Georgie Clayton 2022©
Roles, responsibilities, and requirements of directors
1. PMR recap on directors
Types
Directors can be:
Executive directors:
o Spend majority of time working on the business of the company = officer + employee (so salaried)
o Terms and conditions of employment (duties, remuneration package, notice provisions, etc) are set out in a service contract, the content of which is determined by the BoD (art. 19 MA) and
approved by the BoD unless it is a long-term service contract (> 2 years) and SH approval required (s. 188 CA 2006).
Non-executive directors:
o Do not take part in the day to day running of the company but provides independent guidance and advice to the board = officer but not an employee (so not salaried but gets directors’ fees.
Shadow directors:
o s. 251 CA 2006 = a person in accordance with whose directions or instructions the directors of the company are accustomed to act = must show that the person has a real influence on the
decision-making process of a company.
o vs. it is not because the directors act on a person’s advice given in a professional capacity that they are a shadow director: s. 251(2) CA 2006.
Alternate directors:
o Attending board meetings (BM) and acts in the director’s place if the actual director is engaged, incapacitated or out of the country.
There may be a managing director (‘MD’) but this is not a recognised status by CA.
General powers
Directors have a general authority to manage the Co’s business, for which purpose they may exercise all the powers of the Co: MA 3.
e.g., they can employ individuals, decide what they will be paid, enter into contracts with customers/ suppliers, buy and sell property, raise funds by borrowing from banks, authorise the Co’s assets to be
used as security.
/!/ a third party acting in good faith does not have to check for restrictions on the board of directors’ powers before transacting so can rely on the directors’ authority acting as a BoD even if they are
actually exceeding the powers granted to them in the Co’s AA: s. 40 CA 2006.
Powers of an individual director to act on behalf of the company can be delegated by the board of directors to such an extent and on such terms and conditions as the directors think fit: MA 5
/!/ third party can rely on a director’s authority to bind the company when it is either:
o (1) expressly given by way of a board resolution. actual express authority.
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o (2) is implied within the authority usually conferred on an agent of that character. i.e. a managing director will have the authority to act alone and bind the company on routine commercial
contracts even though this isn’t set out in statute. actual implied authority.
What if a director acts without actual authority, express or implied but acts with apparent authority instead? Actions will not bind the company but a third party may have a remedy against the
director personally for breach of warranty of authority.
What if the act outside the scope of the authority benefitted the director? Company may take confirmatory action = ratification of the act by ordinary resolution.
But this authority is not left unchecked: it is restricted and regulated by general duties and other specific restrictions. these ensure that SH can hold the directors accountable for the way they exercise their
general authority.
2. General duties
s. 170-177 CA 2006 shall be interpreted and applied in the same way as the common law duties from which these statutory duties derive.
s.170(5): general duties do apply to shadow directors where and to the extent that they are capable of applying.
!/!: AA may impose more onerous duties on Ds but cannot dilute statutory duties.
These must all be considered by the directors when making any decision but it is not a tick box exercise.
To act within their powers, To promote the success of To exercise independent To avoid conflicts of To exercise reasonable Not to accept benefits To declare any interest in a
for the purposes for which the Co for the benefit of judgment and not blindly interest: s. 175 care, skill and diligence: s. from third parties: s. 176 proposed transaction: s.
they were conferred vs. the members follow the views of others: 174 177
improper purposes: s.171 (=enlightened SH value) as s. 173.
!/! does not apply to i.e., bribes or making a
a whole…having regard
transactional conflicts, i.e., (2)(a) Objective = level of profit at the Co’s expense see below.
to…: s. 172
!/!: check the AA for any a conflict arising in relation skill, care and diligence
Effect of the decision
restrictions on the to a transaction or which would be exercised
in the long term
directors’ powers. arrangement with the Co: by a reasonably diligent
Interests of the Co’s
Pre-1985 Co: might s. 175(3) person with the
employees
have an objects knowledge, skill and
Need to foster the
clause. experience that is
Co’s business
Post-2006 Co: will expected of someone in
relationships
not usually have an his role and
Effect on the
objects clause, esp. if
community and
unamended MA (MA
environment (2)(b) Subjective = the
3 – general authority)
Reputation general, knowledge, skill,
but check!
Act fairly as between and experience of that
member s director
!/!: Professionals with
qualifications will be held
to bring their skill, i.e.,
solicitors of the law and
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accountants of
accountancy.
Remedies for breach of duty?
Duties are owed by directors to the Co (vs. SH) so the action will be brought by the Co (vs. SH).
s.178 = same as for breach of the corresponding common law or equitable principles
o Breach of reasonable care, skill and diligence – damages
o Breach of other duties = injunction, setting aside the transaction, restitution and account of profits, restoration of Co property held by the director and damages.
Minority SH may bring a derivative action for director’s BoD:
o If majority of SH support action against the director for BoD = derivative action not necessary as SH can remove intransigent directors by OR under s. 168(1)
o If minority of SH = derivative action may be brought but:
Must obtain permission from the Court to continue such a claim, by proving a prima facie case
Majority of SH must not have approved the directors’ conduct in advance or ratified such conduct
o Damages will go to the Co vs. individual SH.
SH may ratify a director’s Breach of Duty, negligence, or default
o By way of OR (s. 239(2))
But the majority required does not consider the votes that a director and any connected person may have as SH.
So:
o If ratification is proposed as a WR = the resolution doesn’t need to be sent to them + disregarding any votes made in favour by the director and connected
members: s. 293(3).
o If ratification is proposed at a meeting = majority disregarding any votes made in favour by the director and connected members but can still count in the
quorum: s. 293(4).
If unanimity = this restriction on who can vote does not apply: s. 293(6).
Ratification does not work if the act is an illegal act or act defrauding a creditor.
What advice to give a BoD when considering the proposals in order to limit risk of BoD?
Build stakeholder factors into wide CSR
Make sure that stakeholder factors are considered by those preparing board papers
Make sure that the the factors are considered and kept by directors
Codified duties enshrine good practice
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3. Disclosure
1. Disclosure of identity of directors and secretary
Directors:
Information of directors must be disclosed at CH (s. 167) (Form AP01/ TM01/ CH01) and made available to the public by inspection at CH: s. 1085(1).
Every Co must maintain a register of its directors and should keep it at its registered office open for inspection by members w/o charge and any other person on payment of a fee: s. 162(5).
!/!: only directors’ service address needs to be in its register of directors: s. 163(1) but the residential address will still need to be provide, albeit kept separate.
Secretaries
Information of secretaries must be disclosed at CH (s. 275) (Form AP03/ TM03/ CH01) and made available to the public by inspection at CH.
Every Co must maintain a register of its directors and should keep it at its registered office open for inspection by members w/o charge and any other person on payment of a fee: s. 275(5).
!/!: only secretary’s service address needs to be in its register of secretaries: s. 277(5) but the residential address will still need to be provide, albeit kept separate.
2. Disclosure in annual accounts re directors’ benefits
s. 412: SoS has the power to make provision to determine what information re directors’ benefits will need to be included in the Co’s annual accounts:
Directors’ salaries, bonus payments and pension entitlements
Compensation paid to directors and past directors for loss of office
s. 413: Information on advance, credits + guarantees by the Co for the benefit of director must be shown in notes to the Co’s accounts: s. 396(3)(b) (individual), 404(3)(b) (group)
Accounts must be sent to every member: s. 423(1).
3. Disclosure of interest in transactions or arrangements:
!/!: you can declare an interest but still be able to count in the quorum for a BM (or part thereof) provided that you are not voting on the matter in which you are interested at that BM (or part thereof if adjourned).
Proposed transactions or arrangements: s. 177 Existing transactions or arrangements: s. 182 MA 14: quorum when a director is interested in a
transaction
!/!: only to be considered at BM as only concerns directors.
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s. 177(1): duty of a director of a Co who is in any way, whether directly s. 182(1): duty of a director of a Co who is in any way, whether directly MA 14(1): Director interested (directly or indirectly) in a
or indirectly, interested in a proposed transaction or arrangement with or indirectly, interested in a transaction or arrangement that the Co transaction cannot vote or count in the quorum for BRs in
the Co to declare the nature and extent of that interest to the other has entered into to declare the nature and extent of that interest to respect of that transaction.
directors before the Co enters into the transaction or arrangement the other directors as soon as reasonably practicable (s.182(4)).
(unless the Co states otherwise, i.e., at the earliest opportunity) (s.
This can cause issues in small Co so an interested director
177(4)).
can count in the quorum and vote if: MA 14(2) + (3)
the Co disapplies MA 14(1) by OR
Direct
Direct
o E.g., service contracts as interest will be in
the director’s interest cannot reasonably be
securing as high a salary as possible, in conflict Indirect
regarded as likely to give rise to a CoI
with the Co’s interests. !/!: this is not required by
statute: s. 177(6)(c), however, it is advised in
Declaration via:
practice to declare an interest anyway. the director’s conflict arises from a permitted
o Written notice: sent to all directors
cause MA 14(4)
electronically or in paper: s. 184
a guarantee given by or to a director in
Indirect: director has some interest, whether through a
respect of an obligation (a)
spouse, another relative or through a Co in which s/he is a
o Normal notice at BM of directors subscription or an agreement to subscribe
SH.
for shares or other securities of the Co (b)
arrangements pursuant to which benefits
o General notice at a BM or taking reasonable
No declaration is required when: are made available to employees and
steps to secure that it is brought up and read at directors (c)
o Director is not aware of the interest or transaction
the next BM: s. 185.
of arrangement: s. 177(5)
Otherwise, just remove the article under s. 21 and replace
Non-disclosure? with an article expressly permitting a director interested in a
o Interest cannot reasonably be regarded as likely to
o s. 182: failure to disclose is a criminal offence transaction or arrangement with the Co to vote and count in
give rise to a conflict: s. 177(6)(a)
and directors will be liable to a fine under s. quorum on BR.
183.
o Other directors know or ought to have known
about the conflict: s. 177(6)(b)
o Conflict arises because it concerns his service
contract and his contract will be considered by the
board or a committee of the board of directors: s.
177(6)(c)
Declaration via:
o Written notice: sent to all directors electronically
or in paper: s. 184
o Normal notice at a BM of directors
o General notice: where director has interest in a
specified body corporate or firm (s. 185(2)(a) or is
connected to a specified person (s. 185(2)(b)), a
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director can give general notice that he is always
considered interested in transactions/
arrangements with the specified party.
Notice must state the extent and nature of the
director’s interest in the body corporate/ firm or the
nature of his connection with the person: s. 185(3).
Non-disclosure?
o s.178 = same as for breach of the corresponding
common law or equitable principles
4. Disclosure of information concerning directors’ service contracts: s. 228
Company must keep at office copies / memoranda (where contract not written) of directors’ service contracts for at least a year following termination: s.228
Copies and memoranda must be open to inspection by member without charge (s.229(1))
“Service contract” = person’s appointment as a director + contracts for services
Member’s approval of service contracts – s. 188 – OR
MA 19: terms of service contract for the board to determine.
When do you need SH approval of service contracts?
SH approval by OR is required for any director’s service contract which is or may be for a guaranteed period in excess of 2 years (guaranteed term): s. 188(1)(a)/ s. 188(2)(a)
!/!: the word ‘resolution’ means an ordinary resolution (s. 281(3)) if the Co has MA which do not specify otherwise.
1. What is a guaranteed term of more than 2 years? 2. Is there a guaranteed term of more than 2 years? 3. If so…Approval by?
s. 188(3)(a): From the director’s perspective, can the contract last for more than Approval of Co entering into service K will be required
a period during which the contract is to continue other 2 years? (s.188(2)(a)) unless Co is a wholly owned subsidiary (s.
than at the instance of the Co for at least > 2 years = If yes = guaranteed term 188(6)(b). If wholly owned subsidiary board resolutions will
contract continues because director wants it to (i) suffice (entry + signatory).
