Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Law and Practice > Directors Duties > Flashcards

Directors Duties Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards MPRE flashcards Civil Procedure 1L flashcards
1
Q

What is the primary responsibility of directors in a company?

A

Directors have day-to-day control over the company’s business and its assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who owns the company?

A

The shareholders own the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the difference between the roles of shareholders and directors?

A

Shareholders focus on their rights, while directors focus on their duties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is one major temptation directors might face?

A

Using their power for personal benefit instead of for the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does the Companies Act 2006 impose on directors?

A

Duties including equitable ‘fiduciary’ duties and common law duties of care, skill, and diligence.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are fiduciary duties primarily aimed at?

A

Stopping directors from abusing their positions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What do common law duties focus on?

A

Preventing incompetence and carelessness.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What transactions require shareholder consent according to the Companies Act 2006?

A

Borrowing money, selling substantial assets, and agreeing to long fixed-term service contracts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What procedural requirement must directors follow?

A

Directors must disclose any interests in decisions taken by the board.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What can happen to directors of insolvent companies?

A

They can be made to contribute to the company’s assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the consequence of breaching certain provisions of company law?

A

It can be a criminal offence.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

To whom are directors’ duties owed?

A

To the company, not to individual shareholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What can a liquidator do in the case of company insolvency?

A

Bring a claim on behalf of the company for breach of duty.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is one of the most significant changes brought by the Companies Act 2006?

A

The codification of directors’ duties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How many general duties are outlined in the Companies Act 2006?

A

Seven general duties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the duty to act within powers according to section 171?

A

Directors must act within the powers given to them by the company’s articles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the duty to promote the success of the company according to section 172?

A

Directors must act in good faith to promote the success of the company for the benefit of its members.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What must directors consider under section 172?

A
  • Likely consequences of decisions in the long term
  • Interests of the company’s employees
  • Business relationships with suppliers and customers
  • Impact on the community and environment
  • Reputation for high standards
  • Fairness among members
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the duty to exercise reasonable care, skill, and diligence according to section 174?

A

Directors must exercise care, skill, and diligence that a reasonably diligent person would.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the remedies for breach of the general duties?

A

Equitable remedies for most duties, common law damages for breach of section 174.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are fiduciary duties derived from?

A

Duties owed by trustees.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the principle underlying section 172?

A

Directors should act in the best interests of the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What does section 175 require directors to do?

A

Avoid conflicts of interest.

24
Q

True or False: Section 175 applies to transactions with the company.

A

False.

25
Q

Fill in the blank: The duty to declare interest in proposed transactions is outlined in section _______.

A

177

26
Q

What is the purpose of section 175 of the Companies Act 2006?

A

Section 175 addresses conflicts of interest that directors may have when entering into transactions not with their company

27
Q

In the scenario, what company does Oliver form to take on the contract from Arbor Enterprises PLC?

A

Industrial Angles Limited

28
Q

True or False: Oliver is allowed to conclude that Grand Designs cannot take on the contract without breaching any duties.

A

False

29
Q

What must directors do to avoid liability under section 175?

A

Other directors should authorize the transaction

30
Q

What is required for private companies incorporated before October 1, 2008, regarding conflicts of interest?

A

Shareholders must pass an ordinary resolution granting directors the power to authorize conflicts

31
Q

What section requires directors to disclose their interests in transactions?

A

Section 177

32
Q

Fill in the blank: Directors must declare their interest by the time the company enters into the _______.

A

[transaction]

33
Q

What happens if a director fails to declare their interest in time?

A

They commit a criminal offence

34
Q

What is the common law duty imposed on directors regarding care, skill, and diligence?

A

Section 174 states a director must exercise reasonable care, skill, and diligence

35
Q

What two-part test is used to determine a director’s standard of care?

A
  1. General knowledge, skill, and experience expected of a person in that role. 2. The specific knowledge, skill, and experience of the director
36
Q

How does the standard of care differ for executive and non-executive directors?

A

Executive directors are held to a higher standard and must devote more time to their roles

37
Q

What legal remedy is usually available for breach of common law duties by directors?

A

Common law damages

38
Q

What is the rule in Foss v Harbottle?

A

It states that the company is the proper claimant if a wrong is done to it

39
Q

What is a derivative claim?

A

A procedure allowing minority shareholders to bring an action against wrongdoers in the company’s name

40
Q

What is the purpose of section 994 of the Companies Act 2006?

A

It allows any member to petition the court for unfairly prejudicial conduct in the company’s affairs

41
Q

What does section 180 sub-section (4) allow regarding conflicts of interest?

A

It allows a company’s articles to contain rules exempting directors from liability under certain conditions

42
Q

What must directors do if they want to authorize a transaction under section 175?

A

They must disclose their interest to the board

43
Q

True or False: Authorization under section 175 excuses breaches of other general duties.

A

False

44
Q

Fill in the blank: Directors can delegate their responsibilities but must _______ the people to whom they have delegated.

A

[supervise]

45
Q

What section of the Companies Act allows for the ratification of a breach of duty by shareholders?

A

Section 239

Ratification can be done by an ordinary resolution of the members.

46
Q

What are the limited exceptions set out in which section that protect directors from some consequences of breaches?

A

Section 180

These exceptions do not protect directors from all consequences of a breach.

47
Q

Which section of the Companies Act states that provisions excusing directors from breaches are void?

A

Section 232

There is an exception for provisions dealing with conflicts of interest.

48
Q

What option do companies have to protect directors against liability for breaches?

A

Purchase insurance

This is permitted under section 233.

49
Q

Fill in the blank: A breach can be __________ by shareholders through a resolution.

A

ratified

50
Q

What is the term used for shareholders passing a resolution to exonerate a director after a breach has occurred?

A

Ratifying the breach

This can be done by an ordinary resolution of the members.

51
Q

Under which section can shareholders give advance authorisation for breaches of duty?

A

Section 180 sub-section 4(a)

This preserves old common law rules for advance authorisation.

52
Q

What is one condition under which advance authorisation cannot occur?

A

If it would involve a fraud on the minority

The meaning of ‘fraud on the minority’ has a lot of case law surrounding it.

53
Q

True or False: Directors can be exempted from liability for any breach under the Companies Act.

A

False

Directors cannot be exempted from liability for any breach that occurs.

54
Q

Which section allows a court to excuse directors who acted ‘honestly and reasonably’ despite breaching their duties?

A

Section 1157

This is a last resort for directors who have exhausted other options.

55
Q

What is a key consideration for the court when deciding on derivative claims under section 263?

A

Whether the breach has been ratified

This is one of the factors the court must consider.

56
Q

What is the minimum standard expected of directors according to the tutorial?

A

A strict adherence to rules and duties

Even directors who play an occasional role must meet this standard.

57
Q

What can happen to directors if a company becomes insolvent?

A

They may face proceedings against them

Directors can also face disqualification from their role.

Business Law and Practice (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions