Chapter Four: Directors, company officers and members

he use of alternate directors was once very popular in offshore jurisdictions, however, in recent years it has become far less common to use them. The reason for the decline in use of alternate directors is partly due to the increase in use of corporate directors which make it far easier to ensure that a quorate meeting can be held at all times. Alternate directors were used when?

Where individual directors may have been absent from the office

The term shadow director may include outside persons or corporate bodies who, often for legitimate commercial reasons, influence the directors' actions or otherwise control the company. A controlling shareholder or a creditor may be regarded as a shadow director when?

Where the provisions of s.251 of CA 2006 apply

Many private companies still consider the role of the company secretary as an important one, particularly with the attention being placed on corporate governance. t could be said that the role of the company secretary was once known as 'a mere servant who did what they were told', but the first recognition of the increasing importance of the company secretary by the courts came in the Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd (1971) case when the company secretary was described as what?

The chief administrative officer of the company

A potential risk is that if a director of the corporate director regularly attends board meetings they could be held to be a de facto director of what?

The company on whose board the corporate director sits

Since the publication of the 'Cadbury Report' in 1992, that incorporated recommendations on corporate governance, even greater emphasis has been placed on the role of the company secretary. Name an example of this

The current UK Corporate Governance Code 2016 provision B.5.2 code stipulates that all directors should have access to the company secretary, and that any question regarding their removal should be a matter of all the board.

It is usual practice that a director who wishes to retire sends a letter of resignation to either the company secretary or to the registered office of the company confirming their wishes to retire. The resignation may be effective from what date?

The date of the letter of resignation, the date the letter of resignation was received by the company or after the board meeting of the directors has met to accept the resignation. This date would be ascertained and agreed upon by the board of directors of the company and the entry made in the director's register.

Directors can be classed as executive directors or non-executive directors (NEDs). Directors who are involved with the day-to-day operations of the organisation are executive directors. NEDs do not play a part in what?

The day-to-day operations of the company to which they are appointed

The relationship of the company secretary to the board of directors and to individual director's will vary according to the size of the company and whether what?

The directors hold executive or non-executive office

Define beneficial owner

The entity which enjoys the benefits of ownership of an asset

It is generally the duty of the company secretary to ensure that the board of directors act in accordance with company legislation and the company's constitution the secretary should act on the instructions of the directors in what?

The filing of all formal returns as required by CA2006 and maintaining the prescribed registers and records, as well as the minute book, notices of GMs and the company's report and financial statements.

Directors may be relieved from liability for a breach of duty to the company in which three ways?

1. consent, approval or authorisation by the members of the company (s.180 of CA2006); 2. ratification by the company (s.239 of CA2006); or 3. by the courts (s.1157 of CA2006).

The division of powers between the members in GMs and the board of directors, as determined by the company's articles, has important, and sometimes counter-intuitive, practical consequences for both types of parties. Name some cases that illustrate these

Automatic Self Cleansing Filter Syndicate Co Ltd v Cuninghame (1906) Imperial Hydropathic Hotel Co, Blackpool v Hampson (1882)

The appointing director may also revoke the alternate's appointment at any time by notice to the company. Where the appointing director ceases to hold office, any alternate director so appointed will what?

Automatically cease to hold office

What does s.171 of CA2006 state? (Duty to act within powers)

'A director of a company must: (i) act in accordance with the company's constitution, and (ii) only exercise powers for the purpose for which they are conferred'.

With effect from April 2008, s.270(i) of CA2006 specified that a private company is not required to have a secretary, however, a public company must have one (s.271 of CA2006). A private company may continue to appoint a company secretary if it so wishes and ss.270 and 274-280 of CA2006 will apply. Existing private companies who have company secretaries can continue unaffected. The directors of a public company have a duty to take all reasonable steps to ensure that the secretary of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company, and has a qualification such as being a member of a professional body such as ICSA. In many offshore jurisdictions, it is still a requirement that private companies appoint a company secretary. In some offshore centres, the company secretary may be what?

A company

Define corporate service provider

A company that provides trust services

Define non-executive director

A director that is not involved in the day-to-day running of the company, but still has all the rights and responsibilities of an executive director.

Define de facto director

A director who has not been formally appointed as a director but appears to fulfil the role of a director

Define de jure director

A formally appointed director whose name should appear in the register of directors of the company

Define shadow director

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

Section 160(1) of CA2006 requires that for a public company, separate resolutions are required for each director's appointment, unless what?

A resolution to appoint two or mot persons by a single resolution has been agreed by the meeting without any vote cast against it

Following the appointment of a new director, the company secretary will be authorised to update the register directors and to advise the Company Registrar of the appointment of the new director. It may also be necessary to what?

Advise third party agents of the company as to the appointment, such as banks, investment managers

The company secretary should therefore be able to advise, guide and warn the directors of the danger of disqualification and possible personal liability. They must be a competent and reliable person, and must be what?

Able to assist the directors in carrying out their duties

A shadow director is not formally appointed by the company, however they are deemed to have the same duties, liabilities and obligations as a formally appointed director. CA2006 sets out that a person is not to be regarded as a shadow director by reason only that the directors what?

Act on advice given by them in a. profession capacity, for example taxation or legal advice

In carrying out their duties, directors are expected to attain certain standards. To avoid liability for acts done by them, directors must be able to show that they acted honestly and reasonably and that they ought fairly to be excused. However, directors may be personally liable if they are negligent and/or make a misrepresentation in that capacity. A director may be personally liable in what instances?

Acting as a director while; being disqualified from doing so; Responsible for wrongful trading by allowing the company to continue when insolvent or where there is no reasonable prospect of avoiding insolvency; Responsible for fraudulent trading; Guaranteeing the company for its borrowing facility; Failing to evidence that they are acting on behalf of the company, but completes a contract in their own name without demonstrating that they are signing on behalf of a company

It became apparent that the company secretary was said to have an ostensible authority on behalf of a company to enter into contracts which are of what?

An administrative nature

Define ostensible authority

An apparent authority because of position held

A company's article may provide for the appointment of an alternate director. Define alternate director

An individual appointed by a director to act on their behalf at directors' meetings or for a particular task

Define offshore service provider

An offshore company that provides trust and other financial services

In the UK, CA 2006 sets out the general duties that are owed by a director of company to a company. Section 250 of CA2006 defines a director as what?

Any person occupying the position of director, by whatever name Called

However, s.174 marks the end of the subjective test and it now adopts the minimum standard that objectively is now expected of a person in the director's position: that standards may be raised by the subjective element of the test if the particular director has what?

Any special knowledge, skill and experience

The rules governing the appointment of the directors of a company are set out in its articles. It is therefore essential that they are reviewed to see whether there are any specific requirements or limitations that need to be adhered to. Article 17 of the model articles state that any person who is willing to act as a director and is permitted by law to do so may be what?

Appointed to be a director by ordinary resolution of the shareholders, or by a decision of the directors. CA2006 provides that a person may not be appointed a director of a company unless they have attained the age of 16 years

Members, as the owners of the company, can exert power and control over the activities of the board, but the actions that can be taken are related to the percentage that they hold either as an individual or as a group; sometimes this is known as a 'concert party' and whether or not they are voting or non-voting shares. Only certain acts can be undertaken by the shareholders such as what?

Appointing or removing a director from office, changing the name of the company, or authorising a service contract for a director which gives them job security for more than two years. The shareholders may attend and vote at the GMs and discuss whatever is on the agenda of a GM.

An alternate director is appointed by a director to act on behalf of the director generally in the absence of that director. The appointment is usually confirmed or noted at a directors' meeting and their details hold be entered in the register of directors, why?

As the company law will perceive them as being as liable as any other director

In some offshore jurisdictions, companies can also act as directors of other companies. A company is a separate legal entity or person and it is therefore possible for a company to be appointed as a director of another company. However all UK companies must have what?

At least one director who is a natural person, to ensure that there is an individual who can be held accountable for the actions of that company

Members do not have a specific right to what?

Be paid a dividend, unless the board recommends one; Increase a dividend above the amount recommended by the board; Access to the minutes of board meetings, the accounting records or other sensitive documents; or Be consulted on every business issue affecting the company.

Both types of directors must carry out their duties in accordance with company law. They are both responsible for guiding, managing and directing the business in order that it achieves its overall objective. Why is a NED generally appointed?

Because they have specific expertise and/or useful connections that may be useful to the company. NEDs also bring a balanced and objective view to the board of directors as they offer valuable independence, positioning them well to identify both risks and opportunities in assisting the direction the CSP is taking

The method of becoming a shareholder includes what?

Being a subscriber in the application to form a company; Purchasing shares; Having shares transferred into their name; Transmission by operation of the law such as the death or bankruptcy of a member; By order of the court; or By the company.

The most significant difference between s.175 (no conflict) and this section (s.176, no benefits from third parties) is that there is no provision for authorisation by the board of directors. Of course, the company's articles could (although it is most unlikely) contain specific provisions concerning what?

Benefits from third parties

Rescission is an equitable remedy for breach of contract. The innocent party must rescind (revoke) the whole of the contract, or not at all; it must be possible to restore the status quo.Many contracts will not be suitable for this remedy as the job may be part completed. All part payments must be returned on rescission and the plaintiff cannot combine rescission with a claim for damages. There have been many cases that highlight the remedies available, name some examples

Bhullar v Bhullar (2003) Ultraframe UK Ltd v Fielding (2005)

Where a person or group of people have rights by virtue of a public company, it follows that they will also have duties and responsibilities and, in most cases, some liabilities. A member of a public company, if so requested by the company must what?

Disclose their interest in the shares (s.793 of CA2006). Notify the company if they acquire 3% or more of the company's total voting rights and if their holding subsequently falls below 3%. Once a holding reaches 3% or more there is an obligation to advise of any changes which take the holding above or below the next percentage point (Disclosure and Transparency Rules).

In some circumstances, the removal of the director may be grounds for petition under s.994 of CA2006, (the unfairly prejudicial conduct provision) under which the court may order the remaining members (or indeed, the company itself) to what?

Buy the ex-director's shares

Section 239 of CA2006 applies to the ratification by a company of conduct by a director amounting to negligence or breach of duty. The decision of the company to ratify such conduct must be made how?

By resolution of the members of the company, not the directors of the company, unless they are the same persons

While directors have a duty to promote the success of the company, it is clear that CA2006 also expects directors to take into account the wider implications of the decisions they make. CA2006 does not inform directors as to the decision they should reach - that is a matter for their own judgement. It does, however, require directors to have what?

Full regard for all the consequences

The register of secretaries must be kept at the company's registered office, or if kept at another place, the company must what?

Give notice to the local Company Registrar of the place

Sections 168-169 of CA2006 provide wide powers for the removal of directors by ordinary resolution of the shareholders before the expiration of the director's period of office. Special formalities must be observed and a director is guaranteed certain protections. Name the wide powers under sections 168-169.

CA2006 s.168(1) - A company may by ordinary resolution at a meeting remove a director before the expiration of their period of office, notwithstanding anything in any agreement between it and them. CA2006 s.168(2) - Special notice is required of a resolution to remove a director under this section or to appoint somebody instead of a director so removed at the meeting at which they are removed. CA2006 s.169(1) - On receipt of notice of an intended resolution to remove a director under S. 168, the company must forthwith send a copy of the notice to the director concerned. CA2006 s.169(2) - The director (whether or not a member of the company) is entitled to be heard on the resolution at the meeting.

A de facto director (meaning a director in fact or in reality) is someone who has not been properly and notified to the Companies Registrar as a director but who nevertheless acts as a director and holds themselves out to third parties as a director. Sometimes they will have the word director as part of a job title. The de facto director will usually what?

Carry out all the duties of a director and can make the decisions of a director, sign company documents and be treated as a director it is the role of the individual, rather than the title used that determines whether an individual is a director or not

Future and subsequent directors are usually appointed to the board of directors by the passing of an ordinary resolution at a director's meeting. They can be co-opted during the year or else nominated by the nominations committee, if the company is listed. The appointment of any new director that has been co-opted on to the board is usually what?

Confirmed at the next general meeting of the company by the shareholders of the company

The duty to act in good faith is also designed to encourage directors to what?

Consider carefully the implications of decisions and actions; Make decisions based on the right of information, and after an appropriate level of questioning; and Know, and be able to explain to members and other stakeholders, why decisions have been made.

If directors continue to act after their office is vacated, for whatever reason, their acts will generally what?

Continue to bind the company

A de jure director (meaning a director from law) is a director who is formally and legally appointed to the board in accordance with the articles of association of the company and gives written consent to hold the office of a director. They enjoy what?

Full rights of a director but can be held individually and collectively (with other directors) liable for the acts and/or negligence of the company

Section 251 of CA2006 provides that a body corporate is not to be regarded as a shadow director of any of its subsidiary companies for what purposes?

General duties of directors Transactions requiring member's approval Contract with a sole member who is also a director of the company

Section 180 of CA2006 deals with the ways in which directors can avoid liabilities for breaches of their general statutory duties by making the appropriate what?

Declaration or obtaining the appropriate consent, approval or authorisation from either the directors or the members of the company

Under s.177 of CA2006, if a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, they must what?

Declare the nature and extent of that interest to the other directors

Conflicts of interest are usually easy to assess when the conflict involves a defaulting director making use of the company's tangible or intangible assets. The assessment is more difficult when the conflict (or alleged conflict) involves directors taking opportunities for themselves that might have been pursued by their companies. Many of the cases in this area involve what?

Directors pursing lucrative commercial interests on their own behalf or on behalf of other companies with which they are associated

The register must be open to the inspection by any member of the company without charge, and by any other person on payment of such fee as may be prescribed. In some jurisdictions it is a requirement to notify the Company Registrar of any change in secretary. Offshore administrators will need to ensure that they check the relevant laws of any company that they administer to ensure that they what?

Do not fall foul of such requirements

The ultimate owner(s) of the company has no direct power over the company, unless they are also a shareholder. Regulated CSPs who have beneficial owners often what?

Do not understand this

Section 112 of CA2006 defines a member as being what?

Either a subscriber to the memorandum of association or some other person who has agreed to become a member of the company and has been registered as such in the register of members.

Executive directors are subject to Schedule E taxation whereas non-executive directors are subject to Schedule D taxation. If they are, their contract must comply with employment law. If they are not, then their contract is what?

Entirely a matter between them and the company

Offshore service providers (OSPs) are usually appointed as directors for a number of client owned entities. Individuals may be appointed to act as directors or alternatively a company, owned by the corporate service provider may be appointed in some offshore jurisdictions. In addition, directors can be what?

Executive or non-executive.

The directors are responsible for the operation and management of a company both on a day-to-day basis and in the long term. Directors have extensive powers to manage the company and these are derived from the company's articles. For instance, Article 3 of the Model Articles (for a public limited company) empowers the directors to what?

Exercise all the powers of the company subject to the provisions of the articles.

At each AGM of the company, all directors of FTSE 350 companies should be subject to annual election by shareholders. All other directors should be subject to election by shareholders at the first AGM after their appointment and to re-election thereafter at intervals of no more than three years. Shareholders can remove director from the board by what? (Executive directors are exempt from this requirement)

Failing to re-elect them.

A director may resign at any time by giving notice to the company and the constitutional documentation will usually cover the requirements and procedures which may be met to enable the resignation/retirement to be effective. While there is not usually a requirement for the director to give notice in the articles, they may be a provision in the director's service contract or letter of appointment requiring the director to give a prior of notice. If the director is removed from office as a director, this will not usually affect the director's position (if they have one) as a member in the company. This is often a relevant consideration in private companies, where often a director is also a member. In most circumstances the only solution is what?

For there to be negotiations for the purchase of the ex-director's shares

The wide powers given to directors to represent and/or act on behalf of the company mean that they are responsible for the arrangements relating to the understanding and obligations of the company's statutory duties. They can therefore be liable to penalties should the company fail to comply, and are sometimes personally liable for the consequences of their actions. Name an example

For wrongful trading

As well as the recognition that the company secretary now has in law, in modern practice it is increasingly common for the company secretary to have considerable managerial responsibilities within a company. Thus today, the secretary can in many ways be described as what?

Forming the backbone of the company

As the client of the CSP, the beneficial owner should be seen as disclosing relevant information when setting up the company and this is usually obtained by completing a standard questionnaire. In addition the beneficial owner is required to provide what?

Full details of any other person behind the company, including the reasons for setting up for the company, in order to comply with anti-money laundering legislation Tax or legal advise Details of the source of funds Details of the source of wealth

Section 275 of CA2006 states that a company must keep a register of its secretaries. Section 277 of CA2006 states that the register (in the case of an individual) must contain what particulars?

Full name and any former name; Full address; Date of appointment; Date of resignation.

Section 278 of CA2006 states that the register (in the case of a corporate secretary) must contain what particulars?

Full name of company; Full registered office address; Date of appointment; Date of resignation.

A director occupies a position of trust to the company and must therefore act in what?

Good faith and should seek to profit personally from their position as a director

In the case of a public company, s.273 of CA2006 imposes a duty on the directors to ensure that the secretary of the company is a person who appears to them to have the requisite experience and knowledge to fulfil the role who has one or more of the following qualifications, that they what?

Have held the office of secretary of a public company for at least three of the five years immediately preceding their appointment as secretary; Are a member of a professional body such as ICSA or the Institute of Chartered Accountants in England and Wales or one of the other accountancy bodies authorised in the UK; Are a barrister, advocate or solicitor called or admitted in any part of the UK; or Are a person who, by virtue of their holding or having held any other position or they being a member of any other body, appears to the directors to be capable of discharging the functions of secretary of the company.

Define objectively

Having no bias

If the secretary acts beyond their ostensible authority, and without an express authority, the position appears to be that the company will be bound by their acts but the secretary may be what?

Held personally liable by the company for any resultant loss

Section 1157 of CA2006 states that the court has a discretion to grant relief to directors and other officers from liability for breach of duty, similar to that which exists in relation to trustees, if they have acted how?

Honestly and reasonably and doughtily fairly to be excused

The law provides that a director need not declare an interest in certain circumstances. Name an example

If it cannot reasonably be regarded as likely to give rise to a conflict of interest.

The position of the modern-day company secretary's authority could therefore appear to be what?

If the secretary has express authority from the board, they may enter into contracts of both an administrative and managerial nature on behalf of the company, and the company will be bound by their acts. When the secretary has no express authority, their ostensible authority will allow them to enter into contracts of an administrative nature on behalf of the company, and the company will be bound by such acts.

The remedies for breach of general duties (s.178 of CA2006) have not been codified, despite the recommendations of the Law Commissions. This Section preserves the existing civil consequences of breach (or threatened breach) of any of the general duties. If there is any doubt the court will have to identify the rule that may have been broken and/or breached and apply the appropriate remedy. The consequence of any breach may include what?

Injunctions and declarations (generally only when the breach is still threatened); Common law damages or equitable compensation where the company has suffered loss; Restoration of the company's assets, following a declaration that the asset is held by the director on 'constructive trust' for the company; An account of profits made by the director; or Rescission of a contract where the director failed to disclose an interest.

The members do not owe a fiduciary duty to the company and they may therefore act in their own interests. However, shareholders may or may not also be directors of the company and, where they also act as a director; they will have all of the usual rights and responsibilities that other directors have when acting in that capacity. While ultimately shareholders have power and control over the company, they are not what?

Involved in managing it

Which case established a subjective test for the duty to exercise reasonable care, skill and diligence (s.174 CA2006)?

Re City Equitable Fire Insurance Co Ltd (1925)

The de facto director is also subject to the same legal duties, responsibilities and potential liabilities as de jure directors and will be treated as such by the courts in the case of a dispute. Name a case which showed thsi

Re Hydrodam (Corby) Ltd (1994)

New directors will have already indicated their willingness to be appointed as a director and signed a letter of acceptance to be appointed as a director of the company. In some jurisdictions, this written confirmation from the new director is a legal requirement, whereas in others it is what?

Just best practice

Other duties and liabilities include contributing to the assets of the company in respect of any amounts outstanding on the shares which they hold on a winding up. Members of companies limited by guarantee will be liable to pay the amount agreed in the memorandum - often £1 - and to pay any amounts that are unpaid on the shares if called on to do so by the company. If a member has fully paid for their shares, there is generally no further liability on that member. This is the essence of what?

Limited liability

The articles of a company commonly contain specific provisions and restrictions relating to the exercise of their powers, for example, borrowing powers, although the limitations are usually kept to a minimum so as not to disturb the efficient management of the company. The powers of directors that are usually included in the articles are to what?

Manage the company; Exercise all the powers of the company; Delegate some or all their powers; Employ outside agents; Appoint outside agents; Appoint one of their number as managing director; Appoint alternate directors; Call and attend meetings; Declare interim dividends; Represent the company; and Enter the company into a contract.

Whilst NEDs may be less involved with the day-to-day activities of the company, they have the same rights and responsibilities as an executive director under CA2006. It is unlikely that the standard asset private company will have what?

NEDs as these are not usually required

Articles often provide that the office of a director is to be vacated if all other members of the board make a written request for the director's resignations, although the model articles (both private and public) make what?

No such provision

The duty to promote the success of the company (s.172 of CA2006) is one of the more important and controversial provisions in CA2006. Section 172 specifies that the director's duty is to promote the success of the company for the benefit of its members as a whole. It is for the directors to interpret the company's objectives and make practical decisions how best to achieve them. At its simplest, success may often mean the long-term increase in financial value of the company, but even this has its difficulties. It is not clear whether, for example, the directors should favour increased dividend rates, increased market price for the shares, or some other long-term growth and stability of the company. Which case held that a director has a duty to act in good faith

Regentcrest v Cohen (2001)

Section 154 of CA2006 requires that a private company must have at least one director and that a public company must have at least two directors. Section 155 of CA2006 requires what?

That a public company must have at least one director who is a natural person

In some jurisdictions such as Guernsey, some old constitution documentation dictates what?

That the directors are require to retire by rotation at the GM although they may be re-elected

Some company's constitution documentation contain a clause that a member who ceases to be a director is deemed to have given the company a transfer notice in respect of their shares so that the shares can, in effect, be compulsorily acquired. Name some of the reasons for disqualification

Not being fit and proper - A director may be disqualified for being a director by the court if they are considered as not being fit and proper. This usually happens after the local regulator has visited the licenced CSP and notice that policies and procedures are either not in place or are not being robustly enforced. Persistent default - A director may also be disqualified by the court if they have been persistently guilty of failure to filing, delivering or registering documents with the Register of Companies, because they would be seen as failing in their duties as a director or an official of the company. There is a presumption that a director is persistently in default if they have failed in these duties three times in the preceding five years. An un-discharged bankrupt - A director ceases to be a director if they become bankrupt. The director can only become a director again with the permission of the court, because they could be seen to be hiding behind the company's name. Fraudulent or wrongful trading - A director may also be disqualified as a director by the court where it appears during the winding up of a company that the director has been guilty of fraudulent or wrongful trading. Conviction of indictable offence - A director may also be disqualified as a director by the court if they are convicted of an indictable offence in connection with the formation, management or liquidation of a company.

On the resignation of a sole director, the company secretary will what?

On receipt of the letter of resignation from the sole director arrange a GM; Send notice of the GM to all the members of the company that are listed on the members register; Arrange for the proposed new director to sign and return a letter of acceptance to act before the GM is held; Attend the GM to ensure that a quorum is present and oversee the voting in of the new director.

The beneficial owner is normally the original client that approached the CSP to incorporate the company. They will provide the necessary due diligence to the CSP and will usually provide the initial assets of the company. For reasons of confidentiality the CSP will usually provide the nominee shareholder(s) to hold the issued shares of the company to the order of the beneficial owner. Although the nominee shareholder is the registered holder of the issued shares, when the company is liquidated or by the winding up for instance, the assets of the company are what?

Only held by the nominee shareholders until being transferred to the beneficial owner as the ultimate owner of the company

CA2006 does not require a director to compromise the interests of the company to achieve any particular social and environmental object. However, CA2006 recognises that companies whose directors have regard to the relevant social and environmental objects are likely, in the long term, to perform better than those whose directors do not. The extent to which a director will be able to have regard to the consequences of any action will of course depend upon adequate management information systems and the resources available to the company. A large and well-resourced company can be expected to provide directors with very full information. Such a company might engage who?

Outside specialists to provide the relevant reports where the company itself did not have the relevant expertise. A smaller company might be expected to prepare its own reports. Importantly, the duty to have regard to the relevant matters remains the same, however small the company and regardless of its resources, and even if the company has a sole director.

The role of the member was once more of a passive investor (the power to amend the constitution documents, the declaration of a dividend, the election or re-election of directors and the appointment of auditors). However, this trend has in part been reversed by the growth of the 'institutional member' such as what?

Pension funds, unit trust and insurance companies

The historic view that directors' duties are owed to a company may sometimes seem out of date and may now be under attack. It is widely accepted that the claims of other interested groups commonly referred to as 'stakeholders', such as the company's workforce and its customers and suppliers - may also deserve some type of recognition, as much as those including its members for instance. However, if directors were expected to have regard to the (often conflicting) claims of many different stakeholders, their decisions would, in effect, become unreviewable by any judicial or other process. Name some cases relating to this

Percival v Wright (1902) Coleman v Myers (1977) Heron International Ltd v Lord Grade (1983)

Like all powers held by directors, exercise of this power is subject to the directors' duties to act for what?

Proper purpose, in good faith to promote the success of the company and in a way that does not involve acceptable conflicts of interest

The company secretary must be able to carry out their duties in a satisfactory manner, without being biased towards any one director, as they are ultimately responsible for the performance of most of the duties imposed by CA2006, which are generally delegated to them by the directors. Name the duties of the company secretary

Registrar functions including the maintenance of the statutory registers of the company and the issuance of share certificates. To file certain documents with the Registrar of Companies, for example the company's annual return. Co-ordinate and attend meetings of the directors and of the company. Preparation of meeting agendas and notices for meetings and preparation of minutes after a meeting of members or directors. This could include advising on and coordinating the preparation of member's circulars, financial statements and other reports. Ensuring that the meetings of the company are quorate and conducted in accordance with CA2006 and the articles of association. Ensure the company meets the requirements of CA2006 and any other relevant requirements, for example, those of the stock exchange. Providing independent advice to the board on all governance matters. Facilitating the flow of information to the board and NEDs (if appointed). Entering into contracts of an administrative nature (as authorised by the board), on behalf of the company, such as taking on staff, ordering machinery and stationery. Signing on behalf of the company. Countersigning/witness the affixing of the seal of the company. Issuing share certificates to the members of the company.

The method of ceasing to be a shareholder includes what?

Selling their shares; Transferring their shares; Order of the court; The winding up of a company; Dying or going insane; Not paying for their shares; Sale by the company under its lien; Transmission to personal representatives on death or bankruptcy; Redemption of redeemable preference shares; or A consequence of the purchase by the company of its own shares.

Define nominee shareholder

Someone (usually a service provider) that owner shares in private companies upon trust for the beneficial owner

Name some reasons for disqualification

Someone who has been disqualified from being a director by the court ,as not being fit and proper; An un-discharged bankrupt without the permission of the court, because they could be seen to be hiding behind another's name; An individual who has persistently failed to register documents with the Registrar of Companies because they would be seen as failing in their duties as a director or an official of the company; An individual who has been guilty of fraud or breach of duty while acting as a company director; Where it appears during the winding up of a company that the director has been guilty of fraudulent or wrongful trading; An individual whose behavior as a director make them unfit to be a director; A minor (if this is stipulated in the Constitutional documentation, as the CA2006 permits a 16 year-old to become a director); or Not permitted or prohibited under the constitutional documentation or local company law.

A company specialising in corporate services, or when acting as a custodian, usually provides a 'nominee name' which will be used as the registered holder of those shares. The nominee name holds the shares under a declaration of trust that is on behalf of the beneficial owner(s). A simple one page document referred to as a declaration of trust sets out what?

That the nominee holds the shares upon trust absolutely for the owner (the beneficial owner) That they will pay any dividends arising to the beneficial owner That at the request of the beneficial owner, the shares will be returned to the owner.

Institutional shareholders have a responsibility to make considered use of their votes and take steps to ensure what?

That their voting intentions are being translated into practice

The company secretary is also an officer of the company as defined by ss. 1121 and 1173 of CA2006 and, as such, is liable to the various penalties incurred if they fail to comply with the requirements of CA2006. It is the company secretary's duty to draw the directors' attention to any action which is required to be taken, and they may be liable for damages resulting from any negligence, default, breach of duty or of trust. The court can relieve a company secretary from liability for negligence, default, breach of duty or breach of trust, in certain cases. Section 1157(i) of CA2006 states that if 'it appears to the court hearing, the case that the officer is or may be liable, but what?

That they acted honestly and reasonably, they ought fairly to be excused, the court may relieve them, either wholly or in part, from their liability

Section 176 of CA2006 requires that directors must not accept benefits from third parties in respect of their position as a director of a company. This is designed to prevent putting directors into a position where they may have a conflict of interest. Section 176 further provides that the duty is not infringed if what?

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

However, the nominee shareholder will have the same responsibilities as any other shareholder, even though they are acting on behalf of the beneficial owner. Name the benefits of using a nominee

The anonymity (confidentiality) it provides for the beneficial owner, and for the custodian; If the local Company Registrar keeps a public record of the shareholders of a company, only the name of the nominee shareholder will be available if any search is made at the local Company Registry; The ease at which transfers of shares can be settled; and When used for non-trading companies it has the added advantage of placing the beneficial owner at arm's length from the company, further emphasising that they are not a party of the company.

It is common for professional service providers to appoint one of their in-house subsidiary companies as the corporate secretary of companies which they administer for their clients. Alternatively, CSPs may elect a member of staff to act in this capacity. Appointing a corporate secretary will have similar benefits for the CSP as appointing a corporate director. In the majority of offshore jurisdictions it is unlikely that there are any statutory provisions referring to the appointment of the company secretary and it is usually what?

The articles of the company that will provide for this appointment and which also determine the powers and functions or duties of the company secretary

he secretary has many duties to carry out according to company law. It could therefore be confirmed and acknowledged that the secretary also has the power to complete these duties. In practice the company secretary usually has the power to witness and countersign every document to which the company has affixed its seal. They are normally included on what?

The authorised signature list of the company and therefore can or probably will validate all documents executed by the company and sign correspondence on behalf of the company.

Define express authority

The authority is in writing

The first director(s) of any company is the director(s) named in a statement signed by all the subscribers and delivered with the memorandum and articles of association to the company to the Registrar of Companies when the company is to be incorporated (formed). The appointment of the first directors is then confirmed at what?

The inaugural meeting of the board of directors of the company

The secretary will provide guidance to the board on all points of governance, the company's legislation and any changes thereto. The secretary may assist with what?

The induction of newly appointed directors and may also assist with their professional developed as and when required

The beneficial owner's role depends on the reasons for setting up the company, for example for tax purposes the beneficial owner will usually keep the company at arm's length. If party to the company there could possibly be adverse tax consequences.In more complicated structures the beneficial owner will wish to take an active role in managing the company's activities. This is put into place to ensure what?

The integrity of the company cannot be questioned Their rights are protected Any claims that the company is a sham is reduced

A court may make a disqualification order prohibiting the person from acting as a director of a company, or being involved in the management of any cpm nay, for how long?

The period of the disqualification. Such orders are made under the Company Directors Disqualification Act 1986

As a company is not a natural person, it requires someone to act as its mind and management. The directors are responsible for the management of the company's business. They owe a fiduciary duty to the company meaning they must act in its best interest rather than in their own interest. Anyone deemed to be a director will be subject to what?

The privileges and liabilities which attach to a director

S170 of CA2006 restates the fundamental principle that directors duties are owed to the company. This means that only the company can bring actions for a breach of these duties. Such actions may be initiated on behalf of the company by the board of directors or a liquidated. Sections 171-177 of CA2006 set out general duties of directors that are owed by a director of a company to the company. Section 178 of CA2006 sets out what?

The remedies for breach of general duties

Define pre-emption rights

The rights of existing members of a company to be offered the shares whenever another member wishes to sell their shares before they are offered to non-members of the company

The model articles created under CA2006 for private companies do not contain provisions for alternate directors. Alternate directors generally have what?

The same rights in relation to any directors, meeting or resolution as the director who appointed them

The board of directors must bear the responsibility for selecting a suitable person who is of reasonable experience, integrity and competence. Where a private company appoints a secretary then the secretary's particulars must be placed on the public record and the secretary will have what?

The same status in relation to the company as the secretary of a public company

In the case of removal of the director by the board of directors, what procedure will be followed?

The secretary of the company should arrange for a board meeting to be held. The board should formally minute the vacation of office including the reason for the vacation. In offshore jurisdictions, this is very often because a letter of resignation has been received from the director. The secretary should update the register of directors. The secretary should, if required by the jurisdiction, update the Registrar of Companies and/or Registered Agents. Third parties such as bankers of the company and any other relevant agents should be notified. If applicable, the company's stationary should be updated.

Under s.175 of CA2006, a director has a duty to avoid a situation in which they had a direct or indirect interest that conflicts with the interests of the company. It is possible for the duty not to be infringed if the matter has been authorised by the directors. This section addresses what?

The true fiduciary duties of loyalty owed by directors to their companies

CA2006 provides that the company's constitution binds the company and its members as though they had individually covenanted to obey their provisions. The articles of association therefore constitutes a contract between the company and its members and between the members themselves. The rights and obligations of the members depend upon what?

The type of share that they hold in the company

Section 173 of CA2006 provides that a director of a company must exercise independent judgment when fulfilling their duties. This duty to exercise independent judgement is not breached if the director merely takes advice, or acts in accordance with an agreement duly entered into by the company. The duty applies equally to nominee directors, who cannot blindly follow the judgement of those who appointed them (this allegation is perhaps the most common complaint under this duty); although they may rely on what?

Their advice provided they make the judgement on their own

The general duties of directors apply to shadow director. A shadow director is also required to comply with the provisions of CA2006 applicable to directors including what?

Their details must be entered in the register of directors They must disclose any interests in contracts of the company by written notice to the directors Any service contract must be available for inspection by the members

Both CA2006 and a company's articles provide mechanisms for the termination of the appointment of directors. The trigger may be dissatisfaction with the director's performance, but equally, may be part of the company's proceeds of management renewal, as with directors' retirement by rotation. The court may also force the termination of a director's appointment and a director may simply resign. A director may be removed from office in which ways?

Their resignation Removal by the board of directors of a company Removal by the shareholders of the company Removal by the courts Retirement by rotation

The rights of the members of a company are usually linked with and expressed in terms of the rights attached to the shares which they hold, although not exclusively so. CA2006 provides the members of a company with many rights specific to membership and also certain liabilities. It also provides for specific rights attaching to shares, these mainly relate to the variation of the rights of shareholders. Name the principal rights of a member of a company

To be provided with a copy of the company's memorandum and articles of association (s.32 of CA2006); To inspect and request copies of various statutory books and records; To inspect directors' service contracts or request a copy of a service contract (s. 229 of CA2006); To inspect written memoranda of the terms and conditions of a director's contract of service for the company and any of its subsidiaries; To receive notice of all GMs (s.310 of CA2006); To appoint a proxy to attend a GM to attend and vote on their behalf (s.324 of CA2006); To receive a copy of the annual accounts (s.423 of CA2006); To receive a copy of the annual accounts at least 21 days before the GM at which they are to be laid (public companies only); To inspect minutes of GMs and to request copies; To attend GMs and to ask questions of the directors; To purchase new shares issued by the company before they are offered to non-members. These rights are known as pre-emption rights (s.561 of CA2006); To petition the court to obtain relief where the member considers that any act (proposed or actual) will or has resulted in unfair prejudice to his interests (s.994 of CA2006); To transfer their shares to others, although any transfer would be subject to the terms of the articles of association; To receive a dividend (if one is declared by the company); To receive their share in the surplus of any assets at the time the company is wound up; To be involved with the winding up of a company; To appoint a liquidator when the company is to be liquidated.

The directors' powers cannot be overruled by the members of the company as they do not act as agent for some or even all the members. As such, their powers to appoint one of their number as managing director, to declare interim dividends and to sue in the name of the company, have been what?

Treated as exclusive to them

For a person to be regarded as a shadow director the directors must, as a body, be acting on their direction or instructions and must be accustomed to do so. Name some cases that showed this

Ultraframe (UK) Ltd v Fielding (2005) Lord v Sinai Securities (2004) Tasbian Ltd (No3) case of 1992

Name some other members' rights

Unfair prejudice - If a member considers that any act of the company could result in an unfair prejudice to their interests, they can petition the court to obtain relief (s.994 of CA2006). Member's application for winding up - A member can apply to the court for the winding up of a company if it is unable to pay its debts, or on just and equitable grounds. Derivative claims - A member may bring an action on behalf of the company against a director or a third party for an act or omission if the company has suffered loss (ss.260-269 of CA2006). General meetings - A member is entitled to attend GMs and to vote on any resolution. In addition, a member can requisition a GM or require that a resolution be added to the business of the GM. A member can also appoint a proxy to attend and vote at a GM on their behalf (s.324 of CA2006). Compulsory acquisition - Where a major shareholder has acquired 90% or more of the share capital of a company, the holder is entitled to give notice to the other shareholders that they desire to acquire their shares (ss.979-989 of CA2006). Share certificates - Members are entitled to receive a share certificate in respect of their shareholding.

Every director requires a director's service contract. In the UK executive directors are employees and on a contract of service. Non executive directors are what?

Usually not employees and on a contract for services

Failure to comply with s.177 constitutes a breach of duty, for which the purely civil remedies in s.178 apply. If a director enters into a transaction or arrangement with the company in breach of s.177 (i.e. without making the appropriate declaration to the directors), then the transaction is what?

Voidable

An alternate director is generally entitled to receive notice of all board meetings and care should be taken to ensure that the alternate director receives all the necessary information to keep them up to date with what?

What is going on the company on a day-to-day basis and that a general power is delegated to them