directors duties (workshop 3)

Question 1

who are directors accountable to?

Answer 1

to the company

Question 2

what is a de jure director?

Answer 2

a director who has been validly appointed at law

Question 3

how many directors must a private company have?

Answer 3

at least one director

Question 4

how many directors must a public company have?

Answer 4

at least two directors

Question 5

what is a de facto director?

Answer 5

someone who assumes to act as a director but who has not been validly appointed as such

Question 6

what is a shadow director?

Answer 6

a person uses control or influences the board of directors. not a director but their advice is being relied on as if they are a director.

Question 7

what is the key difference between a de facto director and a shadow director?

Answer 7

a de facto director performs the duties that a director would typically do whereas a shadow director doesnt formally act

Question 8

what is an executive director?

Answer 8

appointed to executive office. will be both an officer and an employee of their company

Question 9

what is a non-executive director?

Answer 9

not be an employee of the company. generally to provide independent guidance and advice to the board and to protect the interests of shareholders.

Question 10

what is an alternative director?

Answer 10

Usually either a fellow director of a company or someone who has been approved by a resolution of the board of directors

Question 11

what are the main duties of a company secretary?

Answer 11

keep the company internal books up-to-date, produce minutes of board and general meetings, and make sure that all necessary filings are made at companies house.

Question 12

what address can be classed as a ‘service address’?

Answer 12

can be either the director’s residential address (if dont care about privacy) or could simply be the company’s registered office and will be the only address available to the public generally.

Question 13

what 4 situations is a director automatically terminated?

Answer 13

becomes disqualified as a director
subject to an individual voluntary arrangement
become bankrupt
medical practitioner says the are physical or mentally incapable of acting as a director

Question 14

what is ‘enlightened shareholder value’?

Answer 14

describes the ‘middle way’ between between running the company purely to maximise shareholders interests/profits and a pluralist approach which involves acting in the interests of a wider group of stakeholders.

Question 15

how do companies show compliance with S172 (duty to promote success of the company)?

Answer 15

many companies are taking a common-sense approach of ensuring board minutes clearly note that consideration has been given to S172 duty when taking board decisions.

Question 16

how is S174: duty to exercise reasonable care, skill and diligence tested?

Answer 16

objectively and subjectively
(general knowledge and skill of someone in their position and that specific director)

Question 17

does the director need to be party to the transaction for S177 to apply (duty to declare an interest in a proposed transaction)?

Answer 17

no they do not need to be party to the transaction

Question 18

what are the 3 transactions which require shareholder approval?

Answer 18

director’s long term service contracts
substantial property transaction
loans, quasi-loans and credit transactions

Question 19

if a company is wholly owned by a subsidiary then does it need to obtain approval for director’s long-term service contracts?

Answer 19

no, it is exempt from obtaining approval

Question 20

what are the consequences of non-compliance (S189 - directors long-term service contracts)?

Answer 20

provision will be void to the extent of the contravention under S189; and
contract will be deemed to contain a term entitling the company to terminate it at any time by giving reasonable notice

Question 21

what is ‘connected person’ for substantial property transaction (directors)?

Answer 21

members of a directors family
companies which the director holds at least 20%
business partner of the director or those persons connected with them
trustee of a trust

Question 22

what are the defences to substantial property transaction between a company and person connected with a director?

Answer 22

took all reasonable steps to ensure compliance
no knowledge of the circumstances constituting the contravention

Question 23

what does ‘substantial’ mean in ‘substantial non-cash asset’?

Answer 23

asset worth £5,000 or less is NOT substantial. Asset worth more than £100,000 is substantial. Asset worth more than £5,000 but not more £100,000, is substantial if it is worth more than 10% of the company’s net value

Question 24

what is a loan? (loans and related transactions with directors)

Answer 24

where the company lends money to a director

Question 25

what is a quasi-loan? (loans and related transactions with directors)

Answer 25

Where a company agreed to pay off an outstanding account owned by a director to a third party on the understanding that the director would later reimburse the company

Question 26

what is a credit transaction (loans and related transactions with directors)

Answer 26

includes any transaction entered into between the company and the director where the company provides goods or services on a credit basis which will be paid at a later date.