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22 Cards in this Set
- Front
- Back
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Director definition and types
s.250 |
- any ‘person occupying the position of director, by whatever name called’.
- an ‘officer of the company’ and an agent of the company – appointed by the shareholders to manage the co. - execs – e/es too. - NEDs – no exec resps + not an e/e (judgement, independence + objectivity valued – exec or NED in other co, prof quals, poss govt exp). Legally liable in the same way. - NED independence checklist (prev acronym?) – e/e, material bus rel, rem, close family ties, cross-d’s, reps sig s/h, 9+ yrs. Need appropriate balance of power to prevent dominance of board by one ind(s). Court approach to NEDs – in Re Continental Assurance Co of London plc. - corporate d’s – s.155 – must have at least one natural person as d. - de facto d – not been formally appointed but is ‘occupying the position of a d’ - shadow d’s (discussed later) - alternate d’s (discussed later) |
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Who can be a director?
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No formal reqs or quals but certain exclusions:
- bankrupt + not discharged - disqualified by the court (d of prev co now insolvent + declared unfit to manage) - accepted voluntary diqual undertaking - auditor of the co - Arts contain special restrictions e.g. mental disorder, composition w/ d’s creditors in satisfaction of d’s debts Ltd min 1 d. Plc at least 2. |
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Appointing directors
(min age 16, no max) |
- named in form IN01 when co is formed.
- individually appointed by ord res of co at AGM (plcs) – MA.21 – 1st AGM all retire + at every subsequent AGM, any d’s app’d by d’s since last AGM or who were not app’d/re-app’d at 1 of preceding 2 AGMs must retire + seek re-election. - by existing board to fill a causal vacancy until next AGM (death, resign, elected d fails to take up office). Procedure: - board/nomco draws up profile of suitable candidate, poss use recruitment consultants – select candidate for consideration - sec should ensure got info re d, proposed rem, draft service contract, copies of press releases – before BM - board resolves to appoint new d - sec writes to new d confirming app +: reques personal details + sig for AP01, specimen sig for bank, inform re share qualifications which he must acquire, inform re obligation to disclose any interests in shares (if listed) + encourage him to give notice of these, details re how d is to be paid. - notify UKLA (if listed) by COB on the day following the decision – details of d’s other bus activites must be disclosed to UKLA w/in 14 days - file completed AP01 to RoC w/in 14 days of app - change stationery/letterhead if inc’s d’s names - supply him w/ all necy info (re co, CA, LRs, duties, liabilities) and give suitable induction/briefing (CGC) – resp of C, facilitated by sec. S/h could propose appointment of directors by requisitioning a proposal at a GM. |
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Directors’ service contracts
(s.227-230 apply for execs + NEDs) (NEDs not e/es so only receive a letter of app) |
Sets out rem, pension rights, hol + sick pay entitlements, duties define, poss time-limit re joining competitor. Must be kept at RO or SAIL + be available for inspection, and retained for at least 1 yr following cessation of d’s app. Any member may request copy on payment of fee – provide w/in 7 days.
Contract should include: name of co, date of contract + notice period, rem details + when reviewed, commission or profit-sharing arrangements, compensation for early termination, other info re liability on early term. Usual statutory empt rights. Best practice for board as a whole to approve. Approval by s/hs needed if contract cannot be terminated w/in 2 yr period. Term payments should not be excessive. UKGC – listed co’s encouraged to have notice period of not more than 1 yr. |
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Directors’ remuneration
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Entitled to such rem as d’s determine for their services + may take any form. Co may pay any reasonable expenses for a d if in connection w/ exercise of d’s powers. If listed, remco recommended.
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Defective appointments
s. 161 |
Acts of a person acting as a d are valid notwithstanding any defect in their app or if d had been disqualified or had otherwise ceased to hold office. If discover invalid – take steps to rectify.
Consider passing res in GM to ratify acts of the d + poss all other d acts (e.g. some meetings may have been inquorate otherwise). Avoids q’s re rem being repaid + keeps all informed. |
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Vacation of office
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Cease to be a d as soon as notification received by co that d resigning. Date of resig is date ltr received unless states otherwise. Doesn’t need board approval to be effective.
Vacation can also be effected by d not offering himself up for re-election. Also vacated on death – if only 1 d, s/h can request cosec to convene s/hs’ meeting to appoint new d. |
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Removal from office
s. 168 |
By ord res w/ special notice. Doesn’t deprive right to compensation/damages. D entitled to protest, incs circulating their respresenations to co + having right to be heard at the GM.
Articles may allow a d to be removed from the board by fellow d’s by a notice to him by them all or by a board resolution. MAs don’t include this. MA 18 (22 plc) – office of d shall be vacated if he: - is disqualified - becomes bankrupt - mentally/physically incapable of acting as a d - makes a composition w/ his creditors in satisfaction of his debts - resigns his office by notice to the co Removal can be ltd if d holds weighted VRs (Bushell v Faith). Procedure: - resig letter (resignation) or special notice procedure (removal) - formally minute vacation + inc reason, inc instruction to sec ot update registers/make returns - record date of ceasing to be d in register - file TM01 w/in 14 days of date of vacation - fees/expenses for period to date of cessation paid + inform HMRC - check if any share options or other incentives that have been triggered - remove from co stationery - inform bank, if authorised signatory - notify UKLA w/out delay + issue press release - ask d to return all docs + co property |
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Rotation of directors
Not in CA06 but provisions in MA21 for plcs |
- At first AGM, all d’s must retire + be elected by co in GM.
- At every subsequent AGM, any d who has been app’d by d’s since last AGM or any d who hasn’t been app’d or re-app’d at one of preceding 2 AGMs, must retire from office + offer themselves up for rea-pp by members. Keep schedule. Enables co not to re-elect a d although useful to have alternative powers of removal in Arts. UKCG recommends that all d’s of listed cos be subj to election at 1st opp after app, + to re-election thereafter at intervals of not more than 3 yrs (but FTSE350 should be annually). Should be separate resolutions – d’s voted on individually. |
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Directors’ duties
s. 171-177 s. 182 – criminal offence not to declare direct/indirect interest in existing trans or arrangement. CL & equity? |
171 – duty to act in acc w/ co’s constitution.
172 – duty to act in good faith + shall promote success of co for benefit of members as a whole – consider LT, e/es, bus rels, comm+env, rep, fair to all members – enlightened s/h value but overriding factor is success of co. 173 – duty to exercise ind. Judgement – not infringed if d acting in acc w/ a/g duly entered into by co that restricts future ex. of discretion. 174 – duty to ex. reasonable care, skill + diligence (v. close to prev. CL) – that which would be exercised by a reasonably diligent person – objective test (R expected of person carrying out function of a d) and subjective test (K, skills, esp of that d). 175 – duty to avoid conflicts of interest – d’s must avoid situations where they may have direct/indirect interest which is/could be in conflict w/ interests of co. No infringement if authorised by the d’s (ltds – as long as nothing in Arts invalidating auth, plcs – Arts must inc provision enabling d’s to auth matter). He can’t be counted in quorum when voting on the matter. 176 – duty not to accept benefits from third parties in respect of their position as a director of a co – designed to prevent putting them d’s into a position where they may have a conflict of interest. Depends what could ‘reasonably’ be regarded as likely to give rise to a conflict of interest. NB – there is no provision which allows the other d’s to authorise the benefit – authorisation of s/hs only. 177 – duty to declare an interest in a proposed transaction or arrangement – re an interest of which he is aware or ought to be reasonably aware. Declare at BM or by notice to d’s + before consider trans/arrangement. No dec necy if can’t reasonably be regarded as likely to give rise to conflict. 178 – breach of duty – remedies - failure to disclose an interest results in co having ability to avoid contract + make d a/c for any profits, also criminal penalty of a fine (stat max) - d’s liable for damages through negligence - co can dismiss d D’s duty of disclosure extends to stat info + interests in contracts/shares/etc. Inc full name, prev names, nationality, service address, country of residence, DOB, occupation, other directorships (preceding 5 yrs – not dormants). IF corporation – name, RO, reg no, legal fine, law governed by. D’s also need to consider other laws – H&S, anti-bribery, competition, env regs. |
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Power and liabilities
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D’s resp for mngt + may exercise all the powers of the co (MA3). Act as agents + t/f bound by all provisions of agency law (actual + ostensible auth).
Can be indemnified against civil proceedings (defence costs + damages) + criminal proceedings. Exceptions – negligence, default, breach of duty or trust. Will also not be permitted if found guilty in criminal proceedings or is liable to a fine imposed by a govt body. Co seeking damanges against own d’s – may pay defence costs as they are incurred but must be repaid by d if unsuccessful (unless co indemnifies anyway). D still liable to pay any damages awarded. Qualifying indemnity provisions must be disclosed in annual d’s report + any ember can inspect provision – must be available for inspection at least 1yr after expired/terminated. Copy for prescribed fee w/in 7 days of request. |
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Delegation
MA5 and MA6 – may delegate any of their powers as they think fit. UKCGC – recommends key matters reserved for whole board. |
- D’s (collectively + individually) have duty to acquire + maintain suff K + understanding of co’s business to enable them to discharge duties properly.
- Entitled to delegate particular functions + to trust competence/integrity to R exent, but not absolved from duty to supervise. Poss to delegate authority but not responsibility. Level of reward d entitled to may be used as indicator of extent of d’s duties/resps. The higher the reward, the greater the resps. Cosec imp role – full details re specific transaction delegated in BMs and formal terms of ref for a committee for re-occurring trans. MA6 – proceedings of committees w/ delegated auth shall follow provisions in co’s Arts which govern taking of decisions by d’s unless d’s provide otherwise. |
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Derivative claims
ss. 260-269 |
Any member may, on behalf of the co, bring a claim against a d for an actual or proposed act or omission involving negligence, breach of duty or breach of trust. Must apply to court for permission before claim can continue by establishing a prima facie case. No permission if:
- a person acting in acc w/ duty to promote success of co wouldn’t seek to continue - act/omission has been auth/ratified by the co Will consider: - views of other ‘independent’ s/hs - whether claimant is acting in good faith + would be likely to bring claim in own name - whether subj of claim is likely to be auth/ratified by co - imp of claim to a person resp for promoting success of co - if the co itself had not decided to bring a claim against the d. |
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Loans to directors
ss. 197-214 |
Can make loans, quasi-loans (reimburse d’s creditor) or other related trans to d’s, only if prior approval by ord res (Arts may req higher standard of res – overrides stat position). Full disclosure in advance in a memo – purpose, amount + liability to which co exposed under loan/trans.
Ciculate memo if to be passed in writing and be available for inspection at RO for at least 15 days preceding a GM. Exemptions from s/h approval: - loans or quasi-loans up to £10k - credit transaction up to £15k under which d acquires goods from co on deferred payment terms - expenditure incurred for co’s business to perform duties – up to £50k - money-lending co in ord course of its bus + on normal terms – no limit - indemnifying d’s in advance of outcome of civil or criminal proceedings – reimburse if unsuccessful. |
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Substantial property transactions
ss. 190-196 (includes connected persons) |
Unless approved by co in GM, co may not transfer a non-cash asset if its value exceeds 10% of co’s net assets + is more than £5k OR if value exceeds £100k (could enter on condition of s/h approval).
No s/h approval req’d if: - less than £5k - trans between 2 co’s w/in same group - between a member acting in his capacity as member + the co - if already specified in the d’s service contract Voidable unless subsequent s/h approval. |
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Disqualification of directors
IA86 – offences of ‘fraudulent trading’ and ‘wrongful trading’ |
If co goes into insolvent liq + d knew or ought to have concluded there was no reasonable prospect of avoiding insolvency, court may order d to make a personal contribution to co’s assets.
Standard of care req’d/expected mainly objective. Ignorance/incompetence is not a defence. Duty of care – leading case is Re City Equitable Fire Insurance Co Ltd (delegated to MD who stole – lack of supervision – d’s in breach of their duty of skill + care): - D must exhibit skill reasonably expected of a pers of his K + exp; - not bound to give continuous attention to co affairs ; - may delegate duties + trust him to perform them properly. But – Re D’Jan of London Ltd (negligent d) – trend towards holding d’s accountable: standard expected was as stated in IA86 s. 214 (wrongful trading provisions) – must show higher of either the skill actually possessed or that which would objectively be expected of such a d of such a co. |
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The Insolvency Act (IA) 1986 – s. 214
Wrongful trading – where co is being WU, is insolvent + liq applies to court for a dec that a d contribute appropriate sum to co’s assets. |
Court requires proof that d knew, or ought to have known, that there was no R prospect of co avoiding insolvency. Test – facts he ought to know/ascertain + conclusions ought to reach + steps ought to have taken = those which would be known/ascertained/reached/taken by a diligent person having both:
- general K/skill/exp reasonably expected of person carrying out same functions; and - general K/skill/exp that d has. What would a reasonably diligent director have done? Problem minimised by – being reasonable, plan ahead, prepare + use financial info, document reasons for continuing to trade (BMs), take prof advice. Re Produce Marketing Consortium Ltd |
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The Company Directors Disqualification Act (CDDA) 1986
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Auto disqual after define event OR by application to the court declaring person unfit to be a d. Cannot act as a d/liq/administrator/receiver/manager w/out consent of court during period of disqual. Contravention is criminal offence w/ 2 yr prison sentence or unltd fine.
Power to disqual for 2-15 yrs where: 1. in charge of co become insolvent + his conduct made him unfit to be a d 2. convicted of indictable offence re mngt/formation of a co 3. persistently failed to file ARA/AR/etc req’d by CH or failed to keep statutory records 4. fraudulent trading during course of WU or other offence where d req’d to make contribution 5. application by Sec of State on grounds of public interest (after BIS investigation) 6. issued a competition disqual order under EA02 Examples: - phoenix co’s – Re Ipcon Fashions - arrears of Crown debts – Re Stanford Services Ltd (involuntary creditor). NB in Re Bath Glass Crown debts were insuff to disqual d’s. - d’s rem – Re D.F. Ltd - accounts + accounting records – Re Rolus Properties |
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Disqualification (voluntary) undertaking
IA 2000 |
Alternative to disqualification – out-of-court procedure allowing Sec of State to accept a binding undertaking from a d not to act as a d for a defined period w/out consent of the court. Same legal effect.
Can also provide a competition disqualification undertaking. |
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Personal liability
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D’s are agents of the co + will incur no personal liability in event of a breach of contract if exercised duties properly. But must make it clear that they are acting as agent. If given personal guarantees they may be liable.
Personal liability from breach of duty or statutory offence includes: - act as a d whilst disqualified - evading payment of VAT - failing to show co name on correspondence, cheques, etc - fraudulent trading - wrongful trading - employing workers without valid work permits. |
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Shadow directors
CA06 s. 251 |
‘a person in acc w/ whose directions or instructions the d’s of the co are accustomed to act’
Either controls mngt of co or on whose instruction d’s act. Re Unisoft – requires that outsider controls whole of the board or at least a governing majority. Can be outside person or corporate body who influences d’s actions. Poss controlling s/h or creditor. But corp body not regarded as a SD of any of its subsidiary co’s for purposes of general duties of d’s, trans requiring members approval or contract w a sole member whoc is also a d. Avoid by: - prof advisers should have letter of engagement setting out terms of ref + expressly stating not to be treated as d’s of co - ensure 3rd parties made aware prof advisers are not acting as d’s - advisers (+ senior e/es) should avoid frequent attendance at BMs if unnecy SDs just as liable as every other d + mus comply w/ CA06 – AP01-02, disclose interest in contracts by written notice to d’s, service contracts must be available for inspection. Usually only discovered after something has gone wrong. Secretary of State v Deverel – Court of Appeal unhappy w/ phrases such as cat’s paw, puppet or dancing to the tune of. These imply more than what statutory definition required. Q simple – did alleged SD have real influence in corporate affairs of the co. |
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Alternate directors
(only if Arts provide for it – ltd MAs don’t, plc MAs do) |
A person appointed by member of board to act/speak during periods of absence/incapacity.
AD is a de facto d during app. Must be approved by board + be effected by a notice in writing signed by the d making the app and must contain a stmnt signed by proposed alternate that he is willing ot act an alternate (MA25). Enter into register + file AP01. Subj to same rules re loan/trans. Can only act in absence of appointing d who can revoke app at any time by notice in writing to the co. If appointing d ceases to hold office, AD will auto cease too unless already a d. Same rights as appointing d – receive notices of all meetings, attend/vote at meetings, perform all function of appointer. NOT entitled to remuneration but can negotiate separate fee. Resp for own acts/omission (not deemed to be agent of d appointing him). Consider: - board res decided on simple majority of votes – AD entitled to a separate vote in addition to own vote - quorum is 2 – AD counted in the quorum only if appointing d not present – avoid double-counting - plc MA18 – unanimous consent to WR of board req’d – if signed by appointing d need not be signed by AD + vv, but still appropriate to send AD same documentation. Advise AD re interests in co – if d has an interest in an actual/proposed transaction, the d AND his AD may not vote on any proposal relating to it. But AD can vote re trans on behalf of another appointer. This stops unscrupulous d w/ material interest appointing AD who would be part of a quorum + could vote on it. |
