#5301 - Directors - Company Law

Directors

Model Articles Article 3

• The directors are subject to the articles, responsible for the running of the company and may exercise all of the company’s powers.

Collectively the directors make up the board of directors. However under Article 5 of the Model Articles the board may delegate its collective powers to an individual, either generally or in relation to specific matters.

Part 10 of the Companies Act contains statutory rules regarding directors.

Model Articles Articles 17 for Ltds or Article 20 for plcs, a director may be appointed by an ordinary resolution or by a board resolution.

A company may remove a director by passing an ordinary resolution. (Companies Act s.168)

Defective appointments

The acts of a person acting as director are valid notwithstanding that the director was not validly appointed, unable to vote, disqualified or had otherwise seemed to be a director. (Companies Act s.161)

Morris v. Kanssen

• Lord Simmons said there was a vital distinction between a prepared director who has been appointed but there is a defeat in their directorship and a purported director in respect of whom there has never been any appointment. In the first instance there should be the ability for third parties to rely on the actions, whereas the second instance, there has been no appointment at all (and so Companies Act s.161 will not apply).

Directors Service Contracts

A director may not have a service contract for more than 2 years unless it has been authorised by ordinary resolution of the members. (Companies Act s.188)

Remuneration of directors

Directors are not entitled to any remuneration under Company Law. The board has the ability to set recommendation for directors.

Guinness v. Sanders

1. The board appointed a committee to handle a takeover bid, and as part of this the committee paid one of the directors on the committee 5 million special remuneration for his work.

2. House of Lords rejected the validity of this, only the board could make special remuneration awards. This was outside the scope of the authority which had been delegated to the committee so was invalid. Because there is no general right to remuneration this means the entire amount had to be returned.

Re Halt Grange

1. The amount of remuneration must be for genuine service to the company, when an ex director ceased to work for the company then she was no longer entitled to receive payments and had to return then to the liquidator.

2. But there was no problem with the director who had remained in office continuing to receive payment, however such payment could not be more that the market value of his services. On the facts he had received more than the market value and so had to repay the difference between the amount received and the true (lower) market value.

Removal of directors

Removal by the members

Companies Act s.168 gives members the power to remove directors by ordinary resolution not withstanding any other agreement.

Bushell v. Faith

1. Special voting rights whereby a director had extra votes per share on any vote for his removal.

2. House of Lords held this was fine...