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Chapter 11 - Company Law: Directors & Officers (Director's Removal…
Chapter 11 - Company Law: Directors & Officers
General Points
Shadow director is person in accordance with whose instructions the directors are accustomed to act
De facto director - person who claims to act as though they are a director(unauthorised, NOT director)
Alternate director - person appointed by director who cant attend board meeting
Executive Directors - work day to day
No-Executive
dont take part in day to day, independant, supervisory board
integral element of corporate governance
independant view
effective leadership
establish and maintain financial probity
keep eye on effectiveness of executive directors
Number & Eligibility
Private - at least one director
Public - at least 2
Anyone can be director, but some exceptions:
Over 16
can be a non-natural person (eg a company)
not disqualified under CDDA (Company Directors Disqualification Act
not bankrupt
no of unsound mind
not absent without permission, from board meetings for period more than 6 months
CDDA (Ban)
Court may disqualify director by court order:
for offence committed in promotion, formation, management, liquidation or striking off
persistently in default of filing returns (3 offences in 5 yrs)
guilty of fraudulent/wrongful trading
involved in a company insolvent liquidation (allowed once, but not twice in 5 yrs)
disqualification period up to 15 years
if break disqualification order, up to 2 yrs in prison.
Directors Appointment
First Directors named by promoters in documents sent to Registrar before incorporation
Subsequent directors can be appointed by: members, other directors, the court, lender, administrator
1/3 rotation procedure -1/3 retire each year, keep rotating, directors can come back
FTSE top 350 company - all directors retire every year
Appointed by ordinary resolution - majority of votes to elect someone
Registrar notified - kept up to date of details of directors
Director's Removal
Ordinary Resolution - majority vote
Special notice(before meeting) - 28days to company, 21 to members
Opportunity to make written representations of reasonable length and not defamatory to nature
Must satisfy legal restrictions - 100 members holidng more than/equal to £100 share capital on average. If private members with not less than 5% of share capital.
Notice to Registrar (21days)
Weighted voting rights can make removal impossible
Company mau have ti pay substantial compensation to a removed director. Not contractually bound to pay more than 1 years salary.
Directors - Statutory Duties
7 Duties (APPIAND)
Act within their powers
Perform duties with reasonable skill, care & diligence
Promote success of company
Independant judgement
Avoid conflicts of interest
No benefits from 3rd parties
Declaire interest in transactions/contracts
Promoting Success
ensure long term health of company
Statute to encourage long-term approach
Have regard for all stake-holders
Matters to Consider (LEGLHGF)
Long-term consequences of decisions
Employees' interests
Good relationships with customers & suppliers
Local community & environment impact
High standards of business conduct
Good reputation
Fair treatment for all members
Controls - Needs Members Approval
Service contracts more than/equal to 2 yrs
Acquisition of non-cash assets, if more than/equal to
10% of assets, but not less than £5000, always if more £100,000
Cant lend money, provide security or gurantee a loan to a
director/itself or holding company unless approved
Can lend money to director of sub, but cant to its own directors
Can lend to wife/husband of director, as long as its not going to director
Relevant companies cant quasi-lend (unless less than £5000)
Any company can lend up to £5000
Loans by money lending companies allowed for
purchase/improvement of main/only residence up to £100,000
Directors - Remedies
(Punishments if not fulfilled duties)
Make them account for personal gain
(abuse of corporate opportunity)
Make them indemnify(gurantee) the company against loss cause by negligence.
Rescind contract where director has conflict of interest
Ask court to declare a transaction is ultra vires
Directors are not liable for other directors
Liable for negligence only if lied, not for incompetence
If negligence results in personal benefit, have to pay back as fraud against company.
Company Secretary
One of officers of company. Should be appropriately qualified
Duties determined by directors
:
Maintaining companies stat.records
Filing returns with registrar
Minutes of meetings
Ensuring company complies with Stat.requirements
Signing documents required by law
Under principles of corporate governance should also:
Advise board on governance matters
Arrange induction process for new directors
Enable effective communication between board & sub-comittees
Statutory Books
Must be kept at company's registered office unless:
register of members is maintained by independant organisation (company's registrar)
Registers include: members, directors, secretary, mortgages & charges, debenture holders, directors' interests, substantial shareholders
Register for members & debentures can be kept at alternative ad.
Allowed one alternative address & must notify Registrar of Companies.
Auditors
Public company requires one (unless small)
Appointed by
:
Directors first, as auditor needs to be at general meeting, then members.
Members
Secretary of State (if no one else does)
Appropriately qualified: registered auditor,
ACCA, APAA.
Cannot be: director/emp of company, Partner/emp
of above, undischarged bankrupt.
Professionally prevented from owning beneficial
interest and being close relative of company officers/emps.
Completely independant of company!!
Rights
Access to company records
Can ask any member any audit question & expect honesty.
If not given & material, will qualify their opinion
Notice of attendance at company general meetings, can
speak at them.
Written representations
Receive copies of proposed written resolutions (before goes
to general meetings
Duties
Express an opinion on truth and fairness & compliant with IFRS
Report if directors' report is inconsistent or misleading
Auditors should sign and date audit report
Report by exception, if proper accounting records, not kept