Chapter 18 Company Directors

Question 1

How can we define a company’s director?

Answer 1

Any person occupying the position of director(have power and responsibilities),by whatever name called

Question 2

How can we differentiate between De jure and De facto directors?

Answer 2

De jure directors are expressly appointed by a company while De facto directors are held out(continue to operate) by a company as a director not validly appointed

Question 3

How shadow directors are different from de facto directors?

Answer 3

People are rarely aware of shadow directors existence ,these are not even held out by the company but have influence on decision making

Question 4

Who can be appointed as an alternate director?

Answer 4

Another director or an outsider can be an alternate director

Question 5

A director can also be an employee of their company.

Answer 5

True, the articles usually make a specific provision for this

Question 6

Directors having additional managerial duties as employees may have special titles,does this affect their personal legal position?

Answer 6

No

Question 7

NEDs are involved in company’s governance or management?

Answer 7

Involved in company’s governance

Question 8

What are the main tasks of NEDs?

Answer 8

1)To give an independent view on board’s deliberation
2)Help board provide the company with effective leadership
3)Ensure continuing effectiveness of EDs and management
4)Ensure high standards of financial probity on part of the company

Question 8

What are the responsibilities of a CEO?

Answer 8

Carry out overall day to day management functions and has a special position and wider apparent powers than any other director

Question 9

How many directors a public company must have?

Answer 9

At least 2

Question 10

What is the role of chairman?

Answer 10

Responsible for leading the board and ensuring its effectiveness

Question 11

How subsequent directors are appointed?

Answer 11

1)By ordinary resolution
2)By decision of the directors

Question 12

Is it necessary to propose separate resolution for the election of each director?

Answer 12

Yes

Question 13

Within how many days a company should give a notice to registrar of any change among directors?

Answer 13

Within 14 days

Question 14

Is it lawful to give non contractual compensation to directors?

Answer 14

Lawful only when it is approved by members of the company in general meeting

Question 15

Approval for payment of contractual compensation is necessary or not?

Answer 15

Not necessary

Question 16

What are the areas that a director’s remuneration report must cover?

Answer 16

1)Details of individual director’s remuneration package
2)Company’s remuneration policy
3)Role of board and remuneration committee in deciding the remuneration of directors

Question 17

What is the position of members vote on director’s remuneration report?

Answer 17

The vote is purely advisory and does not mean that the remuneration should change if the resolution is not passed

Question 18

After expiry for how many years director’s service agreement must be retained?

Answer 18

Must be retained for one year after expiry

Question 19

How a director can be removed from office?

Answer 19

By an ordinary resolution at a meeting of which special notice to the company has been given by the person proposing it

Question 20

What are the restrictions on power to remove directors?

Answer 20

1)Shareholding qualification to call a meeting
2)Shareholding to request a resolution
3)weighted voting rights
4)Class rights agreement

Question 21

What are the different grounds a court may make a disqualification?

Answer 21

1)A person is convicted of an indictable offence
2)A person persistently in default in relation to provision of company legislation
3)Fraudulent trading
4)Involvement in competition violation
5)Wrongful trading

Question 22

How a court will determine that a director is unfit to be concerned in management of the company?

Answer 22

1)The extent to which the person is responsible for the company breaking the law
2)The extent to which he is responsible for causing the company to become insolvent
3)Nature and extent of loss caused by his conduct

Question 23

What are the different disqualification periods?

Answer 23

1) 2 to 5 years(conduct not very serious)
2) 6 to 10 years(conduct was serious)
3) Over 10 years(in particularly serious cases)

Question 24

When a disqualified director acts as a director what will be the consequence?

Answer 24

It is a serious offence and when committed directors are personally liable for the debts of the company

Question 25

Ordinary commercial misjudgement is sufficient or not for disqualification?

Answer 25

Not sufficient

Question 26

Are the directors authorised to take any decision?

Answer 26

They may take any decision which is within the capacity of the company unless the Act or the articles requires that the decision should be taken by the members

Question 27

How a director's power can be restricted?

Answer 27

By statute or by articles

Question 28

Director's decision can be challenged or not when they clearly have the necessary power?

Answer 28

Yes when they exercise their power in the wrong way

Question 29

What will be the action of court if directors do not use their power properly?

Answer 29

The court will set aside their powers unless the shareholders ratify the director's action by ordinary resolution

Question 30

CEO has apparent authority as agent of the company to make business contracts.

Answer 30

True, no other director has that apparent authority as a director

Question 31

What is the procedure for the termination of CEO?

Answer 31

Same like that of any other director

Question 32

When do directors can bind the company in contracts?

Answer 32

When they have actual or usual authority

Question 33

Directors owe their duties to?

Answer 33

To the company not members

Question 34

What are the statutory duties of a director?

Answer 34

1)Act within their powers 2)Promote the success of company 3)Exercise independent judgement 4)Exercise reasonable care, skill and judgement 5)Avoiding conflict of interest 6)Not accept benefits from third parties 7)Declare an interest in proposed transaction or agreement

Question 35

What is a fiduciary duty?

Answer 35

Duty imposed upon certain persons because of their position of trust and confidence in relation to others

Question 36

Is it necessary to exclude the director or connected member from the vote where a resolution proposes to ratify their acts which are negligent?

Answer 36

Yes

Question 37

What are the two parts of reasonableness test?

Answer 37

1)An objective test 2)A subjective test

Question 38

What is an objective test?

Answer 38

Did the director act in a manner reasonably expected of a person performing the same role?

Question 39

What is a subjective test?

Answer 39

Did the director act in accordance with the skill, knowledge and experience that they actually have?

Question 40

What is the consequence of directors accepting benefits from third party?

Answer 40

They potentially create a conflict of interest and will also be in breach of their duty

Question 41

How a director can disclose their interest in a proposed transaction before the company enters into it?

Answer 41

1)By written notice 2)By general notice 3)Verbally at a board meeting

Question 42

Is it sufficient to discharge the duty when directors made disclosure of interest only to members?

Answer 42

No, directors must also disclose the nature and extent of their interest to other directors as well

Question 43

What are the consequences of breach of duty by directors?

Answer 43

1)Damages payable to company when it suffered a loss 2)Restoration of company property 3)Repayment of any profit made by the director 4)Rescission of contract

Question 44

Directors are liable or not for the actions of fellow directors?

Answer 44

No, but they have a duty to inform members when they are aware of it

Question 45

What will happen when a director do not inform members about breach of duty by another director?

Answer 45

The director is liable for their own negligence not directly for the misconduct of other director