Restrictions and Liability - LGS 10

Question 1

Personal sanction for directors

Answer 1

• ## Failure to declare interests s182CA06 can result in fine s183(1)

Question 2

Avoiding Liability

Answer 2

Ratify - shareholder resolution (can ratify if done unfairly, improperly, illegally or oppressive to minority)

Question 3

Statutory restrictions

Answer 3

• Gratuitous compensation
• SPT - substantial property transactions
• service contracts
• loans to directors

Question 4

Gratuitous compensation

Answer 4

Payment for loss of office: shareholder approval - ordinary resolution ss215 & 217CA06
Doesn’t impact:
- breach of service contract s220 CA06
- terms under settlement agreement

Question 5

SPT

Answer 5

Selling or buying something from a director in personal capacity s190CA06
- shareholder - ordinary resolution
- if the amount of contract is substantial

Question 6

Director

Answer 6

Includes:
- shadow director
- persons connected to a director
-spouse/partner
- child under 18 or parent
- another company director associated

Question 7

Shareholder approval

Answer 7

if approval not obtained - contract is voidable
if subsequent approval not obtained director party to contract or authorised the contract. - liable and must indemnify company for loss and account for any personal gain.

Question 8

Requisite value - assets

Answer 8

More than £100,000 = always caught
Less than £5000 = never caught
Between £5,000 and £100,000 caught if its more than 10% of company asset value

Question 9

Service contracts

Answer 9

term exceeds 2 years - shareholder - ordinary - s188CA06.
if consent not obtained contract still valid but terminable on reasonable notice

Question 10

loans to directors

Answer 10

s204 allows loans up to £50,000 without approval if money needed to help director perform his duties and s207 says loan up to £10,000 can be made for any reason.

Question 11

Exceeding actual authority

Answer 11

if exceeding actual authority they breach duty and must - indemnify company for loss
- account for profit they make
- can ratify breach of duty by ordinary resolution (only valid if not fraud on minority)
- court has power to relieve directors liability under s1157CA06 - if acted honestly, reasonably and “ought fairly to be excused”

Question 12

Enforcement by company

Answer 12

• company is claimant
• shareholder take action
• minority can’t act Foss v Harbottle (minority can apply to court for “derivation action” s260 CA06

Question 13

Misfeasance

Answer 13

IA 1986 s212 allows liquidator to bring action against directors for any breach of their duties
- directors liable to pay/repay money to liquidator
- if not wrongful or fraudulent trading just a breach of duty

Question 14

Fraudulent trading

Answer 14

s213 IA1986 applies to anyone who was a party to the fraud
- must show business carried on with intent to defraud creditors
- if proved directors pay punitive damages

Question 15

Wrongful trading

Answer 15

s214 IA 1986 only against directors
- before winding up director must have known or ought to know there was no reasonable prospect of avoiding insolvency/administration/liquidation.
- what did director know and should have reasonably known
- size of business and directors role
- defence every step to minimise loss to creditors (professional advice, raised at board meetings, not taking further credit, collecting debts.