Shareholders and Directors - W4

Question 1

Where do we find the director’s authority to run the company?

Answer 1

MA 3

Question 2

What decisions are only for shareholders to make?

Answer 2

1. decisions like changing the articles of association
2. decisions which give the directors permission to do certain things

Question 3

Who can enter into contracts on the company’s behalf?

Answer 3

Directors only.

Question 4

In what kind of meetings do directors make decisions in?

Answer 4

Board meetings. Here, they make board resolutions.

Question 5

What MA allows directors to delegate their powers as they see fit so other employees can make decisions within their job description?

Answer 5

MA 5

Question 6

Can a director call a board meeting?

Answer 6

Yes. Rule MA 9. BUT. They must give reasonable notice to other directors.

Question 7

When calling a board meeting, reasonable notice must be given, what is this reasonable notice?

Answer 7

Literally, trying to ensure that everyone has a chance to attend. Being clear about the time, place and date of meeting.
The notice must be given when it is reasonable according to the context: such as a few minutes if all the directors are nearby or maybe a couple of days notice if directors are in different countries.

Question 8

How many directors need to attend a board meeting for it to be valid?

Answer 8

2. A quorum of two. The meeting is quorate.

Question 9

The CA says what about directors who have a personal interest on the matter voting at a board meeting?

Answer 9

Rule MA 14 says directors MAY not vote in the meetings or the vote not to be counted. This can be changed by the articles of association and director can vote still.

Question 10

What must a director do if they have a personal interest in a proposed transaction?

Answer 10

According to the CA, they must declare
the nature and extent of this interest to the board - Rule s 117 CA. CANNOT BE DISAPPLIED BY ARTICLES.

BUT - they do not need to declare an interest where:
1. the other directors are already aware of it.
2. the personal interest is unlikely to give rise to conflict.
3. if the personal interest concerns terms of a service contract that have been or are to be considered…by a meeting of the directors

Question 11

What type of resolution is needed for a board meeting to pass in favour of something?

Answer 11

Simple majority. More than 50%.

If the board has appointed one of its directors to act as chair of the board, that director will have a casting
vote (ie one extra vote) in the event of a tie. The chair will only need to use this casting vote if they are in favour of the resolution, because if there is a tie, the resolution will not be passed.

Question 12

Is a board meeting necessary to make decisions?

Answer 12

No. It is possible to pass a board resolution in writing etc if all members write in their vote - BUT, for this method to be valid, the directors must vote unanimously in favour of a resolution.

Question 13

What are the 2 types of shareholder resolutions?

Answer 13

Ordinary and special resolutions.

Ordinary: more than 50% votes in favour

Special: more than 75% votes in favour

However, when it is a written resolution - each shareholders share = 1 vote. As opposed to their votes in person, which is a vote each.

Question 14

What are the 2 ways of passing a shareholders resolution? Aka what are the 2 ways in which they can vote?

Answer 14

General meeting or written resolution

Question 15

Who calls a general meeting?

Answer 15

General meetings are called by the board of directors by passing a board
resolution.

Question 16

Under CA, are AGMs compulsory?

Answer 16

No. General meetings are compulsory tho (if public company).

BUT, AGMs can be made compulsory if company incorporates a provision for it in their articles.

Question 17

What makes a general meeting valid?

Answer 17

1. Notice requirements: directors must give notice to every shareholder and director and auditor of 14 CLEAR DAYS. It must be given by either hard copy, in electronic form, or by means of a website, or a combination of these means.
2. Notice must set out: time, date and place of meeting. General info about the meeting. If a special resolution is proposed, the exact wording of the special resolution. Each shareholder’s right to appoint a proxy to attend on their behalf .

Question 18

How many days notice must be given for a general meeting?

Answer 18

14 CLEAR DAYS.

Question 19

If notice of general meeting has been sent by email or post, when does the first of the 14 clear days notice start?

Answer 19

It is assumed that it has been received 48 hours after the notice was posted or emailed. So it is now, 48 hours + 14 clear days.

Question 20

How do shareholders vote in a general meeting?

Answer 20

Show of hands

Question 21

Can shareholders vote in the general meeting even if they have a personal interest in the matter?

Answer 21

Yes. Unless the circumstance is one of the two below, where the resolution is:

(1) * a resolution to buy back some or all of a shareholder’s shares (see 4.6), because the shareholder in question could be voting in their own interests, not the company’s, when voting; and

(2) * an ordinary resolution to ratify a director’s breach of duty under s 239 CA 2006, where the director in question is also a shareholder (see 3.19), because they would almost certainly vote in favour of ratifying their breach of duty as a director.

Question 22

Assuming the company has the Model Articles, what would happen if there was a shareholder that was also a director and this person had a personal interest in a matter? Can they vote at the general meeting and board meeting?

Answer 22

They will be able to vote in the general meeting in their capacity as a shareholder - as long as the matter is not about buying back that shareholder’s shares or to ratify their breach of duty as a director.

But they will not be able to vote in the board meeting in their capacity as a director.

Question 23

What is a poll vote?

Answer 23

Basically, the same effect as a written resolution - each shareholder gets one vote per share that they own.

Question 24

Who can call a poll vote?

Answer 24

(a) the chair of the meeting;
(b) the directors;
(c) two or more persons having the right to vote on the resolution; or
(d) a person or persons representing not less than one tenth of the total voting rights of all
the shareholders having the right to vote on the resolution.

Question 25

If there was a poll vote and a vote on a show of hands, which ones decision will override the other?

Answer 25

The poll vote will override.

Question 26

If there are 3 shareholders, what does the vote outcome look like for ordinary resolutions or special resolutions - in this situation 2 out of 3 vote in favour of X.

Answer 26

Ordinary: this is enough to pass the resolution.

Special: this is not enough to pass the resolution (2/3 =0.66).
But, depending on how many shares they each have, they could pass the resolution on a poll votes. The 2 that want to pass the resolution can request a poll vote.

Question 27

Sometimes an emergency general meeting is needed, aka no time to do the 14 clear days notice, how can this be done?

Answer 27

There must be:

• a majority in number of the company’s shareholders must want this meeting to happen;
• who between them hold 90% or more of the company’s voting shares must consent.

It will be 95% for public companies.

Question 28

Once a written resolution has been sent out, when does it need to be handed in by?

Answer 28

Within 28 days

Question 29

How is a written resolution passed?

Answer 29

When the required majority of shareholders have signified the agreement to the resolution - this is done by one vote per share.

Question 30

What can shareholders do when they want to request a written resolution?

Answer 30

Shareholders who have 5% or more of the voting rights in the company can circulate a written resolution. Company must circulate this within 21 days of the shareholders’ request. Shareholder who requested must finance the circulation.

CA allows companies to reduce this below 5% to allow more shareholders to be able to vote.

Question 31

What can shareholders do when they want to request a general meeting?

Answer 31

Directors are required to call a general meeting once they have received requests from shareholders with at least 5% voting rights, that has been full paid. Must be called within 21 days of request.

Question 32

Should companies keep board minutes of every board meeting; minutes of every general meeting and a record of the outcome of any written resolutions at the companies office for 10 years?

Answer 32

Yes.

Question 33

Whose responsibility is it that accounting records are produced each financial year?

Answer 33

The director’s. Directors must also make a director’s report alongside the accounts (if a bigger company (more than 50 employees).

Question 34

What must (if requested) the director prepare other than the directors report and accounts?

Answer 34

An auditor’s report.

Question 35

When should the accounting record be produced?

Answer 35

Private = every 9 months from the last accounting reference period

Public = every 6 months from the last accounting reference period

Question 36

When should a company confirm and validate the info held by Companies House?

Answer 36

Within 14 days of the company’s anniversary of incorporation every year.

Confirmation is important to ensure that info is correct and up-to-date.

Question 37

What type of company is REQUIRED to have a company secretary?

Answer 37

Public Limited companies.

Question 38

What does a company secretary do?

Answer 38

They are used to deal with the company’s legal administrative requirements. Responisble for writing up the board minutes and minutes of board and general meetings. Also responisble for keeping the filings at Companies House up to date.

Question 39

What happens in companies that don’t need company secretaries (aka not a public limited company)?

Answer 39

CA says that the work expected of a company secretary can be performed by directors or someone authorised by directors.

Question 40

What kind of contracts are company secretaries not supposed to be entering into?

Answer 40

Trading contracts - aka contracts that involve borrowing money.

Question 41

How does a company’s secretrary’s job end?

Answer 41

They can either resign or directors can remove them by board resolution.

Any changes must be informed to the Registrar of Companies within 14 days. Such as a secretary being appointed or dismissed etc.

Question 42

Does the info on secretaries HAVE to be put in the register of secretaries?

Answer 42

No. Private companies can elect not to keep their own register of secretaries. Instead they must ensure the info is up-to-date at the Companies HOuse.

Question 43

What is an auditor?

Answer 43

This is an accountant whose main work is to prepare the company’s annual accounts reports to be sent to the shareholders. Must give accountant’s opinion as to whether the company is being used fairly and there is no misleading regarding how shareholder’s money is being used by the company.

Question 44

Who is exempt from statutory audit requirements?

Answer 44

Small companies (less than 50 employees and a revenue of not more than £5.1 mil)

AND dormant companies.

Question 45

How can auditors be removed?

Answer 45

At any time using ordinary resolution by shareholders.

Special notice must be given that the shareholders want to remove the auditor.

Question 46

How can the auditor resign?

Answer 46

By sending a notice of it to the company’s registered office.
Auditor must deliver a statment to the company explaining the circumstances related to why they no longer want to hold office (for example, unethical behaviour within the company).

Question 47

Who are the first shareholders in a company?

Answer 47

A company will have 2 first shareholders - the 2 that sign the memorandum of association - they will be called the subscribers/ members.

If a company only has 1 shareholder - this should be stated in the register of members.

Question 48

How can someone become a shareholder?

Answer 48

When they purchase shares.
When they are given shares.
When someone dies and someone else receives those shares.
When a company creates new shares and allots them.

Question 49

Does a record of shareholders need to be kept?

Answer 49

A company must have a register of members, unless it has opted to only keep the info on the central register at Companies House.
Must be lodged within 2 months of a change and also within 2 months, shareholders must be given a share certificate.

Question 50

What must happen within 2 months of shares being alloted or transferred etc?

Answer 50

Share certificates must be given to the respective shareholders.

Additionally, this change must be registered at the central register at Companies House.

Question 51

What is a PSC

Answer 51

Persons with significant control - must be informed about in the IN01 form.
This is any shareholder who owns more than 25% of the shares or voting rights.

Question 52

Who must keep a register of PSC?

Answer 52

Private companies and non-traded public companies.

But private companies can choose to only keep this info on the central register at Companies House instead.

Question 53

Can personal details be kept private and hidden on the PSC register?

Answer 53

Yes but only with application - it must be requested to be kept private.

Question 54

What form must be completed by a person who is about to appear on the PSC register for the first time?

Answer 54

PSC01 (for people)
PSC02 (for companies)

Question 55

When must the PSC register forms be filed?

Answer 55

Within 14 days of the change in register.

Question 56

What does the company’s consititution mean for shareholders?

Answer 56

It is the statutory contract between the shareholder and the company. It is also a contract between each shareholder. This is how they can sue eachother if they do not abide by the terms.
It is mainly the articles of association that provide the terms of this statutory contract.

Question 57

What can shareholders enter into, in addition to the companies articles of association, that will bind all other shareholders and provide remedy if a term is breached?

Answer 57

A shareholders agreement. BUT remember that it only binds the shareholders that have decided to join this agreement. Whereas, the companies articles of association binds all shareholders automatically.

Question 58

Is the shareholders agreement private or public?

Answer 58

It is private

Question 59

Who benefits from the existence of a shareholders agreement?

Answer 59

Minority shareholders. Since, the company’s articles provide very little to power to them.

Question 60

What kind of stuff can be included in the shareholders agreement?

Answer 60

1. Clauses which protect minority shareholders.
2. Restrictions on the transferral of shares
3. Bushell v Faith clauses (aka giving shareholders more voting rights in a situation where they are also a director and shareholders want to remove them as a director)
4. A non-compete clause - which prevents shareholder from involvement ina business which competes with the company.

Question 61

What are some voting rights that shareholders have?

Answer 61

Right to send in a proxy to the general meeting.

Right to poll vote.

Right to receive notice of general meetings.

Right to request a general meeting.

Right to apply to court to call a general meeting - for example where other shareholders are refusing to attend a general meeting.

Right for shareholder with 5% or more voting rights to require a circulation of a written statement with info about what is to be discussed in a general meeting. (Only thousand words allowed)

Right for shareholdwrs with 5% or more of the company’s shares to require the company to circulate a written resolution and accompanying statement.

Question 62

Do shareholders have the right to remove a director?

Answer 62

Yes. By ordinary resolution.

Question 63

Can shareholders apply to the court for the company to be wound up, on the grounds that it is just and equitable to do so? (Insolvency stuff like a deadlock)

Answer 63

Yes.

Question 64

Can a shareholder apply for an injunction to restrain company from doing something prohibited by its constitution?

Answer 64

Yes.

Question 65

How is one company a subsidiary of another company?

Answer 65

When the other company owns all or at least the majority of the subsidaries shares.

Question 66

Can two or more individuals own the shares together?

Answer 66

Yes, but this will need to be recorded and named (but only one address) in the register of members.

Question 67

What are ordinary shares?

Answer 67

Normal shares.
Shareholders with ordinary shares can vote at general meetings.
These shareholders can also receive dividends if they are declared.

Question 68

What are preference shares?

Answer 68

Given greater advantage in terms of dividends and money - fixed dividends even, whereas ordinary share shareholders may get the tid bits left over.

However, no voting rights. These shareholders have chosen money over having voting rights - can’t vote at general meetings.

Question 69

What does it mean if a preferential share is cumulative?

Answer 69

Means those preferential shareholders are owed any missed dividends from previous financial years and the current - these guys are ranked first in order of which shareholders get paid dividends .

Question 70

What are the 2 mechanisms available for minority shareholders who feel that they are unhappy?

Answer 70

Unfair prejudice petitions

or

Derivative claims

Question 71

How does unfair prejudice petitions work?

Answer 71

Test: An objective test.

Grounds for petition:

the company has been conducted in a manner that is unfairly prejudicial to the interests of the members generally, or some part of its members OR an act or omission that is or will be prejudicial to claimant.

The conduct of company will cause:
Harm and is prejudical.

Remedy:
Usually to provide shareholder an exit - such as making other shareholders buy the claimants shares OR ordering the company to buyback the shares.

Question 72

How do derivative claims work?

Answer 72

When a director has messed up and has done a wrong to the company and shareholders want this investigated.

Company v Director

Can be some damage caused by director’s act or omission.

In this instance, the claimant will be the company. Brought by the shareholders. Usually in relation to the director’s negligence, breach of duty or trust etc.

Shareholders need permission to continue the claim. Courts will only allow case to continue if it has a prima facie case. If there is one, court will ask for evidence.

Question 73

For derivative claims, when will the court prevent a case from going ahead?

Answer 73

1. when continuing the case would not be good in promoting the success of the company - the shareholder/s who are bringing this claim do not have the company’s best interest in mind
2. where the cause of action (loss etc) arises from an act or omission that has not yet occured BUT has been authorised by the company already
3. when the act or omisson has happened but was authorised or ratified after it happened.

Question 74

What can a shareholder owning 5% do?

Answer 74

(1)Request a general meeting.
(2)Request the circulation of a written statement (if they have paid up at least £100).
(3)Right to circulate a written resolution - no more than 1,000 words.

Question 75

At what share percentage can shareholders start requesting poll votes?

Answer 75

10%

Question 76

What share amount do you need to block a special resolution?

Answer 76

25% or 26%

Question 77

If a shareholder has 51% shares, what can they do?

Answer 77

Block or pass an ordinary resolution.

Question 78

If a shareholder has 75% shares, what can they do?

Answer 78

Block or pass a special resolution.

Question 79

Do shareholders have to do a general meeting in order to consent to a decision?

Answer 79

No, but unanimous consent will be needed - this is commonly used by single-member companies but can also be used by many member companies. Cannot be used for more serious stuff like amending the AoA.

Question 80

What is the minimum number of directors?

Answer 80

All companies must have at least 1 director. public companies must have at least 2. At least 1 must be a natural person and they must be 16+ yrs.

Question 81

Can shareholders override directors’ decision?

Answer 81

No. But they do have prior veto over the directors’ actions in certain circumstances. For example, if the directors want to enter into a substantial property transaction, the shareholders must first approve this by ordinary resolution.

Question 82

When it comes to directors, what can the board decide?

Answer 82

Under MA 19, the board has the power
to decide what services the company’s directors undertake. The board is also entitled to
decide on directors’ levels of remuneration and benefits.

Question 83

What are directors contracts known as?

Answer 83

Service contracts.

Question 84

What are the 2 types of directors?

Answer 84

Executive and non-executive.

Executive: has a service contract that sets out roles etc…

Non-executive directors are appointed to the board and will be registered at Companies
House as directors of the company, but they will not have service agreements with the
company. They do not therefore receive a salary, but they will receive directors’ fees for
attending board meetings. They are able to be more unbiased and invested in decisions and are therefore needed to balance out the executive directors etc.

Question 85

Who is made a chairperson?

Answer 85

A director. Not necessary but is an option.

The directors may appoint a director to chair board meetings (MA12(1)), and can do so
by passing a board resolution.

Question 86

What can a chairperson do other than chair board meetings and general meetings?

Answer 86

They can use their vote and cast a vote whenever there is a tie in votes.

Question 87

What is a shadow director?

Answer 87

A shadow director is a person in accordance with whose directions or instructions the
directors of the company are accustomed to act (s 251(1) CA 2006), but who has not been
formally appointed as a director of the company.

Can be a shareholder.

Likely to be in the background and not carrying out the normal
functions of director, but they will have a great deal of influence and control over the
other directors’ actions in practice.

Question 88

What is a de facto director?

Answer 88

Someone who has not been formally appointed as a director but carries out director roles.

Question 89

When a company only has one director, do they need to have a board meeting to make a decision?

Answer 89

No. One director can simply make the decisions, no need for anything else.

Question 90

What if a director could not attend and wanted to send in an alternative director?

Answer 90

They cannot do this, unless AoA has something that allows this - not something provided for by the Model Articles.

Question 91

How are directors appointed?

Answer 91

Under the Model Articles, directors can either be appointed by the board or by ordinary
resolution of the shareholders (MA 17)

Question 92

If a doctor says a director is unfit to be a director and will be so for more than 3 months, what will happen?

Answer 92

Director role will cease

Question 93

If director becomes bankrupt?

Answer 93

They must cease to be a director.

Question 94

Directors and implied actual authority

Answer 94

Implied actual authority arises where the board has not
expressly permitted the director to act in a certain way, but the director has acted that way
in the past and the board has not tried to stop the director or told them that they are not
authorised to act in that way.

Question 95

Directors and apparent authority

Answer 95

Apparent authority is where the director acts without the company’s prior consent, whether
express or implied, but still binds the company to the contract. Effectively the company
is estopped from denying the director’s authority. Apparent authority is based on a
representation, by the company to the third party, by words or conduct, that the director is
acting with the company’s authority.

Basically, the director may have made it seem that they are acting on behalf of the company and it felt legit to the 3rd party … they can’t always be checking things like this.

If a director does not have actual or apparent authority, the director is personally liable to the
third party and the company is not a party to the contract or liable to the third party.

Question 96

How long is a typical service contract?

Answer 96

1 yr

Question 97

What is considred a long-term service contract and how can it be granted?

Answer 97

Where the board is proposing to enter into a service contract with a
guaranteed term of more than two years. These are considered long-term service contracts and must be approved by the shareholders by ordinary resolution.

Question 98

When it comes to service contracts that are very long, is authorisation from shareholders needed if it is that the contract can be terminated with a notice period of 1 yr?

Answer 98

No. When the notice period is really short, there is no need to worry about going through shareholders in order to extend the contract.

Question 99

Does the Model Articles allow for companies with 2 directors to decide on their service contracts?

Answer 99

NO. As they will have personal interest in extending the service contracts.
But this can be changed via special resolution.

Question 100

If a service contract has been signed, with a guaranteed term of more than 2 years BUT there has been no shareholder approval, what happens?

Answer 100

Contract is valid but the guaranteed term will be void. The service contract would be capable of termination on reasonable notice.

Question 101

Can shareholders inspect the service contracts?

Answer 101

Yes. Without charge and within seven days of requesting to see them.

Question 102

How can a director resign?

Answer 102

By filing out TM01 (if they are an individual), or form TM 02, if the director is a company, within
14 days of resignation.

Question 103

Removing a director - needs to be done 2 fold, what are they?

Answer 103

They need to be removed from the office of director AND their service contract must be ended.

Question 104

What can the company do to ensure that if the director does not resign properly (aka notify the Companies House etc), that the director leaves?

Answer 104

If their service contract was well drafted, it will contain a clause giving the company power of attorney to complete the TM01 form on the director’s behalf.

Question 105

How can we remove a director?

Answer 105

(1) give special notice for a resolution to remove the director 28 or 14 days before the general meeting

(2) if possible give notice of this in newspapers

(2) shareholders can remove a director by ordinary resolution passed at a general meeting.

Question 106

What is the Bushell v Faith clause?

Answer 106

Where a shareholder is also a director, and other shareholders want to remove them as a director, the shareholder is entitled to 10 times more votes than usual at the ordinary resolution to remove them as a director. Can be found in the company’s articles. NOT in Model Articles.

Question 107

Companies House must be notified within 14 days of any changes to any of the persons in the company - what forms need to be filed when a director has been appointed?

Answer 107

Forms AP01 (for human directors) and AP02 (for corporate directors) are used to notify
Companies House of the appointment of a director, and they must be filed within 14 days
of the appointment.

TM01 and 02 for resignations.

Question 108

To whomst does the director owe their duties to?

Answer 108

The company.

Question 109

What are some directors duties?

Answer 109

OBJECTIVE TEST: Duty to act within powers - to act in accordance with the AoA.

SUBJECTIVE TEST: Duty to promote the success of the company - acting in good faith; looking at the long term; looking at whats best for the company’s employees; fostering good relationships allround; maintaining reputation of company.

Duty to exercise independent judgement

Duty to exercise reasonable care, skill and diligence: (1) you would expect someone in that position to have a certain level of awareness and skill. (2) you would expect that particular director to have done better considering they have been working for X amount of years.

Duty to avoid conflicts of interest: whether or not a company can take advantage of an opportunity is irrelevant - the director should not abuse their position and use info + opportunities for themselves. Board resolution can authorise this breach however - the director themselves cannot vote however.

Duty to not accept benefits from 3rd parties that has been given because they are a director .. and thus could give 3rd party some help later.

Duty to declare interest in a proposed transaction or arrangement (s 177) - must declare the nature and extent of that
interest to the other directors. Unless any of the exceptions apply.

Question 110

A director will ALWAYS have the duty to declare interest in a proposed transaction or arrangement, why?

Answer 110

EVEN if MA 14 has been disapplied, CA s 177 will remain and it says the same thing.

Question 111

How can shareholders ratify a breach or potential breach of a director’s duty?

Answer 111

By ordinary resolution.

That director cannot vote if he is also a shareholder as well.

Question 112

At what times does director with a personal interest required to declare this?

Answer 112

Before that transaction is entered into, or when it has been proposed. s 177

And

During the existing transaction or arrangement. s 182 - make them aware of it asap.

Question 113

What are the ways a director can be sued?

Answer 113

1. Derivative claim: it is company v director.
2. For wrongful trading: happens when company goes into liquidation and before it was wound up etc, the director knew that there was no reasonable prospect of the company surviving this and will have to be insolvent.

One defence for this: a director will not be liable for wrongful trading if they took every step with a view to minimising the potential loss to the company’s creditors as they ought to have taken. Director could be asked to pay.

2 part test of a reasonably diligent person:
1. Director is expected to have the general knowldge, skill and reasonable care etc of that role
2. Them specifically, and their experience and the standard therefore expected of them.

3. Fraudulent trading: basically, when the company has been handled in such a way that it scams creditors - for example money has been spent in such a way that it is clear that no intention for creditors to get their money. There must be intention to defraud. Director could be asked to pay
4. Misfeasance
   Misfeasance is breach of any fiduciary or other duty by directors. Director could be asked to pay

Question 114

What should solicitors advise directors to do to minimise the likelihood of a successful claim for wrongful trading (and/or fraudulent trading)?

Answer 114

Directors should:
* seek professional advice from solicitors and/or accountants at the first sign of problems;
* limit spending;
* check the company’s accounts regularly;
* keep records of their own actions.

Question 115

Often where a case does not succeed as fraudulent trading, what can it succeed as with the same facts?

Answer 115

Wrongful trading

Question 116

Is a shareholders consent needed when the board wants to enter into a substancial property transaction?

Answer 116

Yes. Via Ordinary resolution.

Question 117

What is a substancial property transaction?

Answer 117

When the director or someone connected to the director sells or buys property from or to the company, that is of substancial value.

Someone connected to the director = director’s partner, children or parents AND persons that the director may be working as a director with someone else in another company (basically director using one company to benefit another company they are a shareholder (at least 20%) also).
So, their fellow shareholder in another company could be related to them and they each have 10% which makes 20% for them. Or, simply, the director is a shareholder of the other company and they own 20% there.

Question 118

What is ‘substancial’ when it comes to substancial property transactions?

Answer 118

An asset can be classed as substantial in one of two ways (s 191 CA 2006):
* It will automatically be classed at substantial if its value is over £100,000.
* It will also be substantial if it is worth more than £5,000 and more than 10% of the
company’s net asset value.

Question 119

What happens if board continues a substancial property transaction without shareholder’s consent via ordinary resolution?

Answer 119

Transaction is now voidable.

Question 120

Do loans to a director need to be authorised by shareholders?

Answer 120

Yes. By ordinary resolution.
If director is a director of the company’s holding company as well, the holding company must also pass an ordinary resolution.

Question 121

What should be handed out at least 15 days before the general meeting to give consent for giving a director a loan?

Answer 121

Under s 197(3) of the CA 2006, a memorandum setting out the terms of the loan and the
company’s liability must be made available for inspection at the company’s registered office
for 15 days prior to the general meeting at which the ordinary resolution will be proposed, and at the general meeting itself.

Question 122

Is shareholder consent needed (via ordinary resolution) if directors want a long term service contract to be issued?

Answer 122

If longer than 2 years, yes.
But if the guaranteed term is short - then no.

The company may not enter into a service contract with a director for a guaranteed term of more than two years unless the shareholders have authorised the guaranteed term element of the service contract by ordinary resolution.

Question 123

When a director looses office, they are usually given some money. When it exceeds a certain amount, shareholder consent is needed to authorise this payment. What is this amount?

Answer 123

£200

Question 124

You need shareholder consent to give bye bye money to directors and who else?

Answer 124

• payments to past and shadow directors;
• payments to a person connected with a director;
• payments to any person at the direction of, or for the benefit of, a director or a person
  connected with a directo

Question 125

What are some failures that directors can be held liable for?

Answer 125

1. Failure to maintain company records is an offence punishable by a fine (s 1135 CA
   2006). If the records in question are accounting records, the director(s) in default can be
   imprisoned for up to two years (s 389)
2. There are also specific offences relating to the failure to file certain documents at
   Companies House. For example, failure to file a special resolution or a memorandum
   setting out its terms at Companies House within 15 days of it being passed is an offence
   punishable by fine (s 30 CA 2006)
3. Liability for financial records (s 463 CA 2006)
4. Liability for breach of health and safety legislation, namely the Health and Safety at Work Act 1974. Directors can be imprisoned for up to two years and fined for breaches of this
   legislation. If somebody dies due to management failure, directors can be liable for the common law offence of gross negligence manslaughter.
5. Bribery – the scope of the Bribery Act 2010 is wide and it is easy to see how seemingly
   innocent behaviour could be caught by it without the director in question realising.
6. Making political donations without shareholder approval.
7. Civil and criminal liability under environmental legislation, for example the Environmental Protection Act 1990

Question 126

What are the grounds to being disqualified as a director?

Answer 126

• Conviction for an indictable offence
• Persistent breaches of companies legislation
• Fraud on a winding up
• Summary conviction for failure to file a required notice or document
• Being an unfit director of an insolvent company
• Following an investigation and a finding of unfitness
• Fraudulent or wrongful trading
• Breach of competition law

Question 127

What is the time frame of disqualification?

Answer 127

2-15yrs. Needs leave of court in order to be a director again.

Question 128

What happens when a director is disqualified and still works at managing the company?

Answer 128

A director who is disqualified is personally
responsible for the debts of the company if they are involved in the management of the
company while disqualified