.g. to dismiss a director

Question 16

What is done at the general meeting?

Answer 16

Alterations to memorandum and articles
Alteration of share capital
Appointment and removal of auditors
Removal of directors!

Question 17

What is an executive director?

Answer 17

Usually holds an important position within the day to day running of the company.

Managing director - has overall responsibility for the running of the company.

He or she is the agent of the company, and has apparent authority to act as agent, as in Freeman Lockyear v Buckhurst Property [1964].

Question 18

De Facto Director?

Answer 18

Not been formally appointed, but has openly undertaken a directorial role in the conduct of the company’s affairs: Re Kaytech International plc [1999].

Question 19

Shadow director?

Answer 19

A shareholder might avoid a formal appointment but still direct the board’s decision-making.

As now laid out in section 251 of the Companies Act
2006 and elaborated by various cases, reveals that it is actually quite hard for a person to become a shadow
director

Newey J argued that, if there is a need to show assumption of responsibility by a shadow director, then acceptance and use of corporate powers must imply such an assumption of responsibility

Question 20

Case relating to directors powers?

Answer 20

Barron v Potter - director refused to attend any meetings - AGM hired another director

Question 21

Rules relating to a managing director?

Answer 21

Unless directors allow for it there is none. Directors may appoint one themselves

Question 22

2 types of Authority of directors?

Answer 22

Actual - Freeman and Lockyer v buckhurst park properties - director acted as managing director but had no actual authority so company refused to pay fees
The company was liable since by its acquiescence it had represented that the director was a Managing Director with the authority to enter into contracts that were normal commercial arrangements, and which the board itself would have been able to enter.

Ostensible

Question 23

Royal british bank v turquand (1856)

Answer 23

The bank lent money to the defendant on the security of a bond signed by two
directors. The deed of settlement empowered the board of directors to borrow only when by a resolution of a general meeting. Defendant refused to repay the loan and argued that no such resolution had been passed and the bank should have constructive notice of the provision in the constitution.

Court of Exchequer Chamber held that the company was bound by the contract since the bank had “a right to presume that there had been a [such] resolution at general meeting”

Question 24

AL Underwood Ltd v Bank of Liverpool and Martins [1924]

Answer 24

Mr Underwood had a personal account with the defendant bank. He was also the major shareholder and only director. He paid company cheques into his personal account with the defendant bank. When AL Underwood Ltd went into receivership, it sued the bank for the money lodged to Mr Underwood’s personal account. The bank argued that they were entitled to assume that the account into which the cheques were paid was an internal issue for the company.

Held:The lodging of company cheques into a personal account was so unusual that the Bank should have made further enquiries.

Question 25

Compensation to directors on loss of office?

Answer 25

the power conferred by s 168 does not deprive the director of a claim for damages for breach of contract of his service contract (s.168(5)) and as in- Southern Foundries [1926] Ltd v Shirlaw [1940].

Question 26

Removal of a director from office?

Answer 26

Bushell v Faith 1970 case - company's articles provided that each shareholder had 3 votes per share instead of one regarding removal of director, C claimed that by virtue of articles, his shares had three votes each when voting on resolution and therefore the resolution was defeated 300 votes to 200.
Held: It is possible for special class rights to make a director virtually irremovable.
In any case, listed companies cannot circumvent s.168 through special rules such as these.