Corporate Governance and Compliance: Directors

Comprehensive practice flashcards covering the SQE1 syllabus for Corporate Governance and Compliance, focusing on the rights, duties, and powers of company directors under the Companies Act 2006 and the Insolvency Act 1986.

According to s 154 CA 2006, how many directors must a private company and a public company have at minimum?

A private company must have at least $1$ director, and a public company must have at least $2$ directors.

Under s 155(1) and s 157 CA 2006, what are the requirements regarding a natural person serving as a director?

Every company must have at least one director who is a natural person and who is $16$ years of age or older.

What is the primary source of a director's power to run a company day-to-day according to the Model Articles?

The power is contained in MA 3.

How do directors exercise their powers under MA 7 and MA 8 without holding a formal board meeting?

They can exercise powers unanimously as long as they indicate to each other that they share a common view, such as through a resolution in writing or an informal text message.

What is the difference between an executive director and a non-executive director (NED)?

Executive directors have an employment contract (service contract) and job title (e.g., finance director), while NEDs are registered directors who receive fees for attending meetings but do not have service agreements or salaries.

Under MA 13, what is the specific additional power granted to the chairperson of the board?

The chair has a casting vote, which can be used to pass a resolution by a simple majority if a vote is tied.

What is the definition of a shadow director according to s 251(1) CA 2006?

A person in accordance with whose directions or instructions the directors of the company are accustomed to act, though they have not been formally appointed.

What is the standard quorum for a directors' meeting under MA 11?

The quorum is $2$, although MA 7(2) allows a sole director to make valid company decisions without a meeting.

Under s 167(1)(a) CA 2006, within how many days must a company notify Companies House of a new director's appointment?

$14$ days.

What is the difference between actual authority and apparent authority for directors?

Actual authority arises from consent by other directors (express or implied); apparent authority arises when the company represents to a third party that the director has authority, estopping the company from denying it.

Under s 188 CA 2006, what type of director's service contract requires approval by an ordinary resolution of the shareholders?

A service contract with a guaranteed term of more than $2$ years.

What is the procedure for shareholders to remove a director under s 168 CA 2006?

They must pass an ordinary resolution at a general meeting, which requires special notice.

Under s 312 CA 2006, what does 'special notice' mean for a resolution to remove a director?

Notice of the intention to pass the resolution must be given to the company at least $28$ days before the general meeting.

To whom are directors' duties owed under the CA 2006?

The duties are owed to the company itself, not to the shareholders or creditors.

What are the six factors directors must consider under the s 172 CA 2006 duty to promote the success of the company?

(a) Long-term consequences, (b) employee interests, (c) business relationships with suppliers/customers, (d) community and environment impact, (e) reputation for high standards, and (f) fairness between members.

How is the duty to exercise reasonable care, skill and diligence tested under s 174 CA 2006?

It uses a two-part test: (1) an objective standard based on the expected knowledge/skill for the role, and (2) a subjective standard based on the specific director's actual knowledge/skill/experience.

What is the specific requirement for a director with an interest in a proposed transaction according to s 177 CA 2006?

The director must declare the nature and extent of that interest to the other directors before the company enters into the transaction.

How does the legal consequence of failing to declare an interest under s 182 (existing transactions) differ from s 177 (proposed transactions)?

Failure to comply with s 182 is a criminal offence punishable by a fine, whereas failure to comply with s 177 is a civil matter.

Under s 214 IA 1986, what must be proven for a director to be liable for wrongful trading?

That the company went into insolvent liquidation/administration and, before winding up, the director knew or ought to have concluded there was no reasonable prospect the company would avoid it.

What defines a 'substantial property transaction' (SPT) under ss 190–191 CA 2006?

A transaction where a director or connected person buys/sells a non-cash asset worth over $£100,000$ or worth more than $£5,000$ and more than $10\%$ of the company's net asset value.

What shareholding threshold defines a company as being 'connected' to a director under s 254 CA 2006?

The director and connected persons must own at least $20\%$ of the shares or control more than $20\%$ of the voting power.

What is the general rule and shareholder approval requirement for loans to directors under s 197 CA 2006?

A company may not make a loan to a director unless it has been approved by the shareholders by ordinary resolution.

What is the maximum period of disqualification for a director under the CDDA 1986?

The court may disqualify a person for between $2$ and $15$ years.