Directors

Question 1

Who are directors?

Answer 1

The real people who represent the company and act on its behalf - often seen as stewards of the members. They are agents of the company NOT the members

Question 2

What age must you be to become a director?

Answer 2

At least 16 years old and be a natural person

Question 3

How many directors must a private company have?

Answer 3

At least one director

Question 4

How many directors must a public company have?

Answer 4

At least two directors

Question 5

What are directors appointed by?

Answer 5

A “Statement of Proposed Officers” signed by the subscribers to the Memorandum of Association confirming that each of the persons named as a director has consented to act as such

Question 6

Why was the Company Directors Disqualification Act 1986 (CDDA) introduced?

Answer 6

To prevent misuse of the limited liability status of companies by directors who would set up a new company to essentially carry on the same business as the old company which had ceased trading with unpaid debts

Question 7

What can a disqualified director not be involved?

Answer 7

The management of the company directly or indirectly or act as a liquidator, receiver or promotor

Question 8

The CDDA 1986 identifies what distinct categories of conduct?

Answer 8

General misconduct, unfitness, and other

Question 9

What is an example of general misconduct?

Answer 9

Conviction of a series offence in connection with the management of a UK or foreign company

Question 10

What is an example of unfitness?

Answer 10

Where an investigation by Department of Business, Innovation and Skills finds him/her unfit to be concerned in management of the company

Question 11

What is an example of other?

Answer 11

Participation in fraudulent or wrongful trading

Question 12

What does article 18 of the model articles state?

Answer 12

A person ceases to be director as soon as certain situations occur, by law or fact, e.g. a bankruptcy order is in place

Question 13

A company may remove a director before the expiry of his period by what?

Answer 13

Ordinary resolution

Question 14

What is the procedure for removal?

Answer 14

Special notice (28 days), company must send copy of the special notice to Director and to all members eligible to vote, a meeting of members is held at which the director has a right to protest/make representation, and an ordinary resolution is needed to remove the director

Question 15

What does the Companies Act 2006 codify?

Answer 15

The common law fiduciary duties that currently exist and also law of negligence

Question 16

What is a fiduciary duty?

Answer 16

One which is imposed on someone as a result of them being in a position of trust and confidence

Question 17

For a director to act within their powers, they must what?

Answer 17

Act in accordance with the company’s constitution, and only exercise powers for the purposes for which they are conferred

Question 18

What is the central obligation of being a director?

Answer 18

Duty to promote success of the company

Question 19

In what way must a director act?

Answer 19

In a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole

Question 20

What does s 172(3) provide?

Answer 20

A specific duty requiring the directors to act in the best interests of the creditors. This provision formally recognises that the duty to shareholders is displaced by the duty to creditors when the company is insolvent

Question 21

What must a director exercise?

Answer 21

Independent duty and this duty is not intrigued by them acting in accordance with an agreement entered into by the company that restricts the future exercise of direction of the directors, or is in a way authorised by the company’s constitution

Question 22

A director does not need to what?

Answer 22

Demonstrate skill greater than that which would reasonably be expected from someone with his skill and knowledge

Question 23

A director is not bound to give what?

Answer 23

Continuous attention to affairs of the company

Question 24

What does s 175 state?

Answer 24

That a director of a company must avoid a situation in which he has, or can have, a direct, or indirect interest that conflicts or possibly may conflict, with the interests of a company

Question 25

What must a director disclose?

Answer 25

Nature and extent of any interest in a transaction or proposed transaction to the other directors. He does not necessarily need to be a party to the deal

Question 26

When might personal liability of directors to outsiders occur?

Answer 26

May arise as a consequence of breach of contract, breach of a delictual duty or may be imposed by statute

Question 27

When might a director find himself personally liable to a third party?

Answer 27

If he purports to have authority to conclude a transaction on behalf of the company where no such authority exists

Question 28

When might delictual liability arise?

Answer 28

In cases of fraud or negligent misstatement

Question 29

What is the division of power within a company?

Answer 29

The power is divided between the board of directors who manage the day to day management of the business and the members who make major decisions about running the business in a general meeting

Question 30

Individual directors cannot do what?

Answer 30

Bind the company without authority to do so

Question 31

Who is the company ultimately controlled by?

Answer 31

Its members

Question 32

What does it state under model article 4?

Answer 32

The shareholders may, by special resolution, direct the directors to take, or refrain from taking, special action