Law 7 Corporate Management 1

What are the 2 main groups behind a company?

• The initial subscribers (members)

• The directors

How many directors must a company have?

Private company - at least 1 director

Public company - at least 2 director

How are decisions normally taken?

By proposing a resolution and then voting on it

Which are the organs of the company?

• The members

• The directors

Not all academics accept this but it is the traditional view

What does it mean if a company is healthy?

It means that the company is functionally normally and is solvent

What happens on liquidation?

On liquidation, the rights of creditors need protecting, hence the liquidator takes over the running of the company.

Where are the rights of other stakeholders found?

Their rights come via contract

What do the articles tell us?

Where power lies and hence which organs have powers to decide/act and determine the division of power as between the two

• The ‘who’ (can act) question

Provides how these organs act/decide

• The ‘how’ (they act) question

  • meeting

  • votings

  • how directors will act

Who or what decides the division of power between organs?

The company, this is a matter of articles

Which model articles are often replicated in tailor made articles?

Article 3: Director’s general authority

• “Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may receive all the powers of the company”

Article 4: Shareholder’s reverse power

• 1) “The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action about a specific asset or individual”

• 2) “No such special resolution invalidates anything which the directors have done prior to the passing of the resolution”

Can all decisions be moved to the General Meeting?

Yes, but this could be inefficient

Historically, how many organs were there?

Historically, there was only one organ, the General Meeting.

Directors were at the beck and call of the General Meeting.

Which subsequent model articles shifted the power away from the General meeting to the Board of Directors?

• Table A 1948, article 80

• Table A 1989, article 70

Wording similar to 2008 model articles in that the BoD had managerial powers and GM only reserve power

So these model articles brought 2 organs

What gives rise to the agency cost?

The separation between “ownership” (members) and “control” (directors)

What is the legal response of the agency cost?

Imposition of fiduciary duties on directors and the importance of the so-called ‘market for corporate control’

What are examples of decisions whether to litigate?

• Should we sue supplier who hasn’t delivered the right stuff?

• Should we sue customer who hasn’t paid owed money?

What if directors are in breach of the fiduciary duty to the company?

Prime facie, company can still sue them

Important issue to be aware of

What matters are reserved to members by the Companies Act 2006, regardless of the articles?

1) The alteration of articles

• mandatory and company can’t contract out of it

2) Approval by GM of certain transactions between the company and directors

• Common for director to contract with the company

• Examples:

  • contract of employment

  • director sells something to company

• The GM must monitor transactions where director has an interest, and must improve it

3) Provisions as to capital

• When issuing shares, the GM must approve the issuance of shares, as well as:

  • (s.551) authorisation to allot shares

  • (s.571) dis-application of pre-emption rights

Which transactions must be approved by the General meeting according to the Companies Act 2006?

• Long term (2years+) directors employment contracts (s.188)

  • if not approved, it is void to the extent of the contravention and terminable at any time by reasonable notice.

• Substantial non-cash asset arrangements (s.19)

• Loans, quasi-loans, credit transactions (ss.197-214)

• Golden handshakes

  • Consequences of contravention:

    • directors hold any such golden handshakes on trust and any director that approves it, must indemnify the company

What is a golden handshake?

Payments for loss of office

• Examples:

  • payments in connection with transfer of undertaking

  • payments in connection with share transfer

• Open to abuse

Major responsibilities of the board of directors?

• Provide direction for the organisation

• Establish a policy-based governance system

• Protect the organisation’s assets and members’ investment

Who manages regular day to day operations of the company?

The executive team

Who can’t be a company director?

• Company auditor

• Undischarged bankrupt

• A person who has been disqualified as a company director by another company

After appointment of directors, in how many days must the secretary or the present director inform Companies House?

14 days

What is the minimum age to be a director?

16

How must a resolution to remove a director be passed?

An ordinary resolution

• cannot be passed by a written resolution

• a proposed resolution must be sent to all eligible members

• must allow them 28 days to accept