Companies: directors and officers

Question 1

What four things will not affect the validity of acts of a person acting as a director, if they are subsequently discovered?

Answer 1

1. Defect in appointment
2. Disqualified from holding office
3. Ceased to hold office
4. Not entitled to vote on the matter in question

Question 2

What is a shadow director?

Answer 2

A non-director in accordance with whose instructions the actual directors are accustomed to act, and they are treated the same as de jure or de facto

Question 3

What is a nominee director?

Answer 3

Someone appointed by the board to represent the interests of a particular shareholder, although they must still act in the best interests of the company

Question 4

What is:
(1) an executive director, and
(2) a non-executive director?

Answer 4

• Executive: responsible for the day-to-day running of the company and are considered employees
• Non-executive: consultants with a more supervisory role

Question 5

Why does apparent authority not arise frequently in a company?

What is one situation where it might?

Answer 5

Because a director will generally not have the power to bind the company, except when the directors act as a board

Apparent authority could arise through past dealings

Question 6

What is required for shareholders to ratify a director’s conduct which was in breach of their duty, and whose vote would be disregarded?

Answer 6

Ordinary shareholders resolution, disregarding the vote of the director in question if he is also a shareholder

Question 7

What is the fate of any provision in the articles or contract that purports to exempt a director from liability that would otherwise attach through breach of duty, negligence, or breach of trust?

What are the limits on a company’s ability to indemnify directors against claims brought by third parties concerning the director’s actions for the company?

Answer 7

Void

Cannot be used for criminal or regulatory fines

Question 8

What is the concept of enlightened shareholder value?

Answer 8

In promoting the success of the company, the directors need not focus solely on maximizing profit, and can consider other things like:
1. Long term consequences of a decision
2. Interests of company employees
3. Need to foster business relationships

Question 9

In what three situations will a conflict not arise?

Answer 9

1. Transaction is with the company itself, and the board knows of the director’s interest
2. Situation cannot reasonably be regarded as likely to give rise to a conflict
3. Matter has been authorised by the directors

Question 10

What is the duty to declare interest in a transaction?

Answer 10

If a director is directly or indirectly interested in a proposed transaction with the company, or becomes such, they must give notice to the other directors before entering into or continuing

Question 11

What is required for a company to make a loan to a director, or to guarantee or give security for a loan to a director by a third party?

Answer 11

Shareholder approval via ordinary resolution

£10k directly to director or £50k if it is to fund company business does not require approval

Question 12

When does notice not need to be given to all directors?

Answer 12

If a particular director or directors has waived their entitlement to notice of that meeting

Question 13

If the board wants to pass a board resolution in writing, what is required?

Answer 13

Unanimous approval of directors

Question 14

Who has the power to remove directors, and what is the vote threshold?

Answer 14

Shareholders, by simple majority

Question 15

Although the shareholders’ statutory right to remove a director overrides most provisions to the contrary in the articles, what does a Bushell v Faith clause provide

Answer 15

It gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove them as a director

Question 16

What three things is a disqualified director prohibited from doing?

Answer 16

1. Act as a director
2. Act as a receiver of a company’s property
3. Take part in any way in promotion, formation, or management of a company

Question 17

What four categories of things can a director be disqualified for?

Answer 17

1. Conviction of indictable offence related to a company
2. Persistent breaches of companies’ legislation
3. Fraud
4. Summary conviction of offence relating to failure to comply with filing requirements

Question 18

When may a director be disqualified for being an unfit director of an insolvent company, and what is the range of disqualification?

Answer 18

A director can be disqualified for 2-15 years if their conduct, taken alone or viewed in line with their conduct as director of another company, makes them unfit to be in the management of a company