Complete notes covering Workshop 5 of the University of Law's Business Law & Practice Module.
- Directors' Powers and Authority
- Directors' Duties
- Directors' Liabilities/Responsibilities
- Directors' Decision Making
- Problem questions/scenarios and answers
Directors’ Powers and Authority
Officers of the company
The officers of a company are the key persons involved in the running of the company who
have responsibilities and liability for acting on its behalf.
✔ They include the company secretary, the directors and the managers of the company (CA 2006, s 1173(1)).
Directors
What are they?
❖ They take business decisions and make contracts on behalf of the company.
❖ Every private company must have at least one director: s 154(1) (public, two: s 154(2)).
❖ Considerable amount of power in company structure – thus safeguards built into company structure,
both by statute and by the articles, to protect the members.
❖ Collectively, known as the “board of directors”.
❖ Directors are agents of their company.
❖ Directors are in a fiduciary relationship with their company – owe special duties.
Types
● Despite the differences in terminology and responsibility, in the eyes of the law they are generally all subject to the
same legal controls on their activities.
● By s 250(1) of the CA 2006 the term ‘director’ whenever used in the CA 2006 is defined to include any person occupying
the position of director by whatever name called.
Executive directors o A director who has been appointed to an executive office within the company.
o An employee with the company – will have service contract.
o Board of directors usually have power to delegate powers (MA5), including by
appointing Chief Executive or Managing Director to whom they generally give authority
to run the company on a day-to-day basis – as if he were the whole board.
Non-executive o Does not participate in the day-to-day running of the business.
o Principal role is to attend and vote at board meetings.
o Not employee.
Chairman o In private companies, a Chairman (if appointed) will lead the directors’ board meetings
and shareholders’ general meetings.
o Powers determined by the company’s articles.
o Model articles state he has no special powers than his casting vote in the event of
equal vote for and against board resolution: MA13.
Shadow directors o Has not been formally appointed, but who influences decisions of the directors.
o A person is a shadow director if he gives directions or instructions to the directors of a
company and those directors are accustomed to act in accordance with his directions
or instructions (CA 2006, s 251(1)).
De facto directors o A ‘de facto’ director includes a person who has never been appointed as a director of a
company but nevertheless perform the functions of a director, or a person appointed
under a defect or who stays on after his term has expired.
Alternate o An alternate director is someone who attends board meetings in place of a director, ie
a standing director.
o The ability to send a substitute to board meetings is governed by the articles of the
company.
o The model articles for private companies do not contain any provision for the
appointment of alternate directors – needs special article.
Directors’ Powers
MA9 and MA19(1) The directors are responsible for the management of the company and are given powers in
this regard by the company’s articles.
1
, BLP WS3
→ MA 3 for private companies is typical, in that it states that the directors are
responsible for the management of the company and can exercise all the company’s
powers.
The directors usually exercise these powers by passing resolutions (decisions) at a meeting of
the board of directors of the company, known more usually as a board meeting or (as in the
model articles for private companies) as a directors’ meeting.
In relation to ● Shareholders usually become involved only when the CA 2006 requires them to take a
shareholders decision at a general meeting and that decision cannot be taken by the directors (eg, a
decision to change the company’s articles).
● SOME decisions of the directors need approval by the shareholders in a general meeting
before they can take effect.
● There is normally the power to direct the directors what to do by special resolution
expressly mentioned in the articles (MA 4). The power under MA 3 enabling the directors
to exercise all the powers of the company, is made specifically subject to the remaining
articles, so MA 4 will have supremacy. In practice this power would be used only
exceptionally.
● THE shareholders may change the articles by special resolution under s 21 of the CA 2006 in
order to take certain powers from the board.
o Both these decisions require a 75% shareholder majority, which demonstrates the
seriousness with which the directors’ general power of management of the
company is taken.
● There is a further power for shareholders to remove directors by ordinary resolution (over
50% of votes in favour) under s 168(1) of the CA 2006.
Directors’ Duties
❖ The directors of a company have duties imposed on them by law.
❖ These duties seek to hold the directors to account for the way in which they run the company.
❖ They seek to protect the company by regulating the directors’ behaviour.
❖ If any of the director’s breaches any of these duties, then he will incur liability and action may be taken against him.
❖ The directors must therefore comply with all of these duties at all times to avoid this risk of liability.
The CA 2006
The CA 2006 brought about radical change to directors’ duties.
Seven separate duties were set out in s 171-177.
To whom are the ● The company (CA 2006, s 170(1)).
directors’ duties owed? o This means that the company itself (acting through the board of directors) must
take action against a director for breach of duty.
● May also owe duties to the creditors of the company:
o If the company is insolvent or approaching insolvency (s 172(3)).
o S 172(3) provides that this duty is subject to “any enactment or rule of law
requiring directors… to consider or act in the interests of creditors of the
company”.
o The effect of this is to “shift” the duty to promote success of “the company” to
“the creditors” when the company enters insolvency.
o The provision does not state when creditors’ interests are to be considered. This
is left to the common law.
Authority of the The ability to bind a company in a contractual relationship with a third party is based on the
directors director’s position as an agent of the company.
Two types of authority:
1) Actual: Arises where the company has expressly authorised the director’s actions
2
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