Directors/Officers/Minority Protect Chp 16-19 Flashcards
Can unanimous and informed agreements be treated as equivalent to formal resolutions?
Yes, Duomatic 1969
What happens if one of two shareholders refused to attend a general meeting?
s306 CA 2006 court can order a meeting to be held and specify quorum. It can use s306 to permit a meeting to take place with single member.
Union Music v Watson 2003 - court ordered single member meeting but only to conduct one item - election of additional director.
What is a director?
s250 CA 2006 includes any person occupying the position of a director by whatever name called
What is a de jure director?
A de jure director is one formally and properly appointed as a director.
What is a de facto director?
A de facto director is:
A person not appointed but acting as a director Re Hydrodam 1994
A person must be part of governance structure, essentially attending and voting at board meetings
Sec of State for Trade v Hollier 2007
What is a shadow director?
s251 CA 2006 a person in accordance with whose directions or instructions the directors are accustomed to act
Must instruct (not suggest). Board must act (if ignore, not a shadow). More than single instance
Can be held liable for wrongful/fraudulent trading
General director duties apply to extent capable of applying - Vivendi v Richards 2013
How are directors removed from their position by general meeting?
s168 CA 2006 shareholders by ordinary resolution can remove a director, notwithstanding anything in any contract with the director.
However:
Director may have weighted votes, preventing ordinary resolution to be passed Bushell v Faith 1970
If director has service contract he may be able to claim compensation for breach of contract s168(5)
Director who is also shareholder may be able to bring proceedings under s994 (unfairly prejudicial)
What are the two ways directors can be disqualified?
- Under provision in articles (i.e. bankruptcy, but this is an offence anyway without court’s leave)
- Under CDDA 1986 (convicted indictable offence/fraudulent trading)
Most important is under s6 CDDA - company gone into insolvent liquidation and court judges their conduct unfit to be concerned in management of the company (no discretion, must disqualify 2-15yrs, can also make compensation order for loss to creditors if applicable)
Unfitness = more than misjudgement = gross incompetence
i.e. failing to read accounts Continental Assurance 1996
Court can grant leave to disqualified director to act (can insist on safeguards)
Which Model Article states ‘the company is managed by its directors’?
Article 3 Model Articles
What role do non-exec directors have?
Limited role. Little authority (express or implied) to act, or bind it in transactions with third parties.
Hold executive directors to account.
UK Corporate Governance Code recommends at least one half of directors be independent non-execs. Listed companies must declare they comply or explain why not.
Where an offence has a mens rea element, the company will be found liable only if the ‘directing mind and will’ of the company had the necessary mens rea.
What three ways have the courts been prepared to accept may be sufficiently senior to constitute the directing mind and will of the company?
- Board of directors
- Individual directors
- Some cases, senior manager. In Tesco v Nattrass 1971 court refused to accept manager of individual branch was ‘directing mind and will’.
What is the offence of corporate manslaughter?
Corporate Manslaughter and Corporate Homicide Act 2007
statutory offence committed where:
the way in which activities are managed or organised a) cause death b) amounts to gross breach of relevant duty of care owed by organisation to deceased
Does not require directing mind be responsible. Liable if way in which activities are managed/organised by senior mgmt is susbstantial element in events that caused death.
Under Article 3 Model Articles, it states that authority of the directors is all the powers of the company.
What are the three caveats?
- Shareholders can only interfere with board decisions if CA 2006 or articles give that right, although under Art 4 they can direct the board to take/refrain from action on spec. resolution
- Board must exercise powers for lawful purposes and to promote the success of the company, else lacks authority
- Articles may limit general authority (individual type of transaction, or capacity as a whole due to objects clause)
A third party dealing with the board may be unaware of any limits on board authority. In this situation the transaction is voidable at the company’s option. What two ways are the third party protected so that the transaction will still be binding?
- s40 CA 2006, in circ. where a person in acting in good faith, the power of directors is free of any limitation under company’s constitution. (presumption of good faith. not required to enquire re authority)
- Outsider entitled to assume internal matters of procedure have been followed Royal British Bank v Turquand 1856
Can directors enjoy implied authority?
Yes, in the absence of expressly delegated authority, they enjoy the usual authority that a person occupying their position would be given.
To whom are directors duties owed?
Directors duties are owed to the company s170 CA & Percival v Wright 1902
It is the company which must take action to enforce the duties Foss v Harbottle 1843
What is the director duty to promote the success of the company?
s172 CA 2006 Directors must act in bona fide/good faith to promote the success of the company Smith v Fawcett 1942
Duty is subjective - did they honestly think would promote success - Regentcrest v Cohen 2001
Promote success - run for benefit of members
Factors directors must have regard to include long term consequences, employees, suppliers, operations, reputation, acting fairly between members
If insolvent/verge of directors must prioritise interest of creditors (know/should know insolvency likely BTI v Sequana 2019)
What is the director duty to act within their powers?
s171 CA 2006 - act in accordance with constitution & only exercise powers for purposes which they are conferred
Objective. Court to decide what purposes are for power conferred and did they exercise power for that purpose Howard Smith v Ampol Petroleum 1974 (allotting shares to thwart takeover)
What is the director duty to exercise independent judgment?
s173 codification of former duty directors must not fetter their discretion Fulham FC v Cabra 1994
What is the director duty to avoid conflicts of interest?
s175 CA 2006 must avoid situation where has/can (in)direct interest that conflicts/may.
in particular to property, info or opportunity (immaterial whether company could take advantage)
Where director makes personal profit the courts apply this rule strictly
Regal v Gulliver 1942 (irrelevant that company benefitted & acted in good faith)
Industrial Developments v Cooley 1972 (persons ceasing to be directors still subject to duty)
What is a directors duty of case, skill & diligence?
s174 CA 2006 - reasonable care, skill & diligence.
objective (minimum) - all directors general knowledge, skill and experience reasonably expected Re D’Jan of London 1994
subjective - director capable of higher standard than objective min. will be judged subjectively against the knowledge, skill and experience that the director has
What role does a manager have in a company?
Senior employee not on board.
Sometimes treated as fiduciary and will therefore owe director duties Canadian Aero v O’Malley 1973
May be regarded as ‘directing mind/will’ when establishing mens rea for criminal offence
May count as part of senior mgmt under Corporate Manslaughter and Corporate Homicide Act 2007
Will be liable jointly with company when personally involved in commission of tort MCA Records v Charly Records 2003
What is a company secretary?
Public required. Private optional
Service board meetings, comply with filing requirements, maintaining registers
Implied authority to bind in relation to secretarial functions and running of the company
Panorama v Fidelis 1971 (vehicle hire contract binding)
Can individual, minority shareholder bring personal action directly against director for that director’s misbehaviour?
If they could, they would secure personal remedy for themselves and avoid persuading company to sue.
Yes, but rarely allowed.
- Must who duty owed personally to them has been infringed (but remember duties of directors are owed to the company, not members).
- Must show loss is not reflective loss (that which merely reflects a loss to the company itself) Johnson v Gore Wood 2001 unless breach caused company to become insolvent and therefore could not sue Giles v Rhind 2003
How does a shareholder bring a derivative claim?
Apply to court for permission.
Mandatory bars (court must refuse permission)
a person acting to promote success of company would not continue the claim Iesini v Westrip 2010, Kleanthous v Paphitis 2016 (continuing would result in experienced directors being lost, reputation harm, trading performance harm)
Act was authorised/ratified by company
If none then consider discretionary factors
member acting in good faith
importance someone with duty to promote would attach to proceedings
authorisation/ratification likely
whether company has already decided not to pursue
whether member could bring personal action (Franbar 2008 refused as complaint would be better under s994) (Wishart 2010 s994 not better way, claimant wanted to remain a shareholder)
What is a ‘quasi-partnership’?
Ebrahami v Westbourne Galleries 1973 states following characteristics
- company formed on basis of personal relationships and mutual confidence
- agmt/understanding all/some holders would have expectation of participation in mgmt
- restriction on transfer of shares
What other statutory remedy other than s994 (unfair prejudice) does a shareholder have to claim against the company in a personal capacity?
Just and equitable winding up under IA 1986.
No criteria but examples include:
Inability to achieve company’s main object Re German Date Coffee 1882
Shareholder deadlock Yenidje Tobacco 1916
Loss of confidence in mgmt Lock v John 1924
