Directors, officers and auditors Flashcards
How can a minimum and maximum number of directors be fixed?
By ordinary resolution
How can directors be appointed?
By ordinary resolution of the members or by the directors
R v Seager 2009
The use of a DDO is intended to ensure that only reasonably competent, responsible and honest people act as company directors
IN01
Form where you put all new directors
TM01
Termination of directorship form
Re Hydrodam (Corby) Ltd 1994
De facto directors are individuals are individuals holding themselves out as directors without any formal appointment, shadow directors are people exercising clandestine control over the nominal directors
SoS for Trade and Industry v Deverell 2001
It is possible for someone to be a shadow director openly
SoS for Trade and Industry v Hall and Another 2006
Guidance on whether someone is a de facto director:
- whether he has through his control of a corporate director made himself a de facto director;
- whether he caused the corporate director to take actions in relation to the company that were instrumental in the running of the company
- how much control the individual has over the corporate director
Re Richborough Furniture Ltd 1996
De facto directors can be disqualified under s6 CDDA
Can the powers given to directors be exercised by members?
No, but if the directors are unable or unwilling to act, the members have the power to act to remedy the situation
Smithton v Naggar 2005
The importance of looking objectively at the capacity in which a director is acting and whetehr responsibility has been assumed was stressed, definitions of shadow, de facto and de jure director
Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc 2015
Directors’ powers under articles to impose a restriction on shareholders’ rights could be exercised only for the purpose for which they had been conferred (proper)
Any delegation under Art 5 is…
Subject to conditions imposed by the board and may always be revoked or altered by the board
If employees to whom power has been delegated behave improperly…
The directors are not liable too the company
What can the board to in relation to the managing director?
Specify what the managing director’s powers are to be and impose conditions, even where the powers given are to the exclusion of the powers of the board
Smith v Butler 2012
Where there was no express delegation of powers by the board to the company to its managing director, the implied delegation did not have the effect of excluding the powers of the board
Categories of directors’ duties
Fiduciary duties, duties of care and skill and statutory duties
The overriding duty of a director
To act in good faith in the best interests of the company
Item Software UK Ltd v Fassihi and Ors 2994
The overriding duty includes a requirement to disclose one’s own misconduct
The overriding duty’s two specific obligations
- Not to make any secret profit out of the position
2. To exercise one’s powers bona fide for the benefit of the company as a whole
To whom are directors’ duties owed?
To the members as the body corporate
Cook v Deeks 1916 (2)
- A director must account to the company for any profit derived from his position as a director
- When shareholders are waiving a claim, the director canno tvote
Boston Deep Sea Fishing Co v Ansell 1890
Duty to account for profits applies even if the company itself could not have made the profit
Regal (Hastings) Ltd v Gulliver 1942
Actual secrecy in relation to the duty to account not necessary, merely failure to obtain permission
Novoship (UK) Ltd and Others v Nikitin and Others 2014
Dishonest assistance remedy available against a third party in connection with making profit - causal connection and proportionality required
FHR European Ventures LLP v Cedar Capital Partners LLC 2014
Secret commission and bribes beneficially owned by principal
Piercy v S Mills and Co 1920
Directors must not exercise their powers for motives of personal gain, e.g. issuing shares for the purpose of strengthening control of the company
Boulting v Association of Cinematograph Television and Allied Technicians 1963
If there is an actual or potential conflict of interest, the directors must have regard only to the interest of the company rather than any other person
Hogg v Cramphorn Ltd 1966
Even if directors believe they’re not breaching duties, they’re still in breach of fiduciary duties if they exercise their powers for reasons other than those for which they were granted
North-West Transportation Co Ltd v Beattie 1887
It is open to the members to waive a claim arising out of breach of duty after full disclosure of the facts by ordinary resolution
What claim can be available in the case of low standard of care and skill?
Negligence
A director is not required to exhibit a greater degree of skill that may reasonably be expected from…
A person of his knowledge and experience
Re City Equitable Fire Insurance Co Ltd 1925
Directors are entitled to rely on officials to whom the running of the business has been properly delegated
Norman v Theodore Goddard 1991
Duty of care owed by directors is the same as that to establish wrongful trading
Re D’Jan of London 1994
If a person is overqualified, the standard of care of their skill and experience will be used
Re Barings plc (No. 5) 1999
Directors who delegate must supervise those to whom powers have been delegated
SoS for Trade and Industry v Bairstow 2004
A director is not under a duty to query draft financial statements except to the extent a person of his skill and experience would
To whom are the directors’ codified duties owed?
Only to the company and only the company is able to enforce them
Re Southern Counties Fresh Foods Ltd 2008
s172 duty to promote the success of a company essentially the old bona fide
Moore Stephens v Stone & Rolls Limited (in Liquidation) 2009
s172 subject to requirements to consider the creditors’ interest
Re Southern Counties Fresh Foods Ltd 2008
‘Considers’ subjective in nature in s172
GHLM Trading Ltd v Maroo and Ors 2012
Directors under a duty to act for the benefit of creditors, also to disclose misconduct to shareholders
What does ‘success’ mean in the context of s172?
A long term increase in value for commercial companies
Ball (PV Solar Solutions Ltd) v Hughes and Another 2017
Duty to prioritise creditors’ interest, also an objective test for s172
Does the duty to exercise independent judgment prevent a director from exercising a power to delegate?
No
When is the duty to avoid conflict of interest not infringed?
When the situation cannot reasonably be regarded as likely to give rise to conflict of interest or if the matter is authorised by the board
Allen v Hyatt 1914
Directors may make themselves liable to individual shareholders by becoming their agents
Thermascan Ltd v Norman 2011
Director entitled to resign and then use general skill and knowledge gathered during his directorship, possibly including business connections
When is the duty not to accept benefits from third parties not infringed?
When the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest
How can a director owe duties to 3Ps? (4)
- breach of warranty or authority if he claims an authority too bind his company which he does not have
- torts committed by his company as a result of his decision
- statutory provisions like fraudulent trading
- PGs
Towers v Premier Waste Management Ltd 2011
High threshold for s1157
What does the secretary’s status as an officer of the company mean?
That they are personally liable to a fine if the company is in breach of CA 2006 for filing with Coho
Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd 1971
An outsider is entitled to rely on an administrative decision taken by a secretary even when it transpires that it was not authorised by the board
