Directors Duties' - Statutes Flashcards
171
Duty to act within powers
A director of a company must—
(a) act in accordance with the company’s constitution, and
(b) only exercise powers for the purposes for which they are conferred.
o what if done in good faith? If done for a dominant improper purpose, can be breach of duty, but court will consider good faith (or lack of it) as part of picture
172
Duty to promote success of the company
(1) A director of a company must act in the 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, and in doing so have regard (amongst other matters) to (A-F)
(3) The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.
173
Duty to exercise independent judgment
(1) A director of a company must exercise independent judgment.
(2 )This duty is not infringed by his acting—
(a )in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or
(b) in a way authorised by the company’s constitution.
174
Duty to exercise reasonable care, skill and diligence
2(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
2(b) the general knowledge, skill and experience that the director has.
175
Duty to avoid conflicts of interest
(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).
(4) This duty is not infringed—
(a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or
(b )if the matter has been authorised by the directors.
(6)The authorisation is effective only if—
(a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.
176
Duty to not accept benefits from third parties (continuing duty)
(1) A director of a company must not accept a benefit from a third party conferred by reason of—
(a) his being a director, or
(b) his doing (or not doing) anything as director
(4) This duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
177
Duty to declare interest in proposed transaction or arrangement
(1) If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors.
(2)The declaration may (but need not) be made—
(a) at a meeting of the directors, or
(b) by notice to the directors in accordance with—
(i) section 184 (notice in writing), or
(ii) section 185 (general notice).
(5 )This section does not require a declaration of an interest of which the director is not aware or where the director is not aware of the transaction or arrangement in question.
For this purpose a director is treated as being aware of matters of which he ought reasonably to be aware.
(6) A director need not declare an interest—
(a) if it cannot reasonably be regarded as likely to give rise to a conflict of interest;
178
Civil consequences of breach of general duties
(1)The consequences of breach (or threatened breach) of sections 171 to 177 are the same as would apply if the corresponding common law rule or equitable principle applied.
(Basically look to case law)
180 - Not Verbatim
Consent, Approval, or Authorisation by Members
If directors follow proper approval processes (like getting board approval), they don’t always need shareholder approval.
If a transaction already needs shareholder approval, directors don’t have to follow extra conflict-of-interest rules.
The company’s own rules can sometimes allow things that would otherwise be a duty breach.
182
Declaration of interest in existing transaction or arrangement
(1) Where a director of a company is in any way, directly or indirectly, interested in a transaction or arrangement that has been entered into by the company, he must declare the nature and extent of the interest to the other directors in accordance with this section.
(2) The declaration must be made—
(a) at a meeting of the directors, or
(b) by notice in writing (see section 184), or
(c) by general notice (see section 185).
183
Offence of failure to declare interest
(1) A director who fails to comply with the requirements of section 182 (declaration of interest in existing transaction or arrangement) commits an offence.
(2 )A person guilty of an offence under this section is liable—
(a) on conviction on indictment, to a fine;
(b) on summary conviction, to a fine not exceeding the statutory maximum.
184
Declaration made by notice in writing
(3)The notice may be sent in hard copy form or, if the recipient has agreed to receive it in electronic form, in an agreed electronic form.
Post is allowed (4a)
185
General notice treated as sufficient declaration
(3) The notice must state the nature and extent of the director’s interest in the body corporate or firm or, as the case may be, the nature of his connection with the person.
(4) General notice is not effective unless—
(a) it is given at a meeting of the directors, or
(b) the director takes reasonable steps to secure that it is brought up and read at the next meeting of the directors after it is given.
232
Provisions protecting directors from liability
(1) Any provision that purports to exempt a director of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void.
1157
Power of court to grant relief in certain cases
(1) If in proceedings for negligence, default, breach of duty or breach of trust against—
(a) an officer of a company, or
(b) a person employed by a company as auditor (whether he is or is not an officer of the company),
it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit.
186
Declaration of interest in case of company with sole director
(1) Where a declaration of interest under section 182 (duty to declare interest in existing transaction or arrangement) is required of a sole director of a company that is required to have more than one director—
(a) the declaration must be recorded in writing,
(b) the making of the declaration is deemed to form part of the proceedings at the next meeting of the directors after the notice is given, and
(c) the provisions of section 248 (minutes of meetings of directors) apply as if the declaration had been made at that meeting.
187
Declaration of interest in existing transaction by shadow director
(1) The provisions of this Chapter relating to the duty under section 182 (duty to declare interest in existing transaction or arrangement) apply to a shadow director as to a director, but with the following adaptations.
(2) Subsection (2)(a) of that section (declaration at meeting of directors) does not apply.
(3) In section 185 (general notice treated as sufficient declaration), subsection (4) (notice to be given at or brought up and read at meeting of directors) does not apply.
(4) General notice by a shadow director is not effective unless given by notice in writing in accordance with section 184.
188 - Not Verbatim
director’s proposed service contract with guaranteed term of employment which is or may be longer than 2 years (see s 188(3)) - prior approval by shareholders needed; Ordinary Resolution (s 188), decision is taken outside of the board.
189
Directors’ long-term service contracts: civil consequences of contravention
If a company agrees to provision in contravention of section 188 (directors’ long-term service contracts: requirement of members’ approval)—
(a)the provision is void, to the extent of the contravention, and
(b)the contract is deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.
(see main notes if confused)
190
Substantial property transactions: requirement of members’ approval
(1) A company may not enter into an arrangement under which—
(a) a director of the company or of its holding company, or a person connected with such a director, acquires or is to acquire from the company (directly or indirectly) a substantial non-cash asset, or
(b) the company acquires or is to acquire a substantial non-cash asset (directly or indirectly) from such a director or a person so connected,
unless the arrangement has been approved by a resolution of the members of the company or is conditional on such approval being obtained.
197 - Non Verbatim
prior authorisation by Ordinary Resolution needed for company entering into an arrangement whereby director of company granted loan or company gives guarantee or provides security for loan made by any person to director (s 197)
if no prior consent transaction usually voidable at instance of company; equitable remedies applied including requiring director concerned to account for profit and indemnify company for loss suffered (s 213)
213
Loans etc, Civil consequences of contravention
(2) The transaction or arrangement is voidable at the instance of the company, unless—
(a) restitution of any money or other asset that was the subject matter of the transaction or arrangement is no longer possible,
(b) the company has been indemnified for any loss or damage resulting from the transaction or arrangement, or
(c) rights acquired in good faith, for value and without actual notice of the contravention by a person who is not a party to the transaction or arrangement would be affected by the avoidance.
239
Ratification of acts of directors
(1)This section applies to the ratification by a company of conduct by a director amounting to negligence, default, breach of duty or breach of trust in relation to the company.
(2)The decision of the company to ratify such conduct must be made by resolution of the members of the company.
(3)Where the resolution is proposed as a written resolution neither the director (if a member of the company) nor any member connected with him is an eligible member.
(4)Where the resolution is proposed at a meeting, it is passed only if the necessary majority is obtained disregarding votes in favour of the resolution by the director (if a member of the company) and any member connected with him.
This does not prevent the director or any such member from attending, being counted towards the quorum and taking part in the proceedings at any meeting at which the decision is considered.
89 SBEEA 2015
Application of directors’ general duties to shadow directors
(1) In section 170 of the Companies Act 2006 (scope and nature of general duties of directors) for subsection (5) substitute—
“(5) The general duties apply to a shadow director of a company where and to the extent that they are capable of so applying.”
