Officers of a company

Question 1

What’s an executive director?

Answer 1

Will spend the majority of his working time on the business of the company and will be both an officer and an employee of his company.

Question 2

What’s an non-executive director?

Answer 2

An officer but not an employee.

Do not take part in the day-to-day running of the company.

To provide independent guidance and advice to the board and to protect the interests of shareholders

Question 3

What is the purpose of a shadow director?

Answer 3

• To prevent a disqualified director from getting around the prohibitions placed on him and still being involved in the running of a company, by acting behind the scenes.
• Designed to ensure that anyone who acts as a director (even if they are not technically appointed as one) is subject to the duties and restrictions which apply to directors

Question 4

What does an alternate director do?

Answer 4

Attends board meetings and acts in the director’s place, if the actual director is incapacitated, engaged or out of the country

Question 5

Who would be an alternate director?

Answer 5

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

Question 6

Why are alternate directors becoming rare?

Answer 6

Because it is now possible to hold board meetings over the telephone and to pass board resolutions by means of written resolutions

Question 7

What does Art. 19 MA say?

Answer 7

An individual director’s service contract, including remuneration, are for the board to determine.

Question 8

What is a long-term service contract?

Answer 8

s.188 CA 2006 applies where a service contract provides for a director’s employment to have a ‘guaranteed term’ which is, or may be, longer than two years

Question 9

What happens if approval is not obtained in a service contract?

Answer 9

If shareholder approval is not given, then the term incorporated into the service contract in contravention of s.188 CA is void under s.189(a) CA 2006.

Question 10

Termination of a directors’ service contract

Answer 10

s. 189(b) CA 2006 provides that the service contract will be deemed to contain a term entitling the company to terminate the contract at any time, by giving of reasonable notice which will vary depending on the circumstances.
* All other terms of the contract may stay in force.

Question 11

Which common law principle gives directors’ authority, and why?

Answer 11

Agency because a company relies upon its directors to act as its agents.

The agent can form contracts on behalf of another person (the principal) so as to create contractual obligations enforceable against the principal by a third party.

Question 12

What statutory protection does s.40 CA 2006 give to a third party dealing with a company?

Answer 12

Provided the third party is acting in good faith it is entitled to rely on the authority of the directors acting as a board, even if the directors are exceeding the powers granted to them in their company’s articles.

Question 13

How do you determine if a third party can rely on a single director’s authority to bind the company?

Answer 13

Depends on the transaction in question & the type of authority that the director may have (expressed or implied)

Question 14

Examples of actual express authority.

Answer 14

• Act in connection with a particular transaction

* Negotiating the terms of a particular transaction and or executing documents on behalf of the company.

Question 15

What is an actual express authority

Answer 15

Where this authority is given formally by means fo a board resolution

Question 16

Managing directors’ authority in routine commercial contract

Answer 16

It is commonly accepted that a managing director will have the authority to act alone and bind the company on routine commercial contracts

Third parties are usually happy and safe to rely on the implied authority of a managing director to bind their company in the case of routine commercial contracts

Question 17

How to check if the director it is dealing has been granted express authority?

Answer 17

The third party will usually ask the director to produce a copy of the relevant board minute granting the authority

Question 18

What does ratification do?

Answer 18

If a director has exceeded the scope of his authority to act on behalf of the company, and the act was within the powers of the board of directors as a whole, the act of that director may be ratified by a board resolution.

Question 19

How do you ratify a director?

Answer 19

By a board resolution or an ordinary resolution of the shareholders.

Question 20

Example of a ratification

Answer 20

The company may take confirmatory action such that the director cannot at some future date be held liable to the company

Question 21

How can a third party bring an action against director acting outside both his actual and ostensible authority?

Answer 21

The third party may have a remedy against the director personally for breach of warranty of authority.