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Company Law – Private Limited Companies

Company Directors

The Directors

Companies Act 2006: Part 10, Chapter 2

Directors can be people (natural directors) or companies (corporate directors)
S.155: Private company must have at least ONE director
S.155: At least one director must be a NATURAL person [i.e. not a company]
S.157: Director who is natural person must be at least 16 years old
Directors do not have to be shareholders – but some companies have a ‘qualifying share’ provision which means director must hold a certain amount of shares

REGISTERS of the Directors [CA 2006 Part 10, SS.162 – 167; Ss.240 & 246]

The Directors Register records the details of all the company’s directors
Public Register – only holds directors’ service addresses
Restricted information – directors’ residential addresses.

Different types of directors

De jure – directors validly appointed
De facto – Re Hydrodam (Corby) Ltd 1994: A person who assumes to act as a director, is held out to be a director, who claims or purports to be a director without being validly appointed.

POWERS of Directors:

Model Article 3: Directors are responsible for management of company’s business. They exercise all the powers of the company.
They act collectively by passing resolutions at board meetings [Board Resolutions]
Directors actions are binding on the company – they have “power to bind when acting as a board” [Re Marseilles Extension Railway]

Delegation of powers

Model Article 5 (a) – (e)
Further delegation is possible but only with authorisation.
Directors can delegate to employees also – they will not be personally liable for failure by those employees (unless the director should have known that the employee was incompetent).
Managing director can be appointed by the board and decide what powers he is to have. These powers can be varied at any time by the board.
Committee of directors: board of directors can delegate powers to a committee.

Article 6 – the committee must, as far as possible, follow the same procedures as the board.

S.171: Directors should not act beyond their powers – “duty to act within powers”

Decision making by directors [Articles: 7-16]

Art 7	Directors to take decisions collectively
Art 8	Unanimous decisions Written resolution of directors Requires unanimity Alternative to board resolution
Art 9	Calling a directors’ meeting (Rules on notice) Any director can call a meeting Reasonable notice Art 9(2): what notice has to include – date / time / where / to every director
Art 10	Participating in a directors’ meeting Board meeting procedure: directors can attend in person, via a link or by sending a alternative director to vote in their place.
Art 11	Quorum for directors meetings Minimum of 2 to make meeting valid
Art 12	Chairman of directors’ meeting
Art 13	Casting vote One director = one vote Consider whether any of the directors cannot vote because of A.14 A.13 = if votes are equal – chairman will have the casting vote. Usually good to not apply this article.
Art 14	Conflicts of interest Article 14 – director cannot vote / form part of the quorum if he has an interest. S.177 CA 2007: Duty to declare a direct or indirect interest in a proposed transaction Exceptions in S.177(6) Not reasonably likely to give rise to an conflict of interest Directors are aware / ought to be reasonably aware If terms of a service contract that are being considered S.182 CA 2006: duty to declare an interest in an existing transaction. Director has a duty to declare ASAP [S.182(4)]. (no duty here if interest was declared under S.177 when transaction was proposed) S.185: interest must be declared at a board meeting or by written notice to all directors. Model Art.14 sets out ways in which director with a interest can vote – usually members pass ordinary resolution
Art 15	Records of decisions to be kept In writing / 10 years [S.248(2) CA 2006] S.249: chairman to sign Update statutory books
Art 16	Directors’ discretion to make further rules

DUTIES of directors

Ss.170-177 CA 2006

Originally duties were based around common law fiduciary duty
CA 2006: statutory duties:

General duties:

170	(1) Directors have general duties owed to the company (2) Duties set out in S.175 & S.176 also apply to FORMER directors (to the extent that things were done or known by him at the time when he was a director) IDC v Cooley: Director could still be deemed to be in breach of s176 if he has resigned as a director in order personally to take up an opportunity that the company was pursuing
171	Duty to act within powers In accordance with constitution Exercise powers for purpose for which they were conferred – Howard v Smith 1974 (issuing shares for wrong reason – breach of duty)
172	Duty to promote success of the company Director must always consider what would be most likely to promote the success of the company for the benefit of the members as a whole, having regard to: Likely consequences of decision in the Long term Interests of company’s employees The need to foster company’s business relationships with suppliers, customers Impact of the company on community / environment Desirability of company to maintain a reputation for high standard of business conduct. The need to act fairly between the members.
173	Duty to exercise independent judgment
174	Duty to exercise reasonable care, skill and diligence Standards set out S.174(2): skill and diligence that would be exercised by a reasonable diligent person with (a) Skill and knowledge reasonably to be expected of a person carrying out his functions (objective); and (b) The general knowledge, skill and experience of that director (subjective)
175	Duty to avoid conflicts of interest 175(1) D must avoid a situation in which he had, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the interest of the company. 175(2) Exploitation of any company...

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