summary of the board organ of the company including and mechanism of the board meeting including:
- relationship between directors and shareholders
- different types of directors
- mechanism on the appointment of directors
- director's service contracts
- remuneration
- termination of app...
Model Art 3 sets out Director’s general authority
Model Art 4 laid down shareholders’ reserve power
Pre-emption rights - directors cannot issue new shares and dilute existing shares
Protection of rights attaching to shares (inc. class rights)
Control over amendments to the articles (s.21)
Personal claims (s.33) or Unfair Prejudice claim (s.994)
Director
A director includes any person occupying the position of director, by whatever name
called. (s 250 CA 2006)
Re Lo-Line Electric Motors Ltd and others [1988] - Brown Wilkinson VC
The section does not purport to define the meaning of a director, but instead provides
certain persons that are included in the definition. The meaning is inclusive and not
exhaustive hence the act must be looked at as a whole.
Different categories of director
1. De Jure
2. De facto
3. Shadow
- Alternate
- Nominee
- Executive/ Non-executive
4. De Jure Director
They are validly appointed at law. Under s154 CA 2006, the number of directors must be
at least 1 in a private company, and 2 in a public company . Historically, at least one of
those directors must be a natural person (human beings). Small Business, Enterprise
and Employment Act 2015 removed this requirement hence all directors must be
natural persons. There is no maximum number of directors proscribed in the act/model
articles, however the company’s articles might include a provision.
The person must actually consent to being appointed as a director, and the statement of
consent must be sent to the registrar. On incorporation, the company must deliver to the
registrar a statement of proposed officers (who the directors are). For subsequent
directors, the information can be checked in the articles - CA 2006 is silent on
appointment of directors after incorporation. The company is obliged to keep a register of
directors.
Appointment of directors
The board of directors usually have the power to appoint another director to fill a vacancy
(MA 17). The power to fill a vacancy may be exercised at any time but in relation to
appointment of a director the board may only have this power until the next AGM.
In the model articles for public companies, the directors have the power to appoint an
additional director until the next AGM, of which the appointment is reviewed by the
shareholders. There is no restriction on the MAs for private companies.
The GM (meeting of the shareholders) has the power to appoint directors and it is subject
to anything in the articles. The power will usually be explicit- MA17 (applying to private
companies). If the articles make no provision of the appointment of the directors, the
members have an inherent power to appoint directors by virtue of an ordinary resolution
(Worcestor Corsetry Ltd v Witting 1936)
, 2. De facto directors
A de facto director is someone who assumes to act as director although he is never actually
validly appointed. Re Hydrodam (Corby) Ltd [1994]
There is no single, definitive test for what is meant by a de facto director
Holland v Revenue and Customs & another; Re Paycheck Services 3 Ltd
[2010] - whether the person is part of the corporate governance system of the company,
and whether they assumed the status and function of a director so as to make them
responsible as if they were. It is not sufficient that he is concerned of the management of
the company’s affairs or undertook tasks in relation to his business which could have been
performed by a manager below the board level.
Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar [2014]
The case considered some of the points that may be relevant when determining who a de
facto director is:
• in what capacity that director was acting
• if the acts of the person in question were directorial in nature (by reference to the
corporate governance structure); their job title is irrelevant
• if the company had held that person out as a director / third parties considered that the
person is a director
It is a question of fact and degree, and consultation does not make the person a director.
Consequences of being a de facto director
Holland v Revenue and Customs & another
• Purpose of provision imposing liability
• Owe same fiduciary duties
• Misfeasance claims
• Liability for wrongful trading (insolvency)
• Disqualification
3. Shadow directors
s.251 CA 2006 - “means a person in accordance with whose directions or
instructions the directors of the company are accustomed to act”
A person is not to be regarded as a shadow director by reason only that the director’s act or
advice is given by him in a professional capacity.
• Re Hydrodam (Corby) Ltd (1994) (Millet LJ) to establish a person is a shadow
director:
• Identity of the formally-appointed directors of the company
• Person in question directed those formally appointed as to how to
act in relation to the company
• Those directors acted in accordance with that person’s directions
• Directors were accustomed to act in that manner
It is a question of fact, depending on the prevailing circumstances.
Secretary of State for Trade and Industry v Deverell (2000)
Morritt LJ - “It will, no doubt, be sufficient to show that in the face of “directions or
instructions” from the alleged shadow director the properly appointed directors or some of
them cast themselves in a subservient role or surrendered their respective discretions.”
Ultraframe (UK) Ltd v Fielding (2005)
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