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Law Mid-Term > Corporate Governance: The Legal Framework > Flashcards

Corporate Governance: The Legal Framework Flashcards

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1
Q

What is the trio in corporate governance?

A
  1. The company as a separate legal person
  2. The shareholders
  3. The management
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2
Q

What is a director of a company?

A

An officer who acts as an agent of the company and so can bind the company by his acts

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3
Q

What are three bars to directorship?

A
  1. If younger than 16
  2. One company can be director of another if at least one director is a natural person
  3. If the candidate is an undischarged bankrupt
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4
Q

What are grounds for a disqualification order of a director?

A
  1. Convicted of serious offense
  2. Persistent breaches of company law
  3. Fraud
  4. Unfitness in the way the company was managed
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5
Q

What are the five different kinds of directors?

A
  1. Executive director
  2. Non-executive director
  3. Chairman of the board
  4. Alternative director
  5. Shadow director
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6
Q

What is a shadow director?

A
  1. A natural legal person whose instructions the directors are accustomed to act
  2. Shadow director is bound by same duties as director
  3. There is personal liability for breach of duties
  4. May have to personally contribute assets on insolvency
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7
Q

What is the board of directors?

A
  1. Individually appointed directors
  2. Ultimate decision making body
  3. Can delegate powers
  4. Can bind the company
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8
Q

What are two of Director’s duties?

A
  1. A duty of care, skill and diligence

2. A fiduciary duty

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9
Q

What are the components of duty to exercise reasonable care, skill and diligence?

A
  1. Directors are not liable for mere errors of judgement, but must not act negligently and must act honestly for benefit of company
  2. Must act within powers but also use power for proper purpose
  3. Duty to exercise independent judgement
  4. Obligation to promote success of the company
  5. Must not put himself in a conflict of interest situation
  6. Me must not accept benefits from third parties
  7. Duty to disclose
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10
Q

What are legal sanctions for breach of duty?

A

Director may be personally liable for a breach of duty unless act is ratified by shareholders (fraud cannot be ratified)

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11
Q

What is a company secretary?

A
  • Senior administrator, responsible for following company law procedures, such as keeping statutory register up to date and dealing with share transfers
  • Owes similar duties to directors duties
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12
Q

What is a auditor?

A
  • External accountants who is not allowed to be an employee of the company
  • Examines financial situation to draw annual accounts
  • Owes duty of care to the company as a whole
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13
Q

Can minority shareholders influence governance?

A
  • Shareholders with 50%+ can control ordinary resolutions
  • Those with 75%+ can control special resolutions
  • Shareholders with 25%+ or less will have no control
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14
Q

What are two forms of minority shareholder law suits?

A
  1. Those on behalf of the company for wrongdoing to the company - derivative action
  2. Personal actions for wrongdoing to shareholders
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15
Q

What are derivative actions?

A
  • Shareholders bring a claim against officers or director on behalf of the company
  • Shareholders want corporate governance change, any damages awarded go to company
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16
Q

What are shareholder class actions?

A
  • Collective action where the personal rights of a large group of shareholders have been affected
  • Derivative actions can be tagged on
17
Q

What are legal protection for creditors?

A
  • When the company has not paid interest on a loan, the debenture holder may send in a receiver to enforce the terms.
  • A receiver can take control of assets used as security for a floating charge and pay out the creditors
18
Q

Whats the dissolution of a registered company?

A
  • Process is called winding up or liquidation

- A liquidator is appointed to deal with company assets

19
Q

What are two types of winding up?

A
  1. Voluntary winding up: initiated by the members of the company themselves passing a resolution
  2. Compulsory winding up: a petition is presented to the court. The court may then order the company to be liquidated
20
Q

What is the order of priority in liquidation?

A
  1. Fixed charge holders
  2. Preferential creditors
  3. Floating charge holders
  4. Unsecured trade creditors
  5. Shareholders
21
Q

What is fraudulent trading and what are the consequences?

A
  • Where any business of the company has been carried on with intent to defraud creditors
  • Director may be liable to contribute to company assets
22
Q

What is wrongful trading?

A
  • When a company has gone into insolvent liquidation and any director of the company knew that it would occur and failed to take steps to minimize costs
  • No fraudulent intention is required
  • Continuing to trade at a loss, so increasing the deficit to creditors
23
Q

What is the retention of title clause?

A

The seller remains the legal owner of the goods until the buyer has paid for the goods in full

24
Q

What is Lien?

A
  • A charge on the property of another
  • The liquidator can not take property until holder of the lien has been paid of, for example, until the holder has been paid for repair work on property.
25
Q

What are alternatives to winding up?

A
  • Voluntary arrangement to pay creditors
  • This requires an administration order
  • The administration then runs the company, a moratorium is created for a period

Law Mid-Term (7 decks)

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