The Board of Directors Flashcards
How does s. 250 of the CA 2006 define a director?
S. 250 of the CA 2006 states that ‘[i]n the Companies Acts, “director” includes any person includes any person occupying the position of director, by whatever name called.’
What is the difference between a de jure and a de facto director?
A de jure director is a person who has been validly appointed as a director (in accordance with the articles), whereas a de facto director is a person who acts as a director but has not been validly appointed.
Define the following: (i) shadow director; (ii) alternate director and (iii) nominee director.
Shadow director: ‘person in accordance with whose directions or instructions the directors of the company are accustomed to act’
Alternate director: someone who is appointed to act as director on behalf of another director (e.g. because the director is ill)
Nominee director: person who has been appointed to the board to act on behalf of another person (such as a major creditor or shareholder).
Provide examples of persons who are ineligible to act as director
- when s. 156A of the CA 2006 comes into a force, a legal person (such as a company) will not be able to act as a director, unless regulations provide for exceptions;
- a person under the age of 16 cannot act as a director (CA 2006, s.157)
- a company’s statutory auditor cannot act as its director (CA 2006, s. 1214)
- a person subject to a disqualification order/undertaking commits a criminal offence if they act as a director (CDDA 1986, ss. 1 and 3), unless they obtain leave to act; and
- an undischarged bankrupt cannot act as a director, unless they obtain the leave of the court (CDDA 1986, s. 11(1))
Who has the power to appoint a director?
A company’s first directors will be appointed upon the company’s incorporation (CA 2006, s. 16(6)). After that, the appointment of directors is a matter for the company’s articles. If the company’s articles say nothing about the appointment of directors, then the model articles will apply and provide that a director can be appointed by an ordinary resolution or by a decision of the directors (model articles for private companies, article 17(1); model articles for public companies, article 20). If such a company has excluded the model articles, then the power to appoint a director is exercised by the members passing an ordinary resolution (Worcester Corsetry Ltd v Witting [1936] CH 640 (CA)).
What does s. 161(1) of the CA 2006 state? Give three examples of when s. 161 will not apply.
Section 161(1) of the CA 2006 provides that the acts of a person acting as a director are valid notwithstanding that it is afterwards discovered:
- that there was a defect in their appointment
- that they were disqualified from holding office
- that they had ceased to hold office; or
- that they were not entitled to vote on the matter in question.
However, s. 161 will not apply in three situations:
- where the person seeking to rely on s. 161 has not acted in good faith (Channel Collieries Trust Ltd v Dover, St Margaret’s and Martin Mill Light Railway Co [1914] 2 Ch 506 (CA));
- where the person seeking to rely on s. 161 knew, at the time of the appointment, of the defect in the appointment and of the legal effect of the defect (British Asbestos Co Ltd v Boyd [1903] 2 Ch 439 (Ch)); and
- where there was no purported appointment in the first place (Morris v Kanssen and Others [1946] AC 459 (HL)).
Are directors entitled to be paid for their services?
A director is prima facie an office holder and so is not entitled to be paid, unless the payment is authorised (such as by the articles of the director’s service contract).
Who determines how much a director will be paid?
Who determines a director’s pay is a matter for the company’s articles. If the articles say nothing on this, the director’s remuneration can be determined by the company in a GM (Re George Newman & Co [1895] 1 Ch 674 (CA)).
The model articles provide that the directors themselves can determine their remuneration for their services to the company as directors, and for any other service which they undertake to the company (model articles for private companies, article 19(s); model articles for public companies, article 23(2)).
The board of larger companies will delegate the role of remuneration setting to a remuneration committee.
What are four ways in which a director can vacate office?
(i) resignation;
(ii) vacation in accordance with the articles
(iii) removal
(iv) disqualification
How can a director be removed from office?
(i) by passing an ordinary resolution at a meeting (CA 2006, s. 168(1)
(ii) by exercising a power of removal in the articles (if the articles contain such a power)
Identify five grounds for the disqualification of a director.
The grounds for disqualifying a director as set out in the CDDA 1986 are:
(i) where they are convicted of an indictable offence in connection with the promotion, formation, management, liquidation or striking off of a company, or with the receivership of a company’s property, or with their being an administrative receiver of a company (s. 2)
(ii) where it appears that they have been persistently in default in relation to provisions of the companies legislation requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies (s. 3)
(iii) where they have been found guilty of fraudulent trading under s. 993 of the CA 2006 or other fraud in relation to the company (s. 4)
(iv) where they have been convicted of a specified summary offence and they have, during the five-year period prior to the conviction, been convicted of similar offences at least three times (s. 5)
(v) where they have been convicted of certain indictable offences overseas that involve (i) the promotion, formation, management, liquidation or striking off of a carpet; (ii) the receivership of a company’s property; or (iii) a person being an administrative receiver of the company (s. 5A);
(vi) where they are or have been a director or shadow director of a company which has at any time become insolvent (whether while they were a director or subsequently), and their conduct as a director of that company (either taken alone or taken together with their conduct as a director/shadow director of that company (either taken alone or taken together with their conduct as a director/shadow director of other companies) make them unfit to be concerned in the management of a company (s. 6)
(vii) where, in the opinion of the Secretary of State, it is expedient in the public interest that a person who is, or has been, a director or shadow director should be disqualified (s. 8)
(viii) where they have exercised the requisite influence over a person disqualified under s. 6 (s. 8ZA) or s. 8 (8ZD);
(ix) where they have breached competition law and their conduct makes them unfit to be concerned in the management of a company (s. 9A)
(x) where they have been found liable for fraudulent trading or wrongful trading under IA 1986 (s. 10); and
- where a person is an undischarged bankrupt (s. 11).
Explain the distinction between a disqualification order and a disqualification undertaking
A disqualification order is an order of the court providing that a person is to be disqualified.
A disqualification undertaking is an undertaking from a person stating that he will not, for a specified period, act as a director of a company and so on.
