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CGI - Company Law > Chapter 5 - The Board of Directors > Flashcards

Chapter 5 - The Board of Directors Flashcards

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1
Q

What is the legal definition of a director under CA 2006?

A

Section 250 defines a director as “any person occupying the position of director, by whatever name called.” This includes de jure, de facto and shadow directors.

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2
Q

What is the difference between de jure and de facto directors?

A

De jure directors are formally appointed; de facto directors act as directors without formal appointment but perform directorial functions.

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3
Q

What are the roles of executives and non-executive directors?

A

Executive directors manage the day to day operations of the business; NEDs provide oversight and challenge executive decisions, often serving on committees.

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4
Q

What are the main ways a director can vacate office?

A

Resignation, removal by resolution, disqualification, or automatic vacation under the articles (e.g. bankruptcy, incapacity).

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5
Q

What is the disqualification order or undertaking?

A

Legal mechanisms under the CDDA 1986 that prevent a person from acting as a director for a specified period due to misconduct.

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6
Q

Quick hit
Alternate Director

A

A alternate director is a person appointed to act in place of a director temporarily.

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7
Q

Quick hit
Nominee Director

A

A director appointed to represent the interests of a shareholder.

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8
Q

Quick hit
CEO

A

Chief Executive Officer - leads the company.

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9
Q

Quick hit
Chair

A

Leads the board and ensures it’s effectiveness.

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10
Q

Quick hit
CDDA 1986

A

Company Directors Disqualification Act - governs director disqualification.

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11
Q

Quick hit
Weighted Voting Rights

A

Article provisions that give certain shareholders more votes in specific situations.

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12
Q

Explain a de jure director.

A

A de jure director is a person who has been formally and legally appointed as a director of a company.

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13
Q

Explain a de facto director.

A

A de facto director is a person who acts as a director even though they have not been formally appointed.

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14
Q

What is the purpose of the Director Test?

A

The purpose of the director test is to decide if someone is a de facto director by looking at whether they acted like a director in practice, even without formal appointment.

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15
Q

What does Re Kaytech International [1999] say about real influence in terms of a de facto director?

A

The person must exercise real influence over the company’s governance - just giving professional advice is not enough.

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16
Q

What does Popely v Popely [2019] say about being involved in decisions?

A

Just being involved in management or influencing decisions does not make someone a director.

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17
Q

What does Re Hydrodam (Corby) Ltd [1994] say about director functions?

A

The person must do things that only a director should be doing, like high-level decision-making.

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18
Q

What does Secretary of State v Hollier [2006] say about acting with others?

A

The person must direct the company’s affairs and act on an equal level with the formally appointed directors.

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19
Q

What is a simple way to remember the Director Test?

A

REAL - JOB - EQUAL

Real influence
Doing a directors Job
Treated as an Equal to de jure directors.

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20
Q

Does company law distinguish between executives and NEDs?

A

No - company law treats all directors the same, regardless of their role.

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21
Q

What is an executive director?

A

A director who is a full time employee and is involved in the day to day management of the company.

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22
Q

What is a NED?

A

A part time director who is not an employee and plays a limited role in daily operations.

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23
Q

What additional role do NEDs have under the UK Corporate Governance Code?

A

To scrutinise and hold management and directors accountable against agreed performance objectives.
(UK Corporate Gov Code, Provision 13).

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24
Q

What does the UK Corporate Governance Code say about board independence?

A

At least half of the board (excluding the chair) must be iNEDs (provision 11).

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25
Can a NED be independent if they get bonuses or pensions?
No - receiving remuneration beyond a director's fee (like bonuses or pensions) means they are not independent.
26
Can a NED be independent if they had a material business relationship with the company?
No - not independent if they had such a relationship in the last 3 years, directly or through another company.
27
Does having close family ties with directors or advisers affect independence?
Yes - close family ties with key people in the company make a NED not independent.
28
Does sitting on other boards with the same directors affect independence?
Yes - cross directorships or strong links with other directors can undermine independence.
29
Can someone representing a major shareholder be independent?
No - if they represent a significant shareholder, they are not considered independent.
30
Can a NED still be dependent after 9 years on the board?
No - serving more than 9 years from the first appointment usually means they are no longer considered independent.
31
State 6 factors that can affect a NEDs independence.
- Be or have been an employee of the company in the last 5 years - Have had a business relationship with the company in the last 3 years - Receive extra pay or benefits, eg bonuses or pensions, beyond the basic director fee - Have close family ties with the companys people - Hold cross-directorships or strong links with other directors - Represent major shareholder - Have been on the board for more than 9 years
32
What is an alternate director?
A person appointed to act on behalf of a director (eg when absent), if allowed by the company's articles.
33
What is a nominee director?
A director appointed by someone with an interest in the company (like shareholder or creditor) to protect their interest on the board.
34
Where is the power to appoint a nominee director usually found?
In the company's articles or a shareholders' agreement.
35
Who does a nominee director owe their legal duty to?
The company and not the person who appointed them (Scottish Co-Operative v Meyer [1959])
36
What happens to someone who appoints a nominee director?
They may be considered a person with significant control (PSC) and must be listed on the PSC register.
37
Can directors be appointed to specific roles on the board?
Yes, directors can be appointed to specific roles and their powers are set out in the company's articles.
38
What is the CEOs main responsibility?
The CEO leads the company and is responsible for delivering the strategy agreed by the board (FRC Guidance on Board Effectiveness).
39
What is the role of the Chair on the board?
The Chair leads board meetings and ensures the board is effective in directing the company.
40
Can the CEO and Chair roles be held by the same person?
No, they should be separate roles for good corporate governance. (UKCG Code, Provision 9)
41
Name some people who are not eligible to act as directors.
- Under 16 year olds (CA2006, s157) - Company's statutory auditor (CA2006, s1214) - A person disqualified by court order (CDDA 1986, S11(1)) - Undischarged bankrupt (CDDA 1986, s.11(1)) - Anyone restricted by the companys articles.
42
When are the first directors appointed for a company?
At the company's incorporation (CA 2006, s.16.6))
43
Who decides how directors are appointed after incorporation?
The company's articles govern all further appointments.
44
What should the process for appointing directors be like?
It should be formal, rigorous and transparent (UKCG Code, Principle J).
45
What does the Nomination Committee do?
Leads the director appointment process Plans orderly succession for board and senior management Oversees development of a diverse pipeline for succession (UKCG Code, Provision 17).
46
What does CA 2006, s162(1) require regarding directors?
Every company must keep a register of directors.
47
Can a private company keep director details only at companies house?
Yes, it can elect to keep the required information on the public register (ss.167A-167e).
48
Who can inspect the register of directors?
Members: free of charge Others: on a payment of fee (s.162(5)).W
49
What is the deadline for notifying companies house of a new director?
Within 14 days of the appointment.
50
What form is used to notify companies house of a new director?
Form AP01
51
What must the notice to companies house include when appointing a new director?
The directors particulars for the register A statement confirming the director has consented to act (s.167(1)-(2)).
52
What issue arises if a director is appointed in breach of the companys articles?
Whether the directors actions are still valid despite the defective appointment.
53
What does CA 2006, s.161(1) say about a person acting as a director?
Their acts are valid even if it's later discovered there was a defect in their appointment.
54
Under s.161(1), which defects do NOT invalidate a director's acts?
Defect in appointment Disqualification Ceasing to hold office Not entitled to vote on the matter
55
Why does s.161(1) exist? Change wording for this
To protect third parties and ensure certainty in company decisions.
56
How many directors must a private company have?
A private company must have at least one director
57
How many directors must a public company have?
A public company must have at least two directors.
58
What is the main focus of Principle P of the UKCG Code?
Remuneration policies should support strategy, promote the long-term sustainable success, and align executive pay with the company's purpose, values and long-term strategy.
59
According to Principle P, what should executive remuneration be clearly linked to?
The successful delivery of the company's long term strategy.
60
What does Principle Q require regarding the process for executive pay?
A formal and transparent procedure must be in place for developing policy and determining pay for directors and senior management.
61
Under Principle Q, can directors be involved in setting their own remuneration?
No, directors must not be involved in deciding their own remuneration outcome.
62
What does Principle R require directors to consider when authorising outcomes?
They must exercise independent judgement and consider company performance, individual performance, and wider circumstances.
63
Can a director resign at any time?
Yes, a director can resign at any time, and the company must accept the resignation.
64
What do the Model Articles say about vacating office?
They set out specific situations in which a director must vacate office (ART 18 for private companies and ART 22 for public companies).
65
State the three reasons according to the model articles, when must a director vacate office?
If they cease to be a director under the CA2006 or are prohibited from acting as a director by law. If a bankruptcy order is made against them. If a registered medical practitioner gives a written opinion stating the director is physically or mentally incapable of acting and is likely to remain so for over 3 months.
66
Under s.168(1) CA 2006, how can a director be removed from office?
By an ordinary resolution passed at a meeting, even if their contract says otherwise.
67
Can a written resolution be used to remove a director?
No, written resolutions cannot be used for director removal (s.288(2)(a)).
68
What notice is required for a s.168 removal resolution?
Special notice of 28 days (s.168(2), s.312(1)).
69
Who must receive a copy of the removal of resolution?
The director whose removal is proposed (s.169(1)).
70
What rights does a director have when facing removal under s.168?
To address the meeting in protest (s.169(2)). To circulate written representations to members (s..169(3)-(5)).
71
Does removal under s.168 affect a director's right to compensation?
No, s.168(5)(a) preserves any contractual right to compensation.
72
Can directors be removed under the company's articles instead of s.168?
Yes, if the articles allow removal (e.g. by unanimous decision of other directors).
73
74
What is a shadow director?
A shadow director is someone who gives instructions to the actual directors, and those directors routinely act on them.

CGI - Company Law (18 decks)

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