BPP University College Of Professional Studies Limited (BPP)
Business Law And Practice
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Summary HIGH DISTINCTION BLP LPC NOTES PART 2 (Exam structures, SGS Activities/ Solutions, Procedure Plans)
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Business Law And Practice
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BPP University College Of Professional Studies Limited (BPP)
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BLP Part 2
SGS 13 – Roles, Responsibilities and Requirements of Directors II
Activity 1 Whether transactions require shareholder approval
Activity 2 Loans to directors
Procedure plan Substantial property transactions
Relevant structure of an exam question
N.B:
In the case of private companies which are NOT associated with public companies, the only
approval that is required is for loans and related guarantees or security made by a company
for a director of the company (s. 197)
In the case of a public company, or a private company associated with a public company, s.
197/8/200 and 2012 require member approvals for loans, quasi loans (as defined in s. 199),
credit transactions (s. 202) and related guarantees.
“Marine Paints Finance Limited is a company associated with a public company, MP plc. It is
a subsidiary of MP plc (s.256(b)).”
Structure for a loan question:
1. What is the nature of the company? (Plc/ co associated with plc)
a. There are different rules and regulations for a plc
2. What is the nature of the transaction?
a.
i. Loan (s. 197)
1. Loan (borrowing and then payback with interest)
ii. Quasi-Loan
1. There’s a third party. Company paying a third party
iii. Credit Transaction
1. A company provides goods or services, that does something for
the director – pays back on certain credit terms
iv. Guarantee or security (someone stands in the place of another party or
a security to protect an investment)
b. With director / of co/director of holding co/ connected person?
3.
a. Is shareholder approval required and if so under what section of the Act?
b. Which company needs approval ? (is it the company or the holding compay)
4. If shareholder approval is required, is there a statutory exception instead s. 204-9
, BLP Part 2
5. If not, what is the sanction for not obtaining s/hr approval and for which persons? S.
213 and 214
6. Are the directors complying with their statutory duties? S. 172 and 177
a. Acting to promote the success of the company
Structure for an SPT question:
1. State the general rule in s. 190 (SPTs)
2. Is the asset substantial for the purposes of s. 191(2)
3. Is the asset a non cash asset (s. 1163)
4. Is the transaction with a director or a person connected with a director (s. 252 -5)
5. Do any exceptions apply?
6. What will be the effect of failing to gain shareholder approval?
Structure for a Director’s interest question
1. Is there an actual or potential conflict of interest? (s.175)
2. State the general rule (s. 177/ 182) that a director must declare it
3. Do any of the s. 177(6) factors apply?
4. State that a director must make a written declaration under s. 184 or give the board
general notice of the interest under s. 185 before entering into the transaction (s.
177(4)
5. Consider the exceptions under MA 14(3) and (4)
6. Conclude how this will affect the transaction in the scenario
Directors’ General Authority
• MA 3 – Subject to the articles, the directors are responsible for the management of
the company’s business, for which purpose they may exercise all the powers of the
company.
• MA 5 – Directors’ power to delegate any powers
• These powers must be exercised in accordance with directors’ statutory duties under
s 170-177 CA 2006
Statutory duties under CA 2006
1. Act within their powers (s 171)
2. Promote the success of the company for the benefit of the members as a whole (s 172)
… having regard to…
3. To exercise independent judgment (s 173)
, BLP Part 2
4. To exercise reasonable care, skill and diligence (s 174);
5. To avoid conflicts of interest (s 175)
NB this does not apply to a conflict arising in relation to a transaction or
arrangement with the company (s 175(3))
6. Not to accept benefits from third parties (s 176)
7. To declare any interest in a proposed transaction (s 177)
Breach of duty
• Duties owed to the company, rather than to individual shareholders
o Action therefore brought by directors, or derivative action
• Consequences of breach = same as for breach of corresponding common law /
equitable principles (s 178)
• Breach of duty of care, skill and diligence (s 174) – usually damages
• Breach of another duty – injunction; setting aside transaction; account of profits;
damages
• Derivative action = on behalf of the company instituted by the shareholders where
breach of statutory duty / negligence (s 260 CA 2006)
• Where a majority of shareholders support action, likely no need for derivative action as
shareholders could remove intransigent directors
• Where a minority of shareholders want to take action, may bring a derivative action,
BUT:
o Must obtain permission from court by showing a prima facie case
o Claim cannot be brought where majority of shareholders approved conduct in
advance / have ratified the conduct
o Damages awards are for the benefit of the company and not the shareholders
Ratification
• S 239 – ratification of breach of directors’ duties by shareholders’ OR (s 239(2)) where
there has been negligence, default, breach of duty or breach of trust
o Necessary majority must be obtained disregarding votes in favour of the resolution
by the director and any member connected with him (s 239(4))
Disclosure
• Information of directors must be disclosed to public (s 162-4 CA 2006) = register of
directors at registered office + notify CH of changes to directors
• Ditto for company secretaries (s 275-8)
• s. 176 – requires registration for directors at Companies House
• s. 276 – requires registration for secretaries at companies house
Particulars which must be registered
, BLP Part 2
DIRECTOR
163(1) A (a) name and any former name;
company's
register of (b) a service address;
directors
must contain (c) the country or state (or part of the United Kingdom) in which he is
the following usually resident;
particulars in
the case of (d) nationality;
an individual
(e) business occupation (if any);
(f) date of birth.
s. 164 A company's register of directors must contain the following particulars in
the case of a body corporate, or a firm that is a legal person under the law
by which it is governed—
(a)corporate or firm name;
(b)registered or principal office;
(c)in the case of a limited company that is a UK-registered company, the
registered number;]
(d)in any other case, particulars of—
(i)the legal form of the company or firm and the law by which it is
governed, and
(ii)if applicable, the register in which it is entered (including details
of the state) and its registration number in that register.
COMPANY SECRETARY
s. 277 (1) A company's register of secretaries must contain the following particulars
in the case of an individual—
(a)name and any former name;
(b)address
s. 278(1) A company's register of directors must contain the following particulars in
the case of a body corporate, or a firm that is a legal person under the law
by which it is governed—
(a)corporate or firm name;
(b)registered or principal office;
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