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LPC - BLP MODULE - NOTES ON ROLES OF DIRECTORS (DISTINCTION)
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Distinction grade achieved. BLP Module notes for the LPC.
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BLPDirectors – restrictions and liability.
Recap.
Section 154 CA 06 - There must be at least one director in all companies. Most will have at least two,
pursuant to their articles.
The directors as a board have all authority to do anything that does not need to be done or
authorised by shareholders (article 3). This is the default position, it can be changed.
The directors have wide powers which are refined by statute, and bespoke articles along with
common law.
Statute and common law impose personal sanctions when directors do not do what is required of
them so the director who ordinarily has no liability will have to pay up. For example, any profit they
make through breaching their duties will be confiscated.
Avoiding liability.
For some breaches it is possible for the shareholders to ratify the mistake which is essentially the
shareholders retrospectively approving the action by ordinary resolution.
However not all liability can be ratified.
Some directors are shareholders. If a director has a personal interest they need to make a
declaration of interest in contracts entered into by the company. Whether such a director can vote/
count to the quorum depends on the articles. In particular article 14.
The articles can be amended so that the shareholder and still vote and form the quorum.
Two types of liability: liability to the company and liability to outsiders.
Gratuitous compensation.
Is essentially the act of directors overpaying themselves.
These situations can arise in golden handshake situations which is when a director leaves or joins a
company they may get a bonus which needs shareholder approval. This does not however apply to
compensation/payment that the directors are contractually entitled to.
SPT
Substantial property transaction. Where the company is selling something to or buying something
from a director in his personal capacity, the shareholders must approve the contract if the amount
of the contracts is substantial as is stated by section 190 CA2006.
Catches businesses when they are incorporated.
Director includes shadow director. Section 190 also catches persons connected with a director such
as a spouse or partner, a child or parent, or another company the director is associated with.
Shareholder approval is given by ordinary resolution. Can be given in retrospect but unless it is given
in advance the contract is voidable. NOT void, just voidable.
If approval is not given the director who was a party to the contracts and any other director who
authorised the contract become liable to indemnify the company for any loss and must account for
any personal gain they make.
Assets of more than £100,000 are always caught and assets less than £5000 are never caught.
Any amount between £5000 and £100,000 will be aught if it is more than 10%of the company’s asset
value. Asset value is the company’s Figueroa used for net assets.
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