Part 2

Question 1

What are 4 transactions involving directors that require member approval?

Answer 1

Long-term service contracts (I.e) over 2 years

Substantial property transactions

Loans, quasi-loans and other credit transactions

Payments for loss of office

Question 2

In what four instances can a director avoid liability?

Answer 2

1. Consent, approval or authorisation from the members
2. Exclusion or indemnity clauses
3. Ratification - members approve post event
4. Relief from the court - if the director acted honestly and bona fide for the company

Question 3

171 - duty to act within powers

Remedy for breaches

Case law x3

Answer 3

Any agreement entered into in breach of the s171 is voidable

HOWARD SMITH LTD V AMPOL PETROLEUM LTD

It can be enforced against the company by a third party if the director had authority to enter it

CRITERION PROPERTIES PLC V STRATFORD UK PROPERTIES LLC

A director in breach may be required to account for any gains made or compensate the company for any losses sustained

EXTRASURE TRAVEL INSURANCES LTD V SCATTERGOOD

Question 4

172 promote success of the company

Remedy for breach

Statute x 1
Case x 1

Answer 4

Any agreement entered into in breach of the s171 is voidable

EXTRASURE TRAVEL INSURANCES LTD V SCATTERGOOD

A director in breach may be required to account for any gains made or compensate the company for any losses sustained

Question 5

173 - duty to exercise independent judgement

Remedy for breach

Statute

Answer 5

Any agreement entered into is voidable

The directors in breach may be required to account for any gains made or compensate the company due losses sustained

Question 6

174 - Duty to exercise reasonable care, skill and diligence

Remedy for breach

Statute

Answer 6

The directors in breach will be required to compensate the company losses sustained due to the breach

Question 7

175 - duty to avoid conflicts

Remedy to breach

Case law x 2

Answer 7

HELY-HUTCHINSON & CO V BRAYHEAD

a contract entered into is voidable at the company’s instance as long as the other party to the contract knew of the breach

ABERDEEN RLY CO V BLAIKIE BROS

the director in breach can be required to account for any gains made
the director

Question 8

176 - Duty not to accept benefits from third parties

Remedy of breach

Case law x 3
Statute x 1

Answer 8

SHIPWAY V BROADWOOD

The contract that provides for the benefit can be rescinded by the company

MAHESAN V MALAYSIA GOVERNMENT OFFICERS’ CO-OPERATIVE HOUSING SOCIETY LTD

the company can recover the benefit from the director or claim damages from the director or third party

BOSTON DEEP SEA FISHING CO V ANSELL

the company can dismiss the director

BRIBERY ACT 2010

an offence will be committed if the benefits amount to a bribe

Question 9

177 - Duty to declare interest in transactions or arrangements

Case law x 1

X1 comment

Answer 9

HELY-HUTCHINSON & CO V BRAYHEAD

a contract entered into is voidable at the company’s instance as long as the other party to the contract knew of the breach

NOTE: It would appear the director in breach faces no liability which has attracted considerable criticism

Question 10

182 - interest in existing transactions or arrangements

Remedy for breach

statute

Answer 10

CRIMINAL OFFENCE

Question 11

What is classed as a SUBSTANTIAL PROPERTY TRANSACTION

Answer 11

Over £100k

Or over 10% of the company’s assets where the value is over £5k

Question 12

At what amount does a public company require approval from members giving out loans or quasi-loans (company credit card)?

This is giving out loans etc. not getting a loan for ordinary business

Answer 12

£10k for loan unless it’s a connected person then any amount

£10k quasi loan

Question 13

Credit Transactions (company car etc.) - when doesn’t a public company need approval from members?

Answer 13

Under £15k

Exceptions

• loans to fund a defence in legal proceedings
• transaction funds as part of directors expenditure up to £50k

Question 14

Who can’t be a member of a company?

Answer 14

Unincorporated companies I.e partnerships - name the partners instead

Company can’t really become a member of its self -

TREVOR V WHITWORTH

Question 15

Members transparency

Two methods:

Answer 15

Public companies: s793 - The register of interests disclosed

All companies: person of significant control - Part 21a CA 2006

Question 16

What is a nominee member?

Answer 16

The persons whose name and details is on the share register is the legal owner but they may be acting for someone else.

The someone else is the BENEFICIAL OWNER.

Question 17

Subject to the articles what are ordinary resolutions used for?

Answer 17

Accounts approval
Approval of final dividend
Appointment of the auditor

Question 18

Subject to the articles what are special resolutions used for?

Answer 18

Alter the articles 
Changing the name 
Altering the company’s status 
Winding up 
For all things not considered ordinary business

Question 19

When can’t you use a written resolution

Answer 19

Can’t be used to remove a director or auditor

Question 20

Define Group Litigation Order

AKA GROUP ACTION

Answer 20

Where several persons are wronged work together but you all want different compensations/damages

Question 21

Representative Action

Answer 21

Where several persons are wronged

One person goes to court on behalf of everyone and everyone gets the same compensation

Question 22

Unlawful payment of a dividend

Answer 22

BAIRSTOW V QUEENS MOAT HOUSE PLC

they are liable to pay the dividend back to the company

Question 23

Describe the Derivative claim process

Answer 23

S.260 CA2006

Two stage process

1. prima facia test
2. The mandatory test (s.263)
3. The discretionary test - after considering all factors and evidence
   PERMISSION GRANTED TO PROCEED