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meh > 5 - The board of directors > Flashcards

5 - The board of directors Flashcards

1
Q

What ultimately determines whether a person is a director?

A

Whether they actually carry out the functions of a director

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2
Q

What is a de jure director?

A

A person who has been validly appointed a director

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3
Q

What is a de facto director?

A

A person who acts as a director but has not been validly appointed

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4
Q

What has come to be the requirement for being a de facto director? (3)

A

Exercising real influence in the CG of the company

Undertaking functions which could properly be discharged only by a director

Participate in directing affairs of company and acting on a equal footing with the de jure directors

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5
Q

Example of instance which shows importance of regulating shadow directors

A

Directors almost always act on instruction of majority shareholder

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6
Q

UKCG Code, Provision 13 - NEDs additional role

A

Scrutinise and hold to account the performance of management and individual directors against agreed performance objectives

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7
Q

4 circumstances which could impair NED’s independence (there are others)

A

Employee within last 5 years
Close family ties with company directors, advisers, or senior employees
Represents significant shareholder
Has served on board for more than 9 years

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8
Q

What determines NEDs independence? & significance

A

The board does - directors can still be NEDs even if they meet criteria which would usually impair their independence - board should clearly explain why NED is considered independent

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9
Q

Are directors always empowered to appoint an alternate?

A

No, this must be stipulated in the Articles

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10
Q

Two points of note re. nominee directors

A

Their duty it to the company, not the person who appointed them

The person appointing the nominee can be regarded as a PSC

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11
Q

What is a nominee director?

A

A person appointed by a person with an interest in the company who has the ability to nominate a director (usually as per the Articles)

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12
Q

5 types of people ineligible to act as a director

A
  • When 156a comes into force, only natural persons (with exceptions)
  • Under 16
  • Auditor
  • Disqualification order
  • Undischarged bankrupt
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13
Q

Role of nomination committee according to UKCG Code Provision 17

A

To lead the process for appointments, ensure plans are in place for orderly succession to both the board and senior management positions, and oversee the development of a diverse pipeline for succession

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14
Q

How many directors should be NEDs according to Provision 17?

A

Majority

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15
Q

Why are there proposed plans to abolish requirement for co’s to keep own RoD?

A

Due to incoming ID verification requirements

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16
Q

What is S.161(1)?

A

Acts of a person acting as a director are valid notwithstanding that is is afterwards discovered:
- There was a defect in their appointment
- They were disqualified from holding office
- They had ceased to hold office
- They were not entitled to vote on the matter

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17
Q

3 instances where S.161 does not apply

A
  • Where the person seeking to rely on S.161 had not acted in good faith
  • Where the person seeking to rely on S.161 knew of the defect of the appt and the legal effect of this at the time
  • There was no purported appt in the first place
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18
Q

Is a director entitled to remuneration simply by being a director?

A

No, and it will be deemed void if not authorised

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19
Q

3 sources of authorisation for director remuneration

A
  • Approved by company’s members
  • Articles provide that director is to be remunerated
  • As per director’s service contract
20
Q

What typically determines who decides a director’s pay?

A

Articles, and if these are silent, them can be decided at a GM

21
Q

How many NEDs should sit on remuneration committee?

A

At least 3

22
Q

Boards should be primarily NEDs on boards of which companies?

A

Those with a premium listing

23
Q

4 methods by which a director can cease to act?

A

Resignation
Vacation in accordance with articles
Removal
Disqualification

24
Q

Model articles (Art.18 private, Art.22 public) say director will vacate office if:

A
  • Cease by virtue of provision of CA2006 or are prohibited by law
  • Bankruptcy order is made against them
  • Registered medical practitioner states that the person is physically or mentally incapable of acting
25
Q

Is retirement by rotation required by CA 2006?

A

No

26
Q

Article 21 of plc model articles states:

A

Directors must retire at first AGM and seek re-election; and
At every subsequent AGM, any directors appointed by directors since last AGM or any directors not appointed or reappointed at one of the preceding two AGMs, must retire from office and may offer themselves for reappointment by the members.

27
Q

Two ways in which directors can be removed

A

Under CA 2006
Under Articles

28
Q

S.168(1) - removal of director - brief

A

A company may by ordinary resolution at a meeting remove a director before the expiration of office, notwithstanding any agreement between it and him

29
Q

4 rules which must be complied with for an S.161(1) removal to be valid

A
  • Resolutions takes place at a meeting
  • Special notice of the resolution is required
  • Copy of resolution must be sent to director whose removal is sought
  • Director has right to protest against removal, and may address the meeting and circulate written representations
30
Q

Does a S.168 removal deprive director of compensation they are due?

A

No

31
Q

Is it possible to take away S.168 power? - key consideration

A

No
Weighted voting rights can be inserted, such as for the director being removed

32
Q

Do model articles provide for increased voting power of director being removed?

A

No

33
Q

Case Law example - weighted voting, removal of director

A

Bushell v Faith - was held that weighted voting right clauses are enforceable

34
Q

Bushell v Faith [1970] brief overview

A

Bushell and Faith were only two directors.
3 members had 100 votes each
A resolution was tabled to remove Faith, who was also a member, as a director.
The Articles 3 votes per share for the director to be removed.
Faith therefore amassed 300 votes, to the other members’ 200.
Claim by Bushell to have Faith removed was rejected.

35
Q

What is common provision allowing for removal under the articles?

A

Director will be required to vacate office if all the other directors so require

36
Q

Relevant statute for disqualification as a director

A

Company Directors Disqualification Act 1986

37
Q

5 examples of grounds for DQ of director

A
  • Convicted of an indictable offence
  • Fraud or breach of duty during winding up
  • Breaching competition law
  • Being an undischarged bankrupt
  • Persistent breaches of companies legislation
38
Q

Effect of disqualification order/undertaking

A

DQ person:
- shall not be a director of a company
- shall not act as a receiver of co property
- shall not be concerned or take part in the promotion, formation or management of a company
- shall not act as insolvency practitioner

39
Q

Why were DQ undertakings introduced in 2000?

A

Process for DQ order (by court) can take considerable amount of time

40
Q

What is a DQ undertaking?

A

Secretary of state accepts from director an undertaking that they will not engage in prohibited activities

41
Q

Two limitations of DQ undertaking

A
  • Can only be used in relation to certain grounds, if SoS is satisfied director has taken part in DQ conduct
  • SoS can only accept undertaking if it appears undertaking is ‘expedient in the public interest’
42
Q

Consequences of breaching DQ order/undertaking (2)

A
  • Criminal offence has been committed
  • Personal liability for debts of company if involved in management
43
Q

2 conditions to be met for compensation order/undertaking to be made

A
  • Person subject to DQ order/undertaking; and
  • Conduct to which order/undertaking relates has caused loss to creditors of insolvent company of which person has been a director
44
Q

What constitutes special notice of a resolution?

A

28 days

45
Q

Which sort of breach of company constitution can a member sue the company for?

A

Only re. terms that relate to membership rights

46
Q

When can a member attempt to obtain a remedy in relation to a provision that affects their directorship?

A

If it can be argued that the company is a quasi-partnership

47
Q

Why can a member not usually sue a company in respect of their rights as a director (ie. right to receive annual bonus)?

A

Because this is a director right and therefore an outside right - from the perspective of the member (even if member is same person as director)

meh (20 decks)

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