Week 10 - Director Accountability Flashcards
what is the purpose of a corporate governance system?
to effectively restrict and monitor the powers vested in decisionmakers
what does it mean to usurp?
overtake
how does the law protect the interests of SH ito mgmt?
by holding mgmt accountable, as SH’s control does not extend to the decisions made by mgmt
what may a director NOT be?
- disqualified
- ineligible
what makes a person ineligible of being a director?
- juristic person
- unemancipated minor
- does not satisfy MOI requirements
what makes a person disqualified from being a director?
- declared delinquent
- unrehabilitated insolvent
- prohibited ito public regulation
- removed from office due to misconduct from dishonesty
- convicted/imprisoned/fined for theft, fraud, perjury or misrepresentation
what does s76 say about the conduct of directors?
- may not use position for personal gain/advantage
- may not knowingly cause harm to company
- must communicate to board relevant info to the board unless publicly available or immaterial
in what way should the director act?
- good faith
- best interest of company
- degree of skill, care, diligence
what does the business judgement rule state?
a director will not be held liable for breach of their duties if they:
- take reasonable steps to become informed about matter
- has either: no financial interest or disclosed their financial interest ito Act
- believes the decision was in best interest and has a rational basis for the belief
who may a director rely on for advice and info?
- employees if believed to be reliable and competent
- legal counsel, accountants RETAINED by company for matters regarding that person’s professional skills
- committee to which director is not a member
how does the Act define reckless trading?
a company carrying on its business recklessly, with gross negligence, with the intent to defraud any person or for fraud purposes
what does defraud mean?
illegally obtain money from someone through deception
what will the Commission do if it has reasonable grounds to believe that it is engaging reckless trading/becoming insolvent?
may issue a notice to the company so that it can prove that it should still be permitted to continue its trade
how long does the company have to prove it is not recklessly trading/becoming insolvent?
- 20 business days
- if it fails, Comm may issue a compliance notice requiring company to stop trading
what must a director do if he has personal financial interest in a matter?
- disclose the interest, its general nature and any material info relating to it before it is considered
- disclose insights/observations if requested
- leave the meeting immediately
- not take part in consideration
what will a director’s presence at a meeting be regarded as if they have a personal financial interest in the matter being considered?
- present for valid meeting quorum purposes
- absent for determining if sufficient SH to pass a resolution
what must the director do if the matter has already been approved?
- disclose the interest, its general nature and any material info relating to acquisition of interest
- court may declare transaction valid even if requirements not met
what happens if a company has only one director who does not hold all issued securities?
he may not approve/enter into any agreement in which he/related person has financial interest, unless approved by ordinary resolution after nature of interest is disclosed
what are the exclusions where the personal financial interest requirements do not apply?
- removal of a director
- decisions which may affect all directors or a class of persons where the director happens to be a member
- a company where there is only one SH and director
when may a director be held liable? (general)
for any losses sustained based on a breach of fiduciary duty or negligence
what is negligence?
failure to act with reasonable care
in which situations may a director be held liable for losses/damages?
- acted on behalf of the company and bound them without authority
- signing/authorizing misleading FS
- if party to an act/omission by a company despite knowing it was to defraud
when may a director be liable for being present in a meeting?
if they participate in or fail to vote against:
- issue of unauth shares
- issue of financial assistance contrary to MOI
what is the constructive form of knowledge?
means the director must have known or reasonably ought to have known
who are all the individuals that these standards apply to?
- directors
- prescribed officers
- alternate directors
- committee members
what does indemnification mean?
compensate for a loss
when may a company advance expenses to a director for litigation relating to service to the company?
- if proceedings are abandoned / director is declared not guilty (exculpated)
- indemnification relates to the matter in the proceedings
(unless MOI says otherwise)
when may the company indemnify a director?
for any liability arising, unless it relates to willful misconduct or willful breach of trust
what does the general limitation say about provisions in a rule/MOI/resolution?
provision will be void to the extent that:
- it relieves a director of their duty/liability
- negates/limits the legal consequences arising from willful breach or misconduct
can a company pay a fine imposed on a director on his behalf?
no, as criminal liability is excluded
which individuals can order an order of delinquency for a director?
- SH
- company
- Commission
- company secretary
- POs
when MUST the court declare a director delinquent?
- if he consented to being a director when ineligible/disqualified
- acting in a manner which amounts to gross negligence, willful misconduct, breach of trust
- inflicting harm on the company (intentionally or through gross negligence)
when is delinquency unconditional and lasting a lifetime?
if he consented to being a director when ineligible/disqualified
when is delinquency lasting 7 years and court can impose conditions?
- acted in a manner which amounts to gross negligence, willful misconduct, breach of trust
- if he inflicted harm on the company (intentionally or through gross negligence)
who can apply for an order of probation?
- SH
- company
- Commission
- company secretary
- POs
how long does an order of probation last?
5 years
why could an order of probation be applied for?
if the director:
- acts in a manner materially inconsistent with director duties
- present at meeting and fails to vote against resolution despite knowing that company fails S&L test
what are the remedies against directors?
- declare them delinquent
- order probation
- remove them as directors
