Managing Companies - Directors and the Board

Question 1

Where does director power generally derive from?

Answer 1

• Directors day to day control derives from the articles (MA3)
• directors may take decisions against the wishes of the majority of shareholders when for ‘proper purposes’ (Howard Smith Ltd v Ampol Petroleum Ltd)

Question 2

How are shareholders protected from directors?

Answer 2

• MA4: by special resolution the shareholders can make the directors take/refrain from taking, specified action
• S21 CA 2006: shareholders control amendments to articles (special resolution)
• S168 CA 2006: removal of director by ordinary resolution

Question 3

What are the different types of director?

Answer 3

At law:
* De jure directors
* De facto directors
* Shadow directors

In practice:
* Executive directors
* Non executive directors

Question 4

Director requirements/facts recap

Answer 4

• private limited company must have at least 1
• public limited company must have at least 2
• directors must be at least 16 years old
• there is not a maximum number of directors

Question 5

De jure directors

Answer 5

• a de jure director is one validly appointed at law
• private limited company must have at least one director - public limited company at least 2
• all company directors must be natural persons subject to certain exceptions (The Small Business, Enterprise and Employment Act 2015

Question 6

De facto directors

Answer 6

a de factor director is someone who assumes to act as director but has not been validly appointed

1.defined by Re Hydrodam (Corby) Ltd:
* are they part of the corporate governance of the company?
* do they undertake decisions normally taken by a director?

2.Smithton Ltd v Naggar
* consider the acts performed
* are those acts directorial in nature
* look at the context
* did the company hold them out as director and did 3rd parties treat them that way

e.g. The Commissioners for HM Revenue and Customs v Holland - not found as de facto (director of a corporate director(A) of B)

note: same fiduciary duties and liabilities in insolvency apply to all directors including de facto

Question 8

shadow directors

Answer 8

• usually shareholders
• S251(1) CA: a person whose instructions the directors are accustomed to act on
• s251(2) CA: professional advisors are not shadow directors, unless their conduct goes beyond professional capacity and effectively controls the company’s affairs (Re Tasbian Ltd (No 3).

test (Re Hydrodam (Corby) Ltd): must prove
1. the identity of formally appointed directors
2. that the person in qesution directed them
3. that those directors acted in accordance with these directions
4. the directors were accustomed to acting htis way

other tests:
* directors cast themselves in a subservient role/surrendered discretions (Secretary of State for Trade and Industry v Deverell)
* governing majority of board accustomed to act in accordance with shadow d (Ultraframe (UK) Ltd v Fielding)

Question 9

How to distinguish de facto and shadow directors

Answer 9

clarified in Re Hydrodam (Corby) Ltd:
1. de facto director = assumes to act as director, is held out as director by the company, and claims to be a director despite not being formally appointed
2. shadow director = does not claim to act as director, lurks behind others who are directors, he is not held out as director

Question 10

executive director

Answer 10

one who has been appointed to executive office and spends most their time on the comnpany and is a director and employee (i.e. they have a service contract)

MA5 allows directors to delegate specific powers to an individual director and may be used to do so for an exec director

Question 11

non-executive director