SGS 7: Directors Duties Flashcards
1. apply the specific statutory restrictions that govern the conduct of directors; 2. identify issues raised in proposed and/or completed transactions involving company directors, in particular in relation to substantial property transactions and long term service contracts; and 3. locate, interpret and apply legislation, common law and internal regulations governing such transactions. Part 2 4. identify proposed or completed transactions with directors under Part 10 of CA 2006, in partic
Where are directors duties found in the statute?
- S171 - 177
What are the 5 steps that need to be considered when looking at directors interest in proposed / existing transactions
1) Seeing actual / potential interest
2) If s177(6) or s182(6) factors apply
3) Declare interest
4) Director unable to vote in meeting or count in quorum
5) conclude
In STEP 1 of considering whether directors have interest in proposed / existing transactions, what happens if there is an actual or potential interest?
• General Rule under s177 (proposed transaction) or s182 (existing transaction) – DECLARE. When?
• s177(4) – before the transaction is entered into
○ s177(3) – update if info later becomes inaccurate or incomplete
• s182(4) – as soon as is reasonably practicable
In STEP 2 of considering whether directors have interest in proposed / existing transactions, what happens in seeing if the s177(6) or s182(6) factors apply?
No need to declare if… [although usually will declare anyway]
- Could not reasonably be regarded as giving rise to conflict of interest
- Other directors are already aware; or
- It concerns the terms of service contract
In STEP 3 of considering whether directors have interest in proposed / existing transactions, what happens when declaring interest?
- s177(2)(a) or s182(2)(a) – Orally at a BM (documented in board minutes)
- s184 – Written declaration sent to all directors electronically (if agreed) or in paper form
- s185 – General notice stating the nature and extent of the interest – i.e. he will always have an interest when dealing with a certain party
In STEP 4 of considering whether directors have interest in proposed / existing transactions, what happens if director is unable to vote in meeting or count in the quorum?
Unless an exception applies…MA 14(3)
• Disapplication of MA 14 by ordinary resolution; or
• Not reasonably regarded as giving rise to a conflict of interest; or
• Arises from a permitted cause (listed in 14(4))
• Article removed from AoA by s21 CA
Who are directors duties owed to?
- All owed to the company, not the individual shareholders.
- Shareholders can bring Derivative Action against the directors – seeking relief on behalf of the company. Likely to be commenced where only minority of shareholders want to take action s260
What are the remedies for the breach of directors duties?
• If for any duty aside from reasonable care, skill & diligence (s174):
o Injunction
o Setting aside transaction, restitution & account of profits
o Restoration of company property held by the director
o Damages
o Termination of executive D’s service contract or disqualification
Explain ratificaton if a lack of duty / absolving director or liability?
Board can ratify a lack of authority and shareholders can absolve a director of liability by ratifying by OR any conduct which involved negligence, default, breach of duty or breach of trust s239
NB – A shareholder may be prevented from participating if they are interested
Where is the general rule for substantial non-cash assets found?
- S190
- s190(5) – If a series of transactions aggregated together, only one approval needed.
What is the general rule for non-cash assets in s190?
A company may not enter an arrangement whereby either:
i. Company acquires a substantial non-cash asset from a director/person connected
ii. Company sells/transfers such an asset to a director/person connected
…unless approved by members by OR s190(1)
Approval can be either before the transaction or after, provided the transaction is conditional on such approval being obtained.
When can approval for substantial non cash assets be found?
How many approvals are need?
- Before or after the transaction
- Provided that the transaction
- S190(5) - if a series of transactions are aggregated together then only one approval is needed
How is an asset ‘substantial’?
- S191 (2)
- Substantial where it exceeds 100,000
- If 5,000 < but >100,000 then will be substantial if it exceeds 10% company’s asset value
What is the substantial asset being determined by?
- s191(3)(a) and (b)
- Latest statutory accounts and if no accounts have been prepared then the net asset value is equal to the companys called up share capital
Where is a non cash asset defined?
- S1163
What is a transaction with director or “person connected with director”?
- State if with a director
- If with company connected
- Consider s252 - s255
What are the exceptions to the transaction with director or “person connected with director”?
- Where not UK registered: s190(4)
- S192(a) (b) - in a capacity as shareholder or holding & subsidiary e.g. buyback of shares
- S193(2) - company in administration
- S190(6)(a) - service contract entitlement
- S190(4)(b) - wholly owned subsidiary - members approval not required
