Directors Duties And Responsibilities Flashcards
(101 cards)
1
Q
Who are directors accountable to?
A
The company itself rather than the shareholders directly.
2
Q
What is directors’ role?
A
Manage the company on a day-to-day basis - on an agency basis.
3
Q
What are the categories of director?
A
• de jure; • de facto; • shadow directors. In practice, executive and non-executive.
4
Q
What is the minimum number of directors for a private company?
A
1.
5
Q
What is the minimum number of directors for a public company?
A
2.
6
Q
Can a company be appointed as a director?
A
Yes - although every company must have at least one director who is a natural person to ensure accountability.
7
Q
Is there a maximum number of directors allowed under the model articles?
A
No.
8
Q
How old must you be to be appointed a director?
A
16.
9
Q
What is a de facto director?
A
Someone who assumes to act as a director but has not been validly appointed.
10
Q
What is a shadow director?
A
A person in accordance with whose directions or instructions the directors of the company are accustomed to act.
For example, a friend of a director who gives advice from ‘behind the scenes’ would be seen as a shadow director.
11
Q
Are professional advisors considered shadow directors?
A
No.
12
Q
Who is an executive director?
A
A director who has been appointed to executive office, generally spending the majority of their working time on the business of the company.
13
Q
Who is a non-executive director?
A
An officer of the company who will not be an employee and does not take part in day-to-day running.
14
Q
What is an alternate director?
A
An alternate director is usually a fellow director or someone approved by a resolution of the board, having the voting powers of the absent director.
15
Q
Do the Model Articles provide for the appointment of alternate directors?
A
No.
16
Q
What are a company secretary’s main duties?
A
Keep the company books up-to-date, produce minutes of meetings, and ensure necessary filings are made.
17
Q
Is a private company required to have a company secretary?
A
No (unless articles require them to).
18
Q
Is a public company required to have a company secretary?
A
Yes.
19
Q
How is the appointment of directors governed?
A
By the articles of the company.
20
Q
How would companies with Model Articles appoint a director?
A
By an ordinary resolution of the shareholders or by a decision of the directors.
21
Q
Should directors be provided with a service contract?
A
Yes - they are an employee.
22
Q
What should a service contract set out?
A
Terms and conditions of employment including duties, remuneration package, notice provisions, etc.
There is no automatic entitlement for directors to be paid for their services - this is something that the board can determine, subject to the provisions of the company’s articles.
23
Q
Where should a company keep directors’ service contracts?
A
At its registered office for inspection by the members.
24
Q
Can an individual be a director and a shareholder of a company?
A
Yes.
25
Should every company maintain a register of its directors?
Yes.
26
What must a company’s register of directors contain under CA 2006?
Name and any former name; a service address; the country or state of residence; nationality; business occupation; date of birth.
27
Is a director's residential address open to public inspection?
No - it needs to be provided but kept on a separate secure register.
28
What must the company’s register of secretaries contain?
Name and any former name; address.
29
What must be disclosed in a company’s annual accounts?
the directors' salaries, bonus payments and pension entitlements; and
compensation paid to directors and past directors for loss of office.
any payments made to, or receivable by, a person connected to such a director or a body corporate controlled by a director.
information on advances and credits given by a company to its directors and guarantees entered into by a company on behalf of its directors.
Applies to any person who was a director at any time during the applicable finanacial year
30
How can a director be removed?
By ordinary resolution by the shareholders.
31
What notice is required for a removal resolution?
Special notice - 28 days.
32
Are directors who are also shareholders allowed to vote on their removal?
Yes.
33
What are the other ways for vacation of office?
Resignation by notice - It is usual, although not obligatory, in these circumstances for the board to pass a board resolution accepting the letter of resignation.
Automatic termination -the director becomes disqualified from being a director
the director becomes the subject of an individual voluntary arrangement (or similar);
the director becomes bankrupt,
a registered medical practitioner who is treating the director states in writing to the company that the director has become physically or mentally incapable of acting as a director and will remain so for more than three months
34
What are the filing requirements when a director leaves office?
Update the company's register of directors and give notice to Companies House by filing form TM01.
35
What are the general duties of directors?
Duty to act within powers; promote the success of the company; exercise independent judgment; exercise reasonable care, skill, and diligence; avoid conflicts of interest; not accept benefits from third parties; declare any interest in a proposed transaction.
36
What does the duty to promote the success of the company mean?
A director must act in a way that promotes the success of the company for the benefit of its members as a whole.
37
Does the duty to exercise independent judgment mean directors cannot rely on the advice from others?
No, they can rely on advice but must make their own judgments.
38
How will the duty to exercise reasonable care, skill, and diligence be assessed?
objectively and subjectively.
The required level is the level of skill, care and diligence which would be exercised by a reasonably diligent person with:
the general knowledge, skill and experience that may reasonably be expected of someone in their role; and
the general knowledge, skill and experience of that director.
39
What does the duty to avoid conflicts of interest require?
A director must avoid situations where they have a direct or indirect interest that conflicts with the interests of the company.
40
What conflicts of interest are excluded under the duty to avoid conflicts of interest?
Conflicts arising in relation to transactions or arrangements with the company.
41
When must a director declare their interests in a proposed transaction?
Before the transaction is entered.
42
How can a declaration of interest be made?
At a board meeting or in writing in advance.
43
Can a declaration of interest be sent electronically?
Yes, if agreed.
44
Can a director give a general notice of their interest?
Yes, if they have an interest in a specified body corporate.
45
When does a director not have to declare their interest?
If they are not aware of the interest or if the interest cannot reasonably be regarded as likely to give rise to a conflict.
46
What does MA 14 specify?
A director who is interested in a transaction cannot vote on or count in the quorum for board resolutions regarding that transaction.
47
Can MA 14(1) be disapplied at the time the conflict arises?
Yes, by ordinary resolution.
48
If a director breaches their duties, does the company have a claim against them?
Yes.
49
What is the remedy for a breach of the duty of care, skill, and diligence?
Damages.
50
What are the remedies for breaches of general duties other than duty of care, skill, and diligence?
Injunction; setting aside of the transaction; restitution and account of profits; restoration of company property; damages.
51
Can shareholders approve a director's proposed actions in advance even if they are in breach of their general duties?
Yes, as long as the proposed act is not unlawful.
52
When is authorization by the shareholders for a director's act effective?
Only effective with full disclosure by the directors.
53
How can shareholders ratify a breach of duty?
By ordinary resolution.
54
What conduct of directors can be ratified?
Negligence; default; breach of duty; breach of trust.
55
Can a director vote to ratify their actions if they are also a shareholder?
No.
56
Can shareholders ratify a director's breach of fiduciary duty in insolvency situations?
No.
57
What type of approval is required for long-term service contracts?
Ordinary resolution shareholder approval.
58
What is considered a long-term service contract?
Any contract for a guaranteed period in excess of two years.
59
If a long-term service contract is given to a director who is also a director of a holding company, will the holding company also need to approve it?
Yes.
60
If a company agrees to a long-term service contract without the required shareholder approval, what are the consequences?
the provision will be void to the extent of the contravention under s 189 CA 2006, and
the contract will be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice
61
Is shareholder approval for long-term service contracts required where the company is a wholly owned subsidiary?
No.
62
Are directors required to disclose their interests in the service contract?
No, but are likely to do so.
63
For how long after termination of a director's contract should their contract be kept at the company’s registered office?
At least 1 year.
64
Where must the memorandum setting out the proposed long-term service contract be made available for inspection?
At the company's registered office for not less than 15 days ending with the date of the meeting.
65
Can the short notice procedures for GM be used for long-term service contracts?
No.
66
What procedure must be followed if the written resolution procedure is followed for approval of a long-term service contract?
The memorandum must be sent to every eligible member at or before the time the proposed resolution is sent.
67
What are substantial property transactions?
An acquisition or disposal by a director of a substantial non-cash asset to or from the company.
68
How are substantial property transactions approved?
Ordinary resolution shareholder approval.
69
What does non-cash assets mean?
Any property other than cash.
70
How is substantial defined?
An asset worth more than £100,000 is substantial; between £5,000 and £100,000 is substantial if it is worth more than 10% of the company’s net asset value.
71
What are the key categories of connected person?
Members of the director's family: spouse or civil partner, parents, children or step-children (s 253(2)). Note that brothers, sisters, grandparents, grandchildren, uncles and aunts are NOT connected persons under CA 2006.
Bodies corporate ie companies in which the director (and others connected with them) holds 20% or more of the shares (s 254).
A business partner of the director or those connected with them (s 252(2)(d)).
Trustees of a trust the beneficiaries of which include the director or those connected with them (s 252(2)(c)).
72
When will a holding company also need to approve a substantial property transaction?
If the transaction is between a company and a director of the holding company.
73
Is approval required for substantial property transactions if the company is a wholly owned subsidiary?
No.
74
Who are considered business partners of a director?
A business partner of the director or those connected with them (s 252(2)(d)).
75
Who are the trustees that may be connected to a director?
Trustees of a trust the beneficiaries of which include the director or those connected with them (s 252(2)(c)).
76
When does a holding company need to approve a substantial property transaction?
If the transaction is between a company and a director of the company’s holding company or a person connected to a director of the holding company, the holding company will also need to approve the transaction by ordinary resolution.
77
What are the remedies if a substantial property transaction is entered into without shareholder approval?
The transaction is voidable at the instance of the company unless:
(a) restitution is no longer possible,
(b) the company has been indemnified for the loss or damage suffered by it, or
(c) rights acquired in good faith by third party would be affected by the avoidance.
78
Are directors liable if they enter into a substantial property transaction without shareholder approval?
Yes, the directors involved (and those so connected under s 195(4) CA 2006) are liable to account to the company for any profits made and to indemnify the company for any loss incurred.
79
Can shareholders affirm a substantial property transaction?
Yes, by ordinary resolution within a reasonable period. This means the transaction may no longer be avoided.
80
Do loans to directors and connected persons require shareholder approval?
Yes.
81
What transactions do restrictions apply to?
Restrictions apply to:
- Loans: where the company lends money to a director (197 CA 2006);
- Quasi-loans: as defined in s 199 CA 2006;
- Credit Transactions: as defined in s 202 CA 2006;
- Guarantees or the provision of security for any of the above.
82
When is a private company considered associated with a public company?
Companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate.
83
What type of transactions always require shareholder approval in any company type?
Loans to directors or directors of its holding company, guarantees, and securities.
84
If a company is a private company not associated with a public company, what transactions require shareholder approval?
Loans, guarantees, and securities.
85
If a company is a public company or a private company associated with a public company, what transactions also require shareholder approval?
Loans to a person connected to a director, quasi-loans, credit transactions, and guarantees or security in respect of such transactions.
86
What is a quasi-loan?
A transaction under which the company agrees to pay a sum to a third party on behalf of the director on terms that the director will reimburse the company.
87
What is a credit transaction?
A credit transaction is where the company provides goods or services to one of its directors on the basis that the director will pay for them at a later date.
88
What are the exceptions to the requirements for shareholder approval for loans?
Exceptions include:
- Section 204: Expenditure on company business (up to £50,000);
- Section 205: Loans for defending proceedings against a director;
- Section 206: Loans for defending regulatory actions;
- Section 207: Minor transactions (loans or quasi-loans of up to £10,000 and credit transactions up to £15,000);
- Section 208: Intra-group transactions;
- Section 209: Money lending companies.
89
What are the remedies if shareholder approval is not obtained for loans and no exceptions apply?
The arrangement is voidable at the instance of the company unless:
- restitution is no longer possible,
- the company has been indemnified for the loss or damage suffered by it,
- rights acquired in good faith by a third party would be affected by the avoidance.
90
Are directors liable if they enter into a loan without shareholder approval?
Yes, the directors involved are liable to account to the company for any profits made and to indemnify the company for any loss incurred.
91
Can shareholders affirm a loan arrangement?
Yes, by ordinary resolution within a reasonable period. This means the transaction may no longer be avoided.
92
Does the wholly owned subsidiary exemption apply to loans that require approval?
Yes.
93
If the loan is to a director of the company’s holding company, is shareholder approval required from the holding company?
Yes.
94
Where must the memorandum setting out the transaction be made available for a general meeting?
At the company's registered office for not less than 15 days ending with the date of the meeting, and at the meeting itself.
95
Can you use short notice procedure for loan transactions?
No.
96
What must be done if the written procedure is being used for approving loan transactions?
A memorandum setting out the proposed transaction must be sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted.
97
What is the approach that should be followed for loans and related transactions questions?
Step 1 - identify the type of company entering the transaction;
Step 2 - identify the type of transaction;
Step 3 - is shareholder approval required;
Step 4 - what company needs to obtain shareholder approval;
Step 5 - are there any available exceptions.
98
What are the remedies if a SPT is enetered into without shareholder approval
the transaction is voidable at the instance of the company unless:
(a) restitution is no longer possible,
(b) the company has been indemnified for the loss or damage suffered by it, or
(c) rights acquired in good faith by third party would be affected by the avoidance.
99
If a director enters into SPT without shareholder approval are The directors involved (and those so connected under s 195(4) CA 2006) liable to account to the company for any profits made and to indemnify the company for any loss incurred
Yes
100
Can shareholders affirm a SPT
Yes - by ordinary resolution within a reasonable period. Means transaction may no longer be avoided
101
May loans to dirctors and connected person require shareholder approval by ordinary resolution
Yes
