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DIRECTOR’ DUTIES AND RESPONSIBILITIES - Coggle Diagram
DIRECTOR’ DUTIES AND RESPONSIBILITIES
ROLE OF DIRECTORS
Manage company
day to day
Governed by
director's duties owed to company
MA give them
powers to make decisions on employment/ accounts / information to creditors w/out shareholder approval
TYPES OF DIRECTORS
AT LAW
1. De jure directors
Someone
validly appointed at law
Every company must have at least
one director who is a natural person
(min
16
years old +
person disqualified under director disqualification CANNOT be appointed w/out court's
permission)
No max number
2. De facto directors
Assumes to
act as a director but NOT validly appointed
3. Shadow directors
A person
whose directions or instructions are followed by other directors of the company
Professional advisors (e.g. accountants)= NOT SD
IN PRACTICE
1.Executive directors
Director appointed to executive office
E.g. finance / managing / marketing
Given a
service contract as they are employee
NO automatic entitlement to pay
(chosen by Board)
2. Non-executive directors
Officer of company NOT employee
Not active in daily management
BUT provides independent guidance + advice
Alternate directors
Take place of directors who are absent + has some of their voting powers
Either another
director or someone approved by BR
For
ALL TYES OF DIRECTORS
=
fiduciary duties and liabilities apply
COMPANY SECRETARY
Keeps
books up to date
Produces
GM and BM mins
Ensures
filings at CH
Has
knowledge + experience
In
private limited companies, if not present = these functions are done by directors
APPOINTMENT
Register of directors
Each company must have
one containing service address for director
(personal / company's)
Any
changes must be notified to CH
CH info is available to
public
Annual Accounts disclosure
directors’
salaries + bonus + pension entitlements
compensation paid to directors + past directors
for loss of office
payments made to person connected
to such a director
advances + credits given by a company to its directors + guarantees entered into by a company
on behalf of its directors
Governed by Articles: MA
state directors can be appointed
=
By
OR or BR
(common + easier)
REMOVAL
1. Ordinary resolution
Giving
28 days special notice before expiration of their period of office
Directors who are
shareholders
=
can vote on OR for their removal
NOT possible for Board to remove unless specified in Articles
2. Resignation by oficce
Director chooses to resign
3. Automatic resignation
Becomes
disqualified
(governed by Company Directors Disqualification Act 1986 (‘CDDA’))
Becomes the
subject of an individual voluntary arrangement
Becomes
bankrupt
Becomes
physically or mentally incapable of acting as a director
Once removed, company
must update the company’s register of directors and also give notice to Companies House by filing form TM01
MA for public companies = retirement + reappointment of directors by the members every three years
TRANSACTIONS BETWEEN COMPANY AND DIRECTORS REQURIING SHAREHOLDER APPROVAL
SUBSTANTIAL PROPERTY TRANSACTIONS
Shareholder approval by OR required for any
acquisition or disposal by a director / HC director (or connected person) of substantial non-cash asset to or from the company
Shareholder approval must be
given before OR after transaction
(provided transaction is conditional on approval being obtained)
2. Substantial
Asset = £5,000 or less IS NOT substantial
Asset =
more than £100,000 IS substantial
Asset =
more than £5,000 but less £100,000 IS substantial only if it is worth more than 10% of the company’s net asset value OR share capital if newly incorporated
3. Connected persons
Members of the director's family:
spouse or civil partner, parents, children or step-children
NOT brothers, sisters, grandparents, grandchildren, uncles and aunts
Companies in which the director (and others connected with them)
holds 20% or more of the shares
Director's
business partner or those connected with them
Trustees of a
trust where the beneficiaries include the director or those connected with them
Exception
NO APPROVAL =
by
members of a company which is a wholly owned subsidiary of another company
if transaction is
between company and person in capacity as shareholder
IF transaction =
between company and director of company's HC or a person connected to HC director > HC shareholders MUST approve
Remedies
SPT is entered into w/out OR =
Transaction is voidable
at the instance of the company UNLESS:
restitution is no longer possible
company has been indemnified for the loss or damage suffered by it
OR
rights acquired in good faith by 3P would be affected by the avoidance
Directors are
liable to account to company any profits made + indemnify company
for loss incurred
IF shareholders (HC shareholders)
affirm arrangement by OR within a reasonable period
= the arrangement may no longer be avoided
Defences
IF SPT between a
company + person connected with a director, and the director took all reasonable steps to ensure the company’s compliance = director NOT liable
Connected person + director who authorised the transaction and had no knowledge of the contravening circumstances
= NOT liable
Disclosure
Director
required to disclose interest potentially not if other directors are already aware BUT likely to do so AND not be permitted to vote on BR or count in quorum
to approve the contract and authorise a signatory
1. Non-Cash Asset = property other than cash
DIRECTORS’ LONG TERM SERVICE CONTRACTS
Shareholder approval by OR required for any director’s service contract for a guaranteed term in excess of 2 years
The guaranteed term applies to either:
a
period < 2 years or where the director is in control of contract length AND
during
period company cannot terminate the contract OR can only terminate in specific circumstances
OR
the
period of notice to be given by the company
AND to an
aggregate
of any periods covered above
Exceptions
Exception: NO APPROVAL =
by members of a company which is a wholly owned subsidiary of another company
IF director is also director of holding company > HC shareholders MUST approve
Consequences of non-compliance
IF company agrees to contract w/out approval =
- provision will be void to extent of contravention
contract deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice
Disclosures
Director
not required to disclose their interest BUT likely to do so AND director NOT permitted to vote or count in the quorum for BRs relating to the contract
Company
MUST keep a copy of all directors' service contracts at the company's registered office for at least one year from the date of termination / expiry for members to inspect.
Procedure: OR passed at GM
Memorandum
with proposed contract available for inspection at:
at the **company’s registered office not less than 15 days ending with meeting date AND
meeting itself**
GM notice
=
minimum of 15 days’ even if the short notice procedure is followed
HOWEVER if
written resolution procedure is used = memorandum sent to shareholders at OR before resolution is sent
LOANS AND RELATED TRANSACTIONS WITH DIRECTORS
Shareholder approval by OR required loans to directors, HC directors and connected persons
1. Loans
Company lends money
to a director
2. Quasi-loans
Company
pays off a director's outstanding account to 3P and director reimburses the company
3. Credit Transactions
Company
provides goods or services to director on a credit basis which will be paid for at a later date
Exceptions
NO APPROVAL needed for=
Expenditure on company business
(max £50,000)
Loans for defending proceedings brought against a director
Loans for
defending regulatory actions or investigations
Minor and business transactions (loans or quasi-loans of up to £10,000 and credit transactions up to £15,000)
Intra group
transactions
Money lending companies
(loan is made in ordinary course of business of the company)
by
members of a company which is a wholly owned subsidiary of another company
IF transaction =
between company and director of company's HC or a person connected to HC director > HC shareholders MUST approve
Remedies
Loan / related transaction is entered w/out OR =
Transaction is voidable
at the instance of the company UNLESS:
restitution is no longer possible
company has been indemnified for the loss or damage suffered by
it OR
rights
acquired in good faith by 3P would be affected by the avoidance
Directors are liable to
account to company any profits made
+ indemnify company for loss incurred
IF
shareholders (HC shareholders) affirm arrangement by OR within a reasonable period
= the arrangement may no longer be avoided
Defences
IF loan / related transaction between a company + person connected with a director, and
the director took all reasonable steps to ensure the company’s compliance = director NOT liable
Connected person + director who authorised the
transaction and had no knowledge of the contravening circumstances = NOT liable
Disclosure
Director
required to disclose interest potentially not if other directors are already aware BUT likely to do so AND not be permitted to vote on BR
or
count in quorum
to approve the contract and authorise a signatory
4. Guarantees or the provision of security for any of the above
Director
obtain loan from bank and company stands as guarantor OR provides the bank with security over its assets
Restrictions
1. ALL COMPANIES > OR is always required
Loans / guarantees
for directors
Public companies and private companies associated with public companies
(one is a subsidiary of the other or both are subsidiaries of the same body corporate)
Loans to CP /
Quasi-loans or credit transactions with directors / HC directors / CP
Guarantees in respect of loans, quasi-loans or credit transactions with directors / HC directors / CP
Procedure: OR passed at GM
Memorandum with
proposed transaction available for inspection
at:
at the
company’s registered office not less than 15 days ending with meeting date
AND
meeting itself
GM notice =
minimum of 15 days’ even if the short notice procedure is followed
HOWEVER if
written resolution procedure is used = memorandum sent to shareholders
at OR before resolution is sent
REMEDIES FOR BREACH OF DUTY
IF Breach >
company has claim against directors in law
Section
174
=
damages
Sections
171 – 173
,
175 – 177
=
injunction / setting aside of the transaction / restitution and account of profits / restoration of company property / damages
HOWEVER
Shareholders may
support a director’s action, and + approve it, even is it breaches the general duties in s.171-177
Authorisation is
ONLY effective if there has been full disclosure
by the directors so shareholders can make informed decision.
Ratification
Shareholders can by
OR approve the following director's conduct after breach
:
negligence / default / breach of duty + breach of trust NOT unlawful acts
If
director holds shares with votes
to ratify their breach = NOT COUNT