P1 - 2. The Directors Flashcards
Who manages the affairs of a company?
Directors on behalf of its members
Can members appoint additional directors and terminate a directors appointment?
Yes, subject to any restrictions in the Articles
Can directors appoint additional directors to fill vacancies?
Private – usually, yes
Public company – appointments will often require validating by members at the next AGM
Definition of a director?
s.250 - person occupying the position of director, by whatever named called
What is the significance of the word person in the s.250 definition of a director?
Refers to any person rather than any individual and thus will include corporate bodies, which have a ‘legal persona’
Must directors have the word ‘director’ in their job title?
Not a requirement
Different types of director?
Executive
Non-executive
Shadow
De Facto
Alternate
What information should be obtained from the new director?
Full name
Date of birth
Service and residential address (if different)
Nationality
Occupation
Who cannot be appointed as a director?
Person under the age of 16
A disqualified person
A bankrupt
An auditor or employee of the audit firm
A director of an insolvent company cannot be appointed as a director of a company with a prohibited name without consent of the court
Anyone not meeting any specific criteria in the Articles
What is the role of the senior company executives?
Day-to-day management of the company’s affairs
What is an executive director?
A senior management executive who is also board director
In smaller companies who are usually company directors?
Typically all executives
In listed companies who are usually company directors?
At times, it may only be the CEO and CFO
What governs the provision on the of appointment of director as an executive director?
And what does this mean?
The Company’s articles
Directors have the power to
appoint such directors, to determine the terms of their appointment and remuneration and delegate to them such powers of the board as may be desired.
Which directors should have a contract of employment?
Directors who hold a salaried position
What should the service contract specify?
Whether remuneration stated in the contract is exclusive or inclusive of directors’ fees
Any provisions relating to confidentiality and some control over the director’s activity, in the event of their leaving the service of the company.
For a smaller company where could the terms of appointment be set out?
In the minutes of the board meeting appointing director
What is a non-executive director?
A director without executive responsibilities in the company.
There to contribute skills and experience to board decision-making.
Provide balance and challenge proposals bought forward by the executive team
Are NED’s employees of the company?
No – and therefore will not have a service contract
Where are NED’s terms of appointment set out?
In a letter of appointment
Under the Governance Code – what is the recommendation for NED independence?
They should be independent from company and its management
Half of the directors should be independent NED’s, excluding the chair
What are the key differences between an executive director and an NED?
Executive directors:
Are employees of the company (usually full-time)
Responsible for: day-to-day management
Formulating policies
Implementing company strategy
NEDs:
Not employees of the company (usually part-time)
No hands on management
Brings expertise, experience, balance
Responsible for setting corporate goals and strategy
What criteria prevent an individual from being independent (NED)?
Long association with the company
Being an employee
Share options
Recent material business interest
Cross-directorships
Represents a significant shareholder
What is a shadow director?
s.251 - any person who has not been formally appointed as a company director, does not openly participate in managing the company but on whose instructions the appointed directors and employees usually act.
When could a shadow director situation occur?
Where a majority or significant shareholder is not also a director. A shadow director of the company is deemed to be a director of the company for all purposes
What is a de facto director?
A person who has not been formally appointed as a company director but holds themselves out to
be a director and carries out the acts and duties of a company director.
A de facto director of the company is deemed to be a director of the company for all purposes (s.250)
What is an alternate director?
Person appointed by an existing director to act on their behalf in their absence.
What are only two eligibility criteria in the Act to satisfy when appointing directors?
- There must be at least one natural director appointed at all times (CA2006 s. 155).
- On appointment, the person being appointed must be at least 16 years old (CA2006 s. 157).
Who are prohibited from acting as director?
- A bankrupt person. If a director becomes bankrupt after appointment, they must immediately resign, unless leave to continue is given by the courts (Company Directors Disqualification Act 1986 (CDDA1986), s. 11).
- A person who has had a disqualification order made against them may not act as a company director, unless leave has been given by the courts (CDDA1986 ss. 2 and 5).
- The auditor of a company cannot also be a director of that company (CA2006 s. 1214).
- The director of an insolvent company cannot, without the leave of the court, be appointed as a director of a
company with a ‘prohibited’ name (Insolvency Act 1986 (IA1986), s. 216).
Who draws up the job specification and candidate profile to fill a director vacancy or for an additional director?
The board or the nominations committee
What is the procedure of appointment for directors?
First directors are those entered on Form IN01
Subsequent appointments as directors are governed by the provisions of the company’s Articles.
Typically, the board itself may or the members in general meeting (GM) may fill any casual vacancies or appoint additional directors.
What is a casual vacancy?
A casual vacancy is one arising from the death, resignation, or termination of appointment of a director.
What should a cosec do once a director is appointed?
Ensure director receives an induction and
Aware of the responsibilities, duties and potential liabilities of being a director.
Appointment and reappointment process for public and private companies who choose to hold an AGM?
Typically – where a new director has been appointed by other directors, they must put themselves forward for reappointment at the next AGM
All directors must put themselves forward for reappointment at least every 3 years
Points to know about director addresses
Service address must be provided
Residential address must be provided on the AP01 Form
Required number of directors?
Public – atleast two directors
Private – atleast one director
All companies = at least one director who is a natural person
What is an AP01?
Form used to notify the Registrar of the appointment of an individual as a director
What is an AP02?
Form used to notify the Registrar of the appointment of a corporate body or firm as director.
Leading case on duty of care?
Re City Equitable Fire Insurance Co. Ltd
Seven duties of a director
To act within their powers (CA2006 s. 171)
To promote the success of the company (CA2006 s. 172)
To exercise independent judgement (CA2006 s. 173)
To exercise reasonable care, skill and diligence (CA2006 s. 174)
To avoid conflicts of interest (CA2006 s. 175)
Not to accept benefits from third parties (CA2006 s. 176)
To declare interests in any proposed transaction or arrangement (CA2006 s. 177)
What are the codified duties based on?
Common law
How can members remove a director?
Ordinary resolution
Other circumstances under which a director may be required to vacate office?
Under statute (director becomes bankrupt)
Under the Articles
Retirement by rotation
Removal of directors
Disqualification
Death
4 steps that must be followed on removal of a director s.168
- Resolution to take place – written resolution procedure cannot be used
- Special notice of a s.168 resolution is required – namely 28 days
- A copy of the resolution must be sent to directors whose resignation is sought
- The director whose removal is sought has the right to protest against his removal and, to that end, may address the meeting and circulate written procedures
- Does not deprive director of any payable compensation
What does the Governance Code (principal J) recommend in terms of succession planning?
Listed companies ensure that they have plans to ensure an orderly succession in director and senior roles
To maintain an appropriate level of skills and experience and a planned refreshing of board membership
What does the UK Corporate Governance Code recommend for board independence?
Excluding the chair, independent NEDs should hold at least 50% of board appointments.
Which statutory registers should be updated on the appointment of a director?
Register of directors
Register of directors’ residential addresses
Do directors have unfettered authority to exercise the company’s powers?
No. Their authority is subject to any provisions in the Articles, their service contract and any authority limits adopted by the board
Can directors delegate any of their powers and duties?
Yes, to committees of the board
How many directors may be appointed?
Any number subject to any maximum set out in the Articles. The Model Articles do not provide for a maximum number of directors.
Under what circumstances can a director be disqualified?
For unfitness
On conviction
For breach of statutory obligations
For fraudulent or wrongful trading
In the public interest
By voluntary undertaking
On competition grounds
Do the remaining directors need to approve the resignation of a director?
No
How soon must notification of the vacation of office by a director be notified to Companies House?
Within 14 days of the director vacating office
How many directors should retire at the first AGM of a public company?
All
Why is succession planning important?
To ensure an orderly succession and to maintain the necessary balance of skills, experience, diversity, independence and balance.
Is positive discrimination permitted to address board diversity imbalance?
No
Can any company take out directors’ indemnity insurance?
Yes
Can a director be indemnified against personal liability to pay fines and damages?
No
Can the details of any indemnity insurance be kept secret?
No, must be available for inspection by members
Can a person be co-opted to a board without their consent?
No
