Summary
Summary LAWS10083 Director Disqualification
- Module
- LAWS10083
- Institution
- The University Of Edinburgh (ED)
LAWS10083 Director Disqualification
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Directors ISlight changes made to the law by the Small Business Enterprise Act of 2015 which
amended the 2006 Act – you can no longer have corporate directors.
Who or what is a company director?
Lord Hoffman; Directors don’t have to be shareholders, but they probably will be.
Even in PLCs, director’s remuneration will be linked to shares. You don’t have to
have shares, but you probably will.
Directors act collectively via board of directors. There needs to be a quorum. Board
meetings conduct via articles. Majority rule is applicable.
They meet periodically - not involved necessarily on daily business.
Two groups of directors – One is involved with the day to day running of the
company. They are pursuant to a service contract. The non-executive - they have an
overseeing role. They will hold directors to account. Their role is to make sure that
problems are investigated. Asking questions like; why are figures down - why is there
a black hole in the company account.
Non exec directors have business experience. You can be a NED for more than one
company, which is a slightly contentious issue. Under the corp. governance code, you
are required to comply with this code if you want to be listed. The corp. governance
code, says you need to devote sufficient time to the company.
How many is enough?
Depends on the nature of the company and the duties you are required to preform.
So there are exec directors (service contracts) and non-executive directors (who
oversee).
Directors - defined under s.250 - quite circular.
Courts are looking at the substance at what you do.
,There are 2 types of director; (1) official director appointed via shareholder or when
company is first formed, or (2) Those appointed at GM. They can retire by rotation
and may stand for re-election. The official or legitimate directors are listed in
companies’ house.
There are 2 types who are not official directors; (1) a shadow director (someone who
the board acts in accordance with) and (2) a defacto director.
When looking at someone who is a de-facto director you look at what responsibilities
they have assumed and their conduct. - 2014 1 WLR 189 - para 34-45. For more
detail.
Shadow Director - Not an official director and pretends he’s not a director, but has
influence over the majority of the board. They can influence majority decisions at
board level. It doesn't touch upon one off situations. If you constantly influence
decisions - and expect people to do what you say, you will be liable as if you are an
official director of the company. See s.170(5).
Examples; Someone who owns majority of shares, they are disqualified as a director
and employed as a consultant. And they are consulted a lot.
Another one; patriarchal/matriarchal former executive.
They say they are not a director but they are, and it requires regularity of conduct.
This ties in today as they can be liable under the general duties, and s.214 for
wrongful trading.
Other things to remind you of;
- need two directors for a public company
-private you need one.
-Shareholders don’t really get involved with the running of the company.
s.156A - no more corporate directors s - all directors must be natural persons.
s.156B - exceptions.
s.156C - existing corporate directors must be replaced within a year. Natural person
must be taken over.
There will normally be a chairman, to chair the meetings of the directors. Board
meetings will be conducted pursuant to the articles of association. Directors are agents
of the company, they arent trustees, because they do not own the property - the
property is owned by the company. They mean 'fiduciary' when they reference
trustee.
, You can remove director via simple majority, but there can be special voting rights in
relation to all of this. Remuneration, directors can decide their own remuneration.
Model articles are simply the default position.
General Duties
This week fiduciary duties, and next week substantial properties transactions. We will
also look at non-fiduciary duty (s.174), and look at the provisions for excusing a
director after they have sinned. s.239. or through s.1157 via court.
The main duties are in s.171-177. These general duties are based on the old common
law rules. Now the legislation takes priority over the common law rules.
Originally the idea was to think small. They were trying to aid small and medium
sized enterprises. Most businesses are SMEs. Also a lot of corporate subsidiaries will
be private companies.
Company Law Steering group resulted in the code of duties - they were trying to
accommodate Medium and Small enterprises. They are going to know the law more,
because large PLCs will be experienced in legal knowledge and best lawyers they can
buy.
They were originally going to start out with pamphlets, the end result was that they
put it in legislative form, so there was some sort of code.
There are certain provisions that are not particularly well written.
Where there are gaps;
s.178 - doesn’t say what the remedies are. It doesn’t state the bottom line. That was
the rationale behind it; making it more accessible for SMEs, who do not have access
to a battery of professional advice. They won’t necessarily get the specialists in
dealing with this type of thing, they want to save costs. These gaps in essence prevent
this objective from being carried out effectively.
The code of directors duties
one of the problems; its incomplete. We will see that next week as well. The main aim
is that it sets out general principles as to what was there. And the previous case law
can be used as an aid to construction, however the legislation is now the law. It seems
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