distribution of company's powers

Distribution of company’s

powers

O Company is an artificial person, so how does it exercise its powers?

O Table A, Article 80 stipulates that the business of the company shall be managed by the Directors.

O The authority to exercise the company’s powers are not delegated to individual directors, but to directors collectively as a Board

Exercise of Director’s power

O There are no provisions that stipule the manner in which directors will exercise their powers

O Actual powers can be stipulated in Articles or Contract agreement between company and Director (breach of which will entitle Director to remedy).

O ‘Delgatus non potest delegare’ rule: literally translated, a delegate cannot delegate. Denotes principle that a director may not appoint one of the other directors to position of managing director without authority in the articles. -Ellis v Bailey & Co(East Africa) Ltd

For a meeting to be valid:

O Proper authority.O Proper notice.O Quorum must be present.O Chairman must preside.O Minutes of the meeting must be

kept.

Board Meetings

O Articles of Association vest powers in Board Meeting, General meeting or Directors cannot interfere with such powers(effect of Articles is contractual)

O Articles 98 and 99 requirement for board meetings

O Because powers of a company are vested in the Board, Companies must hold board meetings frequently to exercise them.

O Notice of Board meetings must be given to Directors.

O Notice of Board meetings must be given to all Directors whose whereabouts are known. Article 98 states that, ‘it shall not be necessary to give notice of a meeting of directors to any director for the time being absent from Kenya.’

O Effect of failing to give notice of a board meeting to a director is that the meeting is rendered null

Re: Portuguese Consolidated Copper Mines LtdRe: Homer District Consolidated Gold Mines.

O Note: Failure to give proper notice, does not invalidate the meeting

Browne v la Trinidad

-Notice-

Valid or invalid Notice?

O The question of whether or not it is proper or invalid notice will depend on circumstances of which notice was given. It has to be REASONABLE taking into consideration the circumstances of the director receiving notice.

O ILLUSTRATION: There were only two directors in the company. One of the Directors was also the Chairman of the board. The company’s business came to a standstill because the other Director had refused to attend the board meeting. The ‘Chairman’, desperate for this meeting to take place, waited for the other Director at a train station and declared that as the chairman of the meeting, he had used his casting vote to appoint Directors

O Issue: Was sufficient notice given?

O Barron v Porter: it was held that proper notice of the meeting had not been given consequently the meeting at the railway station was null and void.

O In the Notice of the meeting, it is not necessary to state the nature of the business to be transacted.

Quorum O -Article 99 sets the minimum quorum

for general meetings if not specified by the Articles of Association. It provides that ‘the quorum necessary…unless so fixed shall be two’

O Where the quorum falls below that set either by the Art’s or statute, Art 100 reads…

O Disinterested quorum rule: Art 84(2) states that a director shall not vote in respect of any contract or agreement in which he is interested.

O If he does vote, his vote shall not be counted and he will not count as part of the quorum.

O An ‘interested’ director does not have to withdraw from the meeting according to Art 84(1)

O N.B: The rule does not apply to General meeting, therefore a director who falls under the rule and is unable to vote at a board meeting can still vote on the same matter at a general meeting.

The ChairmanO Art 101 states that ‘the directors may elect a chairman

of their meetings…’O If there is no elected Chairman, the directors present at

the meetings may choose one of them to step in.

‘Voting’O Allocation of votes is usually done by the AoA’s.O The Common Law ‘one vote’ rule will apply in absence

of such allocation of votesO Issues arising at a meeting will be decided by majority

of votes.O In cases of a deadlock, the Chairman is given a casting

vote to resolve the issue.

O Not specified by any provision. Ogola, defines his role as ‘Public relations exercise’

O When he presides at a board meetings, he must ensure that;

1. Functions of board are carried out as agreed at previous meeting2. The meeting is conducted in a formal, ‘businesslike’ manner3. Every director is given an opportunity to participate in the discussions

O n.b.: The chairman of the board also presides at general meetings

Powers of The Chairman

MinutesO Refers to a record of the business transacted at a

meeting which is prepared and retained by the company.

O Section 145(2) CA provides for every company to produce minutes and keep record of them

O Section 145(2) stipulates that signature by the chairman either at the meeting were proceedings were had or by the chairman of the next meeting, shall be evidence of such proceedings.

O Members have no right to inspect minutes. R v Merchant Tailors Co (1831)

Managing DirectorO Article 107, Table A empowers the

directors to appoint a managing director – this is for the period that they think fit

O Appointment by directors de facto is considered null and void

Powers of a managing directors

O Article 109, the directors describe the scope of power of a managing director. These are usually the powers which the directors exercise. This is obviously with restrictions and conditions.

O What do you think about, ‘ either collaterally with or to the exclusion of their own powers’

Remuneration O Article 108 provides that ‘a managing

director shall receive such remuneration ( whether by way of salary, commission or participation in profits, or partly in one way and partly in another) as the directors may determine.

O Craven- Ellis v Cannon Ltd – unless the articles of association state the otherwise, then they are entitled to remuneration on quantum meruit basis in respect of services rendered to the company.

Removal O Articles 107- the appointment ‘ shall be automatically

determined if he ceases from any cause to be a directorO Southern Foundries Ltd v Shirlaw- Is the removal by the

company would have been breach by the company, the removal under the altered articles by the Federated Foundries Ltd was the breach by the company?

O if an appointment constituted a service agreement with the company for damages if the removal from directorship derogated from the terms of the agreement and constituted a breach of it, such as being removed before the period fixed in the service agreement expired.

O Read v Astoria Garage Ltd- if appointment does not constitute a service contract the managing director would have no recourse as to premature termination from a service contract

Company secretary O “secretary” means any person

appointed to perform the duties of the secretary of the company.

O Section 178- every company must have a company secretary but a sole director cannot be a secretary as well.

O Table A, Article 110 provides that a company secretary is to appointed by the directors under terms and conditions that they deem fit and may also be dismissed be them.

O Section 179 provides that a sole corporation cannot be a secretary if the sole director is also the sole director of the company

QualificationsO Section 178 (1) provides that a

company secretary shall be qualified as prescribed in section 20 of the Certified Public Secretaries Act 1988

This may change from time to time if the Registration Board approves certain qualifications that they deem sufficient, and may also do the vice versa by notification In the Gazette.

Powers and DutiesO Table A, Article 113- every

instrument to which the company’s seal is affixed shall be COUNTERSIGNED by the company secretary ( unless countersigned by a second director or some other person appointed by the directors for the purpose).

The schedule of dutiesO Issuing notices of general meetings to the members

of the company after being instructed by the board to do so.

O Taking minutes of the board meetings and general meetings.

O Issuing notices of board meetings to the members to the members of the board on the requisition of a director

O Countersigning documents to which a company’s seal is affixed

O Making the statutory returns of the companyO Keeping the company’s statutory books and registers

Legal status by Lord Esher

O ‘ a secretary is a mere servant; his position is to do what he is told, and no person can assume that statements made by him are necessarily to be accepted as trustworthy without further inquiry. ‘ – Barnet, Hoares 7 Co v South London Tramsways Co

Lord DenningO ‘… he is an officer of the company secretary

with executive duties and responsibilities… he regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day to day running of the company business. So much so that he may be regarded as HELD OUT as having authority to do such things on behalf of the company. He is certainly entitled to sign connected to administrative side of the company’s affairs, such as employing staff, and ordering cars and so forth.’

Liability O As an ‘officer’ of the company, the

secretary owes fiduciary duties to the company which are similar to those of the director.

O He is liable , in that capacity, under the sections of the Act which impose ‘criminal liability’ on ‘officers’ of the company who fail to comply with the requirements of any of those sections

Directors vis a vis Members in General

Meeting

O Who should the business of the company?

Table A, Art. 80 provides that the business of the company shall be managed by the directors.

O What is the rule in the cases of Barron v Potter and Foster v Foster?

Cont… It was established that if the board is

unable to function because it is paralysed by personal feuds between the directors, the powers normally reserved to it by the articles will revert to the members in General meeting so that the company's operations may continue rather than grind to halt.

Cont...O Exceptionally the court may exercise

the power of the board if that becomes necessary as Re: Copal Varnish Co. Ltd where it approved transfer of shares.

O The court can also appoint receiver of the company's business to manage it until competed board can be instituted.

Cont...O In case of lack of quorum, Art.100 of

table A has empowered the continuing directors or director to act for the purpose of increasing the number of directors to the quorum number or summoning a general meeting of the company to appoint additional directors.

Unauthorized Contracts

O To what extent is the company bound by contract entered by one of its officers or board of directors in which they exceeded the power conferred to them by the articles of association?

O The rule in Royal British Bank v Turquand?

The company will be bound by the transaction even if the prescribed procedure was in fact not followed or complied with.

What does the Turquand’s Rule state?

a. A person dealing with a company is bound to read the relevant restrictive provisions of the Companies Act, the company’s memorandum of association and the company’s articles of association. If he does not do so, he will be deemed to have read them and as a consequence to have been aware of their provisions.

Cont...b. In so far as the articles provide that a transaction

may be effected by some internal procedure, the person dealing with the company (outsider) may assume that the procedure has been duly complied with.

NB; Ordinary resolutions which are passed by the company in general meetings are not registerable at the Companies Registry pursuant to s.143 or any other section of the Companies Act and therefore would not be possible for an outsider to ascertain whether it had in fact been passed.

CasesO Mahoney v East Holyford Mining

Co.Facts..Held: That the bank was not bound to

enquire whether the directors and the secretary had been properly appointed and could rely on the rule in Turquand’s case.

The resolutions appointing them are not registered under s.143.

Cont... O Freeman & Lockyer v Buckhurst Park

Properties Ltd.Facts:....Held: the company was bound by the contract and liable for the

plaintiffs’ fees. The act of engaging architects was within the apparent authority of a managing director of a property company and the plaintiffs were not obliged to enquire whether the person they were dealing with was properly appointed. It was sufficient that under the articles there was a power to appoint a managing director , and that the board of directors had allowed one of them (Kapoor) to act as such.

Exceptions a. In case where the person suing the company

is in fact an insider such as director of the company. Howard v Patent Ivory Co.

b. In case of company’s articles prescribing a special resolution which had not been passed. Irvine v Union Bank of Australia.

c. In case where there were special circumstances which should have put the outsider on inquiry. Underwood Ltd v Bank of Liverpool; Ligget v Barclays Bank.

Exceptions cont...d. In case where the transaction is ultra

vires the company. The company's agent cannot have authority to transact a business which the company lacks capacity to transact.

e. In case where the transaction relates to the issue of forged document, such as forged share certificate issued by secretary without the of the board. Ruben v Great Fingall Consolidated Ltd.