Directors Duties Flashcards
Directors duties
Duty to promote success of company
Duty to act within powers
Duty to exercise independent judgement
Duty to avoid direct or indirect conflict of interest with company
Duty to exercise reasonable care, skill and diligence
Duty not to accept benefits from third parties
Duty to declare interest in proposed transaction or arrangement with company
Duty to act within powers
S171- act in accordance with the constitution and only exercise powers for purposes they are conferred
How do the courts determine the purpose of a directors powers
Objectively
Duty to exercise independent judgement
S173- act independently rather than contracting job out to others
Allowed to act in any way authorised by constitution or in accordance with agreement entered into by the company which restricts discretion
Avoid direct or indirect conflict of interest with company
S175- unless situation cannot reasonably be regarded as likely to give rise to conflict or authorised by directors
Duty to promote success of company
S172 must act in a way he considers in good faith would be most likely to promote the success of the company for the benefit of its members as a whole
Test used by the court to determine if D promoted success of company
Subjective test
Did D consider in good faith that their actions were most likely to promote success of company
Duty to exercise reasonable care skill and diligence
S174 exercised by a reasonably diligent person with knowledge skill and experience reasonably expected of a director
Must actively supervise anyone they delegate to
Test to determine if director breached duty to exercise reasonable care skill and diligence
Breached if the director is negligent and falls below standard two part test
Objective test- the role and standard of care expected
Subjective test - skills, expertise and responsibility of that particular director
Duty not to accept benefits from third parties
S176- if conferred because he is director or by doing anything as director unless acceptance cannot reasonably be regarded as likely to give rise to a conflict of interest
Duty to declare interest in proposed transaction or arrangement with company
S177- declare nature and extent to other directors at board meeting or by notice
When must a declaration of interest by a director under S177 be made
Must be made before company enters into transaction
Criminal offence not to declare
How can a breach of S175 be authorised (CofI)
Authorised by other directors
Insurance to cover directors
Relief by court where director is liable for negligence, default breach of duty or breach of trust. Only if director acted honestly and reasonably. They cannot apply for relief to court themselves
Ratification by ordinary shareholders resolution at GM or written resolution. Cannot ratify if unfair, illegal or oppressive to a minority
Consequences of a breach of directors duty
Account for profits Return property Pay equitable compensation Recission of contract Injunction against director
For breach of S174 (rcsd) damages for negligence
When is a director liable for company debts
If D personally guaranteed loan and company defaults it can be enforced against D
If D is acting when disqualified
Wrongful trading unless D took every step to minimise loss to creditors after he became away of prospect of liquidation
Political donation without shareholder approval
D must compensate company for loss due to untrue or misleading statements in the directors report
If D authorised illegal dividend payment to members then D will have to repay
Any breach of fiduciary duty or other duty of D, D may have to repay money or contribute to assets of company to compensate
When a substantial property transaction is not approved by shareholders
When does a director risk going to prison.
10 years for bribery
2 years for failure to keep proper records
2 years for breach of health and safety
2 years for failing to protect share capital
Two tests for wrongful trading
D knew or ought to know there was no reasonable prospect that the company would avoid liquidation
What did D know
What would a reasonable D have known in the circumstances
Defence to wrongful trading
D took every step with a view to minimising potential loss to creditors after he become aware that company have no prospect of avoiding liquidation
When is D liable for fraudulent trading
The business of the company was carried on with the intent to defraud creditors. The director must have known that creditors would not be paid
What is misfeasance
Any breach of fiduciary or other duty of director.
Director may be ordered to repay money or contribute to assets of company to compensate
How can a director avoid liability for breach of duty
S239- shareholders may ratify conduct of director which amounts to a breach of duty but an ordinary resolution or written resolution
Not if unfair illegal or oppressive to minority
Approval required for a substantial property transaction
S190- need shareholder approval. Ordinary resolution or written resolution in
When is a property transaction substantial
Over £100,000 or over 5000 and 10% of net asset value
What if a substantial property transaction is not approved by shareholders
Contract is voidable by company unless restitution of property / money is not possible. director is liable for loss to company and must account for gain
Shareholders can ratify failure to obtain approval
Who does D owe duties to
To company
Not S or creditors
Who is the claimant when a claim is made for breach of Ds duty
Company
For what purpose are powers conferred to D
To promote success of company
Is the duty to exercise independent judgement infringed by D acting in accordance with an agreement that restricts the exercise of Ds discretion in a way authorised by the constitution
No as long as agreement is duly entered into
What duty is found in s172 CA 2006
Duty to promote success of the company
What factors in s172 CA must D have regard to when acting to promote success of company
Long term consequences of decision Interests of employees Relationships with suppliers, customers etc Impact on community and environment Reputation Act fairly between members
What does the duty to avoid conflict of interest relate to
Exploration of any property, info or opportunity
Not a conflict in relation to a transaction or arrangement with the company
It must relate to a contract in which the company is not involved
Who decides what services pay and benefits D gets
Board
What is a non executive D and what do they get
On board but no employment contract
No salary but do get fees for attending board
Executive D
On board and have employment contract
Do Ds duties apply to exec and non exec Ds in the same way
Yes
What is a defacto D
Acts as a D even tho never been validly appointed
What is a shadow D
A person in accordance with whose instructions Ds act but who is not a D
Doesn’t have to be in relation to all matters, can be just specific matters
Only need majority to act in accordance with them. Not all Ds
What is the Quran for a board meeting
2 but sole Ds can take decisions without a board meeting
Can Ds appoint a proxy for board meeting
Only if this is in articles, MA does not provide for it
In what circumstances does a person cease to be a D
If bankrupt or physically or mentally incapable for 3 or more months
What to do when a new D is appointed
Notify CH within 14 days
AP01 or AP02
Reg of Ds and reg of Ds addresses
Have text of service contract at office for 15 days and at GM - if approved by S res
Does a D ever get to promot their own interests
Promote company at board meeting and their own interests at GM if they are also an S
What to do if T resigns
TM01 (human) TM02 (corporate) within 14 days
Need to terminate service contract and remove from office - two separate things
What to do if info of Ds change
Notify CH CH01 or CH02
Do all Ds need to be entered into reg of Ds addresses
Only human Ds
Is Ds register of addresses open for inspection
No
What info is included in the register of Ds
Addresses of human
DOB
Registered address
Is D register open for inspection
Yes
What is a Bushell v Faith clause
When A person is an S and a D and they have greater voting rights if a res is to remove them as a D
Can a shareholder agreement require other S that are also D to vote against a res to remove a D
Yes
Can Ds take decisions outside of board meetings
Yes using any method of it is unanimous
Is chair of Ds also chair of GM
If present and willing
Are Ds agents
Yes of the company
What kind of authority do Ds have
Actual and apparent
Is actual authority express or implied
Can be both
What is express actual authority
When D has consent from other Ds to act in a certain way
What is implied actual authority
They did it before and no one objected
What is apparent authority
D acts without prior consent but company represents to third party by words or conduct that D has authority
If D doesn’t have actual or apparent authority who is liable to third party
D is personally liable to third party
Company is not a party to the contract or liable to the third partyn
When does a service contract need an S res
If it is for more than 2 years unless it can be terminated with less than 2 years notice
Or
If MA and only 2 Ds at board meeting at 1 cannot count in quorumj
Effect of a service contract for more than 2 years not granted by S res
Guaranteed term wouldn’t be valid but rest of it would
Service contracts inspection requirements
Available for inspection at office until 1 year after end of contract
S can inspect for free within 7 days of requesting
How can S remove D
Ordinary res at GM
Special notice is required
What is special notice
Res is not effective unless notice of intention to pass res is given to company 28 days before GM
What rights does D have when there is a S res to remove them as a D
D can speak at GM and require written representation to be sent to Ss
What must the company do when they receive notice of S res to remove d
Inform D and S at same time as GM notice
Or at least 14 days notice by newspaper ad
Is special notice given properly if a meeting is called for 28 days or less after notice was given
Yes as long as 28 days notice given
Can other Ds propose removal of D
Yes they must keep formal notice of intention AR registered office and inform D immediately
