5/13/2011 Company Law I Lecture 8: Directors(Part 1) Directors Functions of the board What does a director do? Requirement for directors: Public companies:minimum of 2(s 153) Private companies:minimum of 1(s 153A) N
5/13/2011 1 1 Company Law I Lecture 8: Directors (Part 1) 2 Directors • Functions of the board What does a director do? • Requirement for directors: Public companies: minimum of 2 (s 153) Private companies: minimum of 1 (s 153A)
5/13/2011 Appointment First directors:ss 14A,153(2),153A(2);Table A reg 77 Subsequent directors-appointment by: Members:regs 94,99 Directors:reg 97 Notification to registrar:ss 14A,158(4) Registrar's index of directors:s 158C Company's register of directors:s 158(1) Qualifications ·Age:s157C Bodies corporate:s 154A Undischarged bankrupt:s 156 Disqualified persons:Pt IVA Articles:eg Table A regs 79,90 2
5/13/2011 2 3 Appointment • First directors: ss 14A, 153(2), 153A(2); Table A reg 77 • Subsequent directors - appointment by: - Members: regs 94, 99 - Directors: reg 97 • Notification to registrar: ss 14A, 158(4) - Registrar’s index of directors: s 158C • Company’s register of directors: s 158(1) 4 Qualifications • Age: s 157C • Bodies corporate: s 154A • Undischarged bankrupt: s 156 • Disqualified persons: Pt IVA • Articles: eg Table A regs 79, 90
5/13/2011 Disqualification orders:Pt IVA Operative provision:s 168D Grounds for disqualification: 168E:certain indictable offences -168F:persistent breaches of Ordinance 168G:fraud or breach of duties 168H:unfit to manage companies 168L:fraudulent trading Who is a director? Implications of being deemed as a director Corporate Affairs Commission v Drysdale(1978)141 CLR 236 Validly appointed directors Executive and non-executive directors ·Section2 definition including de facto directors Alternate directors ·Shadow directors Reserve directors:s 153A 3
5/13/2011 3 5 Disqualification orders: Pt IVA • Operative provision: s 168D • Grounds for disqualification: - 168E: certain indictable offences - 168F: persistent breaches of Ordinance - 168G: fraud or breach of duties - 168H: unfit to manage companies - 168L: fraudulent trading 6 Who is a director? • Implications of being deemed as a director Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 • Validly appointed directors Executive and non-executive directors • Section 2 definition including de facto directors Alternate directors • Shadow directors • Reserve directors: s 153A
5/13/2011 Directors'duties:scenario X Ltd is a financial investment co. Its executive officers are highly paid. But the co has been incurring losses as a result of poor business and investment decisions,combined with a general down-turn in the market. The losses are hidden from the co accounts though. The non-executive directors are therefore not aware of the problems. Eventually the auditors suspect corporate wrongdoing,and a liquidator is appointed.The extent of the co losses are now revealed. ·Who suffers? Shareholders,creditors,employees,clients. Should the executive directors be held responsible?The non- executive directors? Directors'duties-an introduction ·Rules vs.Principles Key duties owed by directors At the most general level,UK company law imposes on directors the duties to be loyal to the co and to be competent when acting as a director 2 sub-duties of the core duty of loyalty:duty to act in good faith in the best interest of the company(#the duty to promote the success of the co)and duty to avoid conflicts of interests Duty of competence to do a good job(articulated through the duty of care,skill and diligence) 8 4
5/13/2011 4 7 Directors’ duties: scenario • X Ltd is a financial investment co. • Its executive officers are highly paid. • But the co has been incurring losses as a result of poor business and investment decisions, combined with a general down-turn in the market. • The losses are hidden from the co accounts though. • The non-executive directors are therefore not aware of the problems. • Eventually the auditors suspect corporate wrongdoing, and a liquidator is appointed. The extent of the co losses are now revealed. • Who suffers? • Shareholders, creditors, employees, clients. • Should the executive directors be held responsible? The nonexecutive directors? 8 Directors’ duties – an introduction • Rules vs. Principles • Key duties owed by directors At the most general level, UK company law imposes on directors the duties to be loyal to the co and to be competent when acting as a director 2 sub-duties of the core duty of loyalty: duty to act in good faith in the best interest of the company (≠ the duty to promote the success of the co) and duty to avoid conflicts of interests Duty of competence = to do a good job (articulated through the duty of care, skill and diligence)
5/13/2011 Directors'duties:policy issues Why might it be important to impose duties on directors? What might be a problem if the duties imposed are too strict? Directors'duties ·Equity Including fiduciary duties ·Common law Contract ·Negligence Directors as fiduciaries:owe duties to company Directors are not trustees:lower standards imposed on directors compared with trustees 10 夕
5/13/2011 5 9 Directors’ duties: policy issues • Why might it be important to impose duties on directors? • What might be a problem if the duties imposed are too strict? 10 Directors’ duties • Equity lncluding fiduciary duties • Common law Contract Negligence • Directors as fiduciaries: owe duties to company Directors are not trustees: lower standards imposed on directors compared with trustees