APPOINTMENT, REMOVAL AND DISQUALIFICATION OF DIRECTORS Flashcards
Appointment of directors:
- CA06 does not stipulate a procedure for the appointment of directors – governed by the Articles of the company.
- MA 17(1): ‘Any person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director: (a) by ordinary resolution (of the shareholders), or (b) by a decision of the directors
- 2nd of these two procedures is easier to put into efect than the first and therefore, unless there is a particular reason for using the ordinary resolution procedure, it is usual for the board of directors to appoint new directors.
- AP01 Form: All persons appointed as directors must consent to act as such (required on AP01 sent to CH)
A register of directors must be kept at the company’s registered office
Service contracts:
Executive director= company employee
- As an employee, to be given written employment contract IE service contract, sets out terms and conditions, duties, remuneration package, notice provisions
- NO automatic entitlement for directors to be paid for their services – board determines this subject to Articles
- s228CA06: Company must keep a copy of all directors’ service contracts/memoranda of the terms of these contracts
- s229: Shareholders have a right to inspect copies of directors’ service contracts (required within 7 days from request)
MA 19: the terms of an individual director’s service contract (including pay) are for the board to determine.
General rule: a director’s service agreement will only require the approval of a resolution of the board of directors
However, shareholder approval is required to enter into long-term service contracts
Long term service contract:
= S118 ca06 applies where a service contract provides for a director’s employment to have a ‘guaranteed term’ which is, or may be, longer than two years
- Where s188 CA 2006 applies, the service contract requires shareholder approval by ordinary resolution
- E.g. if a director had a service contract for one year and had option to renew contract for a further two-year term at their sole discretion.
- Shareholder approval not given – term incorporated into contract in contravention of s188 is void under s189(a)
- s189(b): the service contract will be deemed to contain a term entitling the company to terminate the contract at any time, by the giving of reasonable notice.
Termination of appointment of director
Resignation= Glossop v Glossop
Subject to any provision to the contrary in the articles, a director may resign at any time by giving notice (resignation will normally be efective according to its terms and does not need to be specifically accepted by the board
Vacation= MA 18 provides that a director is automatically deemed to vacate office where that person becomes prohibited from being a director, bankrupt, subject to a composition order made with creditors, or physically or mentally incapable for more than three months (as stated by a medical practitioner).
Removal= Under s168 CA06: a director can be removed by an ordinary resolution of shareholder
Removal: of director
S168 CA06= director can be removed by an ordinary resolution of shareholders
S169= where a removal resolution is proposed, the director has the right to be heard at the GM in which the ordinary resolution is to be decided, and therefore written resolutions cannot be used. Special notice of such a resolution is required to be given – at least 28 clear days before the GM.
- directors who are also shareholders allowed to vote on resolution to remove them
- possible for company to insert into articles the bushell v faith clause- give weighted voting rights allowing director/shareholder to block such resolutions
-such weighted voting clauses / class rights are allowed because the requirement for an ordinary resolution is not being changed, but rather it is the way votes are amassed that makes it easier for the imperilled director/shareholder to survive. This is a matter of internal management and private contractual agreement, and is not something the court will intervene in
Disqualification:
Company directors disqualification act 1986 CDDA 1986= allows directors to be disqualified in certain cases
S1(1) CDDA 1986= here a person is disqualified, that person shall not, without the leave of the court, “be a director of a company, or a liquidator or administrator of a company, or be a receiver or manager of a company’s property, or, in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a specified period beginning with the date of the order.”
Two types of disqualification:
A mandatory disqualification order can last between two to 15 years.
A discretionary disqualification order can last for up to 10/15 years depending on the grounds for disqualific
Mandatory disqualifation orders S6(1) CDDA 1986
= MD made against person when court satisfied :
A= “that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and
B= that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company
S6= court meaning that director abused privileges of limited liability in some form by gross negligence or deliberate disregard of creditors interest
Secretary of Trade and Industry v Blunt
- The director of a company in insolvent liquidation who had removed and attempted to conceal from the liquidator a substantial amount of stock was di
Discretionary disqualification orders:
- The discretionary grounds on which directors can be disqualified include:
S2 CDDA= Conviction of an indictable ofence in connection with the management of the company or company property
S3 CDDA= Persistent breaches of company legislation requiring returns or notices to be given to the Registrar
S4 CDDA fraudulent trading in relation to company or its property
S993 CA fraudulent trading under CA 2006
S213/4 IA wrongful/fraudulent trading under insolvency act 1986
S8 CDDA Disqualification after investigation of the company – this ground is used where it seems to the Secretary of State that it would be in the public interest for a disqualification order to be made
Secretary of State for
Business, Innovation
and Skills v
Pawson:
In relation to s8: The court disqualified a director for eight years under this ground on the basis that he had controlled nine companies for his own financial benefit by overcharging them for professional services, using almost all of the companies’ funds and not achieving any value for shareholders.
Criminal penalties, compensation orders and disqualification undertakings
S13 CDDA= Criminal penalties: it is a criminal ofence to act in contravention of a disqualification order and if is liable for a fine or imprisonment or both, as well as being personally liable for all the debts of the company incurred during the time that the person was acting in contravention of a disqualification order (s 15)
Criminal penalties, compensation orders and disqualification undertakings
S15 A-C Compensation orders: the Secretary of State may apply to the court for a compensation order against a director who has been disqualified where creditors have sufered losses due to the director’s misconduct
Criminal penalties, compensation orders and disqualification undertakings
s6(2): Disqualification undertakings: the Secretary of State may accept a disqualification undertaking by any person that for a specified period, that person will not be a director or be involved in any way with the promotion, formation or management of a company without the leave of the court
s9A – 9E CDDA 1986: Note that directors who breach competition law e.g. by operating a cartel (a group of independent businesses who collude with each other in order to improve their profits and dominate the market) may also be disqualified for a maximum of 15 years
Disqualification undertakings may also be ofered in this situation and there is potential immunity for whistle-blow
