Part A Flashcards
Appointment of director process?
Any director can call a board meeting MA 9(1) by
- giving reasonable notice Re Homer (reasonable depends)
- to all directors MA 9(3)
- in writing or otherwise MA 9(3)
- with the date, time and place of the meeting and the means of communication MA 9(2)
The minimum quorum is 2 directors MA 11(2).
QUORUM
Directors who have declared an interest cannot vote and do not count towards the quorum MA 14(1). This restriction can be disapplied by OR MA 14(3)(a).
VOTE
Unanimous or by a simple majority show of hands (MA’s 7 & 8).
How to call a GM
Notice CAN BE CALLED BY Directors under S302
Given to the company’s
1. Members and directors s310(1)
2. Auditors s502(2)
- Specify time, date, place and general nature of the business s311
- Include a statement of the right to appoint a proxy s325(1)
- Include the full text of any SR s283(6)(a)
Notice must be given at least 14 clear* days before the GM s307(1). If notice is served by post or electronically, the notice period must include an additional 48 hours for deemed services s1147.*By s360
Notice of a resolution to remove a director under s168 must generally be given at least 28 clear days prior to the GM under the special notice provisions s312.
quorum s318(2)
VOTING
OR Requires 50+1% of votes in favour s282
What is the process for the appointment of a Director with a Service Contract?
Call BM under MA9
BM1 - to call GM
GM - to obtain consent of shareholders by OR under s188
BM2 - To execute SC
Explain the nature of the purpose of director duties?
In order to ensure that directors act competently and are not tempted to manage a company in their own interests, the Companies Act 2006 imposes seven general duties on directors. These include both fiduciary duties, which derive from equity, and from the common law duties of care, skill and diligence. The duties are set out in ss.171 – 177 of the Act. There are two categories of duty: those relating to how the directors manage the company (‘performance’ duties) and those that require directors to avoid a conflict of interest.
What duties exist for Directors under the CA?
S171-177
171 - To act within powers and exercise powers for the purposes which they were conferred.
172 - Duty to promote the success of the company
173 - Duty to exercise independent judgement
174 - Duty to exercise reasonable care, skill and diligence
175 - Duty to avoid unauthorised conflicts of interest
176 - Duty not to accept benefits from 3rd parties
177 - Duty to declare any interest in a proposed transaction or arrangement.
Did Tom have authority to enter into a contract with a sponsor?
Implied Authority - using precedent in Hely-Hutchinson v Brayhead - it would be reasonable to suggest that this kind of conduct would come under his role as Commercial Director.
Apparent authority - A director may have apparent authority where it appears that he has authority even if he does not. Freeman & Lockyer v Buckhurst property supports this. The case establishes that there must be a representation by the company that the director has authority, the third part must rely on it, and alter their position on this basis.
What tests will be applied to establish whether Tom has breached the s.174 duty?
Duty to exercise reasonable care, skill and diligence.
Directors must exercise reasonable care, skill and diligence. This means the care skill and diligence exercised by a reasonably diligent person with:
The general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions by a director in relation to the company (OBJECTIVE S174 2 A)
The general knowledge, skill and experience that a director has. (SUBJECTIVE S 174 2 B)
Do you consider that Tom has breached the s.174 duty?
Applying this to Tom Stone, he has been a director for 20 years and therefore it would be reasonable to expect that he would have conducted research as to whether the sponsorship deal was the most commercially sound option. As such, the contract has led to onset hardship to the club’s finances.
If Tom was new to the organisation, or seconded into the commercial role, the standard would be lower for him. However, as a long serving expert at the club, this standard is likely to be higher.
If Tom has breached the s.174 duty, will other directors be able to insist that he should compensate the company?
As such, the potential remedy for S174 breach is akin to negligence, so it is appropriate to explore common law damages. There are two elements to establishing causation in respect of tort claims, with the claimant required to demonstrate that:
the defendant’s breach in fact resulted in the damage complained of (factual causation) and
this damage should, as a matter of law, be recoverable from the defendant (legal causation)
What remedy exists for Director breaches?
Although this is a potential remedy for breach of the s.174 duty, only the company (the ‘proper claimant’) can bring an action for breach of duty.
Directors (or shareholders) cannot bring a claim on behalf of the company. Any director would therefore have to persuade the board that it would be in the interests of the company to do so. With this in mind, there is a majority number of shareholders, who are also directors who could achieve this.
On show of hands at a board meeting, if we still understand ‘all of the shareholders have lost faith’, 4 in favour to a maximum of 3 against, in favour of enforcing an action.
Tom would not be able to vote on this as he has an interest in the matter and would be precluded from doing so by Model Article 14.
DAMAGES FOR NEGLIGENCE
Process to remove a director
1) Is director prepared to resign under MA18F?
2) If no, director must be removed by OR (S168, MA18A)
3) If board cooperates, Ds will call a BM MA9
4) Shareholders to be given special notice of 28 days under ss 168 and 312) GM CALLED
5) Director can protest before the vote s168 & MA18A)
6) SH to vote on OR to remove
7) If passed, D removed s168 and MA18A
Can WFC enter into a contract without shareholder approval in relation to the land transaction?
According to Commentary in Chapter 9 (Section 253 CA2006): Supplementary Provisions, siblings do not fall under S190 connected persons. Connected persons include children, parents, partners but do not include siblings.
S253(ss457) The recommendation that the definition be extended to siblings has not been implemented.
As such, this transaction will not be subject to the shareholder approval pursuant to S190 substantial property transaction context..
Can you explain whether the directors owe any duty(s) to the company in respect of the land purchase?
Directors owe their fiduciary duties to the company, not to members or other persons (Foss v Harbottle).
S177 asks directors to be proactive in declaring their interests, if they are in any way, directly or indirectly interested in a proposed transaction or arrangement in the company. Tom’s brother, Timothy, is the owner of the land, and it would be reasonable to expect a Director to disclose this conflict of interest in reference to the transaction, even if it has no material impact on the deal.
Must be made before the company s177(4)
Must be done prior to the transaction is executed.
Even if conflict is obvious, it is still worth declaring.
Therefore, Tom should vote as he should declare an interest under s177.
