DIRECTORS
The management of companies is entrusted to directors
Section 3 of the Companies Act 2015 provides that a director is any person occupying the position of a director of the body by whatever name called.
APPOINTMENT OF DIRECTORS
Section 128 provides that a public company should have at least two directors, while a private company must have at least one director.
The articles typically provide that the first directors will be appointed by the subscribers to the memorandum and articles and that thereafter directors will be elected by the members in general meeting.
Articles should also provide that a proportion, such as one-third, should retire every year but be eligible for re-election.
S.132A motion for appointment of 2 or more persons as directors during a general meeting can only be moved if a prior resolution that it be moved has been agreed to by the meeting without any vote being cast against it.
s. 132(3).in public companies the board of directors cannot normally be filled by a single resolution appointing a number of candidates en bloc, unless a resolution for a single vote has first been passed without objection; 1 of the Drs must be a natural person.
s. 129. The general meeting is required to act for proper purposes in appointing a director.
Theseus Exploration NL v. Mining and Associated Industries Limited [1973] Qd R 81.
The court issued an interim injunction to prevent members of the company electing certain persons as directors, because there was sufficient evidence that those persons intended to use the company’s assets solely for the benefit of the majority member
Quoted companies &Public interest companies must establish and appoint a board nomination committee in which at least 2/3 of its members are shareholders of the company and together represent 2/3 of the share capital of the company.
section 133(4)A public interest company :a company that has the responsibility of receiving, handling or spending public funds.
s. 133(2).A person who is employed by a quoted company is not eligible to be appointed as a member of the board nomination committee:
ELIGIBILITY FOR APPOINMENT AS DIRECTORS
● Over 18yrs (adult).
● s. 131. Must not be an undischarged bankrupt or a person who has made an arrangement or composition with his creditor.
● Must not have been a director of an insolvent company. The Insolvency Act prevents “ phoenix syndrome.”
● Must be of sound mind
VACATION OF OFFICE OF A DIRECTOR.
a. RETIREMENT
section 183
b. DISQUALIFICATION
A director also vacates offices on being disqualified, and the articles usually provide for the circumstances warranting vacation by disqualification.
● On age limit s.183
● becomes bankrupt or makes any arrangement composition with his creditor generally;
● becomes prohibited from being a director by order under section 189;
● becomes of unsound mind;
● resigns his office by notice in writing to the company;
● is absent without permission for more than six months from meetings of directors held during that period.
c. REMOVAL
Section 140(1) provides that a company may remove a director before the end of his period of office by ordinary resolution, despite anything to the contrary in any agreement between the company and the director.
If there is a contract between the director and the company, then dismissal from office under section 140 may be a breach of that contract by the company where the contract is for a fixed period and it has not yet expired or if the director is entitled to a period notice.
Special notice must be given of any resolution to remove the director or to appoint another person to replace the director at the meeting at which the removal takes place.
The new director’s tenure starts running therefrom: for purposes of determining his retirement.
s. 133(4)If the vacancy is not filled at the meeting at which the director is removed, it will be filled as a casual vacancy.
s. 133(5).The person removed as director is still under a duty to avoid conflicts of interest with respect to exploitation of any property, information or opportunity that he became aware of while a director.
Such a person shouldnot accept benefits from third parties with regard to things done or committed to be done by that person before ceasing to be a director.
The Act allows director’s shares to be given special voting rights. See Bushell v. Faith [1970] AC 1099,
Facts
● Bushell Court (Southgate) Ltd had three shareholders, a brother and two sisters, each holding 100 shares.
● The two sisters purported to remove their brother as a director by casting 200 votes on a resolution against his 100.
The House of Lords held that the brother had not been validly removed as a director because the articles stated that any shares held by that director shall on a poll in respect of such resolution carry the right to three votes per share.
VALIDITY OF ACTS OF DIRECTORS
Ss. 191-193the acts of a director are valid even if;
● S.134(1) it is later discovered that the resolution for their appointment was defective,
● the director was disqualified or ceased to hold office of the director.
● was not entitled to vote on the matter
● The Act vests power on the articles to distribute power between the board and the general meetings.
● no regulation made by the company in general meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made.
● if the directors act within the powers given to them by such article, they are not bound to obey resolutions passed by the shareholders at a general meeting.
● such resolutions cannot override a decision of the directors or control the exercise of their powers in the future. See Bamford v. Bamford 1970 ch 212 at 220 “ To do so, they require special resolution”….Salmon v. Quin & Axtens Ltd.
● The directors’ powers can be altered for the future by an alteration of the articles in the proper way.
● The articles cannot be altered with retrospective effect
● Where the directors are unable to exercise their power because of ; lack of quorum or a deadlock on the board, the company may exercise that power in a general meeting. See Barron v. Potter,
● Where company has no directors, the company may exercise that power in a general meeting Alexander Ward & Co Ltd v. Samyang Navigation Co. Ltd.
● If the directors improperly refuse to exercise a power to initiate an action in the name of the company, a minority shareholders’ action may be brought by way of an exception to the rule in Foss v. Harbottle: Cook v. Deeks [1916]1 A.C. 554.
● The directors cannot delegate their powers unless empowered to do so by the articles
REMUNERATION OF DIRECTORS
● Directors are not employees of the company and accordingly have no claim to payment of their services unless there is provision for payment in the articles.
● directors hold executive positions in the company such as managing director in which event they are servants of the company and receive a fixed salary.
● Act requires that the accounts laid before the company in general meeting must show certain particulars of directors salaries, pensions etc.
● S.189 It is unlawful for a company to make to a director any payment by way of compensation for loss of office, or in connection with retirement unless particulars of the proposed payment including the amount are disclosed to the members and the proposal is approved by the company. See Re Duomatic Ltd.
LOANS TO DIRECTORS
● Section 191 renders illegal loans by a company to any person who is its director or director of its holding company, nor may the company guarantee or provide security in connection with.
Exception :
i. Private companies.
ii. Subsidiaries, the director of which is its holding company.
iii. Loans made with the approval of the company in a general meeting to provide the director with funds to meet expenditure for the benefit of the company, and
iv. where the company’s business includes the lending of money or the giving of guarantee in connection with loans made to other persons.
POSITION OF DIRECTORS
● Directors are officers of a company and sometimes also employees
● owe strict fiduciary obligations to the company requiring a high standard of honesty and loyalty.
● They must also exercise their powers for the benefit of the company.
● They control the company’s property and must apply it for the specified purposes of the company and a misapplication of it is a breach of duty.
● standards of competence.
● are not the agents of the shareholders in running the business of the company.
● trustees of the company’s money and property, and of the powers entrusted to them Great Northern Railway v. Turner (1872)L.R. 8 Ch. 149 at 152.
DIRECTORS AS FIDUCIARIES
● Directors are strictu sensu not trustees since the company’s money and property are not vested in them but in the company
● their functions are the same as those of trustees.
● their duties of care are not as onerous as those of trustees
DIRECTORS AS AGENTS
● “Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. In Mills v. Mills (1936)60 C.L.R. 150 Dixon J.
● Like other agents directors incur no personal liability on contracts made by them on behalf of the company, within the scope of their authority.
● Are liable if they exceed the power given to them by the memorandum and articles.
● Their actions may however be ratified by the company in general meeting if they act within the powers in the memorandum and articles.
● directors may be specifically appointed agents for the shareholders to negotiate a sale of the company’s shares, the shareholders in this case are the principle and are liable for their fraud. See Breiss v. Woolley
● If directors hold themselves out as agents for the shareholders they must disclose any profit made by them to the shareholders. Allen v. Hyatt (1914)30 T.L.R. 444,
DUTIES OF DIRECTORS
Section 140 provides that the general duties are owed by a director of a company to the company.
i. S.142 Duty of directors to act within powers ie
● act in accordance with the constitution of the company.
● only exercise powers for the purposes for which they are conferred. See Re Smith and Fawcett Ltd [1942] CH 304 (CA),
ii. S.143 Duty of director to promote the success of the company. A director should act in good faith, in a manner that would promote the success of the company for the benefit of its members as a whole.
Shall have regard to :
● the long term consequences of any decision of the directors;
● the interests of the employees of .the company
● the need to. foster the company's business relationships with suppliers, customers and others;
● the impact of the operations of the company on the community and the environment.
● the desirability of the company to maintain a reputation for high standards of . business conduct.
● the need to act fairly as between the directors and the members of the company
iii. S.144. Duty of director to exercise independent judgment. This duty is not infringed by the director acting in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors or where the director acts in a way authorized by the constitution of the company.
iv. S.145 Duty of director to exercise reasonable care, skill, and diligence
v. S.146 Duty of director to avoid conflicts of interest. director of a company shall avoid a situation in which the director has, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company.
vi. S.147 Duty not to accept benefits from third parties if the benefit is attributable to the fact that the person is a director of the company or to any act or omission to the person as a director.
✓ S.147(3) Where that gift does not amount to a conflict of interest, it is not an infringement under S.147(1)
✓ Conflict of interest includes conflict of duties.
This section draws a boundary on the duties of directors to shareholders, creditors, employees
directors do not generally owe their duties to anyone other than the Company, nor fiduciary duties to individual members. See Percival v. Wright [1902]2 Ch 421
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