Professional, Practical, Proven

Academy 2019/20Law and Ethics

Lecture 16Company Directors

1) Different types of directors2) Appointment and removal of a director3) Duties owed by a director to a company4) Penalties for breach of duties

Contents

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Company Directors

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• Executive – permanent officers of the company. Specific role in every day operational management Usually employed under a contract of service.

• Non-executive – transient officers not engaged in the daily operational management. Involved in governance at board level. Act as monitors.

• De facto – not formally appointed. “held out” by the company as being a director. Liable as if officially appointed

• Shadow – “a person in accordance with whose directions or instructions the directors of a company are accustomed to act” (S221 CA 2014)

• Managing – Overall responsibility for running the company. Executive director.

Types of Directors

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• The first directors are appointed by the initial subscribers to the constitution of the company

• Subsequently directors are appointed by ordinary resolution of shareholders at a general meeting of the company

• Directors may appoint new directors and they will hold office until the next AGM, (Eligible for re-election)

• Must inform CRO within 14 days of a resolution changing the directors of the company

Appointment of Directors

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• A corporate entity

• Un-discharged bankrupts

• Restricted/disqualified persons

• The company’s auditors

• A Minor

Excluded Persons

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• May Vacate• Resignation• Retirement/rotation

• Must Vacate• Appointment expires and not re-elected• Removed from office• Disqualification Order imposed• Becomes bankrupt• Fails to acquire requisite qualifying shares• Becomes of unsound mind/incapacitated• Resigns in writing• Restriction Order imposed• AWOL for 6 months or more

Removal of Directors

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• Resolution at GM – ordinary resolution required (simple majority)

• Extended Notice – 28 days

• Copy to Director – Copy of resolution proposing removal must be sent to the director concerned

• Written Representations – director has a right to make written representations and have them circulated before the GM

• Read out – if not circulated before hand they must be read out at the GM

• Right to Speak – director concerned has the right to speak at the GM

Removal Procedure Must Be justifiable Carvill v Irish Industrial Bank (1968)

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• Attempt to prevent “phoenix trading”.

• Restricted from acting as a director/secretary for 5 years

• Only brought against directors/shadow directors where company is insolvent and/or is or has gone through liquidation.

• Application can be made by DOCE, liquidator, or receiver

• Against any person acting as a director/shadow director at time of liquidation/within 12 months of commencing liquidation.

Restriction of Directors

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Director must prove;

Acted honesty and responsibly in relation to the companyBusiness Communications v Baxter and Parsons (1995)

Co-operated with the liquidator

No other reason why it would be just and equitable to restrict

• Can apply for relief from restrictionTralee Beef and Lamb ltd (TBL)

• May voluntarily consent to imposition of a restriction order

Defending against a Restriction Order

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May still act as a director/secretary of a highly capitalised companyPlc= €500,000 issued Others = €100,000

Must notify the company before accepting appointment

Breach of this provision = possibility of personal liability without limit for the debts of the company should it liquidate.

It is a category 2 offence so disqualification may follow.

Acting While Restricted

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• Disqualification order can be brought against directors, auditors, company officers, liquidators, receivers.

• Cannot take part in promotion, formation, or management of any company for 5 years or longer as the court may direct

Automatic where:• convicted of any offence under the Companies Act 2014 or any

offence involving fraud/dishonesty• convicted of acting while restricted (limited exception)• failure to notify CRO of disqualification in another jurisdiction

Disqualification of Directors

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Court discretion to issue a Disqualification Order where:• Guilty of fraud• Guilty of breach of duty• Guilty of fraudulent or reckless trading• Unfit by reason of past conduct, or inspectors report• Persistently in default of filing requirements• Commits 2 or more offences of failing to keep proper

books of accounts• Disqualified in another state• Director of a company that was struck off the register

Re NIB Ltd: DOCE v Lacey 2011

Disqualification of Directors

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A Category 2 offence

Disqualification extended by 10 years and/or

Personal liability for debts of the company if it becomes insolvent during or within 12 months of the disqualification order

May seek relief from disqualification

May voluntarily consent to imposition of a disqualification order

Acting while Disqualified

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Statutory Fiduciary Duties

1. Act in good faith and in the best interest of the company2. Act honestly and responsibly3. Exercise powers for proper purposes in accordance with

company constitution4. Not to use company property, information, or opportunities for

his/her own or anyone else’s benefit 5. Maintain independent judgement6. Avoid conflicts of interest7. Exercise reasonable skill and care

Directors Duties

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Fiduciary Duties

Good faith and best interest

Court will consider whether or not the director believed his/her action would benefit the company

Clarke v Workman (1920)

Directors Duties

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Fiduciary Duties

Exercise powers properly

Nash v Lancegaye Safety glass (Ireland) (1916)Directors allotted shares for an improper purpose not in best interest of the company

Directors Duties

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Fiduciary Duties

Using company property for personal benefit

Only when;expressly permitted by the company’s constitutionapproved by a resolution of the company in general meeting

Directors Duties

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Fiduciary Duties

Avoiding Conflicts of Interest

DISCLOSURE

Aberdeen Railway Company v Blaikie Brothers (1854)

Directors Duties

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Fiduciary Duties

Maintaining independent judgement

Fullam Football Club Ltd and Others v Cabra Estates plc (1992)Money in return for undertakings in relation to an application by the Council for a compulsory acquisition of defendant’s property

Directors Duties

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Fiduciary Duties

Skill and Care

To a standard that is reasonably expected from a person of his/her knowledge and experience

Not bound to give continuous attention

Can delegate to management provided that it is normal practice and there are no suspicious circumstance

Dorchester Finance Co. Ltd v Stebbing (1977)

Directors Duties

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Penalties for Breach

Liable to account to the company for any gain made directly/indirectly from the breach of duty

Indemnify the company for any loss/damage arising

Directors Duties

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Duty of Compliance -with the Companies Act 2014.

End of year compliance statementacknowledge responsibility for ensuring corporate compliance confirm that compliance policy statement is in placeconfirm that structures are in place to secure complianceconfirm a review of these structures

Duty towards employees - have due regard to the interests of employees in the exercise of the performance of their duties

Duty to declare interests – in contracts or proposed contracts

Duty to disclose interest in shares – except where it is less than 1% or where the director was given the option to subscribe for these shares.It is a category 3 offence.

Other Statutory Duties

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Substantial transaction in respect of non-cash assetsCannot acquire from or sell to the company a non- cash asset of not less than €5,000 but more than €65,000 or 10% of company’s relevant assets

UNLESS first approved by resolution at GM and if the director or connected person is a director of its holding company a resolution of the holding company in GM

Other Statutory Duties

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Loans, quasi loans and credit transactions to directors

Not permitted

Exceptions • loan is less than 10% of company’s net assets• reasonable expenses• intra company transactions• where it is in the normal course of business (e.g. lending

institutions)

Other Statutory Duties

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Proper Books of Account

Must take all reasonable steps to ensure that the company maintains proper books of accounts

True and fair view of the affairs of the company

Other Statutory Duties

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Director’s Service Contracts (S249 Companies Act 2014)

A copy must be maintained by the company

May not be granted a contract exceeding 5 years that cannot be terminated by reasonable notice or may only be terminated in specific circumstances UNLESS approved by ordinary resolution at a GM

No approval = void

Also need approval of members to make payments to directors or directors dependents for the loss of office

Must disclose payments made to him/her for transfer of his/her shares in the company.

Other Statutory Duties