Directors Duties & Corporate Governance Flashcards
Who ultimately has authority in a company?
Shareholders, but they delegate management powers to directors (Section 25(2) CA 2014).
Under which section do directors receive their management powers?
Section 158 CA 2014 – Directors have general management powers unless restricted by the company’s Constitution.
Can shareholders override directors’ decisions?
❌ No, unless the Constitution specifically allows it.
Howard Smith Ltd v Ampol Petroleum Ltd (1974)
How are directors appointed?
✅ First directors: Named in the company’s Constitution (Section 144(2) CA 2014).
✅ Future appointments: Made by members in a general meeting (Section 145 CA 2014).
✅ Casual vacancies can be filled by the board until the next general meeting.
What restrictions exist on becoming a director?
❌ Minors (Section 131).
❌ Undischarged bankrupts (Section 132).
❌ Companies & unincorporated bodies (Section 130).
❌ Persons disqualified by a court order.
How can a director be removed?
By an ordinary resolution at a general meeting (Section 146 CA 2014).
What rights does a director have when facing removal?
1️⃣ 28 days’ notice of the resolution.
2️⃣ Right to be heard at the meeting.
3️⃣ Possible protections under employment law (Unfair Dismissals Act 1977–2015).
Can shareholders control directors’ management decisions?
❌ No, unless explicitly stated in the Constitution.
What case confirmed that shareholders cannot interfere with directors’ management decisions?
Automatic Self Cleansing Filter v Cuninghame (1906).
In what situations can shareholders regain control over directors?
1️⃣ No directors available (e.g., all resign).
2️⃣ Directors exceed their authority (Re Burke Clancy & Co Ltd, 1974).
3️⃣ Deadlock at board level.
4️⃣ Constitution is amended to reserve powers for shareholders.
What are the different types of directors?
1️⃣ Executive Directors – Actively involved in daily operations.
2️⃣ Non-Executive Directors – Oversight role, no daily management.
3️⃣ Managing Director – Appointed under Section 159 CA 2014 to oversee operations.
4️⃣ Nominee Director – Represents a specific shareholder’s interests.
5️⃣ Shadow Director – A person who controls board decisions but is not formally appointed.
6️⃣ De Facto Director – Acts as a director without formal appointment.
7️⃣ Alternate Director – Temporarily replaces an absent director (Section 165 CA 2014).
What case confirmed that nominee directors must act in the company’s best interest?
Scottish Co-Op v Meyer (1959).
What is a shadow director?
A person whose instructions are followed by the board, even though they are not officially a director (Section 221 CA 2014).
What case established that shadow directors must show imperative influence over board decisions?
Fyffes v DCC plc (2005).
Do directors owe duties to individual shareholders?
❌ No, they owe duties only to the company (Percival v Wright, 1902).
Under what circumstances can directors be liable to shareholders?
Public company directors can be personally liable for false prospectuses (Sections 1349 & 1350 CA 2014).
What are the key fiduciary duties of directors?
✅ Act in Good Faith – Prioritise the company’s interests.
✅ Proper Purpose – Use powers for a legitimate reason.
✅ Avoid Conflicts of Interest – Disclose personal interests.
✅ Not Use Position for Personal Gain – Cannot exploit company opportunities.
✅ Exercise Independent Judgment – Must not be unduly influenced.
✅ Act With Care, Skill & Diligence – Manage the company competently.
What case confirmed that fiduciary duty = loyalty to the company?
Bristol & West Building Society v Mothew (1996).
Can shareholders ratify a director’s improper actions?
✅ Yes, if the act was within the company’s powers (Bamford v Bamford, 1970).
What are directors legally required to do under CA 2014?
✅ Section 225 CA 2014 – File a Directors’ Compliance Statement annually.
✅ Section 325 CA 2014 – Ensure proper financial reporting.
✅ Maintain accurate company records.
✅ Disclose personal interests in company transactions.
What happens if a director breaches their duties?
❌ Personal liability for company debts.
❌ Disqualification from directorships.
❌ Criminal prosecution (for fraudulent or reckless trading).
What does Percival v Wright (1902) establish?
Directors owe duties only to the company, not shareholders.
What does Howard Smith Ltd v Ampol Petroleum Ltd (1974) establish?
Directors act independently of shareholders.
What does Scott v Scott (1943) establish?
Shareholders cannot interfere with management decisions.
