7c Duties Flashcards
(21 cards)
What are the general duties of directors?
- Act within powers
- Promote success
- Exercise independent judgement
- Exercise reasonable care and dilengence
- Avoid conflicts of interest
- Not accept benefits from 3rd parties
- Declare interest in a proposed transaction or arrangement
How would a director promote success of their company?
- Act in the best interest of the company
- Consider long term and short term effects of the company
- Consider impact on stakeholders
How would a director exercise their independent judgement?
- Ignore own personal interests and bias during decision making
How would a director exercise reasonable care and diligence
- Objective test: have they displayed reasonable skill and care that a reasonable director would.
- Subjective test: have they displayed reasonable skill and care that you would consider someone of their skill to do so.
How would a director disclose their interest in a proposed tranasaction?
- Disclose to the board before the transaction has been entered into
If there is a breach of duty by the directors, what options does the company have?
- Ratify his actions
- Bring legal action - members are not allowed to do this.
What are the remedies for breach of duty?
- Damages
- Contracts between co and director become voidable
- Recovery of property from director
- Recovery of property from 3rd party (gained due to the breach by the director)
- Injunction
What is fraudulent trading?
Trading with the intention to defraud creditors or someone else
What is wrongful trading?
Trading when they should have recognised no prospect of avoiding insolvency
What must be done to bring an action of fraudulent trading?
Prove intention
Who would an action of fraudulent trading be brought against?
Directors/anyone involved in the running of the business
What can fraudulent trading lead to with regards to civil and criminal action?
- Civil action: defendant may be made to pay into the company to pay off debts or director may be disqualified.
- Criminal: prison up to 10 years and or a fine.
How would you bring action against wrongful trading?
Prove that they should have recognised there was no prospect of avoiding insolvency.
Who would an action of wrongful trading be brought against?
Directors and shadow directors
When deciding whether a director should have recognised there was no prospect of avoiding insolvency, how will they be judged?
As a reasonable director - would a reasonable director be able to recognise that liquidation was inevitable?
What does it mean for a director to be disqualified?
A director is banned from being involved in the running of a business for a set period of time - up to 15 years.
What are the grounds for disqualifying a director?
- Breach of CA06
- Conviction of serious offence
- Fraudulent/wrongful trading
- Found to be unfit
- In the publics interest
- Breach of competition law - 15 years
Why would a director be disqualified for breaching CA06?
If they consistently breach CA06 e.g. consistently missing filing deadlines, they can be disqualified for up to 5 years
What deems to be a serious offence when disqualifying a director and how long could they be disqualified for?
Bribery, fraud etc
15 years
When would a director deem to be unfit as a director and how long could they be disqualified for?
If their company goes into liquidation
2-15 years
What happens if a director is in breach of a disqualification order?
- Criminal offence so could result in a fine or imprisonment.
- Director becomes personally liable for the debts of the company while acting.
