LECTURE NOTES COMPANY LAW FEBURARY 2019 DR GEORGINA TSAGAS DIRECTORS' DUTIES I (2 x Lectures 1 st FEB 2019) GENERAL QUESTIONS Who is considered a director? What are directors' duties? Who are the duties owed to? 1. Who is considered a Director? Those who have been properly appointed as directors owe duties to the company as provided for under the CA 2006. a) See provisions on appointment and removal [s 160 CA 2006 public companies] [AoA article 17 private and Article 20 public on appointment; section 168 CA 2006 removal - ordinary resolution] b) Basic distribution of decision-making power in the UK: see default rules of AoA [articles 3-5 of aoa for both private and public] c) How many directors? Private company at least 1 & public at least 2 [s. 154 ca 2006] There are also two other types of directors who have been held at both common law and statute to owe duties to the company: · De Facto directors · Shadow directors. De Facto Directors A de facto director has been defined as a person who acts as a director, even though he has not been properly appointed as a director . See Re Canadian Land Reclaiming and Colonising Co (1880) 14 Ch. D. 660; . and more recent case of Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333. 1
A de facto director owes the same duties to the company as a formally and properly appointed director, i.e. he is subject to both statutory duties and prohibitions, and he also owes fiduciary duties to the company. Shadow Directors A shadow director is a person whose instructions and directions are regularly obeyed by the directors of a company; in other words, the directors of the company are accustomed to act in accordance with his directions (See s 251 CA 2006). Do the general duties of directors apply to shadow directors? . Section 170(5) states that the general duties apply to shadow directors 'to the extent that the corresponding common law rules or equitable principles apply'. . Not very helpful as there is limited authority on the extent to which the common law rules corresponding to statutory general duties apply: see Ultraframe (UK) Ltd v Felding [2005] EWHC 1638. Lewison J. stated that a shadow director who does not directly deal with the company's assets does not owe the company any fiduciary duties; e.g. he has no duty to act in the best interests of the company or to not make a profit from his position. However, certain specific statutory duties and prohibitions are imposed on a shadow director. For example: · a shadow director must declare his interest in any contract or proposed contract with the company at a board meeting . a shadow director must disclose his interests in any shares or debentures of the company But see also Yukong Line Ltd v Rendsburg Investments Corp of Liberia [1998] 1 WLR 294. Distinction between Shadow and De Facto Director The distinction