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Flashcards in Directors Deck (19)
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1

What is special about the remedy for breaching S.174?

Only damages since the duty to exercise care and skill is not a fiduciary duty.

2

4 requirements for validly removing a director?

1. Give 28 clear days' notice of a GM (cannot use WR)
2. If this is not practicable, give 14 days' clear notice via advertisement in a newspaper with appropriate circulation, or as otherwise permitted by articles
3. Director can speak against removal at GM or make written representations in advance
4. OR sufficient unless AOA says otherwise

3

What if board does not cooperate?

1. Ms with >5% of PUSC require Ds to give notice convenine a GM within 21 days of the request, and hold the meeting within 28 days of the notice
2. If Ds do not do so, Ms within > 50% of PUSC can call the GM within 3 months of the request

4

What is a Bushell v Faith clause?

A clause entrenching a director-shareholder by giving him extra votes on any resolution for his removal.

5

(i) Locus standi and (ii) defences to claim for unfair dismissal?

1. Locus standi = executive director > 2 years
2. Defence if (i) fair reason and (ii) dismissal was in fact fair in light of the facts and the procedures

6

(i) Locus standi, (ii) elements, and (iii) damages measure in a claim for wrongful dismissal?

1. Executive or non-executive director
2. Dismissal without adequate notice
3. Contractual measure of damages - pay for the notice period

7

When must D declare an interest in a proposed transaction? 3 exceptions? Failure to declare = breaches which statutes?

Where D is aware or ought to be aware that he, or a person connected with him, has an interest in the transaction. But not if
1. Cannot REASONABLY be regarded as likely to give rise to a conflict of interest
2. Other directors are already or ought reasonable to be AWARE of it
3. Concerns the terms of his SERVICE CONTRACT

Non-declaration could breach S.175 (duty to avoid conflicts); S.176 (duty not to accept benefits from 3Ps); and S.177 (duty to declare interest in proposed transactions))

8

2 effects of conflict of interest on interested director’s vote?

3 exceptions

1. Cannot vote
2. Cannot count towards quorum

Exceptions -
1. MA 14 disapplied by OR
2. Interest cannot reasonably be regarded as likely to give rise to a conflict of interest
3. Interest arises from a permitted cause (e.g. subscription for shares in company)

9

Define a substantial property transaction (2 types, 3 elements)

A transaction whereby Coy acquires a
(i) substantial (10% of NAV AND worth more than £5,000; OR exceeds £100,000)
(ii) non-cash asset
(ii) from a director or a connected person (any member of the director's family, any business partner of the director or any body corporate in which the director together with any other C controls more than 20% of share capital),
or the company sells such an asset to a director or connected person

10

When can SPT be carried out (3 cases)

If Ms approve by OR (i) before the transaction; or (ii) afterward provided transaction conditional on approval; (iii) ratify within a reasonable period.

11

3 consequences of a SPT carried out without shareholder approval? 2 Exceptions?

1. SPT is VOIDABLE at Coy's election
2. Director and connected person jointly and severally liable to INDEMNIFY Coy for any loss incurred and account for any profit
3. Any other director who AUTHORISED the transaction also jointly and severally liable

Exceptions: (i) company has been indemnified for any loss; or (ii) BFP’s rights would be affected by avoiding the transaction.

12

When can Coy make loan to or give guarantee on behalf of D or his connected person? 2 requirements, 4 exceptions?

1. Memorandum issued to members stating (i) nature of transaction; (ii) amount and purpose; and (iii) extent of Coy liability, either before the vote on a WR or 15 days before the GM
2. Ms approve by OR (i) before the transaction; or (ii) afterward provided transaction conditional on approval; (iii) ratify within a reasonable period.

4 exceptions: (i) loan < £50,000 in course of business; (ii) loan for criminal or civil proceedings; (iii) loans < £10,000 or (iv) credit transaction in the ordinary course of Coy business

13

Impact of loan and SPT rules on transactions within a corporate group?

They do not apply if the loan is from one wholly owned subsidiary to another; or between holdco and subsidiary

14

2 consequences of a loan or guarantee given by Coy without shareholder approval? 3 exceptions.

1. Voidable at Coy election and loan must be repaid unless (i) restitution impossible; (ii) company has been indemnified for any loss; or (iii) BFP’s rights would be affected by avoiding the transaction.

2. Directors and any CP will be jointly and severally liable for loss by Coy unless they were at the time unaware of contravention.

15

How is director remuneration determined for (i) EDs and (ii) NEDs? Main distinction?

EDs -
1. Governed by service contract
2. BM needed to approve Coy entry into service contract

NEDs
1. Governed by AoA
2. Must be approved by members' OR

EDs are employees.

16

When must D's remuneration be disclosed?

Where aggregate remuneration exceeds £200,000, emoluments and other benefits must be disclosed

17

How are directors appointed?

Depends on AOA - usually by OR

18

Define shadow directors. 2 liabilities?

Someone in accordance with whose instructions or directors Ds are accustomed to act, but who has not been appointed as a director, other than someone advising directors in a professional capacity.

Liable for wrongful trading and breach of DDs.

19

What is the effect of a D contracting with a 3P in breach of his DDs?

If 3P acts in good faith, Coy will still be bound.
But if the Coy has not yet incurred any obligation, Ms can get injunction restraining the contract.
D who entered into the contract and any other D who authorised such contract must account for profit and indemnify for loss.