SubjectLaw & Ethics N Ireland

Session 4

Topic: Directors

Online Revision Bridging Course

Types of Directors – Definition S250 Companies Act 2006. A

“director” includes any person occupying the position of director, bywhatever name called.

But you also have➢ Executive Directors - Executive directors are involved in the day-to-

day business of a company, usually an employee and most of theirtime will be spent working for and managing the company.

➢ Non Executive Directors - not involved in the daily management ofthe company and are not an employee.

➢ De Facto Directors

➢ Managing Director p152/3

S251 “Shadow director”(1) In the Companies Acts “shadow director”, in relation to a company,means a person in accordance with whose directions or instructions thedirectors of the company are accustomed to act.

Appointment of Directors

S154 Companies required to have directors;

(1) A private company must have at least one director.

(2) A public company must have at least two directors.

S155 Companies required to have at least one director who is a naturalperson

S167 Publicity - 14 days the company must give notice to the registrar ofany change to its directors

The concept of Agency - Directors have two kinds of authority

✓ actual authority and/or

✓ apparent authority.

The Articles of Association set out the powers of a Director & when aDirector makes a decision on behalf of a company he does so as an agent& cannot act outside the remit of the Articles.

S40 Power of directors to bind the company

S157 Minimum age for appointment as director(1) A person may not be appointed a director of a company unless hehas attained the age of 16 years.

S158 Power to provide exceptions from minimum age requirement

ROTATIONAt the 1st AGM all directors must retire but can stand for re-election by anordinary resolution

At all subsequent PLC AGMs 1/3 shall retire, retiring directors are eligiblefor re-election.

Directors Duties were set by common law

– Honest

– No personal advantage

– Reasonably competent

– Fiduciary position

The test for deciding if a director is in breach of his duties is whether the

– Transaction is incidental to the company business

– Transaction is bona fide

– Transaction is the benefit & promotion of the company

Statutory duties operate in 3 ways

✓ Some transactions are prohibited

✓ Some transactions require approval

✓ Some transactions must be disclosed

WHY?

❑ Director may be obtaining a personal advantage

❑ There may be a conflict of interest

❑ He may be misleading other directors or shareholders to approveactions which they would not have done if they knew of his interest.

S 171 & 172 require a Director to act in accordance with the company’sconstitution, to only exercise powers for the purpose they were intendedfor and act in a way that they consider, in good faith, would be likely topromote the success of the company for the benefit of the members as awhole.

Section 171: duty to act within powers and for a proper purpose thiscodifies the common law that Directors use powers for a proper purpose

Smith v AMPOL (1974)Hogg v Cramphorn (1967) – issue of shares

S 172: duty to promote the success of the company and it encompassesthe common law duty of good faith and to act in the Bona FideInterests of the Company RE ROITH (1967) Pension to a widow

S 173: duty to exercise independent judgment & not delegate his duties

S 174: duty to exercise reasonable care and skill –Dorchester Finance (1989)

Re Barrings PLC (2000) p158

Section 175: duty to avoid conflicts of interest. - It is unnecessary toshow that the Company has been prejudiced in anyway –

ABERDEEN RAILWAY & BLAIKIE (1854)Boston Deep Sea Fishing v Ansell (1888)

S 176: duty not to accept benefits from third parties

S 177, 182: duty to declare interests in transactions

Section 179: the duties are cumulative & a director can be liable forbreach of more than one duty at same time

S190 Substantial property transactions: A company may not enterinto requirement of members’ approval. S191 Meaning of “substantial”=10% of the company’s asset value and is more than £5,000, or exceeds£100,000.

Loans, quasi-loans and credit transactions S197 -203S 197 Loans to directors: No it needs members’ approval

To Whom Are Duties Owed?1. Section 170(1): Directors owe their statutory duties to the company.

2. Directors may in certain circumstances owe duties to:

i) Shareholders. Only the directors' statutory duties are owed tocompany thus directors can still come under fiduciary duties toshareholders outside of statute.

ii) Creditors - when company is nearing insolvency, interests of company becomes synonymous with interests of creditors

iii) Employees - Section 172: directors have duty to have regard tointerests of employees

S168 Resolution to remove director

(1) A company may by ordinary resolution at a meeting remove adirector before the expiration of his period of office, notwithstandinganything in any agreement between it and him.

(2) Special notice is required of a resolution to remove a director

S169 Director’s right to protest against removal

Removal from officeA director may vacate his position as director in one of the followingways:

1) Resignation (the Articles of Association will state the notice period thathe is required to provide).

2) Retirement

3)Period of Appointment expires and director is not re-elected (adirector’s employment contract cannot be guaranteed for longer thantwo years). S188

4) Removed from office

5) Disqualified from acting as a director of a company (as per statute)

The procedure for removing a director by ordinary resolution is set out insections 168 and 169 of the Companies Act 2006.

1. A director can be removed from office by the passing of a ordinaryresolution at a general meeting.

2. Special Notice must be served on the company by the memberproposing the removal of the director. Special notice means a period of28 days or more – S312

3. A copy of the Resolution proposing to remove the director must begiven to the director concerned.

4. The director has a right to make written representations and have themcirculated by the company to all the members before the generalmeeting.

5. If the representations are not sent they must be read out at the generalmeeting.

6. The director has the right to speak at the meeting.

If a director is removed from office unfairly he may sue for breach ofemployment contract and the Co may have to pay the director damages.

DisqualificationThe law provides rules re how a director can be disqualified & are there toprotect the public from directors who have abused their powers and haveproved that they are unfit to manage the affairs of a company.

The Articles of Association of a company will usually state the grounds fordisqualification as the following:❖ Disqualified under the Company legislation❖ Become bankrupt❖ Become of unsound mind❖ They resign❖ They are absent from their duties for 3 months without leave

The Companies Directors Disqualification NI Order 2002 a director may bedisqualified from office or prevented from taking up office if❖ General misconduct in connection with companies❖ Unfit to be a director❖ Fraud❖ Undischarged bankrupt

Directors disqualification is the process whereby a person is disqualified,for a specified period, from becoming a director of a company, or directlyor indirectly being concerned or taking part in the promotion, formation ormanagement of a company without leave of the Court.

A disqualification order is made by the High Court under the CompanyDirectors Disqualification (Northern Ireland) Order 2002 see S9

• becoming a director of a company• directly or indirectly being concerned or taking part in the promotion,

formation or management of a company• being a liquidator or an administrator of a company

Disqualification proceedings are taken under civil law, not criminal law,but a criminal court may also decide to make a disqualification order afterconviction for certain criminal offences.

There is a minimum period of two years and a maximum of 15 years.Department for the Economy

Examples of conduct which may lead to disqualification:

• continuing to trade at a time when the company was insolvent• failure to keep proper accounting records• failure to prepare & file accounts/make returns to the Companies

Registry• failure to submit tax returns or pay over to HMRC other money due• failure to co-operate with the OR/IP

S 9 - The High Court shall make a disqualification order against a personon an application if it is satisfied—

(a) that he is or has been a director of a company which has at any timebecome insolvent (whether while he was a director or subsequently), and

(b)that his conduct as a director of that company (either taken alone ortaken together with his conduct as a director) makes him unfit to beconcerned in the management of a company.

Loans to Directors – p160

S197 - Loans to directors: requirement of members' approval

(1) A company may not—

(a)make a loan to a director of the company or of its holding company,

or

(b) give a guarantee or provide security in connection with a loan madeby any person to such a director,

unless the transaction has been approved by a resolution of themembers of the company.

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