FAQs
Frequently Asked Questions
Q. The 2003 Companies (Audit & Accounting) Act states that any person who has been an employee of a company in the previous three years may not sit on an Audit Committee. Does this include the Chief Executive or is there a derogation in this case?
A. Please note that IOD Ireland accepts no responsiblity for the legality or appropriateness of the below answer. It is the reader's responsibility to take appropriate legal advice before acting.
Section 42.7 states specifically that any such person is not entitled to sit on an Audit Committee.
Q. Re the first AGM and rotation of directors - how does it work and what if one of the directors is the MD? Can director rotation be assigned by the company then too?
A. Please note that IOD Ireland accepts no responsiblity for the legality or appropriateness of the below answer. It is the reader's responsibility to take appropriate legal advice before acting.
The rotation of directors is determined by the articles of association of a company and may change from company to company. There is a default set in Table A of the Companies Act 1963 which provides by Regulation 92, ie at the first AGM all directors retire and at every subsequent AGM one third resign. If the company has Reg. 110 of Table A in its Articles then the MD need not retire nor need he/she be counted in determining the numbers that should resign. A fuller reply would need sight of the M & A etc. The directors retiring are those longest in office.
Q. What exactly is a shadow director?
A. Please note that IOD Ireland accepts no responsiblity for the legality or appropriateness of the below answer. It is the reader's responsibility to take appropriate legal advice before acting.
A shadow director is a person whose instructions are implemented by the other directors of the company (S.27 of the Companies Act 1990. Excepted from this definition are persons who give professional advice and directions to company directors). Such a person does not become a shadow director if only a single or small group of directors act in accordance with his/her instructions or directions. To be a shadow director he/she must direct and instruct the whole board and the board must act on his/her instructions on more than one occasion, over a period of time, and regularly.
Since the enactment of the 1990 Act, shadow directors have been regarded as the same as company directors. While not a member of the board of directors, a shadow director is significantly involved in the running of the company. From a distance, he/she dictates to someone who is an actual director how he/she wants the company to be managed.
Prior to 1990 the position of shadow director did not carry the same liabilities and obligations as that of the other directors. Now the position carries the same onerous duties across a range of areas including fraudulent or reckless trading. S.150 of the Companies Act 1990 made shadow directors liable to restriction in the event that he/she fails to act in accordance with the highest standards. S.138 of the 1990 Act amended S.297 of the principal Act and imposed liability on a shadow director who is deemed to have behaved in a reckless or fraudulent manner in his role as an officer of the company. As a result of this Act, a shadow director is under an obligation to disclose, in writing to the company, any interest he/she has in contracts, or proposed contracts, with the company. {S.27(3)}
Failure of a shadow director to disclose any involvement he/she may have in business carried out with the company of which he/she is a shadow director makes that person liable to prosecution by the Director of Corporate Enforcement.
It is not possible for a person to evade responsibility and liability by not being formally appointed a director if he/she comes within the definition of shadow director.
In general, it is very unsatisfactory for a board to be in a position where an individual can exercise such authority within the company without being an appointed member of the board, although he/she is, de facto, a member of the board.
Q. Are directors, who are directors in name only, liable in the same way as executive or non-executive directors?
A. Please note that IOD Ireland accepts no responsiblity for the legality or appropriateness of the below answer. It is the reader's responsibility to take appropriate legal advice before acting.
Quote from the Company Directors' Guide (IoDUK) - Even though it is an offence not to comply with the formalities of registration of directors' appointments, directors are recognised by their functions and by the authority and power they exercise rather than by the formalities of registration. It follows that a number of people who have not formally been appointed as directors or have been registered as directors but who carry out the duties of a director and act as a director may have the legal status of directors. In certain circumstances such persons could be held to be holding themselves out as, or even acting as, board directors and may not wholly escape the responsibilities which go with that office. They may not have those responsibilities, but if the company was faced with a legal penalty, such directors might have some difficulty in denying that they are directors within the meaning of the relevant legislation. In addition, such directors may commit the company to contracts beyond their powers. Such contracts are likely to be enforceable against the company.
In short, a non-registered company director might not have the duty of care or the fiduciary duty which applies to a registered director, but might not escape the responsibilities which go with that office if the company were faced with a legal penalty.
Q. Should standing orders be included in the agenda for a board meeting?
A. Please note that IOD Ireland accepts no responsiblity for the legality or appropriateness of the below answer. It is the reader's responsibility to take appropriate legal advice before acting.
"Standing Orders" to my understanding and as confirmed by both Stroud and Murdock's legal dictionaries mean the rules governing the formal manner of proceedings of a body (usually a Parliament but often applied to other statutory or other organisations or societies). These relate to how the meetings themselves are conducted and do not normally refer to actions between meetings. They might however refer to the manner in which matters might be placed before meetings e.g. period of notice, agenda items etc.
Normally (ie under Table of Co. Act '63) directors of a company are given the power to regulate the meetings as they see fit and they as a board may also delegate the power to make decisions to one (eg managing director) or more of their number (eg a committee of directors) and set the terms of reference of such appointees. Directors are given the power to run the business and it is up to them to decide how and when that should happen. Sometimes directors of a company will list "Reserved Board Matters" which will be a list of decisions etc that may only be taken by the full board as such - these might include a maximum level of capital investment or the hiring of an employee at a salary in excess of a pre-determined level.
Q. Can a director bring representation to a board meeting, eg legal representation?
A. Please note that IOD Ireland accepts no responsiblity for the legality or appropriateness of the below answer. It is the reader's responsibility to take appropriate legal advice before acting.
(i) Although directors are generally entitled to get independent legal advice at the expense of the company, I have not been able to find any instance where such legal (or other) representation was present at a board meeting.
(ii) No - In the first instance, not without the permission of the chairman and the board, unless the "representative" is a duly appointed alternate director which normally requires the approval of a majority or all of his fellow directors and whose attendance would prevent the appointing director from attending or visa-versa.
This advice is not a substitute for professional advice and no recourse to IoD will be available.
