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Corporate Secretarial Practice > Mailing #2 > Flashcards

Mailing #2 Flashcards

1
Q

What does s 271 CA state regarding the company secretary?

A

A public company must have one

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2
Q

Who is a qualified secretary under s 273 CA?

A

A person who appears to have the requisite knowledge and experience to discharge the functions of the company secretary
AND
who has the appropriate qualifiactions

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3
Q

What are “appropriate qualifications” for a CoSec according to s 273 CA?

A
  • member of ICSA
  • plc CoSec for last 5 years
  • solicitor or barrister
  • an accountant
  • appears to be capable due to past experience
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4
Q

Does a private company require a secretary?

A

No (s 270 CA)

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5
Q

Which form must be delivered for a change in secretary?

A

AP03

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6
Q

Is the secretary an officer of the company?

A

Yes, s 1173 CA

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7
Q

What are the CORE duties of the company secretary according to ICSA?

A
  • board meetings
  • general minutes
  • stock exchange requirements
  • statutory registers
  • reports and accounts
  • shareholder registration and communications
  • corporate governance
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8
Q

What are the ADDITIONAL duties of the CoSec accoring to ICSA?

A
  • pensions administration and trusteeship
  • data protection
  • payroll
  • employee share schemes
  • personnel administration
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9
Q

Why does a company need directors?

A

It is a separate legal entity but cannot operate by itself, or from the AGM alone.
It is a legal requirement under s 154 CA

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10
Q

What is the definition of a director under 250 CA?

A

Any person occupying the role of director, by whatever name called.

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11
Q

Is filing as a director at companies house conclusive evidence that a person is or is not a director?

A

No, it is a matter of fact, i.e. do they behave as a director? [POW Services Ltd v Clare].

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12
Q

Who may become a director?

A

Anyone who is not disqualified.

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13
Q

Who is disqualified from being a director?

A
  • undischarged bankrupt
  • court disqualification for criminal offences or unfit to manage
  • under age of 16
  • restrictions in the articles (e.g. not a family member)
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14
Q

What is the procedure for appointment of a director?

A
  • complete form IN01, giving details of name and address
  • specimen signature provided to bank
  • disclosure of interests in company shares
  • invitation to give notice of interest in company contracts
  • PAYE arrangements
  • inform stock exchange (if listed)
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15
Q

In what ways may a director be removed?

A 
1 S168 CA - removal at any time by ordinary resolution
2 In accordance with articles
3 Rotation in a public company
4 By court disqualification
5 Company goes into liquidation
6 By resignation
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16
Q

What is the procedure upon a director leaving office?

A
  • complete TM01 and deliver to registrar in 14 days
  • inform the bank, media and stock exchange (if listed)
  • enter appropriate entries into register
  • make arrangements for fees due and other payments
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17
Q

How is a director paid?

A

No automatic right to remuneration, but articles may set out grounds for payment, and many directors arrange service contracts.

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18
Q

Where are a directors’ powers set out?

A

The articles.

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19
Q

What is model article 3?

A

Subject to the articles the directors are responsible for the management of the company’s business for which they may exercise all the powers of the company.

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20
Q

What is model article 4?

A

The members may by special resolution director the directors to take or refrain from taking a specified action.

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21
Q

Can a director act ultra vires?

A

Yes, s 40 CA: the ability of the director to bind the company is deemed to be free or any limitation under the company’s constitution if third party dealing is in good faith.

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22
Q

What is model article 5?

A

Subject to the articles the directors may delegate to any such person, by any such means, to such an extent, in relation such matters and on such terms as they think fit.

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23
Q

Which sections CA 2006 set out the duties of directors?

A

s 170-177

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24
Q

What is stated in s 170 CA?

A

Directors’ duties are to be interpreted and applied in the same way as common law rules or equitable principles already applied.

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25
Q

What is stated in s 171 CA?

A

A director must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred.

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26
Q

What is stated in S172 CA?

A

The director 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, while having due regard to

  • long term consequences
  • the interests of the company’s employees
  • the need to foster business relationships with customers, suppliers and others
  • the impact of the company’s operations on the community and environment
  • the desirability of the company maintaining a reputation for high standards of business
  • the need to act fairly
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27
Q

What is stated in S173 CA?

A

A director must exercise independent judgement

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28
Q

What is stated in S174 CA?

A

Director must exercise reasonable care and skill:

  • the general knowledge, skill and experience reasonable expected of a person carrying out the role of director
  • the general knowledge and skill the director already has
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29
Q

What is stated in s175 CA?

A

A director must avoid conflicts of interest.

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30
Q

What is the leading case in S175 CA?

A

Sharma v Sharma - family run dental practice gave permission for daughter-in-law to purchase dental practices for herself (rather than for the company). No breach of duty.

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31
Q

What is stated in S 176 CA?

A

Director must not accept a benefit from a third party conferred by his being a director or his doing anything as a director.

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32
Q

What is stated in S177 CA?

A

Director interested in a proposed transaction or arrangement with the company must declare that interest to the other directors.

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33
Q

What is stated in S178 CA?

A

The consequences of breaking general duties are the same as under the existing law.

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34
Q

What is a derivative claim?

A

S 260 CA - a member can seek relief on behalf of the company in respect of a cause of action caused by an “actual or proposed omission involving negligence, default, breach of duty or breach of trust by a director of the company.

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35
Q

What two duties does a director owe?

A

1 A common law duty

2 An equitable fiduciary duty

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36
Q

What is the leading case on a director’s duty of care?

A

RE City Equitable Fire Insurance [1925]:

  • director must exhibit skills expected of his knowledge
  • director is not bound to give continuous attention to company affairs
  • if duties are properly delegated, the director is justified in trusting his delegate
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37
Q

What were the facts in Re D’Jan [1994]?

A

Director signed insurance policy without checking details, which were incorrect. Fire destroyed property, and it was found that the directors had been negligent and was liable.

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38
Q

Which section of law describes wrongful trading?

A

S214 IA 1986.

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39
Q

What is wrongful trading?

A

Where a director of an insolvent company has continued to trade and the company has gone bust.

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40
Q

When will the court order a director to contribute in a wrongful trading case?

A

When there is proof that the director knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation.

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41
Q

What is the test for a director’s liability in a wrongful trading case?

A

Did the director behave as a diligent person having both:

  • the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions of a director
  • the general knowledge, skill and experience that the director has.
42
Q

Which section of law allows disqualification of a director for unfitness?

A

S 6 CDDA 1986

43
Q

In what scenarios does the court view a director’s behaviour as grounds for disqualification?

A

1 Phoenix companies
2 Arrears of crown debts
3 Inappropriate director’s remuneration
4 Accounts and accounting records

44
Q

What is the leading case on Phoenix companies?

A

Re Ipcon Fashions, where the director ran a clothing business for years using different companies, three of which went bust. Disqualified for 5 years.

45
Q

To whom does a director owe his fiduciary duty?

A

To the company (not individual shareholders).

46
Q

What are a director’s fiduciary duties?

A
  • duty to retain freedom of action
  • exercise powers for proper purpose
  • avoid conflict of interest
  • must not make secret profits
47
Q

What are the remedies for breach of fiduciary duty?

A
  • director must account for profits
  • criminal penalty
  • liability for damages in negligence
  • dismissal
48
Q

What restrictions are placed on both public and private companies regarding loans to directors?

A

S 197 CA:

  • company can make no loan to a director
  • company cannot guarantee or provide security for another’s loan to a director
  • UNLESS approved by a resolution of the members
49
Q

What is the exception to the s197 CA rule about loans to directors?

A

A company can loan to a director if it does not exceed £10,000

50
Q

What additional restrictions are placed on public companies regarding loans to directors?

A
  • cannot make quasi loans

- cannot enter into credit transactions

51
Q

What is a de facto director?

A

A person carrying out the role of director without being formally appointed.

52
Q

What is an alternate director?

A

A person appointed to act in the place of a usual director.

53
Q

Does appointment of alternate directors require board approval?

A

Only if the alternate is an outsider (i.e. not already on the board).

54
Q

What is a shadow director?

A

S 251 CA: A person in accordance with whose directions and instructions the directors of the company are inclined to act.

55
Q

Which case sets out the test for shadow directors?

A

Secretary of State v Deverell (2000). Company went into liquidation and 2 individuals names as “consultants” were disqualified as directors (due to being shadow directors).

56
Q

What is an executive director?

A

A board member and full time manager within the company.

57
Q

Where were non-executive directors first defined?

A

London Stock Exchange Recommended Practice on Non-Executive Directors (1987) a.k.a ProNED

58
Q

What are the principal asks of the NED according to ProNed?

A
  • contribute an independent view to the board
  • provide effective leadership
  • ensure the effectiveness of EDs
  • ensure high standards of financial probity.
59
Q

What does UKCGC A.4 state?

A

As part of their role as members of a unitary board, non executive directors should constructively challenge and help develop proposals on strategy.

60
Q

What does UKCGC B.1.1 state?

A

The board should identify each NED it considers to be independent.

61
Q

What does UKCGC B.1.2 state?

A

At least half the board, excluding the chairman, should comprise non executive directors determined by the board to be independent.

62
Q

Which parts of the companies act contain details on directors’ service contracts?

A

Chapters 4 and 5

63
Q

Why would a director seek a service contract?

A

Since they can be voted off the board at any time, financial guarantee is preferable.

64
Q

Which section CA requires preparation of a directors remuneration report?

A

s 420

65
Q

What resolution is required for approval of remuneration policy?

A

Ordinary

66
Q

What are Bob Tricker’s 4 problems with options?

A

1 Dilution - dilute market value
2 Reloading - board replenishes a directors’ options after using them
3 Resetting - lowering the price, allowing directors to profit
4 Rewarding mediocrity - share price isn’t always linked to company success

67
Q

Where must the register of directors be kept?

A

Registered office (s 162 CA)

68
Q

Who may inspect the register of directors?

A

Any member, and any member of the public (on appropriate charge).

69
Q

What information must be included in the register of directors?

A
  • full name
  • nationality
  • service address
  • country of residency
  • date of bith
  • business occupation
70
Q

How quickly must a change of director be notified to the registrar?

A

14 days

71
Q

Does full DOB need to be included in the register of directors?

A

No, only month and year (to avoid identity theft)

72
Q

What is set out in s 190 CA relating to substantial property transactions?

A

Company may not enter a contract with a director where he acquires a substantial non-cash asset or vica versa unless approved by resolution of the members.

73
Q

What is a “substantial asset” for the purpose of substantial property transactions?

A
  • exceeds 10% of company’s asset value and more than £5000

- exceeds £100,000

74
Q

Can a company make payment to a director for loss of office?

A

No (s217 CA), unless payment approved by resolution of members.

75
Q

What powers does the chairman have to retain order at a meeting?

A

1 To rule a speaker out of order
2 To expel a member from a meeting
3 To order an adjournment

76
Q

What rules does the Stock Exchange Model Code set out around directors’ dealings?

A
  • a director may deal in his company’s shares but should notify the chairman
  • a director should not deal two months before any matters which may affect the share price (e.g. release of accounts)
  • information on directors’ share dealings should be circulated at board meeting
  • directors dealings in shares should never be on short-term consideration
77
Q

What is the purpose of directors and officers insurance?

A

Protects board members and other officers in the event of alleged or actual corporate malpractice.

78
Q

How is a “member” defined in s 112 CA?

A
  • a subscriber to the memorandum who is automatically entered on the register of members on the company’s registration.
  • every other person who agrees to become a member and whose name is entered on the register of members
79
Q

Who cannot be a member of a company?

A
  • a subsidiary cannot be a member of its holding company
  • beneficiaries of a trust (only the trustees are members)
  • unincorporated bodies such as partnerships
  • minors
  • more than 4 people holding the same share
  • the company itself (cannot be its own member)
80
Q

What is the difference between a member and a shareholder?

A

The member’s name is on the register of members. A shareholder may be someone whose name has not been registered such as a beneficiary of a trust.

81
Q

What is a share warrant?

A

Negotiable instruments with coupons, held by someone who is not a member. The coupons can be exchanged for dividends.

82
Q

In which 3 ways may a person become a member of a company?

A
  • buying shares from the company (subscribing)
  • buying shares from existing shareholders
  • acquiring shares by operation of law
83
Q

To whom can a private company sell shares?

A

s 755 CA: People connected to the company (not the public)

84
Q

What remedy is available if a private company offers shares to the public (ie contravention of s 755 CA)

A
  • order the company to change to a plc
  • make a compulsory winding up order
  • make a remedial order which puts the person affected into the position he would have otherwise been in
85
Q

By what 4 methods may a plc offer shares to the public?

A

1 An offer to the public
2 An offer for sale
3 A placing
4 A rights issue

86
Q

What is meant by “an offer to the public”?

A

Plc makes a direct offer the public to subscribe for shares

87
Q

What is meant by “an offer for sale”?

A

Plc shares are acquired by an issuing house, who then offers to the public.

88
Q

What is meant by “a placing”?

A

Plc sells shares to selected clients (in the same way that a private company would).

89
Q

What is meant by “a rights issue”?

A

Plc offers shares to existing members (pre-emption rights)

90
Q

How are shares transferred from one person to another?

A

Shareholder executes a “proper instrument of transfer”, and hands this and the share certificate to the buyer.

91
Q

What is the difference between “transfer” and “transmission” of shares?

A

Transfer is a transfer between living members, usually by purchase.
Transmissions is acquisition by law, usually as inheritance, taking a bankrupt’s estate, etc.

92
Q

Who are the leading institutional investors?

A
  • Association of British Insurers (ABI)

- Pensions and Lifetime Savings Association (PLSA)

93
Q

What are the STATUTORY rights of a member?

A
  • inspect statutory books and records
  • inspect directors’ service contracts
  • receive annual report and accounts
  • have a copy of memorandum and articles of association
  • receive notice and attend general meetings
  • bring an action for unfair prejudice under s 994 CA
  • bring an action for derivative claim against a directors (s206 CA)
94
Q

What are the rights of a member set out in the ARTICLES?

A
  • right to share certificate
  • right to transfer fully paid shares
  • right to requisition a general meeting
  • right to demand a poll
  • right to demand a proxy
  • right to restrict the directors’ powers by special resolution
  • the right to propose directors for reappointment
95
Q

Where must the register of members be kept?

A

At the registered office or the place where it is written up.

96
Q

What information must the register of members contain?

A
  • name and address
  • date the person became (and ceased to be) a member
  • number, class and amount paid on shares
97
Q

Why is is problematic to include additional, non-necessary information in the register of members?

A

Data protection registration with the ICO is required.

98
Q

For what period can a company close the register of members?

A

For up to 30 days per year, provided notice is given.

99
Q

To whom must the register of members be available?

A 
All members (free of charge)
Non-members (with a fee)
100
Q

When may a members details be removed from the register of members?

A

If they have ceased to be a member for more than 20 years.

101
Q

When may the court have order rectification of the register of members?

A

S 125 CA:

  • if a member who has not agreed to take shares is entered
  • if a lawful member has been omitted
  • default or unnecessary delay in altering the register.
102
Q

What is the difference between an “overseas company” and an “overseas branch register”?

A

The former is a company incorporated outside the UK with a UK office. The latter is a company incorporated in the UK which operated a register of members in a non-UK territory.

Corporate Secretarial Practice (20 decks)

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