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directors powers

directors powers

Postby jantra » Mon Nov 21, 2016 3:13 pm

if there exists a board of 4 directors and 2 of the directors decided to take on debt in the company name that 2 other directors objected to, what are the possible legal implications? Can the 2 directors act in this way even though the board has not reached a decision?
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Re: directors powers

Postby atticus » Mon Nov 21, 2016 7:08 pm

1. As regards 3rd prties, contracts signed by 2 directors of a company are binding and enforceable.

2. Within the company the question may arise whether the debt is ultra vires or of breaches of fiduciary duties.

3. Questions may also arise of possible breaches of directors' employment contracts or shareholders agreements.

4. Shareholders may ratify directors' actions. Do the numbers stack up that way?
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Re: directors powers

Postby jantra » Tue Nov 22, 2016 11:16 am

atticus wrote:1. As regards 3rd prties, contracts signed by 2 directors of a company are binding and enforceable.

this doe surprise me...
atticus wrote:2. Within the company the question may arise whether the debt is ultra vires or of breaches of fiduciary duties.

this is my thinking. does this mean the director can be held personally liable?
atticus wrote:3. Questions may also arise of possible breaches of directors' employment contracts or shareholders agreements.

again, my thinking. in which case the employment contract could be terminated
atticus wrote:4. Shareholders may ratify directors' actions. Do the numbers stack up that way?

maybe, I've not spoken to all the shareholders
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Re: directors powers

Postby atticus » Tue Nov 22, 2016 11:40 am

1. s40 Companies Act 2006. See also s44.
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Re: directors powers

Postby jantra » Tue Nov 22, 2016 12:08 pm

that's a good start.

if the shareholders agreed that the directors only had an authority up to say £5000 and the board up to £25000 before seeking shareholder approval, would this mean the directors acted ultra vires?
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Re: directors powers

Postby atticus » Tue Nov 22, 2016 2:33 pm

No.

We have already discussed the difference between a company's articles of association and a shareholder's agreement.
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Re: directors powers

Postby dls » Wed Nov 23, 2016 6:01 am

The doctrine of Ultra Vires works as to testing the action of the company by an outsider as against the company's powers as set out in the Company's (former) memorandum of association. It does not really apply on disputes within the company. The test of what actions are open to the directors is different.

For some years now, UK companies have had their powers (vires) extended to allow anything unless explicitly restricted by the Articles. Since the vires are now effectively universal, the doctrine has little place in company law.

if the shareholders agreed that the directors only had an authority up to say £5000 and the board up to £25000 before seeking shareholder approval, would this mean the directors acted ultra vires?


No. That does not mean that the actions cannot be challenged, but not by the test of Ultra Vires. Ultra vires, if applied made an action of the company void entirely. Such n action by the directors remains effective as against the company in favour of outsiders. The shareholders may have an action against the directors directly, but the company must live with the contract.
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Re: directors powers

Postby jantra » Wed Nov 23, 2016 11:07 am

@DLS
I agree, no third party should (or could) be impinged by the actions of a director, however that does not mean the director has acted within their powers. This thread is not about voiding third party contracts, but actions taken against directors who don't play by the rules.
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Re: directors powers

Postby atticus » Wed Nov 23, 2016 11:10 am

Has the company (or any shareholder) suffered loss?

Is there any suggestion of self-dealing by these directors?
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Re: directors powers

Postby jantra » Wed Nov 23, 2016 11:40 am

it is more about reckless behaviour e.g. non payments of taxes to direct funds towards projects the company/group cannot afford. As a director I have a legal responsibility and want to know what I can do to restrict other directors actions or to at least hold them to account for their actions.
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