Directors

Question 1

What is a de factor director?

Answer 1

Someone who acts as director although they have never been appointed

Question 2

What is a shadow director?

Answer 2

A person not formally appointed but with whose directions or instructions the directors of the company are accustomed to act

Question 3

What is the significant element with regards to apparent authority?

Answer 3

The company’s acts / omissions as opposed to the directors actions

Question 4

What are the requirements where the company proposes to enter in to a service contract of 2+ years?

Answer 4

It must be passed as an ordinary resolution where there is no clause allowing for termination with 2 years notice

Question 5

How can SH remove a director?

Answer 5

By ordinary resolution at a GM with special notice

Question 6

What is special notice in relation to removal of a director?

Answer 6

28 days notice before the GM must be given for the ordinary res to be effective

Question 7

What are the notification requirements at Companies House for the company in terms of directors?

Answer 7

a) register of directors
b) directors residential addresses
c) change in particulars for director
d) appointment of a director within 14 days of appointment

Question 8

What is a directors duty to act within their powers under s.171 CA?

Answer 8

a) D must act in accordance with the constitution
b) only exercise powers for the purposes they are conferred

Question 9

What 6 things must a director have regard to when promoting the success of the company?
“Caring Individuals Foster Communities, Respect Fairness”

Answer 9

a) consequences of decisions
b) interests of employees
c) need to foster business relationships
d) impact on the community & environment
e) reputation of the business
f) need to act fairly between members

Question 10

What is the test applied by the court to decide whether D acted in good faith?

Answer 10

Subjective - D can act in a way which seems inconsistent with one of the 6 factors but will not be in breach if they considered their actions would likely promote success of the company

Question 11

When will D act with a duty to exercise independent judgement?

Answer 11

a) if they act in accordance with an agreement that limits their ability to exercise judgement
b) if they act in a way authorised by the company’s constitution

Question 12

What is the test for D’s duty to act with reasonable care and skill?

Answer 12

A director must use:
(a) the level of knowledge, skill, and experience that would reasonably be expected from someone in their role, and
(b) the actual knowledge, skill, and experience they personally have

Question 13

How must D avoid conflicts of interest?

Answer 13

They must avoid situation in which they have a direct or indirect interest that conflicts / may conflict with the interests of the company

Question 14

When is a duty to avoid conflicts of interest not infringed?

Answer 14

a) it cannot reasonably be regarded as likely to give rise to a conflict
b) it has been authorised by the directors

Question 15

What is D’s duty not to accept benefits from 3rd parties?

Answer 15

D must not accept a benefit from a 3rd party conferred by reason of them being director

Question 16

What is D’s duty to declare an interest in a proposed transaction?

Answer 16

They must declare the nature and extent of their interest in a proposed transaction before the company enters in to it

Question 17

What are the exceptions to D’s duty to declare interest in a proposed transaction?

Answer 17

a) D is not aware of the interest
b) the interest cannot reasonably regarded as likely to give rise to conflict
c) other D’s are already aware
d) it concerns the terms D’s service contract

Question 18

How can SH ratify D’s breach?

Answer 18

By ordinary resolution

Question 19

How must D declare their interest in a transaction which has already been entered in to?

Answer 19

As soon as reasonably practicable at a meeting of the directors / by notice in writing / general notice

Question 20

What is the punishment for D’s failure to declare interest in a transaction already entered in to by the company?

Answer 20

Criminal offence punishable by fine

Question 21

When might the court order a claim for wrongful trading?

Answer 21

a) company has gone in to insolvent liquidation
b) D ought to have known there was no reasonable prospect of avoiding liquidation
c) D was a director at the time

Question 22

What is the defence to wrongful trading?

Answer 22

D took every step with a view to minimising the potential loss

Question 23

How is D tested in relation to whether they took every step to minimise loss to the company?

Answer 23

Whether they used:
(a) the level of knowledge, skill, and experience that would reasonably be expected from someone in their role, and
(b) the actual knowledge, skill, and experience they personally have

Question 24

What steps can D take to minimise the likelihood of a successful claim for wrongful trading?

Answer 24

a) seek professional advice early on
b) limit spending
c) check accounts regularly
d) keep record of their own actions

Question 25

What is fraudulent trading?

Answer 25

Where, in the court of the company being wound up, D carries on the business with the intent to defraud creditors

Question 26

Who brings a claim of fraudulent trading?

Answer 26

Liquidator or administrator

Question 27

When can a claim for misfeasance be brought against D?

Answer 27

For breach of fiduciary duty

Question 28

What is the remedy for misfeasance?

Answer 28

D may be ordered to contribute to the company's assets by way of compensation

Question 29

What is a substantial property transaction?

Answer 29

Where D (or a connected person) buys from or sells to the company, a non-cash asset of a substantial value

Question 30

How are SPT's approved?

Answer 30

Ordinary resolution

Question 31

Who is a person connected with D for the purposes of a SPT?

Answer 31

a) family member b) company in which D owns 20% of the shares / 20% of the voting power

Question 32

When is an asset classed as substantial?

Answer 32

a) over £100k or; b) over £5k & more than 10% of the company's net asset value

Question 33

What if D proceeds with an SPT without approval?

Answer 33

Transaction is voidable

Question 34

How can the company make a loan to D?

Answer 34

Via ordinary resolution

Question 35

What is the requirement for a memorandum in relation to director loans?

Answer 35

It must be made available for inspection at the registered office 15 days before theGM

Question 36

When will an ordinary resolution not be necessary for a director loan?

Answer 36

a) expenditure on company business b) for defending proceedings in relation to the company d) for defending regulatory proceedings e) < £10k on business transactions

Question 37

What are grounds for disqualification?

Answer 37

a) conviction of indictable offence b) breaches of company legislation c) unfit D of insolvent company d) wrongful / fraudulent trading