4 - BL - Directors

Question 1

What is a de jure director?

Answer 1

validly appointed at law.

Question 2

How many directors must a private limited company have?

Answer 2

at least 1

Question 3

How many directors must a public company have

Answer 3

at least 2

Question 4

How old do you have to be to be a director

Answer 4

At least 16

Question 5

What is a de facto director

Answer 5

Someone who assumes to act as a director but has in fact not been validly appointed

Question 6

what is a shadow director?

Answer 6

a person in accordance with whose directions or instructions the directors of the company are accustomed to act

Question 7

Does a private company need to have a company secretary?

Answer 7

No

Question 8

Does a public company need to have a company secretary?

Answer 8

Yes

Question 9

Does CA 2006 give a procedure for appointing directors?

Answer 9

No - handled by the articles

Question 10

How can companies with MA appoint a director?

Answer 10

• ordinary resolution of the shareholders
• decision of the directors

Question 11

Does the company has an obligation to keep its directors’ service contracts at its registered office for inspection by the members?

Answer 11

Yes

Question 12

Is shareholder approval required for long-term directors’ contracts?

Answer 12

Yes

Question 13

Where can the public find out about a director?

Answer 13

In the company’s register kept at their registered office.

Question 14

Can a fee be charged for inspection of a company’s register?

Answer 14

For members - no

For members of the public - yes

Question 15

Which director payments are required to be included in company accounts?

Answer 15

• the directors’ salaries, bonus payments and pension entitlements; and 💰
• loss of office payments 🪑❌
• connected person payments 👥
• controlled company payments 🎩🏭
• loans 💳

Question 16

What does s.168 provide for

Answer 16

ordinary resolution to remove a director (but special notice of 28 clear days required)
🎩📅👀

Question 17

Is it possible for the Board to remove a director?

Answer 17

No

Question 18

When are directors automatically terminated?

Answer 18

• disqualified
• IVA)
• 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.

Question 19

What are the general duties of a director as set out in 171-177 CA 2006?

Answer 19

• Duty to act within powers (s 171 CA 2006); 🦸
• Duty to promote the success of the company for the benefit of the members as a whole (s 172 CA 2006); ⭐️
• Duty to exercise independent judgment (s 173 CA 2006); 🧠
• Duty to exercise reasonable care, skill and diligence (s 174 CA 2006); 🧑‍🔬
• Duty to avoid conflicts of interest (s 175 CA 2006); 🗡️
• Duty not to accept benefits from third parties (s 176 CA 2006); and 🎁
• Duty to declare any interest in a proposed transaction (s 177 CA 2006). 🗣️

Question 20

What does Duty to promote the success of the company mean?

Answer 20

Promote the success of the company for the benefit of its members as a whole

• the likely long-term consequences of any decision
• employees’ interests
• the need to foster relationships with suppliers, customers and others
• the impact of the company’s operations on the community and the environment
• the desirability of the company’s maintaining a reputation for high standards of business conduct
• the need to act fairly as between the members of a company

Question 21

How is ‘reasonable skill, care and diligence’ defined?

Answer 21

person with:

• objective - the general knowledge, skill and experience that may reasonably be expected of someone in their role; and
• subjective - the general knowledge, skill and experience of that director.

Question 22

When can the general directors duty to avoid a conflict not be breached?
🗡️

Answer 22

if the conflict arises:

• in relation to a transaction with the company (eg a transaction between the director and the company); 🏭

OR

• in relation to a matter which has been authorised by the directors.🎩👍

These conflicts are subject to the duty of disclosure in s 177 CA 2006 for transparency purposes but are not prohibited
🗣️

Question 23

Is it possible for the other directors to authorise the acceptance of a benefit from a third party by reason of them being a director, or by reason of them doing (or not doing) anything as a director?

Answer 23

No

Question 24

When is the receipt of a benefit from a third party by reason of them being a director, or by reason of them doing (or not doing) anything as a director NOT a breach of duty?
🎁

Answer 24

If the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest
🤷‍♂️

Question 25

Does the duty to declare an interest under s.177 cover indirect interests?

Answer 25

Yes

Question 26

When does s.177 'duty to disclose conflicts of interest' not apply?

Answer 26

when: * cannot reasonably be regarded as likely to give rise to a conflict of interest ❌🗡️ * not aware/ought to be aware of the interest or transaction 🤷‍♂️ * other directors know/ought to know about the conflict of interest; or 🎩👀 * concerns service contract which has been or will be considered by the board 📝🎩🎩🎩

Question 27

Can a director vote on or count in the quorum in respect of a transacation where they have a conflict? (Answer is more than just yes or no)

Answer 27

No Nothing in the legislation to stop it, but MA's do. Can remove blocker so for can vote by OR

Question 28

Who has the claim if a director breaches their duties?

Answer 28

The comapny

Question 29

What remedies are available for breach s.174 of care, duty and diligence? 🧑‍🔬

Answer 29

Damages 💵

Question 30

What are the remedies available for breaches of general duties other than s.174 (🧑‍🔬)?

Answer 30

* setting aside of the transaction; ❌ * restitution and account of profits; 🤑 * restoration of company property; 🏠 * injunction; 🤚 * damages. 💵

Question 31

How can a director protect themselves against a possible claim of breach?

Answer 31

- Prior Shareholder support (s180(4)) (only effective with full disclosure) 👈 - Ratification for breach by ordinary resolution (vote held by breaching directors or people connected with them are disregarded) 👉

Question 32

Can unlawful acts be rectified?

Answer 32

No

Question 33

What is a long-term contract?

Answer 33

Any director’s service contract which is, or may be, for a guaranteed period in excess of two years.

Question 34

What is required to approve a long-term service contract?

Answer 34

Shareholder approval by ordinary with special notice of **14 days** resolution

Question 35

What is the guarantee in a long-term service contract?

Answer 35

* a period during which the contract is to continue other than at the instance of the company, and * during this time the company either cannot terminate the contract or can only terminate in specific circumstances OR * the period of notice to be given by the company Takes you over the two year limit It will also apply to an aggregate of any periods covered by .

Question 36

What happens if a company approves a long-term contract without the necessary approval?

Answer 36

* the provision will be void to the extent of the contravention, 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.

Question 37

What is the exception to s.188 Long-term contracts requiring approval?

Answer 37

Approval is not required by the members of any company which is a wholly owned subsidiary of another company.

Question 38

What is the process to pass an ordinary resolution for a long-term contract by GM or Written resolution?

Answer 38

GM a memorandum setting out the proposed contract must be made available for inspection by members of the company both: a) at the company’s registered office for not less than **14 clear days** ahead of the date of the GM; and b) at the GM itself. WRITTEN RESOLUTION - doc sent out with WR - There is **no 15-day requirement** for a written resolution.

Question 39

What section governs acquisition or disposal by a director/holding company director (or connected person) of a substantial non-cash asset to or from the company.

Answer 39

s.190

Question 40

What is required for a substantial property transaction?

Answer 40

Require shareholder approval by ordinary resolution

Question 41

When considering Substantial Property Transactions - What if the transaction is between the company and a director of the company's holding company?

Answer 41

Holding company will require shareholder approval by ordinary resolution

Question 42

Substantial property transactions - What are the exceptions to requiring shareholder approval for wholly owned subsidiaries?

Answer 42

Approval is not required by the members of any company which is a wholly-owned subsidiary of another company (Same as for long-term service contracts)

Question 43

What is a substantial asset?

Answer 43

* An asset worth £5,000 or less is not a substantial asset. * An asset worth more than £100,000 is a substantial asset. * An asset worth more than £5,000, but not more than £100,000 is a substantial asset only if it is worth more than 10% of the company’s NET asset value. A company’s net asset value is that shown in its most recent statutory accounts.

Question 44

What happens if there is a substantial property transaction with the comapny that should have sought approval but didn’t? 🏡

Answer 44

The transaction is voidable 🗑️ at the instance of the company unless: (a) restitution is no longer possible, ❌ OR (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. 😇

Question 45

Who is liable if there has been an unapproved substantial property transaction? 🏡

Answer 45

- directors involved 🎩 AND - those so connected 👯 are liable to account to the company for - profits 🤑 - indemnify for loss 😭

Question 46

What happens if there is a substantial property transaction with the comapny that should have been approved but wasn't and the company is OK with the transaction? 🏡

Answer 46

The arrangement can be affirmed by the shareholders of the company and the holding company (where relevant) by ordinary resolution within a reasonable period. 👍

Question 47

What are the defences to an unapproved substantial property transaction?

Answer 47

- The director took all reasonable steps to ensure the company’s compliance. 👣 - director/connected person had no knowledge of the circumstances constituting the contravention. 🧠

Question 48

What do directors need to disclose?

Answer 48

The nature and extent of their interest

Question 49

Can the director vote on the board resolution to approve the contract for an unapproved substantial property transaction and authorise a signatory?

Answer 49

No - not under the MA

Question 50

What loans to directors of a private company not associated with a public company have special measures?

Answer 50

- Loans to director 💳 - Guarantees or security for a loan to director 💪 Note: **does not apply to connected persons**

Question 51

What are the conditions for a private company not associated with a public company to make a loan to its director?

Answer 51

Must be first approved by the shareholders by ordinary resolution.

Question 52

What are the loans covered by legislation to its director of a PLC or of a private company associated with a public company?

Answer 52

- Loans to director 💳 - Guarantees or security for a loan 💪 - quasi loans - Company paying a 3rd party with the director paying the company back 🔁 - Providing goods and services to a director for credit 📦👷‍♂️ 👯 Note: all the above also apply to persons connected to the director.

Question 53

What are the conditions for a PLC or a private company associated with a PLC to make a loan to its director?

Answer 53

Must be first approved by the shareholders by ordinary resolution.

Question 54

What types of loan are exceptions to the legislation on making loans to a director?

Answer 54

* Expenditure on company business (up to a maximum of £50,000); * Loans for defending proceedings brought against a director; * Loans for defending regulatory actions or investigations; * Minor and business transactions - loans or quasi-loans of up to £10,000 - credit transactions up to £15,000 * Intra group transactions, and * Money lending companies (where the loan is made in the ordinary course of the business of the company).

Question 55

What happens if loans are made to a director without shareholder approval and the shareholders agree to the loans?

Answer 55

- can be affirmed by the shareholders of the company and the holding company (where relevant) by ordinary resolution within a reasonable period. If it is affirmed, the arrangement may no longer be avoided.

Question 56

What happens if loans are made to a director without shareholder approval and the shareholders do not want to affirm the transaction?

Answer 56

the transaction is voidable 🗑️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 a third party would be affected by the avoidance.😇 If so, the directors involved (and those so connected) are liable to account to the company for any profits made and to indemnify the company for any loss incurred.🤑😭

Question 57

What are the defences to unapproved loans to directors and their associates?

Answer 57

- If the loan is to a person connected with a director, that director will not be liable if they took all reasonable steps to ensure the company complied with the sections. 👣 - If any connected person (if relevant) or any director that had no knowledge of the circumstances constituting the contravention🧠

Question 58

What happens if the loan 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

Answer 58

The holding company will also need to approve the transaction by OR

Question 59

What happens if the loan transaction is between a wholly owned subsidiary company?

Answer 59

Approval is not required by the members of any company which is a wholly-owned subsidiary of another company

Question 60

Does a director need to disclose any such loans?

Answer 60

Yes - a director would need to disclose the nature and extent of their interest to the board if they were interested in any of the transactions caught

Question 61

What is the procedure for agreeing a loan to a director?

Answer 61

Where the ordinary resolution is to be passed at a General Meeting, a memorandum setting out the proposed transaction must be made available for inspection by members of the company both: a) at the company’s registered office for not less than **14 days** ending with the date of the meeting; and b) at the meeting itself. A **minimum of 15 days** notice of the general meeting held to approve the transaction will therefore have to be given to shareholders (even if the short notice procedure is followed) unless the written resolution procedure is used. Where the written resolution procedure is being followed, 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 to the member.

Question 62

Under s.175 a director cannot accept benefits from third parties, can the other directors authorise such a benefit? Can shareholders?

Answer 62

Directors = No. Must gather shareholder approval under s.239

Question 63

At what time must a director declare their interest in a proposed transaction under s.177?

Answer 63

Before the transaction is entered into

Question 64

How can a director give notice of their conflict of interest

Answer 64

- at BM - in writing ahead of the BM to all other directors.

Question 65

Who are connected persons for the purposes of substantial asset transactions?

Answer 65

- immediate family inc. parents (does not include siblings or anyone else). 👨‍👩‍👦 - companies with 20% control (inc shares of connected persons) 🏭 - business partners and their connected persons 🎩🎩 - trustees of a trust where dir/connected persons are beneficiaries. 👻🎩

Question 66

What happens with long-term service contracts if the director is also a director of the company’s holding company?

Answer 66

If the director is also a director of any holding company, the shareholders of the holding company will also need to give approval.