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Flashcards in Directors duties Deck (44):
1

What are sections of directors duties?

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2

Breckland Group Holdings Ltd v London & Suffolk Properties Ltd [1989] 

  • directors have the power in the articles to manage the company. 
  • Shareholders are left with voting powers in resolutions. 

3

what section allows shareholders to dismiss directors at any time by ordinary resolution?

s168 

4

what section allows for ordinary and special resolutions to be made by written resolution?

Section 281

5

what are the sections containing the procedure for resolutions and the procedure? (5).

  1. Either the directors or 5% of the shareholders can circulate a written resolution among all the members.
  2. Everybody is then entitled to vote on it.
  3. They have the right to circulate a written explanatory statement as to why they want the resolution. 
  4. Eligible members must then signify their approval either via hard copy or electronically.

  5. The key difference is that you need 50% of all members, whereas with meeting you only need 50% of those who turn up.

6

what is the duomatic process?

If everybody who could have voted to approve something indicates their approval then it is the same result as if there had been a resolution. but it requires 100% approval. 

7

is 75% approval for duomatic process sufficient?

Extrasure Travel Insurance Ltd v Scattergood [2003] 2 BCLC 598

  • where it was argued that 75% should suffice, this was rejected. 

8

how do you prove your assent of the duomatic process?

  • EIC Services Ltd v Phipps [2003] - need express approval, not implied. 
  • Rolfe v Rolfe [2010]  - must be objectively construed as consent. 
  • Sharma v Sharma - silence will not suffice.

9

can the Duomatic process apply to every resolution?

 

Atlas Wright v Wright

  • duomatic process does not apply to special procedures because it needs to be registered. 

10

can the shareholders call a meeting?

Section 303- 

  • ·10% or more of the shareholders can require the directors to call a meeting.
  • They have 3 weeks to call it and 4 weeks hold it.

Section 306 – 

  • When there is difficulty in convening a meeting. The court may order one with a quorum it fixes. 

Re El Sombrero

  • 90% shareholder wants to sack two directors. The directors refuse to make quorum. Court ordered a meeting. 

11

What are the limits to Shareholders ordering a meeting under S306?

Re BML Group Ltd [1994] BCC 502

  • 306 cannot be used to frustrate class rights. If the right for a quorum is a class right, we will not allow 306 to be used to get round that.

Ross v Telford [1997] BCC 945

  • 306 cannot be used to break a Deadlock company.

Alvona Developments Ltd v Manhattan Loft Corporation (AC) Ltd [2006]

  • s306 couldn’t be used to override a substantive right – the right of a shareholder to appoint a director.

12

What is the notice periods before a meeting?

307 – Notice for meetings

  • AGM minimum notice period is 21 days
  • For other meetings this deadline is 14 days
  • Occasionally you have to give 28 days’ notice. These are ‘resolutions requiring special notice’ most commonly dismissal of a director or an auditor.

13

How do you exercise your voting power?

S321/22- voting at meetings

  • The common law rule is a show of hands but in some circumstances you can demand that a poll be taken.
  • Where there is a poll you will have your full voting weight, all of your individual votes will count.
  • In large companies you can vote by proxy under section 324.

323 – representative can vote

  • human being represents the company shareholder.

324 – right to appoint proxy

  • Everybody is given a form to vote by proxy.  

14

 

Appointment, position and dismissal of directors

154 – amount of directors

  • every private company must have at least 1 company and public 2. Have to be over 16. Just being a director does not make you an employee. No difference types of director. 

160 – appointing directors

  • if you appoint by resolution you must vote on each director separately.

De facto director

  • Acting like a director but not been appointed one. Or controlling directors, shadow director.

168 – removing directors

  • can remove by ordinary resolution

15

Confines of the Powers of directors

o   Mitchell & Hobbs (UK) Ltd v Mill [1996] 2 BCLC 102

  •  If you want to give an individual a power, needs to be in articles.

o   Barron v Potter [1914] 1 Ch 895

  • if the board is unable to exercise a power in some way e.g. deadlock, the power reverts back to the general meeting to decide

o   Bamford v Bamford [1970] Ch 212

  • if the directors act improperly, and in abuse, the general meeting can ratify it.

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16

general provision laying out scope of directors duties and authority?

170

  • Ss1 - general duties are owed by the director to the company (shareholder) 
  • Ss3 - where they come from – certain common law rules and equitable principles. Treating directors as fiduciary’s. Basic rules that they come from have been replaced by the rules of the statute.
  • Ss4 – should be applied in same way as equitable and common law principles – can go back to the case law. Principles are not frozen.

Eastford Ltd v Thomas Graham Gillespie [2010]

  • Can use previous case law. 

17

Who do the directors owe a fiduciary duty to?

  • S170(1) - 
    • general duties are owed by the director of a company to the company.

Percival v Wright [1902] 2 Ch 421

  • Directors only owe common law duty and do not owe a fiduciary duty to the shareholders collectively or individually.

Peskin v Anderson [2001]

  • A Fiduciary duty is only owed when there is some special relationship.

Sharp v Blank [2015] HC

  • common law duty not to mislead or conceal.

18

when does a director violate s171?

  • When they exercise their powers for an improper purpose which is a purpose which is not conferred to them in the articles (Piercy v S Mills & Co [1920] )
  • Violates when the Primary purpose of an allotment of shares was to ensure control of the company by directors and their supporters, even though it was for the benefit of the company. (Hogg v Cramphorn [1967])
  • If the primary purpose(fact) why the power was exercised was a constitutional power such as issuing shares or voting rights(law) - then it is less likely to be acting bona fide. (Howard Smith Ltd v Ampol Petroleum Ltd [1974] PC)
  • Would the directors have exercised this power but for this improper purpose (to prevent a takeover) Eclairs Group v JKX
  •  

19

Key words in Section 172

172(1) 

  • 'he considers'
  • 'in good faith'
  • 'most likely to promote the success'
  • 'for the benefit of its members as a whole'

 

(a) 'long term consequences'

(b) 'company's employees interests'

(c) relationships with customers, suppliers

(d) impact on environment and community

(e) high standards

(f) act fairly between members

20

When does a director breach s172?

  • a director must act bona fide for the shareholders but take into account stakeholders interests when doing so. 
  • His actions must be assessed subjectively as to whether he acted bona fide (172 'the way he considers' reaffirmed in Ross Rivers v Wavely)
  • if they didn't even consider the company (Interactive technology) 
  • if the director treated the companies finances as their own (Interactive technology)
  • if he recieves payment or does something in his own personal benefit. There is no presumption but BoP switches (Regent crest).
  •  if the director has breached 175, and by not disclosing it, it would affect and exacerberate the breach, they would also break 172 ( Wey Education v Atkins)
  • if they had knowledge of anothers directors breach and didnt disclose (British Midland Tool)

21

Law for exercising independent judgment

  • s173

Fulham v Cabra

  • Directors can exercise their discretion in a way which restricts their future conduct provided at the time they were acting bona fide.

22

key words for  the sections for avoiding conflicts?

175 (1)

  • 'he has or can have'
  • 'direct or indirect'
  • 'conflicts or possibly may conflict' 

175(2)

  • 'applies in particular to property, information or opportunity'
  • 'immaterial whether the company could take advantage'

175(3) 

  • situational conflict

175(4)

  • 'cannot be reasonably regarded as likely to give rise'
  • 'authorised by the directors'

23

what are the two duties which have been intangled in regards to 175?

1) No conflict principle – If you have a personal interest which might conflict then there will be a breach regardless of whether there is any gain or loss.

2) No profit duty – may not make any unauthorised profit from being a director. Remedy is to account. Get money back from director.

 

24

When does a director violate s175

 

  • deliberately conceal information from the company and took it for personal advantage (IDC v Cooley)
  • resignation was prompted or influenced by a wish to acquire for himself an opportunity sought by the company, where it was his position that led him to the opportunity later acquired (Cannero v O'Malley) 
  • if a former director pursues a maturing business opportunity(rather than mere hope/possibility) which came to him as a director. (Island Export Finance v Umana) 
  • if a former director uses specific company information to pursue a personal interest. (Island Export Finance v Umana) 
  • takes existing clients with them to a new company (CMS Dolphin v Simonet)
  • pursued an opportunity outside the scope of the business. (O'Donnell v Shanahan)
  • an opportunity which came to his attention as a director or any opportunity he ought to exploit for the benefit of the company (Sharma v Sharma)/ 
  •  

25

when does a director pursue a business activity but does not violate 175?

  • 1. if the company has rejected it   2. it was bona fide  3. the information was public information been approved by the company. 4 Use of information must be totally outside the companies activities (Peso Silvermines v Cropper (Canada))
  • if the company approved it and they had full knowledged of the facts.  (Sharma v Sharma)
  • if the situation cannot be reasonably regarded as likely to give rise to a conflict (s175(4)a)
  • it has been authorised by the directors (175(4)b)

26

When does a drector who has resigned violate 175

 

  • when he takes existing accounts with him (CMS Dolphin v Simonet)
  • if he uses any information/opportunity that was in existence to him as a director (Foster Bryant/Thermascon v Norman)
  • any director who was aware of another director doing so, breaches 172 ( British Midland Tool)

27

what is the major difference between 172 and 175?

  • 172 needs intention and mens rea
  • 175 - strict liability. do not have to intend. (Richard Pharmacology v Chesters)

28

key provisions in 177

177

  • (1)transactional conflict - 'directly or indirectly, interest'
  • (5)- director is 'aware or ought reasonably be aware' of interest or transaction

unless: 

  • (6) a- cannot be reasonably regarded as conflict
  • (6) b - other directors aware or ought reasonably be aware

29

if the director declares his interest under 177, but doesnt act bona fide?

Re Neptune

  • cant rescind and not voidable because validated with 177 procedure.
  • Caught with 172, not 177. 

30

what is the remedy if you don't disclose an interest?

  • 180 - can rescind or contract is voidable. 
  • remedies applicable if you loss or profit.

31

when the company has entered into a transaction which the director has direct/indirect interest in?

s182 

  • (1) -declaration at directors meeting, notice in writing, general notice.
  • (5) - director is  'aware or ought reasonably be aware' of interest or transaction

unless:

  • (6) a- conflict cannot reasonably be regarded as conflict
  • (6) b - other directors aware or ought reasonably aware of it

32

if a director fails to declare an interest in existing transaction or arrangement?

 

183

  • (1) commits an offence.

33

How does a director declara an interest?

  • 184 - written notice 
  • 185 - general notice 

34

what is the remedy if the director makes a profit from breach of duty?

  1. Contract is voidable - (180)
  2. Equitable remedy of rescission 
  3. Remedy of account - Director must repay all the profits and can pierce the veil (CMS Dolphin v Simonet)
  4. knowing assistance and receipt - can go after third parties for their profits. (Crown Dilmun v Sutton)
    • can't go after director for third parties knowing assistance or receipt ( Ultra Frame)

35

what is the remedy if the company makes a loss from a directors breach?

  • Common law damages
  • Equitable compensation (extra travel insurance v Scattergood)
    • need caustion
    • no forseeability. 
  • no damages if the loss was not caused from the conflict of interest at the time (Gwembe Valley Development)
  • No remedy if loss would have occured anyway. (AIB v Mark Redler) 
  • if more than one can go for either common law or equitable damages. (Breitenfeld v Harrison)
  • has 6 years to bring a claim (First Subsea v Baltic)

36

when has a director been negligent?

  • if they have been negligent in comparison to their objective positions (Norman v Theodore)/(Re Djan)
  • if the director has been a non playing director and ignored the financial position of the company ( Re Westmid Packing)
  • if you were neglgient in exercising your own specialist skills (Re AG)
  • If there were no checks and balances put on the company to stop breach (Re Barings)
  • if a non-exec has not been exercising their independent judgment ( Re Equitable Life Assurance)

37

What is the remedy for a negligent director?

Lexi Holdings v Luqman

  • common law damages - no equitable compo.
  • need causation and foreseeability.

38

what provision relates to directors service contracts?

s188

  • longer than two years needs to be approved by general meeting. 

39

What is the law when a director/company purchase a substantial non cash asset from one another?

s190

  • (1) a - 'director' or ' their holding company' or a 'person connected with such a director' acquire substantial non cash asset. 
  • (1) b - company acuires from director or connected person
  • a has to be approved by a resolution of the members of the company. 

Demite v Protec

  • Has to give full details at the resolution of the interest.

Granada Group 

  • violates 190 if he is a trustee or beneficiary of a pension trust. 

NBH v Hoare 

  • doesn't breach if duomatic resolution. 

40

what is a substantial non cash asset?

s191-

  • asset exceeding 100k or 10% of companys asset value. 

Micro Leisure

non cash asset is the value the director/connected party gives.

41

who is a connected person in 190?

S252/254

  • people classified as being connected. 

42

what is the remedy if 190 is breached?

s195

  • (2)  - arrangement of any transaction is voidable.  (primary) 
  • (2) a - restitution of the money or asset is no longer possible 
  • (2) b - third party interests are affected. 

 

  • (3) a – to account to the company of any gain 
  • (3) b – to indemnify the company of any loss 

 

Duckwari No 2 [1998]

  • 195 (3) b - indemnity means equitable compensation 

Murray v Leisureplay [2005]

  • rescission is primary remedy, if not 195(3). 
  • 195 (3) b - can receive:
    • amount lost on sale
    • cost of due diligence

NBH v Hoare

  • Director only has to account for gain/loss made in the transaction. 

43

what are the defences for directors?

  1. Ratification S239 - through ordinary or special res. 
  2. s1157 - if acted honestly and reasonably. 

Re Djan

  • if acted understandably and honestly can be partially relieved if company is yours.

Bairstow v Queens Moat houses/Re Marini

  • s1157 doesnt apply to breach of dividend rules

 

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