Directors Duties Flashcards
1
Q
What is the primary responsibility of directors in a company?
A
Manage the company on a day-to-day basis.
2
Q
To whom are directors accountable?
A
The company itself.
3
Q
What authority do directors have regarding significant company actions?
A
Certain actions can only be taken by directors if shareholders have given authority.
4
Q
What is a de jure director?
A
A director who has been validly appointed at law.
5
Q
What is the minimum number of directors required for a private limited company?
A
At least one director.
6
Q
What is a de facto director?
A
Someone who assumes to act as a director but has not been validly appointed.
7
Q
Define a shadow director.
A
A person in accordance with whose directions the directors of the company are accustomed to act.
8
Q
What distinguishes executive directors from non-executive directors?
A
Executive directors are involved in day-to-day operations, while non-executive directors provide independent advice.
9
Q
Under CA 2006, is it mandatory for private companies to have a company secretary?
A
No, unless the articles require it.
10
Q
What is the role of a company secretary?
A
To keep the company books up-to-date, produce minutes, and ensure filings are made.
11
Q
How can directors be appointed according to CA 2006?
A
By an ordinary resolution of shareholders or by a decision of the directors.
12
Q
What is required for a director’s service contract?
A
It must outline terms including duties, remuneration package, and notice provisions.
13
Q
What details must a company maintain about its directors?
A
A register containing particulars such as name, service address, and nationality.
14
Q
What does section 412 CA 2006 require regarding directors’ remuneration?
A
Disclosure of directors’ salaries, bonuses, and compensation for loss of office.
15
Q
True or False: All directors have the same duties and obligations under CA 2006.
A
True.
16
Q
Fill in the blank: A non-executive director does not take part in the _______ running of the company.
A
day-to-day
17
Q
What must companies notify the Registrar of Companies regarding directors?
A
Changes relating to its directors.
18
Q
What is the effect of Art 19 MA on a director’s service contract?
A
The terms are generally determined by the board.
19
Q
What is the purpose of the secure register for individual directors?
A
To keep residential addresses confidential.
20
Q
What is a common feature of alternate directors?
A
They can take the place of a director when absent.
21
Q
What is the minimum number of directors required for a public limited company?
A
At least two directors.
22
Q
What happens if a director is disqualified under director disqualification legislation?
A
They cannot be appointed as a company director without court permission.
23
Q
What distinguishes the duties of shadow directors from those of officially appointed directors?
A
Shadow directors are subject to the same duties even if not formally appointed.
24
Q
What must a company do if it does not have a company secretary?
A
Directors or authorized persons may perform the secretary’s duties.
25
What is a key provision of Part 10 of CA 2006?
It includes directors' general duties.
26
What is the significance of section 159A CA 2006?
It prohibits the appointment of disqualified individuals as directors.
27
What information must be included in a company's annual accounts according to CA 2006?
Information on directors’ salaries, bonus payments, pension entitlements, and compensation for loss of office.
## Footnote
Section 412 CA 2006 mandates detailed disclosures regarding directors' financial compensations.
28
What does Section 413 CA 2006 require regarding directors?
Disclosure of advances and credits given by a company to its directors and guarantees entered into by the company on behalf of its directors.
## Footnote
Applies to any person who was a director during the financial year.
29
How can shareholders remove a director according to s 168(1) CA 2006?
By ordinary resolution before the expiration of their period of office.
## Footnote
This is the ultimate sanction shareholders have against a director.
30
What is required for a removal resolution under s 168(2) CA 2006?
Special notice of 28 days is required.
## Footnote
This ensures that all shareholders are adequately informed prior to the vote.
31
What are the ways an individual may cease to be a director?
* Resignation by notice
* Automatic termination due to disqualification, bankruptcy, or incapacity
* Retirement by rotation
## Footnote
Resignation is typically done through a letter, while automatic termination occurs under specific conditions outlined in MA 18.
32
What is the purpose of the Company Directors Disqualification Act 1986?
To prevent individuals from being involved in company management if they have been disqualified by a court.
## Footnote
Disqualification can occur for reasons like fraudulent trading or persistent breaches of company law.
33
What is the maximum period of disqualification under the CDDA?
15 years.
## Footnote
Engaging in corporate management during disqualification is a criminal offense.
34
What must companies do when a director leaves office?
Update the company’s register of directors and file form TM01 with Companies House.
## Footnote
This ensures compliance with filing requirements and maintains accurate records.
35
What are the general duties of directors as per ss 171-177 CA 2006?
* Duty to act within powers (s 171)
* Duty to promote the success of the company (s 172)
* Duty to exercise independent judgment (s 173)
* Duty to exercise reasonable care, skill, and diligence (s 174)
* Duty to avoid conflicts of interest (s 175)
* Duty not to accept benefits from third parties (s 176)
* Duty to declare any interest in a proposed transaction (s 177)
## Footnote
These duties codify the common law and equitable principles previously in place.
36
What does Section 171 CA 2006 outline?
The duty to act within the company's constitution and exercise powers for their intended purposes.
## Footnote
This prevents directors from acting outside their authority or for improper purposes.
37
What is the central duty of directors under s 172 CA 2006?
To promote the success of the company for the benefit of its members as a whole.
## Footnote
This duty emphasizes long-term value increase for commercial companies.
38
What factors must directors consider under s 172(1) CA 2006?
* Long-term consequences of decisions
* Employees’ interests
* Relationships with suppliers and customers
* Impact on the community and environment
* Company's reputation
* Fairness among members
## Footnote
These considerations support the concept of 'enlightened shareholder value.'
39
What does Section 173 CA 2006 require from directors?
Directors must exercise independent judgment and not blindly follow others' views.
## Footnote
They can rely on advice but must make their own decisions.
40
How is the standard of care for directors assessed under s 174 CA 2006?
It is assessed both objectively and subjectively based on general knowledge, skill, and experience expected of someone in their role.
## Footnote
The standard may be raised if a director has special knowledge or skills.
41
What is the duty under s 175 CA 2006 regarding conflicts of interest?
Directors must avoid situations where they have a direct or indirect interest that conflicts with the company’s interests.
## Footnote
This duty also applies to the exploitation of any property, information, or opportunity.
42
What must a director do if approached to join a competing company?
Seek board approval or refuse the appointment to avoid conflicts of interest.
## Footnote
This is an example of the application of s 175 CA 2006.
43
What is the primary duty outlined in section 175 CA 2006?
The duty to avoid conflicts of interest
44
Under section 175(3) CA 2006, when does the duty to avoid conflicts of interest not apply?
When the conflict arises in relation to a transaction with the company
45
What must a director do if they have been approached to become a director of a competing company?
Seek board approval from both companies or refuse the appointment
46
What is the duty outlined in section 176 CA 2006?
Duty not to accept benefits from third parties
47
What is an example of breaching the duty under section 176 CA 2006?
A director accepting a bribe or making a profit at the company’s expense
48
What does section 177 CA 2006 require from directors regarding proposed transactions?
To declare the nature and extent of their interest
49
Fill in the blank: Section 177 CA 2006 applies equally to _______ interests.
indirect
50
When must a director declare their interest in a proposed transaction according to section 177 CA 2006?
Before the transaction is entered
51
What does section 185 CA 2006 allow a director to do?
Give general notice of being interested in any transaction with a specified party
52
What are the circumstances under which a director is not required to declare an interest under section 177 CA 2006?
If the director is unaware of the interest, it does not likely give rise to a conflict, or it concerns their service contract
53
What does MA 14 specify regarding directors interested in transactions?
They cannot vote on or count in the quorum for board resolutions regarding that transaction
54
What is the remedy for a breach of the duty of care, skill, and diligence under section 174 CA 2006?
Damages
55
What are some remedies for breaches of general duties other than section 174 CA 2006?
* Injunction
* Setting aside of the transaction
* Restitution and account of profits
* Restoration of company property
* Damages
56
Can shareholders approve a director's proposed action that would otherwise breach their duties?
Yes, but they cannot approve unlawful acts
57
What must occur for shareholder approval of a director's action to be effective?
There must be full disclosure by the directors
58
What can shareholders ratify under section 239(2) CA 2006?
* Negligence
* Default
* Breach of duty
* Breach of trust
59
What is required for a director’s service contract lasting more than two years according to section 188 CA 2006?
Shareholder approval by ordinary resolution
60
What happens if a company agrees to a provision in a service contract contrary to section 188 CA 2006?
The provision will be void and the contract will allow termination at any time with reasonable notice
61
Under what condition is approval not required for a service contract in a wholly-owned subsidiary?
When the subsidiary is wholly owned by another company
62
What does section 228 CA 2006 require regarding directors' service contracts?
A company must keep a copy for members to inspect for at least one year from termination or expiry
63
What is the minimum notice period required for a General Meeting to approve a director's service contract?
15 days
## Footnote
This applies even if the short notice procedure is followed, unless the written resolution procedure is used.
64
Under which section of the Companies Act 2006 are members allowed to inspect directors' service contracts?
s 228 CA 2006
## Footnote
Members can inspect without charge or request a copy for a fee.
65
What must a company do with a memorandum proposing a director's service contract before a General Meeting?
Make it available for inspection at the registered office for at least 15 days and at the meeting itself
## Footnote
This is outlined in s 188(5)(b) CA 2006.
66
What is the consequence of not obtaining shareholder approval for a director's service contract exceeding two years?
The term will be void and the contract deemed to terminate on reasonable notice
## Footnote
This is stated in s 189 CA 2006.
67
What is defined as a 'Substantial Non-Cash Asset' under the Companies Act 2006?
An asset other than cash worth over £5,000 and equates to more than 10% of the company’s net asset value, or worth more than £100,000
## Footnote
'Non-Cash Asset' is defined in s 1163 CA 2006.
68
What is the threshold value for an asset to be considered 'substantial' according to s 191 CA 2006?
More than £100,000 or between £5,000 and £100,000 if it exceeds 10% of the company’s net asset value
## Footnote
An asset worth £5,000 or less is not substantial.
69
Who qualifies as 'connected persons' under sections 252-254 CA 2006?
Spouse or civil partner, parents, children or step-children, companies with 20% or more shares held by the director, business partners, and trustees of certain trusts
## Footnote
Brothers, sisters, grandparents, grandchildren, uncles, and aunts are NOT connected persons.
70
What must occur if a substantial property transaction is entered into without shareholder approval?
The transaction is voidable at the instance of the company
## Footnote
Remedies are outlined in s 195 CA 2006.
71
What are the exceptions to the requirement for shareholder approval for substantial property transactions?
Approval is not required for wholly-owned subsidiaries and certain transactions listed in s 192 CA 2006
## Footnote
For example, selling shares back to the company as a shareholder.
72
What types of transactions require shareholder approval under sections 197-214 CA 2006?
* Loans to directors
* Quasi-loans
* Credit transactions
* Guarantees or security for loans
## Footnote
Applies to directors and connected persons.
73
What is a quasi-loan as defined by s 199 CA 2006?
A transaction where the company pays a third party on behalf of the director with the expectation of reimbursement
## Footnote
Example: Paying for building work on a director's home.
74
What is the maximum amount for loans or quasi-loans that do not require shareholder approval under s 207 CA 2006?
£10,000 for loans or quasi-loans and £15,000 for credit transactions
## Footnote
These are categorized as minor and business transactions.
75
What happens if a company fails to obtain shareholder approval for a loan and no exceptions apply?
The transaction is voidable unless restitution is impossible or the company has been indemnified
## Footnote
This is outlined in s 213 CA 2006.
76
Under which section must a director disclose the nature and extent of their interest to the board?
s 177(1) CA 2006
## Footnote
This is crucial for transparency in board decisions.
77
What is the requirement for interested directors regarding voting on board resolutions?
Interested directors cannot vote on resolutions regarding the contract and cannot count in the quorum
## Footnote
This is specified under MA 14(1).
78
What is the effect of an arrangement being voidable under s 213(2) 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
* rights acquired in good faith by a third party would be affected by the avoidance
## Footnote
This section outlines the conditions under which a company can declare an arrangement voidable.
79
What are the liabilities of directors involved in a voidable arrangement under s 213(3) CA 2006?
Directors involved are liable to account to the company for any profits made and to indemnify the company for any loss incurred.
## Footnote
This section emphasizes the accountability of directors in cases of voidable arrangements.
80
Under what condition can an arrangement be affirmed by shareholders according to s 214 CA 2006?
An arrangement can be affirmed by the shareholders by ordinary resolution within a reasonable period.
## Footnote
Affirmation prevents the arrangement from being avoided under s 213 CA 2006.
81
What defences are available to a director if a transaction contravenes ss 200, 201, or 203 CA 2006?
A director will not be liable if they took all reasonable steps to ensure compliance with those sections or if they had no knowledge of the circumstances constituting the contravention.
## Footnote
These defences provide protection to directors against liability in certain situations.
82
What is required for transactions involving a holding company and its directors according to s 190 CA 2006?
The holding company must approve the transaction by ordinary resolution if it involves a director of the holding company or a connected person.
## Footnote
This requirement ensures oversight of transactions that may create conflicts of interest.
83
What is the Wholly-owned subsidiary exemption concerning approvals?
Approval is not required by the members of any company which is a wholly-owned subsidiary of another company.
## Footnote
This exemption simplifies the approval process for wholly-owned subsidiaries.
84
What must a director disclose under s 177 CA 2006 when interested in a transaction?
A director must disclose the nature and extent of their interest to the board if interested in transactions caught by ss 197-202 CA 2006.
## Footnote
This disclosure is crucial for maintaining transparency within the board.
85
True or False: Interested directors are permitted to vote on board resolutions to approve transactions they are interested in.
False
## Footnote
Under MA14(1), interested directors are not permitted to vote on related board resolutions.
86
What is required when passing an ordinary resolution at a General Meeting?
A memorandum setting out the proposed transaction must be made available for inspection by members for at least 15 days ending with the date of the meeting and at the meeting itself.
## Footnote
This requirement ensures that shareholders have adequate information before voting.
87
What is the minimum notice period for a general meeting held to approve a transaction?
A minimum of 15 days' notice must be given to shareholders.
## Footnote
This notice period allows shareholders time to consider the proposed transaction.
88
What types of transactions are regulated under CA 2006 concerning companies and their directors?
The regulated transactions include:
* Directors' long-term service contracts (ss 188 – 189)
* Substantial property transactions (ss 190 – 196)
* Loans, quasi-loans, and credit transactions (ss 197 – 214)
## Footnote
These sections outline the various transactions that require shareholder approval.
89
What happens if a company is a wholly-owned subsidiary regarding shareholder approval?
It is exempt from the requirement to obtain shareholder approval for transactions.
## Footnote
This exemption simplifies governance for wholly-owned subsidiaries.
90
What must be done if an ordinary resolution is required for a loan/quasi-loan/credit transaction?
A memorandum setting out the proposed contract must be made available for inspection at the company's registered office for not less than 15 days and at the meeting.
## Footnote
This ensures transparency and proper communication to shareholders.
91
In a written resolution procedure, what must accompany the proposed resolution?
A memorandum setting out the proposed transaction must be annexed and sent to all eligible members.
## Footnote
This requirement ensures that all members are informed of the details before voting.
