Directors Duties Flashcards
1
Q
What are directors and shareholders responsible for?
A
Directors are responsible for managing the company, while shareholders own the company and have input into certain key decisions.
2
Q
Who are directors accountable to?
A
Directors owe duties to the company and are accountable to it rather than directly to the shareholders.
3
Q
Define the concept of agency relationship in the context of company management.
A
An agency relationship in company management refers to the directors managing the company on behalf of the shareholders.
4
Q
List some examples of decisions directors can make without shareholder approval.
A
Directors can employ individuals, enter contracts, buy and sell property, raise funds, and prepare company accounts.
5
Q
Describe the 3 categories of directors recognized in law.
A
The categories of directors recognized in law include de jure directors, de facto directors, and shadow directors.
6
Q
How are directors categorized in practice?
A
In practice, directors are categorized as executive directors and non-executive directors.
7
Q
What additional type of director may the company’s articles include?
A
The company’s articles may provide for alternate directors.
8
Q
Explain the difference between de jure and de facto directors.
A
De jure directors are officially appointed and recognized as directors, while de facto directors act as directors without formal appointment.
9
Q
What is a shadow director?
A
A shadow director is a person who is not officially appointed as a director but whose directions or instructions are followed by the actual directors of the company.
10
Q
What is the minimum age requirement to be appointed as a director under CA 2006?
A
A person must be at least 16 years old to be appointed as a director.
11
Q
Do fiduciary duties and liabilities apply to de facto directors?
A
Yes, fiduciary duties and liabilities apply to de facto directors as they do to de jure directors.
12
Q
Describe the role of a shadow director according to CA 2006.
A
A shadow director is defined as a person whose directions or instructions the directors of the company are accustomed to act upon, even if they are not formally appointed as a director.
13
Q
How does CA 2006 differentiate between shadow directors and professional advisers?
A
CA 2006 clarifies that professional advisers, such as accountants providing financial advice, are not considered shadow directors, even if their advice is followed by the directors.
14
Q
What duties and restrictions are shadow directors under?
A
Individuals acting as directors, regardless of their formal appointment, are subject to the same duties and restrictions that apply to all directors.
15
Q
How might a friend of a director be classified under CA 2006?
A
A friend of a director who provides advice that the directors follow could be classified as a shadow director.
16
Q
Define the role of an executive director.
A
An executive director is a director appointed to executive office who spends the majority of their working time on the business of the company and serves as both an officer and an employee.
17
Q
How do non-executive directors contribute to a company?
A
Non-executive directors provide independent guidance and advice to the board and protect the interests of shareholders, but they do not engage in the day-to-day running of the company.
18
Q
Explain the employment status of non-executive directors.
A
Non-executive directors are officers of the company but are not employees, meaning they do not receive a salary or engage in daily operations.
19
Q
Describe the role of an alternate director in a company.
A
An alternate director takes the place of a director when one or more directors are absent, usually being a fellow director or someone approved by a board resolution, and possesses the voting powers of the absent director.
20
Q
How are alternate directors appointed in a company?
A
Alternate directors are typically appointed through a resolution of the board of directors or may be fellow directors.
21
Q
What has contributed to the rarity of alternate directors in recent times?
A
The ability to hold board meetings over the telephone and to pass board resolutions through written resolutions has made the use of alternate directors quite rare.
22
Q
Describe the main duties of a company secretary.
A
The main duties of a company secretary include keeping the company books up-to-date, producing minutes of board and general meetings, and ensuring that all necessary filings are made at Companies House.
23
Q
What is the requirement for a public company regarding a company secretary under CA 2006?
A
A public company must have a company secretary as per section 271 of CA 2006.
24
Q
Describe the qualifications required for a public company secretary.
A
A public company secretary must have the requisite knowledge and experience, and must hold one of the qualifications set out in section 273(2) of CA 2006, such as being a solicitor or a chartered accountant.
25
Who is responsible for appointing the company secretary?
The directors are responsible for appointing the company secretary.
26
What is the significance of the secure register for directors' residential addresses?
The secure register ensures that individual directors' residential addresses are protected from public access, enhancing their privacy.
27
What role does the court play in the disqualification of directors under the CDDA?
The court may make a disqualification order against a person, preventing them from being a director or involved in company management unless they obtain leave of the court.
28
How often are directors of LISTED companies subject to re-election?
Directors of listed companies are subject to annual re-election.
29
Explain the retirement and reappointment process for directors in public companies.
The model articles for public companies require directors to retire and be reappointed by the members every three years.
30
What are the grounds for disqualification under the CDDA?
Grounds for disqualification include fraudulent or wrongful trading and persistent breaches of company law.
31
Define the maximum period of disqualification under the CDDA.
The maximum period of disqualification under the CDDA is 15 years.
32
Define automatic termination a director's position.
Automatic termination occurs when a director becomes disqualified, subject to an individual voluntary arrangement, bankrupt, or is deemed physically or mentally incapable of acting as a director by a registered medical practitioner. A registered medical practitioner states in writing that the director has become physically or mentally incapable and will remain so for more than three months.
33
Describe the process for a director to resign from the board?
A director may resign by tendering a letter of resignation, as provided for in MA 18(f). It is usual for the board to pass a resolution accepting the resignation, although this is not obligatory.
34
Explain the circumstances under which a director may be removed by shareholders.
A director may be removed by shareholders due to poor performance, personality clashes, or differences in opinion regarding company strategy.
35
How do directors who are also shareholders participate in the removal of directors?
Directors who are also shareholders are allowed to vote in their capacity as shareholders on the ordinary resolution to remove them.
36
Does the Board have a role in the removal of a director?
The Board cannot remove a director unless the Articles specifically provide for this.
37
Define the notice requirement for removing a director under CA 2006.
Under s 168(2) CA 2006, a special notice of 28 days is required for a removal resolution.
38
How can shareholders remove a director according to CA 2006?
Shareholders can remove a director by passing an ordinary resolution before the expiration of their period of office, as stated in s 168(1) CA 2006.
39
What is the significance of disclosing compensation for loss of office in annual accounts?
Disclosing compensation for loss of office ensures transparency and accountability regarding the financial dealings and remuneration of directors.
40
What is the requirement for payments made to connected persons of directors?
Section 412 CA 2006 mandates the disclosure of any payments made to, or receivable by, a person connected to a director or a body corporate controlled by a director.
41
Describe the information required in the company’s annual accounts regarding directors' remuneration.
Section 412 CA 2006 requires disclosure of directors' salaries, bonus payments, pension entitlements, and compensation for loss of office in the company's annual accounts.
42
How do companies with Model Articles (MA) typically appoint new directors?
Companies with Model Articles usually appoint new directors by a decision of the directors under MA 17(1)(b), as it is easier to implement.
43
What information must be included in a company's register of secretaries according to CA 2006?
The register of secretaries must include the name and any former name, and the address of the individual.
44
How can a director's service address be chosen according to CA 2006?
A director's service address can be their residential address or the company’s registered office, which will be the only address available to the public.
45
Define the particulars required in a company's register of directors according to CA 2006.
The particulars include name and any former name, service address, country or state of usual residence, nationality, business occupation, and date of birth.
46
How can other individuals access the register of directors?
Other individuals can access the register of directors at the registered office by paying a fee, as per sections 162(5) CA 2006.
47
Explain the inspection rights of members regarding the register of directors.
The register kept at a company's registered office must be open for inspection by any member of the company without charge.
48
How must companies notify changes regarding directors or secretaries?
Companies must notify the Registrar of Companies of changes relating to directors or secretaries using forms published by Companies House, such as AP01 for Appointment of Director and AP03 for Appointment of Secretary.
49
Describe the requirements for maintaining a register of directors according to CA 2006.
Every company must maintain a register of its directors at its registered office as per section 162(1) of CA 2006.
50
What happens if a director's service contract is not in writing?
If a director's service contract is not in writing, the company must keep memoranda of the terms at its registered office for inspection.
51
Who determines the terms of the service contracting including remuneration?
Article 19 of the Model Articles states that the terms of an individual director's service contract, including remuneration, are determined by the board.
52
How are long-term service contracts entered into under the Companies Act 2006?
Shareholder approval is required to enter into long-term service contracts under section 188 of the Companies Act 2006.
53
Define the obligations of a company regarding directors' service contracts.
A company is obligated to keep its directors' service contracts or memoranda of their terms at its registered office for inspection by members.
54
How should the terms of employment for an executive director be documented?
The terms of employment for an executive director should be documented in a written contract of employment, also known as a service contract.
55
Describe the role of an executive director in a company.
An executive director is an employee of the company and also one of its officers, responsible for overseeing the company's operations.
56
Explain the difference between appointing directors by ordinary resolution and by a decision of the directors.
Appointing directors by ordinary resolution involves the shareholders' vote (MA 17(1)(a)), while a decision of the directors allows the board to appoint new directors directly (MA 17(1)(b)).
57
Define the role of ordinary resolution in the appointment of directors.
An ordinary resolution allows shareholders to appoint directors, as outlined in MA 17(1)(a).
58
How should directors declare any interest in a proposed transaction?
Directors are required to disclose any personal interest they have in a transaction that is being considered by the company.
59
How is the minimum standard of care for a director determined?
The minimum standard expected of a director is based on the objective expectations of a director in that position, which may be raised subjectively if the director possesses special knowledge, skill, or experience.
60
How are companies addressing the requirements of s 172 CA 2006 (duty to consider various stakeholders' interests when making decisions) in their board decisions?
Many companies are ensuring that board minutes clearly note consideration of the s 172 CA 2006 duty, especially for significant commercial decisions, demonstrating adequate research and discussion.
61
How might directors justify installing a new oil pipeline despite potential environmental damage?
Directors may justify the decision if it promotes the success of the company even if it causes some degree of environmental damage. - Bold text is a fundamental duty of solicitors
62
Describe the concept of 'enlightened shareholder value'.
It is a term that represents a balance between maximizing shareholders' interests and considering the interests of a wider group of stakeholders.
63
What are the likely long-term consequences a director must consider when making decisions?
A director must consider how decisions will affect the company's future, including financial performance, stakeholder relationships, and overall sustainability.
64
What factors should a director consider regarding the community and environment?
A director should consider the impact of the company's operations on the community and the environment, ensuring that decisions contribute positively and do not harm these areas.
65
How should a director consider employees' interests according to s 172(1) CA 2006?
A director must take into account the interests of employees when making decisions, ensuring that their well-being and perspectives are considered in the context of the company's operations.
66
Describe the duty of a director under s 172(1) CA 2006.
A director is required to consider a range of non-exhaustive matters, including the long-term consequences of decisions, employees' interests, relationships with suppliers and customers, the impact on the community and environment, maintaining a reputation for high business standards, and acting fairly among company members.
67
What are the consequences of breaching the duty to act within the company's constitution?
A director breaches this duty if they act without authority, which can include actions like committing the company to borrow more than allowed by the articles without prior shareholder approval.
68
Describe the responsibilities of directors in a company.
Directors are responsible for managing the company on a day-to-day basis.
69
What does the duty not to accept benefits from third parties entail?
This duty prohibits directors from accepting any benefits that could compromise their impartiality or loyalty to the company.
70
Explain the duty to avoid conflicts of interest for directors.
Directors must avoid situations where their personal interests conflict with the interests of the company.
71
What is the significance of exercising reasonable care, skill, and diligence for directors?
This duty ensures that directors perform their roles with the level of care, skill, and diligence that can be reasonably expected from someone in their position.
72
How should directors exercise independent judgment according to CA 2006?
Directors must make decisions based on their own judgment and not be unduly influenced by others.
73
Define the duty to promote the success of the company.
This duty mandates directors to act in a way that promotes the success of the company for the benefit of its members as a whole.
74
What is the implication of a director's breach of duty for the company?
The company can take legal action as the claimant in cases of a director's breach of duty.
75
How do directors' duties change when a company is in financial difficulty?
When a company is in financial difficulty, directors' duties shift to the protection of the creditors.
76
What happens when a director breaches their duty?
A breach of duty by a director is considered a wrong done to the company, making the company the claimant in any proceedings.
77
Describe when a director is not required to make a declaration under s 177 CA 2006.
A director is not required to make a declaration when they are not aware of the interest or transaction, when the interest is not likely to give rise to a conflict of interest, or when the conflict arises from their service contract that has been or will be considered by the board.
78
How does the Companies Act 2006 address the ratification of breaches by directors?
The Companies Act 2006 allows shareholders to ratify certain breaches of conduct by directors through an ordinary resolution, subject to specific conditions and limitations.
79
Explain the limitation on ratifying a director's breach of fiduciary duty during insolvency.
Shareholders cannot ratify a director's breach of fiduciary duty in insolvency situations because directors owe their duties to creditors, not shareholders, once the company is insolvent.
80
Define the types of conduct that shareholders can ratify.
Shareholders can ratify conduct related to negligence, default, breach of duty, and breach of trust.
81
Describe the process by which shareholders can ratify a director's conduct.
Shareholders can ratify a director's conduct by passing an ordinary resolution, unless the company's articles require a higher majority or unanimity, as per section 239(2) of the Companies Act 2006.
82
How does full disclosure impact shareholder decision-making?
Full disclosure by directors is crucial as it allows shareholders to be properly informed about the proposed action, enabling them to make an informed decision regarding approval.
83
Explain the limitations of shareholder approval in relation to unlawful acts.
Shareholders cannot approve unlawful acts, meaning that any action proposed by directors that is illegal cannot be authorized by shareholder consent.
84
What is required for shareholder approval to be effective regarding director actions?
For shareholder approval to be effective, there must be full disclosure by the directors, ensuring that shareholders are fully aware of the details of the action and can make an informed decision.
85
Describe the role of shareholders in approving a director's proposed action.
Shareholders may support and approve a director's proposed action in advance, even if it would typically breach the general duties outlined in ss 171-177 CA 2006, as long as the act is not unlawful.
86
List the remedies available for breaches of general duties other than s 174.
Remedies include: injunction, setting aside of the transaction, restitution and account of profits, restoration of company property, and damages.
87
What is the remedy for a breach of the duty of care, skill, and diligence according to s 174 CA 2006?
The remedy for a breach of the duty of care, skill, and diligence (s 174) is damages.
88
Define the alternative measure to MA 14 for handling director conflicts in small companies.
An alternative measure is to remove MA 14 under section 21 of the Companies Act 2006 and replace it with an article that expressly allows a director interested in a transaction to vote and count in a quorum on board resolutions.
89
How can a conflicted director participate in board resolutions despite MA 14 restrictions?
A conflicted director can participate if the company disapplies MA 14(1) by ordinary resolution, if the director's interest is not likely to cause a conflict, or if the conflict arises from a permitted cause as defined in MA 14(4).
90
Describe the voting restrictions for a director interested in a transaction with the company according to MA 14.
A director who is interested in a transaction or arrangement with the company cannot vote on or count in the quorum for board resolutions regarding that transaction or arrangement.
91
Describe the duty to declare interests in proposed transactions as per CA 2006.
Section 177 of the CA 2006 requires directors to declare any interest they have in a proposed transaction or arrangement with the company, ensuring transparency and accountability.
92
How can a director provide general notice of their interest under section 185 CA 2006?
Under section 185, a director can give general notice indicating that they are always to be considered interested in any transaction or arrangement with a specified party, which can include interests in a specified body corporate or firm, or connections to a specified person.
93
What is required if a director discloses their interest through written notice rather than at a meeting?
If a director discloses their interest through written notice, the notice must be sent to all directors either electronically (if agreed) or in paper form, as per section 184 CA 2006.
94
What are the methods a director can use to declare their interest in a transaction?
A director can declare their interest at a Board Meeting (section 177(2)(a) CA 2006), in writing in advance of the Board Meeting (section 177(2)(b)(i) CA 2006), or by giving a one-off general notice of their interest (section 177(2)(b)(ii) CA 2006).
95
Describe the application of section 177 CA 2006 regarding indirect interests.
Section 177 CA 2006 applies equally to indirect interests, which can be difficult to identify. A director may have an indirect interest through a spouse, relative, or a company in which they are a member, and they do not need to be a party to the transaction for this section to apply.
96
Provide an example of a situation where a director must declare an interest.
If a director of Company A is a shareholder in Company B and Company A is about to sign a contract with Company B, the director must declare their shareholding in Company B.
97
What must a director do if they have an indirect interest in a transaction?
A director must inform the other directors about their indirect interest before the company enters into the transaction.
98
Explain the significance of indirect interests in the context of director disclosures.
Indirect interests, such as shareholdings in another company involved in a transaction, must also be disclosed by directors to avoid conflicts of interest.
99
Define the circumstances under which a director can accept a benefit without breaching their duty.
A director can accept a benefit if it cannot reasonably be regarded as likely to give rise to a conflict of interest, as stated in section 176(4) CA 2006.
100
What should a director do when faced with a potential conflict of interest according to s 175 CA 2006?
A director should seek approval from both boards involved or refuse the conflicting appointment to comply with s 175 CA 2006.
101
What is an example of a situation that falls under the exception of s 175(3) CA 2006?
An example is when a director of Company A, who has board approval, also becomes a director of Company B, and later Company B wishes to sell an asset to Company A, which is permissible under s 175(3) CA 2006.
102
Explain the example of a director being approached for a position in a competing company.
In the example, a director of Company A, approached to become a director of Company B (its competitor), must seek board approval or ideally refuse the appointment to avoid conflicts under s 175 CA 2006.
103
Define the role of board approval in managing conflicts of interest under s 175 CA 2006.
Board approval is necessary when a director has a potential conflict of interest, such as when taking on a directorship in a competing company, to ensure transparency and compliance with statutory duties.
104
What are the two specific exceptions to the duty to avoid conflicts of interest mentioned in the content?
The two exceptions are: conflicts arising in relation to a transaction with the company and conflicts related to matters authorized by the directors.
105
Describe the types of transactions regulated by CA 2006 that require shareholder approval.
The three types of transactions are: Directors' long-term service contracts (ss 188 – 189 CA 2006), substantial property transactions (ss 190 – 196 CA 2006), and loans, quasi-loans, and credit transactions (ss 197 – 214 CA 2006).
106
What is the purpose of requiring shareholder approval for certain transactions with directors?
The purpose is to protect the interests of shareholders and ensure that directors do not engage in transactions that could benefit themselves at the expense of the shareholders.
107
Describe the requirement for shareholder approval regarding a director's service contract under CA 2006.
Shareholder approval by ordinary resolution is required for any director’s service contract that has a guaranteed period exceeding two years.
108
Define the term 'guaranteed term' in the context of director's service contracts.
The 'guaranteed term' refers to a period during which the contract continues without the company's ability to terminate it, or where the director controls the duration of the contract.
109
What additional approval is required if a director is also a director of a holding company?
If a director is also a director of a holding company, the shareholders of the holding company must also provide approval as per section 188(2)(b) CA 2006.
110
Describe the consequences of a company agreeing to a provision in a service contract exceeding 2 years without shareholder approved
The provision will be void to the extent of the contravention under section 189 of the Companies Act 2006, and the contract will be deemed to contain a term allowing the company to terminate it at any time with reasonable notice.
111
Describe the approval process for a new service contract in a wholly-owned subsidiary according to CA 2006.
Approval from shareholders is not required for a wholly-owned subsidiary when the proposed service contract has a guaranteed term of more than 2 years.
112
Do wholly-owned subsidiaries require member approval for service contracts under CA 2006?
No, wholly-owned subsidiaries do not require member approval for service contracts, even if they have a guaranteed term of more than 2 years.
113
Describe the disclosure requirements for directors regarding service contracts under s 177 CA 2006.
Under s 177(6)(c) CA 2006, a director is not required to disclose their interest in the service contract, but it is common practice for directors to declare their interest under s 177(1) CA 2006 to document it in the board minutes.
114
Explain the voting restrictions for directors regarding their service contracts.
A director is not permitted to vote or count in the quorum on any board resolution relating to their service contract as per MA 14(1).
115
How long must a company retain directors' service contracts for member inspection?
A company must retain directors' service contracts for at least one year from the date of termination or expiry of the contract.
116
What rights do members have regarding the inspection of directors' service contracts under s 229 CA 2006?
Under s 229 CA 2006, members have the right to inspect directors' service contracts without charge or to request a copy for a fee.
117
Describe the requirements for making a memorandum available for inspection at a General Meeting according to s188(5)(b) CA 2006.
A memorandum setting out the proposed contract must be made available for inspection by members at the company’s registered office for not less than 15 days ending with the date of the meeting and at the meeting itself.
118
How does the notice period for a General Meeting differ from that of a written resolution in terms of service contracts under s188 CA 2006?
A minimum of 15 days’ notice must be given for a General Meeting to approve the contract, while there is no such 15-day requirement for a written resolution.
119
How must shareholder approval be obtained for substantial property transactions under Section 190 CA 2006?
Shareholder approval must be obtained either before the transaction is entered into or after, provided the transaction is made conditional on obtaining approval.
120
Describe the implications of entering into a SPT without shareholder approval under CA 2006.
The transaction is voidable at the instance of the company unless restitution is no longer possible, the company has been indemnified for losses, or rights acquired in good faith by a third party would be affected.
121
Substantial property transactions require an acquisition or disposal by a director/holding company director (or connected person) of a substantial non-cash asset to or from the company.
Define what constitutes a substantial non-cash asset in the context of Section 190 CA 2006.
A substantial non-cash asset refers to significant property or assets that are not cash, involved in transactions by directors or connected persons with the company.
122
Do substantial property transactions require any specific type of resolution for approval?
Yes, substantial property transactions require shareholder approval by ordinary resolution.
123
Who is involved in substantial property transactions
Transactions governed by Section 190 CA 2006 involve a director of the company, a director of the holding company, or a connected person.
124
What is the consequence of not obtaining shareholder approval for substantial non-cash asset transactions?
If shareholder approval is not obtained, the transaction may be deemed invalid or unenforceable.
125
Describe what constitutes a 'Substantial' asset according to CA 2006.
A 'Substantial' asset is defined as follows: an asset worth £5,000 or less is not substantial; an asset worth more than £100,000 is substantial; and an asset worth more than £5,000 but not more than £100,000 is substantial only if it is worth MORE THAN 10% of the company’s net asset value.
126
How is a company's net asset value determined if no accounts have been prepared?
If no accounts have been prepared, the net asset value is taken to be the amount of the company's called up share capital.
127
Define 'persons connected with a director' as per CA 2006.
Persons connected with a director are defined in sections 252 to 254 of the Companies Act 2006, including family members, companies with significant shareholding, business partners, and trustees of certain trusts.
128
List the relatives that are NOT considered connected persons under CA 2006 for substantive property transactions
Brothers, sisters, grandparents, grandchildren, uncles, and aunts are NOT considered connected persons under the Companies Act 2006.
ISSGUT
Parents spouse and children are connected persons
129
Define the exceptions to the approval requirement under Section 190 CA 2006.
Under Section 190(4)(b), approval is not required from the members of a company that is a wholly-owned subsidiary of another company.
130
What is an example of a transaction that does not require shareholder approval under Section 192 CA 2006?
An example is when a director who is also a shareholder sells their shares back to the company; this transaction is exempt as it falls under Section 192(a) as a transaction in their capacity as a shareholder.
131
How are directors held accountable for profits made from a SPT entered without shareholder approval?
Directors involved are liable to account to the company for any profits made and to indemnify the company for any loss incurred.
132
Define the conditions under which a transaction can be affirmed by shareholders according to CA 2006.
Shareholders can affirm the transaction by ordinary resolution within a reasonable period, which prevents the arrangement from being avoided.
133
Identify the three exceptions that prevent a transaction from being voidable under section 195(2) CA 2006.
The exceptions are: (a) restitution is no longer possible, (b) the company has been indemnified for losses, or (c) third-party rights acquired in good faith would be affected.
134
What is a defence for a significant property transaction
If the SPT is between a company and a person connected with a director, and the director concerned shows that they took all reasonable steps to ensure the company’s compliance with s 190 CA 2006, the director will not be liable under s 195(6) CA 2006.
There is also a defence under s 195(7) CA 2006 for any connected person (if relevant) and any director who authorised the transaction who can show they had no knowledge of the circumstances constituting the contravention.
135
How does a guarantee or security function in relation to loans for directors?
A guarantee or security involves the company providing a guarantee or giving security for a loan taken by a director from a third party, such as a bank. For instance, if a director borrows £100,000 from a bank, the bank may require the company to guarantee the loan.
136
Describe the types of financial transactions that may require shareholder approval under CA 2006.
The types of transactions that may require shareholder approval include Loans, Quasi-loans, Credit Transactions, and Guarantees or the provision of security.
137
Define a quasi-loan as per CA 2006.
A quasi-loan is defined as a situation where a company agrees to pay off an outstanding account owed by a director to a third party, with the understanding that the director will later reimburse the company.
138
How does a credit transaction work between a company and a director according to CA 2006?
A credit transaction involves the company providing goods or services to a director on a credit basis, which will be paid for at a later date, with only the company and the director as parties to the arrangement.
139
Explain the role of guarantees in transactions involving loans to directors.
Guarantees involve a situation where a director obtains a loan from a bank and the company stands as guarantor for the repayment of that loan, or provides security over its assets.
140
Do company loans to directors have any restrictions under CA 2006?
Yes, company loans to directors are subject to restrictions and may require shareholder approval by ordinary resolution.
141
How can a company provide security for a loan obtained by a director?
A company can provide security for a loan obtained by a director by offering its assets as collateral to the bank or lender.
142
Describe the distinction between private companies and public companies in terms of regulation.
Private companies not associated with a PLC are subject to much less regulation compared to public companies and private companies associated with public companies.
143
How are private companies that are subsidiaries of public companies classified in terms of regulation?
Private companies that are subsidiaries of public companies are classified as associated with the public company and are subject to more regulations.
144
What are the regulatory implications for private companies not associated with PLCs?
Private companies not associated with PLCs face much less regulatory scrutiny compared to public companies or private companies associated with public companies.
145
Explain the relationship between private companies and PLCs regarding restrictions.
Private companies not associated with PLCs have fewer restrictions, while PLCs and private companies associated with PLCs face more restrictions.
146
Describe the restrictions on loans to directors by companies under section 197.
No company may make loans to its directors or to directors of its holding company, or give guarantees or enter into security in connection with loans to such directors, without prior approval from shareholders by ordinary resolution.
147
Define the types of companies that require shareholder approval for loans to directors.
Private companies not associated with public companies require shareholder approval for loans to directors, while public companies and private companies associated with public companies require approval for additional transactions.
148
List the types of transactions that require shareholder approval for public companies and associated private companies.
Transactions requiring shareholder approval include loans to connected persons, quasi-loans, credit transactions, and guarantees or security related to these transactions.
149
Describe a quasi-loan and provide an example.
A quasi-loan is a transaction where the company pays a sum to a third party on behalf of a director, with the expectation that the director will reimburse the company later. For example, a company pays for building work on a director's home, expecting repayment.
150
What is a credit transaction in the context of company dealings with directors?
A credit transaction occurs when a company provides goods or services to a director with the agreement that the director will pay for them at a later date or in installments, such as a building company constructing an extension for a director on credit.
151
Explain the difference between a loan and a quasi-loan.
A loan involves direct lending of money to a director, while a quasi-loan involves the company paying a third party on behalf of the director, expecting reimbursement from the director later.
152
Describe the exceptions to shareholder approval as outlined in sections 204 to 209 of the CA 2006.
The exceptions include: Section 204 for expenditure on company business up to £50,000; Section 205 for loans defending proceedings against a director; Section 206 for loans defending regulatory actions; Section 207 for minor transactions like loans up to £10,000 and credit transactions up to £15,000; Section 208 for intra group transactions; and Section 209 for money lending companies making loans in the ordinary course of business.
153
Explain the significance of Section 207 regarding minor transactions.
Section 207 allows for loans or quasi-loans of up to £10,000 and credit transactions up to £15,000 to be conducted without requiring shareholder approval.
154
Describe the consequences if shareholder approval is not obtained according to s 213 CA 2006.
The arrangement is voidable at the instance of the company unless restitution is no longer possible, the company has been indemnified for the loss or damage suffered, or rights acquired in good faith by a third party would be affected.
155
How are directors held accountable under s 213 CA 2006 if shareholder approval is not obtained?
Directors involved are liable to account to the company for any profits made and to indemnify the company for any loss incurred.
156
What options do shareholders have regarding an arrangement under s 214 CA 2006?
Shareholders can affirm the arrangement by ordinary resolution within a reasonable period, which prevents the arrangement from being avoided under s 213 CA 2006.
157
Describe the defences available to a director if a transaction contravenes sections 200, 201, or 203 of the CA 2006.
A director will not be liable if they took all reasonable steps to ensure the company complied with those sections, as per section 213(6) CA 2006.
158
How can a connected person defend themselves under section 213(7) of the CA 2006?
A connected person can defend themselves by showing they had no knowledge of the circumstances constituting the contravention.
159
Define the approval requirement for transactions involving a holding company and its directors.
If a transaction is between a company and a director of the company’s holding company or a connected person, the holding company must approve the transaction by ordinary resolution.
160
What exemption exists for wholly-owned subsidiaries regarding member approval?
Approval is not required by the members of any company that is a wholly-owned subsidiary of another company, as stated in sections 188 and 190 CA 2006.
161
How does being an interested director affect quorum for board resolutions?
Interested directors cannot count towards the quorum for board resolutions regarding the contract.
162
Describe the requirements for making a memorandum available for inspection at a General Meeting.
A memorandum setting out the proposed transaction must be made available for inspection by members at the company’s registered office for not less than 15 days ending with the date of the meeting and at the meeting itself.
163
How much notice must be given for a general meeting to approve a transaction?
A minimum of 15 days’ notice must be given to shareholders for the general meeting held to approve the transaction.
164
Define the written resolution procedure in relation to company transactions.
The written resolution procedure requires that a memorandum setting out the proposed transaction must be sent or submitted to every eligible member at or before the time the proposed resolution is sent or submitted.
165
How does the status of a company as a wholly-owned subsidiary affect shareholder approval requirements under CA 2006?
A wholly-owned subsidiary is exempt from the requirement to obtain shareholder approval for transactions.
