Company Law: Directors and Officers
1 General Points
a director is anyone who occupies the position of ...
a shadow director is a person in accordance with whose instructions the directors are accustomed to act
de facto director – a person who purports to act as though they were a director
alternate director – a person appointed by a director who is unable to attend a board meeting
executive directors – more on these next
non – executive directors
integral element of corporate governance
bring an independent view
help in providing effective leadership
help to establish and maintain financial probity
keep a watchful eye on the effectiveness of the executive directors
2 Number and Eligibility
private company – at least one
public company – at least two
a company must have at least one natural-person director
anyone may be a director (but some restrictions)
must be over 16
must not be disqualified under CDDA (see later)
should not be absent, without permission, from board meetings for a period in excess of 6 months
3 Company Directors Disqualification Act
on application to the Court, a director may be disqualified by court order on a number of grounds:
for an offence committed in the promotion, formation, management, liquidation or striking off a company
where persistently in default (3 offences in 5 years) of filing returns
when found guilty of fraudulent or wrongful trading
when involved in a company insolvent liquidation
following a Department of Trade investigation
in general, the disqualification period is “up to 15 years”
breaking the disqualification order up to 2 years in prison
4 Directors Appointment
first directors – named in documents sent to registrar before incorporation
subsequent directors may be appointed by :-
members in general meeting
other directors – to fill a casual vacancy
the court (rare)
a lender (if part of the loan agreement)
administrator – under an administration order
appointed by ordinary resolution
registrar notified
5 Directors Removal
members may remove a director by ordinary resolution on special notice of 28 days; the director may make representations and may have a contractual compensation claim
notice to registrar
weighted voting rights can make removal impossible
Bushell v Faith
company may have to pay substantial compensation to a removed director (Southern Foundries v Shirlaw)
management powers are normally vested in the board, which may delegate; a managing director has the usual apparent authority of that office, whereas an individual director has authority only if conferred
6 Directors - Statutory Duties
2006 Act put into statute many of the established common law principles
7 duties
act within their powers
perform their duties with reasonable skill, care and diligence
promote success of company (see next)
independent judgement
avoid conflicts of interest
no benefits from third parties
declare interest in transactions/contracts
the duties are owed to the company; the duty of care, skill and diligence uses the higher of the objective standard and the director’s own knowledge, skill and experience
common law cases which the courts will follow in interpreting these statutory duties follow
7 Directors’ Duties – Common Law Cases
Re City Equitable Fire Insurance
Dorchester Finance Co v Stebbing
Cook v Deeks
IDC v Cooley
Regal (Hastings) v Gulliver
Howard Smith v Ampol Petroleum
Bamford v Bamford
Hogg v Cramphorn
8 Directors – Promoting Success
statute trying to encourage long-term approach by directors
directors to have regard for all stake-holders
non-exhaustive list of matters for directors to consider:
long-term consequences of their decisions
employees’ interests
good relationships with customers and suppliers
local community and environmental impact
high standards of business conduct
good reputation
fair treatment for all members
9 Directors – Controls
member approval is generally required for loans and related transactions involving directors or connected persons, and for substantial property transactions, subject to statutory exceptions
10 Directors – Remedies
make them account for personal gain (Regal (Hastings) v Gulliver)
make them indemnify the company against loss caused by their negligence (see below)
rescind the contract where director has a conflict of interest
ask the court to declare a transaction is ultra vires
directors are not liable for the acts of other directors
may be held liable by the court looking behind the veil of incorporation
may be held liable by the court for fraudulent or wrongful trading
liable for negligence?
not if honest (Pavlides v Jensen)
but if negligence results in personal benefit? (Daniels v Daniels)
11 Company Secretary
every public company must have one
should be appropriately qualified
duties, determined by the directors, are administrative in nature (Panorama Developments v Fidelis Furnishing Fabrics)
maintaining company’s statutory records (see later)
filing returns with the registrar
taking minutes of meetings
ensuring the company complies with statutory requirements
signing documents as required by law
review and amend confirmation statement sent annually by Registrar of Companies in place of the former Annual Return
under principles of corporate governance should also:-
advise the board on governance matters
arrange the induction process for new neds
enable effective communication between board and its various sub-committees
Central register
as a result of the coming into force of the Small Business, Enterprise and Employment Act in 2015, private companies can now elect to have many of their statutory records maintained in a central register at Companies House
these include:
the register of members
the register of overseas branches
the register of directors
the register of directors’ residential addresses
the register of persons with significant control
12 Company Secretary: Statutory books
every company must maintain certain records required by statute – “the statutory books”
these records must be kept at the company’s registered office, unless ...
... the register of members is maintained by an independent organisation – the company’s registrars
in this situation, certain other books may be kept also at the offices of the company’s registrars
registers include:
members
directors
secretary
overseas branches
mortgages and charges
debenture holders
directors’ interests
directors’ residential addresses
substantial shareholders
persons with significant control (PSC) (see below)
PSCs are those people that satisfy any of the following criteria:
they hold >25% of the company’s shares
they hold > 25% of the company’s voting rights
they have the right to appoint and remove a majority of the company’s board of directors
they are individuals that have the right to exercise significant control over the company
where a trust can exercise significant control, they are a member of that trust with significant control over the trust
13 Auditors
required (unless ‘small’)
appointed by:-
directors (first and casual vacancies)
members (subsequent and casual vacancies)
secretary of state (if no-one else does)
must be appropriately qualified
cannot be :-
director or employee of the company
partner or employee of the above
undischarged bankrupt
professionally prevented from
owning beneficial interest
being close relative of company officers or employees
14 Auditors – Rights and Duties
rights
access to company records
information and explanations
notice of and attendance at company general meetings
written representations (when proposed for removal)
receive copies of proposed written resolutions
duties
express an opinion on truth and fairness (and proper preparation)
report if directors’ report is inconsistent or misleading
(for quoted companies) report on certain elements of the directors’ remuneration report
auditors should sign and date the audit report
report, by exception, if proper accounting records not kept
an auditor may be removed by ordinary resolution with special notice and, on resignation, must make the required statement
Company Law: Directors, Officers and Records
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