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2022 - Company Law > Week 10 - Director Accountability > Flashcards

Week 10 - Director Accountability Flashcards

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1
Q

what is the purpose of a corporate governance system?

A

to effectively restrict and monitor the powers vested in decisionmakers

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2
Q

what does it mean to usurp?

A

overtake

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3
Q

how does the law protect the interests of SH ito mgmt?

A

by holding mgmt accountable, as SH’s control does not extend to the decisions made by mgmt

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4
Q

what may a director NOT be?

A
  • disqualified

- ineligible

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5
Q

what makes a person ineligible of being a director?

A
  • juristic person
  • unemancipated minor
  • does not satisfy MOI requirements
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6
Q

what makes a person disqualified from being a director?

A
  • 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
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7
Q

what does s76 say about the conduct of directors?

A
  • 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
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8
Q

in what way should the director act?

A
  • good faith
  • best interest of company
  • degree of skill, care, diligence
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9
Q

what does the business judgement rule state?

A

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
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10
Q

who may a director rely on for advice and info?

A
  • 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
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11
Q

how does the Act define reckless trading?

A

a company carrying on its business recklessly, with gross negligence, with the intent to defraud any person or for fraud purposes

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12
Q

what does defraud mean?

A

illegally obtain money from someone through deception

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13
Q

what will the Commission do if it has reasonable grounds to believe that it is engaging reckless trading/becoming insolvent?

A

may issue a notice to the company so that it can prove that it should still be permitted to continue its trade

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14
Q

how long does the company have to prove it is not recklessly trading/becoming insolvent?

A
  • 20 business days

- if it fails, Comm may issue a compliance notice requiring company to stop trading

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15
Q

what must a director do if he has personal financial interest in a matter?

A
  • 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
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16
Q

what will a director’s presence at a meeting be regarded as if they have a personal financial interest in the matter being considered?

A
  • present for valid meeting quorum purposes

- absent for determining if sufficient SH to pass a resolution

17
Q

what must the director do if the matter has already been approved?

A
  • 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
18
Q

what happens if a company has only one director who does not hold all issued securities?

A

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

19
Q

what are the exclusions where the personal financial interest requirements do not apply?

A
  • 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
20
Q

when may a director be held liable? (general)

A

for any losses sustained based on a breach of fiduciary duty or negligence

21
Q

what is negligence?

A

failure to act with reasonable care

22
Q

in which situations may a director be held liable for losses/damages?

A
  • 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
23
Q

when may a director be liable for being present in a meeting?

A

if they participate in or fail to vote against:

  • issue of unauth shares
  • issue of financial assistance contrary to MOI
24
Q

what is the constructive form of knowledge?

A

means the director must have known or reasonably ought to have known

25
Q

who are all the individuals that these standards apply to?

A
  • directors
  • prescribed officers
  • alternate directors
  • committee members
26
Q

what does indemnification mean?

A

compensate for a loss

27
Q

when may a company advance expenses to a director for litigation relating to service to the company?

A
  • if proceedings are abandoned / director is declared not guilty (exculpated)
  • indemnification relates to the matter in the proceedings
    (unless MOI says otherwise)
28
Q

when may the company indemnify a director?

A

for any liability arising, unless it relates to willful misconduct or willful breach of trust

29
Q

what does the general limitation say about provisions in a rule/MOI/resolution?

A

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
30
Q

can a company pay a fine imposed on a director on his behalf?

A

no, as criminal liability is excluded

31
Q

which individuals can order an order of delinquency for a director?

A
  • SH
  • company
  • Commission
  • company secretary
  • POs
32
Q

when MUST the court declare a director delinquent?

A
  • 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)
33
Q

when is delinquency unconditional and lasting a lifetime?

A

if he consented to being a director when ineligible/disqualified

34
Q

when is delinquency lasting 7 years and court can impose conditions?

A
  • 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)
35
Q

who can apply for an order of probation?

A
  • SH
  • company
  • Commission
  • company secretary
  • POs
36
Q

how long does an order of probation last?

A

5 years

37
Q

why could an order of probation be applied for?

A

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
38
Q

what are the remedies against directors?

A
  • declare them delinquent
  • order probation
  • remove them as directors

2022 - Company Law (13 decks)

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