Decision-making in a Ltd - Directors Flashcards
Shareholders vs Directors
Shareholders = owners of company
Directors - manage the day-to-day of a company
Call Board Meetings
Directors can do that by giving notice to each director, specifying date, time, venue.
Notice period: fair and reasonable
Valid Quorum
2 directors, unless the company has only 1 director.
No quorum - only can call for another BM
Prohibition under MA 14
A director cannot count towards quorum and vote in a current or proposed transaction with the company if he is interested in it.
Exceptions:
- Doesn’t give rise to a conflict
- It relates to employee/director benefits
- It relates to a share subscription
- Restriction is disapplied by members via OR (>50%)
Declaring interest (s. 177 CA)
Statutory obligation to declare direct or indirect interest on every current or proposed transaction with the company before the company enters into it.
Voting
BMs - >50% of all present and with the right to vote
Beware of MA 14 prohibition!
Via Board WR - unanimous vote is required
Casting vote - the chairman or the appointed director who was a chair at the meeting
Admin Matters
all BM minutes kept for 10 years.
good practice to adjourn a BM meeting to enable a GM / WR by members to take place, and then to reconvene the same BM to implement the decisions
(the Sandwich Method)
Calling a (normal) GM
Board usually does, the members can too (via 303-305 Procedure)
for Ltds - Notice giving 14 clear days must be sent to every member, director, auditor of the company. It specifies the date, time, venue and subject matter of the meeting. Specifies if there is a proposed special resolution or not.
If no statutory prescribed period given - the GM is void
Calling a GM on a short notice
s. 307 CA - the majority in number of voting members (>50%) + this majority holds at least 90% of the shares in the company.
Make a decision by written resolution
Possible for both the board (s. 288 CA) and the members (s. 292) if the company does not want to wait for notice period.
Must be sent to each member with a deadline / lapse date to vote and how to count their vote.
Voting: 1 vote per share. Non-votes count towards a no.
Cannot be used for removal of directors/auditors.
Quorum on GMs
At least 2 members present and with the right to vote.
Actions against directors
-Unfair prejudice (s.994 CA)
-Derivative claim (s.260 CA)
-Civil claim against director
-Disqualification proceedings
-Remove director (via s. 168 CA)
-Challenge transactions (if the company is insolvent)
How to protect directors?
Indemnity: contractual clause in their service contracts
Directors & Officers Insurance
Relief from liability
-s. 239 CA - Ratification (by members) via OR (>50%) - but no interested director should count towards quorum - OR should be passed without their votes (at GM); via written resolution - they cannot vote.
- s. 1157 CA - Court order to grant relief - if they acted honestly and reasonably and ought to be fairly excused
-Insurance + Indemnity
Removal of Director via s. 168 CA
Check PrepTackle Sheet!
Practical considerations:
-Beware of Bushell v Faith provisions
-Directors with employment contracts: unfair dismissal, redundancy - compensation
Disqualification
A director who is an undischarged bankrupt, who is subject to a debt relief or moratorium or in arrangement with creditors to avoid bankruptcy cannot act as a director. If he does without leave of court - criminal offence.
How to protect a director who is also a SH from being removed?
-Weighted voting rights (Bushell v Faith)
-SH agreement
-Entrench provisions for removal, require a higher threshold
-Amend Articles
A loan to a director (s. 197 CA)
Loan to a director (incl shadow director) needs to be approved by members (via OR)
Exceptions:
-De minimis exception (up to 10,000 GBP)
- For the business purposes and in his function as a director - up to 50,000 GBP
- To defend himself in any proceedings against him (for any act or omission in negligence, default, breach of duty of care or trust)
- From one body corporate to another
- Money-lending companies
Sandwich system - BUT a memo of the loan should be available at SAIL or registered address of company at least 15 days before GM / with WR or before circulating WR
!! Loans to director’s connected persons - require BM approval still !!
Substantial Property Transaction to a Director (s. 190 CA)
Transfer/sale/acquisition by a director OR a connected person to the director OF a non-cash asset worth over 100,000 GBP or over 10% of the company’s net assets and is more than 5,000 GBP = needs to be approved by members (via OR)
Exceptions:
- Value up to 5,000 GBP
- Intra-group trasnaction
- Transaction to the director in his function as a member
- Related to his service contract
- Company is in winding up / administration
If no OR approval for s. 190 or s. 197 CA transactions?
Trasnaction is voidable, unless affirmed via OR by members (no limitation on who can vote).
