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ATTRIBUTION1 The company is inanimate: It is the directors who on a day to day basis are responsible for managing the company. Model Article 3.2 Directors are agents of the company: Agents of the company, not of the shareholders. Howard Smith v Ampol Petroleum (1974)3 Partnership and agency origins ...

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ATTRIBUTION 1 The company is inanimate: It is the directors who on a day to day basis are responsible for managing the company. Model Article 3. 2 Directors are agents of the company: Agents of the company, not of the shareholders. Howard Smith v Ampol Petroleum (1974) 3 Partnership and agency origins of company law: The role and position of directors within the corporate management matrix is coloured by the fact that company law is rooted in the law of partnership which is based upon agency principles. Howard Smith v Ampol Petroleum (1974) ● Principle ○ → Directors are agents of the company: Agents of the company, not of the shareholders. DIRECTORS 1 Essentials (a) Number of directors needed: Section 154 CA (i) Private companies: Must have at least one director (ii) Public companies: Must have at least two directors. (b) Nature / natural persons?: (i) At least one director must be a natural person. This is intended to ensure that for all companies, there will always be one individual in place to aid accountability. Section 155(1) CA; (1) Reform: Small Business, Enterprise and Employment Act 2015 requires all company directors to be natural persons and prohibits the appointment of corporate directors subject to certain exceptions. These provisions are still not yet in force. (ii)

But no definition in CA of a director. Instead, a director includes any person occupying the position of director, by whatever name called. Section 250.

(c) Restrictions (i) All directors must be over the age of 16: Section 157 CA. If appointed below the age of 16 the appointment is not effective until they reach the age of 16. Section 157(2)) (ii) Formalities: AP01 Form must be sent to Companies House (d) Can overlap with role of shareholder: The role of a director is always separate from that of a shareholder though in small private companies they are often the same people. But that individual will wear different hats when acting as a director and as a shareholder.

2 Types: But all owe the same duties to the company and are subject to the same responsibilities under CA 2006 and also under the insolvency legislation IA 1986. (a) At law (i) De jure: A director who has been validly appointed at law. (ii)

De facto: Someone who assumes to act as a director but has in fact not been validly appointed and therefore is not a de jure (legal) director. A de facto director is a person who ASSUMES to act as a director, he is held out as a director by the company, and claims and purports to be a director, although he is never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. (1) Test: No single definitive test. Difficulty which has faced the courts has been to devise a satisfactory test for determining whether or not an individual’s conduct in relation to the company’s affairs is such as to render him a de facto director. a) Does the person take part in corporate governance specifically by making decisions which would normally be taken at director level? Re Hydrodam (Corby) Ltd (1994) BCLC was found that they would have had to be shown to personally instruct and direct the subsidiary’s board. b) Are the person’s act directorial in nature? Looking at the context but also the cumulative effects of what the individual has done. Smithton v Naggar (2014) c) Did the company consider the person to be a director and held them out as such? It is a question of fact in each case. Re Hydrodam (2) Importance: The importance of recognising where a person is a de facto director is that the same fiduciary duties and liabilities in insolvency apply to all directors including de facto directors (3) Is a de jure director of a company which is itself a director of another company a de facto director of that company? No. The Commissioners for HM Revenue and Customs v Holland (2010).

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Shadow: Section 251 CA. (1) What: A shadow director by contrast does NOT CLAIM or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind other who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the the company. Deliberately trying to avoid the legal duties borne by directors by exercising influence over the board but without being formally appointed as a director.

(2) When: Sometimes a shareholder may try to exert influence over the board but without being appointed as a director, in an effort to avoid the duties imposed on directors under CA 2006 and the common law. Thus this section is designed to ensure that anyone who acts as a director, even if they are not technically appointed as one, is subject to the duties and restrictions which apply to all directors. (3) CA definition of shadow director: Section 251(1) defines a shadow director as a person in accordance with whose directions or instructions the directors of the company are accustomed to act. a) Explicitly not professional advisers: Section 251(2); b) Only if acts of the professional advisers go beyond the normal scope of professional capacity of advisers: Re Tasbian (No3) (1992) (4) Most of the provisions in CA 2006, CDDA 1986, and the IA 1986 imposing duties, obligations or restrictions on directors therefore apply equally to shadow directors. SBEEA 2015 Sections 89-91 (b) In practice: The CA does not differentiate between executive and non-executive directors but in practice there is a distinction. However the duties obligations and restrictions placed on directors under CA 2006 apply to ALL directors. (i)

Executive: Appointed to executive office (eg Director of Finance, Managing Director etc). Spends the majority of time on the business of the company. MA 5. (1) Officer (2) Employee: Pursuant to a service contract.

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Non-executive: Will not be an employee of the company. Role is generally to advise. (1) Officer: But does not take part in the day to day running of the company. However, does provide independent guidance and advice to the board and to protect the interests of shareholders. (2) Not employee:

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Alternate: The office of a director is a personal responsibility - however, some companies in their articles provide for alternate directors to take the place of a director where one or more directors are absent. He has the voting powers of the absent director. Attends board meetings and acts in the director’s place, if the actual director is incapacitated, otherwise engaged or out of the country. (1) Either a fellow director of the company (2) Or someone who has been approved by a resolution of the board of directors: the MA does not provide for the appointment of alternate directors (3) Becoming quite rare: since it is now possible to hold board meetings over the telephone and pass board resolutions by means of written

resolutions, the use of alternate directors is becoming quite rare. 3 Accountability: (a) Accountable to company itself not shareholders: The shareholders own the company yet have input only into certain key decisions.

Re Hydrodam (Corby) Ltd (1994) BCLC ● Principle ○ → Smithton v Naggar (2014) ● Principle ○ → The Commissioners for HM Revenue and Customs v Holland (2010) ● Principle ○ → Re Tasbian (No3) (1992) ● Principle ○ → Secretary of State for Trade and Industry v Deverell ● Principle ○ → Ultraframe v Fielding ● Principle ○ → APPOINTMENT 1 Source (a) CA 2006: The CA does not stipulate a procedure for the appointment of directors, so this is something that will be governed by the Articles of the company. (i) Section 9: Says that an application for registration must contain a statement of the company’s proposed officers, and this must give the required particulars of the person who is, or persons who are, to be the first director or directors of the company. (ii)

Section 154: Stipulates the minimum number of directors for companies.

(b) The MA: Article 17(1). (i) Any person who is willing to act as a director and is permitted by law to do so may be appointed to be a director (1) By ordinary resolution (of the shareholders) OR

(2) By decision of the directors: a) Analysis: This is easier to put into effect than the first and therefore, unless there is a particular reason for using the ordinary resolution procedure, it is usual for the board of directors to appoint new directors. 2 Usually (a) Original directors: Appointed according to Section 9 CA (b) Successors: Elected by the shareholders in general meeting. The power of the majority to appoint directors must be exercised for the benefit of the company as a whole and not to secure some ulterior advantage Re HR Harmer (1959) DIRECTORS’ SERVICE CONTRACTS 1 Executive director contracts: An executive director will be an employee of the company. (a) Employee, “Service” contract: An executive director will be an employee of the company and should be given a written contract of employment (‘service contract’), setting out the terms and conditions of employment including duties, remuneration package, notice provisions etc. (b) Remuneration: There is no automatic entitlement for directors to be paid for their services. This is something that the board can determine, subject to the provisions of the company’s articles. MA 19. (c) Record: Section 228 CA; Section 229. The company must keep a copy of all directors’ service contracts or memoranda of the terms of these contracts; and the shareholders have a right to inspect copies of directors’ service contracts of memoranda, which must be provided within seven days of request. (i) Section 162: Must submit new directors within 14 days (d) Shareholder approval? As a general rule, a director’s service agreement will only require the approval of a resolution of the board of directors. However, shareholder approval may be required to enter into long-term service contracts. 2 Long term service contracts: When a service contract is for a long term / guaranteed term it requires shareholder approval. (a) “Guaranteed term” Longer than two years. (i) Section 188 CA applies: The relevant provision of the service contract ie the provision concerning the length of the contract, requires shareholder approval by ordinary resolution. (ii)

If not shareholder approved, the service contract will be deemed void: Section 189(a) CA; in addition, under Section 189(b) the service contract will be deemed to contain a term entitling the company to terminate the contract at any time, by the giving of reasonable notice.

(b) The relevant provision of the service contract requires shareholder approval: (i) Applicability: this would apply for instance where a director had a service contract for one year and had an option to renew the contract for a further twoyear term at their sole discretion. (ii)

If shareholder approval is not given: Then the term incorporated into the service contract in contravention of Section 188 CA is void under section 189(a) CA; 189(b) and the company is entitled to terminate the contract at any time, by the giving of reasonable notice.

TERMINATION OF APPOINTMENT 1 Three ways (a) Resignation: Subject to any provision to the contrary in the articles, a director may resign at any time by giving notice. Glossop v Glossop (1907). Thus the resignation of a director will normally be effective according to its terms and does not need to be specifically accepted by the board. (b) Vacation: MA 18. Provides that director is automatically deemed to vacate office where that person becomes prohibited being a director, bankrupt, subject to a composition order made with creditors, or physically or mentally incapable for more than three months (as stated by a registered medical practitioner). (c) Removal: Section 168 CA 2005. A director can be removed by an ordinary resolution of the shareholders. Where such a resolution is proposed, the director has the right to be heard at the GM (section 169) and therefore written resolutions cannot be used. Special notice of such a resolution is required to be given - at least 28 clear days before the GM. (i) Can directors who are shareholders vote in a resolution to remove themselves: Yes - if this is inserted into the articles as a Bushell v Faith clause. This is a matter of internal management and private contractual agreement and is not something the court will intervene in. (1) What it would look like: A clause giving weighted voting rights allowing director shareholders to block such resolutions.

Glossop v Glossop (1907) ● Principle ○ → Resignation. Subject to any provision to the contrary in the articles, a director may resign at any time by giving notice. Bushell v Faith ● Principle ○ → Directors who are shareholders can vote in a resolution to remove themselves. This is a matter of

internal management and private contractual agreement and is not something the court will intervene in.

DISQUALIFICATION DISQUALIFICATION ORDER 1 Source: The Company Directors Disqualification Act 1986 (CDDA 1986). 2 Order: The effect of a disqualification order is that a person shall not, without the leave of the court, be a ‘director of a company, or a liquidator or administrator of a company, or be a receiver or manager of a company’s property or, in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a specified period beginning with the date of the order. Section 1(1) CDDA. 3 Civil proceedings: Disqualification proceedings are civil and consequently the standard of proof is that a director’s unfitness must be established on a balance of probabiltiies. MANDATORY DISQUALIFICATION ORDERS 1 Mandatory disqualification orders: Section 6(1) CDDA 1986. (a) Made where the court is satisfied (i) That he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), AND (ii)

Abuse of privilege of limited liability, either by gross negligence or deliberate disregard of creditors’ interest: “That his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company” Secretary of Trade and Industry v Blunt (2005)

2 Time period: They are between two and 15 years. Section 6(4) CDDA 3 Who: Restricted to directors or shadow directors, including de fact directors. Secretary of Trade and Industry v Blunt (2005) ● Principle ○ → Mandatory disqualification under Section 6 of the CDDA is satisfied where a director has abused the privilege of limited liability in some way

DISCRETIONARY DISQUALIFICATION ORDERS 1 Discretionary disqualification orders: The court will consider ALL the circumstances before deciding to disqualify or not. Up to 15 years. (a) Conviction of offence related to management: Conviction of an indictable offence in connection with the management of the company or company property Section 2. (b) Breaches of companies legislation: Persistent breaches of company legislation requiring returns or notices to be given to the Registrar. Section 3. (c) Fraud: Either fraudulent trading under Section 993 CA; wrongful or fraudulent trading under Section 213; Section 214 IA 86; or fraud in relation to the company or its property Section 4. (d) Misfeasance: A finding of misfeasance is also relevant factor to which a court shall have regard when considering whether to make a disqualification order against a director for unfitness under Section 6 Company Directors Disqualification Act 1986 (e) Disqualification after investigation of the company: This ground is used where it seems to the Secretary of State that it would be in the public interest for a disqualification order to be made. Section 8. Secretary of State for Business Innovation and Skills v Pawson (2015)

Secretary of State for Business Innovation and Skills v Pawson (2015) ● Principle ○ → Discretionary disqualification orders. Disqualification after investigation of the company. Public interest order. Section 8. CRIMINAL PENALTIES, COMPENSATION ORDERS AND DISQUALIFICATION UNDERTAKINGS 1 Criminal penalties: (a) Criminal offence - Section 13: It is a criminal offence to act in contravention of a disqualification order and any person doing so is liable for a fine or imprisonment or both. (b) Criminal offence - Section 15: It is a criminal offence to be personally liable for all the debts of the company incurred during the time that the person was acting in contravention of a disqualification order. 2 Compensation orders: Where creditors have suffered losses due to the creditor’s misconducts the secretary of state may order compensation orders against D. Section 15A Section 15C. 3 Disqualification undertakings

DUTIES OF DIRECTORS 1 General duties of directors (a) Sources (i) Common law: The duties of directors were developed by the courts. (ii)

Legislation: Codified in CA 2006. Section 170-177. (1) Remedies? Although the duties of directors were codified in CA 2006 the remedies for breach were not codified. Section 178 provides that the existing common law and equitable remedies still apply. (2) Interpretation: Section 170(3); Section 170(4) the legislation duties shall be interpreted in the same way as common law rules. Makes clear that codification has not radically altered the content of the duties, but merely restated them. The old cases continue to be relevant. a) Rationale: To prevent the danger that a statutory statement of general duties would make the law inflexible and incapable of development by judges to deal with changing commercial circumstances.

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Fiduciary duties: Directors are agents of the company and therefore are subject to fiduciary duties owed by agents. The overriding principle of the equitable fiduciary duties is that fiduciaries must not benefit from their position of trust. Towers v Premier Waste Management (2012) (1) Many of these now codified but the former regime still operates to the extent not expressly provided for in the CA 2006: Section 170(3)

(b) Cumulative: Section 179. States that, except as otherwise provided, more than one of the general duties may apple in any given case. Meaning they must all be addressed separately. 2 Owed to whom (a) CA 2006 duties owed to the company: Section 170(1); the general duties of directors specified from 171-177 are owed by a director to the company and not to the shareholders directly. It is the company that would be the claimant in proceedings in respect of a breach of duty by a director. (i)

What are the company’s interests: Do the shareholders constitute the company’s interests or is a more pluarlist approach adopted by realist theory where by the company’s interests are aligned with those of the shareholders, creditors, employees, and the general public, correct? Not enough for directors to act in the short-term interests of the company alone, regard must be taken of the long-term interests of the company. The basis for this is that the duty is not confined to the existing body of shareholders, even future shareholders must be considered.

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Shareholders bring the claim on behalf of the company: A breach of director duty is therefore a wrong done to the company and the proper claimant in proceedings in respect of the breach is the company itself. Foss v Harbottle. Percival v Wright (1902)

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Owe fiduciary duties to individual shareholders?: Must be “special relationship” OR where directors take it upon themselves to give advice to current shareholders Coleman v Myers 1977; Sharp v Blank 2015

(b) When company in financial difficulty: the position changes and the directors’ duties shift to the protection of the creditors. 3 Resigning directors? A person who ceases to be a director continues to be subject (a) to the duty. Shepherds Investments v W...