Director Roles & Responsibilities: De Jure, De Facto, Shadow, Executive, Non-Executive, Study notes of Law

Download Director Roles & Responsibilities: De Jure, De Facto, Shadow, Executive, Non-Executive and more Study notes Law in PDF only on Docsity! Chapter 7 Classifications of Director Here, basic guidance to the end-of-chapter questions will be provided. 1. Define the following terms:  de jure director;  de facto director;  shadow director;  executive director;  non-executive director;  alternate director;  nominee director. Term Definition de jure director A person who has been validly appointed as a director de facto director A person who acts as a director, but has not been validly appointed as a director shadow director A person in accordance with whose direction or instructions the directors of a company are accustomed to act (CA 2006, s 251(1)) executive director A director, usually full-time and operating under a contract of service, who engages in the day-to-day management of a company non-executive director A director, usually part-time and operating under a letter of appointment, who provides independent objective guidance to the executives and holds them to account alternate director A person appointed to act as director in place of a director (e.g. where a director cannot attend a board meeting, or is incapacitated) nominee director A person appointed as director by, or to safeguard the interests of, a person (e.g. a major shareholder or creditor) 2. State whether each of the following statements is true or false and, if false, explain why:  a person who is not called a ‘director’ will not be a director;  the chairman is the head of the company;  a de jure director is a director who has been validly appointed;  a person cannot be a de facto director and a shadow director;  a NED who has close family ties with an executive director will not be regarded as independent;  every company has the right to appoint one of its directors as CEO.  A person who is not called a ‘director’ will not be a director: This statement is false. A person may be a director, even if they are not called a director.  The chairman is the head of the company: This statement is false. The chairman is the head of the board. The CEO is the head of the company.  A de jure director is a director who has been validly appointed: This statement is true.  A person cannot be a de facto director and a shadow director: This statement is false. It is possible for a person to be both a de facto director and a shadow director.  A NED who has close family ties with an executive director will not be regarded as independent: This statement is false. Such a NED may be independent, but if the NED has been identified as independent by the board, the annual report must explain why the board considers the NED to be independent.  Every company has the right to appoint one of its directors as CEO: This statement is false. A company can only appoint a person as CEO if the articles provide for this. 3. ‘The law relating to shadow directors is unclear, and the courts have not drawn a clear distinction between shadow directors and de facto directors.’ Discuss this quote. Introduction  Every essay should begin with a succinct introduction that demonstrates that you understand the essay question. Briefly explain what the essay is about and set out what the essay will discuss and how it will be structured.  This essay requires you to discuss the law relating to shadow directors, and the extent to which a shadow director and a de facto director are clearly distinguished. The law relating to shadow directors  Egin by looking at what a shadow director is and discussing the definition found in s 251 of the CA 2006.  Point out that whether a person is a shadow director is highly dependent on the facts of the case, meaning that applying precedent can be difficult. Give examples of the types of person who have been held to be capable of being shadow director.  Discuss the key case law guidance (e.g. Secretary of State for Trade and Industry v Deverell; Secretary of State for BIS v Chohan).  You may also want to mention the fact that, historically, the courts have struggled to set out what fiduciary duties a shadow director is subject to. This has, to a degree, been remedied by s 170(5) of the CA 2006, which provides that the general duties apply to a shadow director where and to the extent they are capable of so applying. Distinguishing between shadow directors and de facto directors  Historically, the courts held that a person could not be both a shadow director and a de facto director, with the key rationale for this being set out by Millet J in Re Hydrodam (Corby) Ltd.  However, beginning with Secretary of State for Trade and Industry v Deverell, we started to see the courts blurring the line between a shadow director and a de facto director. Eventually, in Revenue and Customs Commissioner v Holland, the court admitted that the distinction between a shadow director and a de facto director was ‘impossible to maintain.’