Directors Responsibilities under CA 2006

Question 1

What is section 171 of the CA 2006?

Answer 1

Section 171

Directors must act within your powers

Question 2

What is section 172 of the CA 2006 for directors duties

Answer 2

Section 172

Directors must promote the success of the company.

Question 3

What is section 173 of the CA 2006?

Answer 3

Section 173

Directors has a duty to exercise independent judgement .

Question 4

What is section 174 of the CA 2006?

Answer 4

CA 2006 - s 174

Duty to exercise reasonable care, skill, and diligence.

Question 5

What is section 175 of CA 2006?

Answer 5

Section 175

Directors have a duty to avoid conflict of interest.

Question 6

What is section 176 of the CA 2006?

Answer 6

Section 176

Directors have a duty not to accept benefits from 3rd parties.

Question 7

What is section 1`77 of the CA 2006?

Answer 7

Declaring conflict of interest.

Question 8

How many directors does the CA 2006 state a company must have?

Answer 8

CA 2006 requires companies to have at least one director or 2 for public companies.

Question 9

What are the limitations on directors’ general management powers?

Answer 9

Limitations on the directors’ general management powers can be found in;

1. An objects clause (which limits what the company do (in terms of activities and objectives))
2. Other articles provision, which may impose a borrowing limit or a require shareholder approval
3. Articles provisions allowing the members to give directions to directors
4. A shareholder’s agreement - which require shareholders approval for certain types of decisions and
5. The Companies Act 2006 and the listing roles - which both require shareholder approval.

Question 10

What are articles of association?

Answer 10

Articles of association makes the directors collectively responsible for ‘managing the company’s business.

For example, article 3 of the CA2006 model articles for public limited companies states: ‘subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company’.

Question 11

Identify at least two special powers that are usually conferred by articles on the directors?

Answer 11

1. The power to delegate
2. The power to reject transfers
3. The power to pay or fix directors remuneration and fees
4. The power to forfeit shares
5. The chair right to a casting vote

Question 12

Is setting the company’s strategy is a management decision?

Answer 12

Setting the company’s strategy is a management decision. It is one of several management decisions, under the UK code, must be performed by the board. Accordingly, it is wrong to suggest that the board delegates all management responsibility to the executive directors.

Question 13

Can Shareholder interfere in the management of a company?

Answer 13

Most articles of association provide a method by which shareholders can give directions to the board (typically by passing a special resolution).

Those directions could cover matters regarding the main management of the company. However, shareholders to not normally interfere in this way on management issues as its easier for them to secure their objectives by appointing and removing directors.

Question 14

What do we mean by duties of directors of directors under CA 2006?

Answer 14

The meaning of duties of directors of directors under CA 2006:

The duties set a minimum standard of conduct and behaviour on the part of the directors. If breached, they can be sued by the company in civil proceedings, which can result in them paying the company compensation for any losses that it has suffered, or account to the company for any secret profits they made.

Question 15

What is a fiduciary duty?

Answer 15

A fiduciary duty is one owed by a person in a position of trust. The courts decided that company directors are in a position of trust as they act as agents of the company, make contracts on its behalf and control the company’s property.

Question 16

what is derivative action?

Answer 16

Shareholders can bring a ‘derivative action’ in the name of the company against the directors. Any compensation awarded is paid to the company.

Procedures for applying for a derivative action include safeguards to prevent shareholders from brining unreasonable claims.

In practice, derivative actions are expensive and time-consuming and are relatively uncommon.

Question 17

D&O Insurance

Answer 17

D&O Insurance:

Increasingly common for companies to hold D&O Liability Insurance policies indemnifying directors and officers against liabilities.

Any provision in a company’s articles or in any contract that purports to exempt or indemnify a director from any liability for negligence default breach of duty or breach of trust in relation to the company is void under CA2006 s.232

However, CA2006, s.233 specifically authorises companies to take out and maintain insurance polices on the directors’ behalf