Management of Companies – notes for accounting and law students

Feb 23, 2015

  •  Shareholders have delegated decision making powers to a group of people known as Board of Directors. The Board, in turn, can delegate its powers/duties to individual directors e.g. finance to finance director, sales to sales director
  • Director not defined by C.A. but commonly known that day to day running of company is performed by Directors. Memo & Arts give their powers.

 

~ TYPES OF DIRECTORS

  • Executive Director: – full time officers- day to day ; also usually have employment service agreement;
  • Non-executive Director: – part-time officers; attending meetings, act as monitors and advisors; independence; good for corporate governance;
  • Managing Director: – overall responsibility for running the company is delegated to him;
  • Director as Chairman of Board: – when Board meets, one of them is usually Chairman of the meeting. In past, it used to be the M.D., but good corporate governance dictates another director should be Chairman. Board = exec. and non-exec directors;
  • Life Directors: – unusual type but found where Articles stipulate someone as Director for their life;
  • De Facto Director: – not formally appointed as such but he acts and the company holds him out to be a director;
  • Shadow Director: – someone in the shadows (→ secret) who effectively is a director (though not named or appointed as such). They pull the strings and the actual named Board act (puppets).

 

~ APPOINTMENT OF DIRECTORS

  • Procedure and qualification set out in the Articles
  • 1st Directors are listed in Form A when applying for Certificate of Incorporation
  • After Incorporation and at 1st AGM all retire. Re-elected by Ordinary Resolution (= >50% votes)
  • Thereafter, retire 1/3 retire at each AGM and can be re-elected
  • Excluded persons: – a company; bankrupt; the company’s auditors; restricted or disqualified persons ;person of unsound mind

 

~ REMOVAL FROM OFFICE OF A DIRECTOR

Director may vacate if: –

  • They resign with notice to Company as set out in Articles;
  • Retire or automatically retire by rotation (1/3 go every agm);
  • Period of appointment expires;
  • Removed from the office by the Shareholders → procedure i.e. when still in office =
  1. Ordinary Resolution @ general meeting;
  2. Extended notice of meeting to be give = 28 days notice;
  3. proposed Resolution must be given to Director;
  4. Director has right to make written representations to Shareholders before meeting;
  5. Right to speak at meeting;

→ must be justifiable reason to remove otherwise open to being sued = removal may have unfair or wrongful dismissal implications if employment contract exists.

 

Director must vacate if: –

  • Bankrupt;
  • Becomes unsound;
  • Absent for > 6 months without board approval;
  • Convicted of indictable offence;
  • Does not have the requisite share qualification;
  • Restriction or Disqualification Order is imposed by Court;

 

RESTRICTION OF DIRECTOR

~ Restricted from acting as a Director for certain length of time; where company is insolvent application can be made – reason for order = you were director of insolvent company. only applies to directors/show directors. Lasts 5 years only; e.g. D is Director of Company A; B; C.  C goes bust; application to restrict and once order made then D must vacate Boards of A & B. Used to avoid phoenix syndrome + protect creditors/businesses.

Defences to restriction ?

Baxter and Parsons case

Tralee Beef and Lamb Ltd.

 

DISQUALIFICATION OF DIRECTOR

~ Disqualification = name tells you what it is. Automatic and discretionary orders made – list . Mainly fraud or dishonesty or gross recklessness situations; Application to disqualify can be made against all types of directors and, unlike restriction orders, other company players i.e. auditors, company secretary, liquidator, receiver. Can last 5years or such period as court decides.

N.I.B. case

 

~ DUTIES OWED BY DIRECTORS TO COMPANY AND SHAREHOLDERS

Fiduciary Duties: – shareholders place trust in directors.  A relationship based on trust = fiduciary.

  • Duty to act in good faith and in best interests of company see (Clarke v Workman);
  • Duty to use their powers for the purpose for which they were conferred;
  • Duty to maintain independent voting and not be influenced by others;
  • Duty to avoid conflict of interest and if there is, disclose, and may need to be absent from Boards decision e.g. – Boston Deep Sean Fishing v Ansell
  • Industrial Development Consultants Ltd v Cooley

 

Duty of Care & Skill: – common law and emanates from area of negligence.

see Re City Equitable Ltd

Also Dorchester Finance Co Ltd v Stebbing

The standard expected is that of a reasonably prudent director who has same qualifications/experience as that director = subjective test

 

Statutory Duties: –

  • Duty to declare an interest in contracts or proposed contracts [“S.194 contracts”];
  • Substantial property transactions – prohibited to sell or buy an asset, which has value >10% of net asset value of company unless ordinary resolution passed [“S.29 transactions”] ;
  • Loans or credit transactions to directors – prohibited where loan exceeds 10% of net asset value of company unless special resolution is passed by shareholders and Declaration of Solvency done [“S.31 loans”]CA1990 & 2001;
  • Obligation to maintain or have maintained proper books of account so that at any time the financial position of company can be determined with reasonable accuracy [“S202”];
  • Obligation to maintain up to date registers of shareholdings / loans to directors / debentures etc.

– from Holland Condon solicitors based in County Kilkenny

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