Company Law — Lecture 11 Types of directors Board composition in New Zealand’s largest companies Appointment, resignation, removal and disqualification of directors How boards operate in practice Commercial Applications of Company Law in New Zealand - Edition 4: Teacher's Guide

Types of directors Companies must have at least one director Executive directors chief executive officer/managing director others (eg finance director) Non-executive directors definition of “independence” Chairperson Governing director Nominee director Alternate director De facto director – s126(1)(a)

Types of directors (cont) Shadow director – section 126(1) Standard Chartered Bank of Australia v Antico Kuwait Asia Bank case Dairy Containers Ltd v NZI Bank (nb – amendment to Companies Act – May 2015 – s126(b)(1) Professional advisers Shareholders as directors – section 126(2)(3)

How appointed? – section 153 New companies directors named in application for incorporation Existing companies by ordinary resolution each director to be voted on individually

Appointment of directors - qualification Who can be appointed? a natural person someone who consents minimum of 18 years old not disqualified Section 151(1) Disqualified – section 151(2) Commercial Management Ltd v Registrar of Companies [1987] 1 NZLR 744 (CA) – meaning of Natural Person

Disqualification of directors – section 151(2) Under the Companies Act 1955 offences court order prohibition by Registrar of Companies Under the Companies Act 1993 offences (s 382) court disqualification (s 383) by Registrar of Companies (s 385)

Automatic disqualification – section 151(2) Bankruptcy Mental incapacity

Resignation and removal of directors Removal by shareholders s 156 of the Companies Act 1993 by ordinary resolution of shareholders meeting notice to specify purpose check constitution for alternative procedure Removal by court s 174(2) on application of shareholder oppressive, unfairly discriminatory or unfairly prejudicial conduct

Director ceasing to hold office Section 157(1) The office of director of a company is vacated if the person holding that office— (a) resigns in accordance with subsection (2); or (b)is removed from office in accordance with this Act or the constitution of the company; or (c) becomes disqualified from being a director pursuant to section 151; or (d) dies; or (e) otherwise vacates office in accordance with the constitution of the company.

Director ceasing to hold office Section 157(2) A director of a company may resign office by signing a written notice of resignation and delivering it to the address for service of the company. The notice is effective when it is received at that address or at a later time specified in the notice.

Proceedings of the board – section 160 Procedure for holding and calling board meetings is governed by the Schedule 3 of the Companies Act 1993, subject to any alteration to this procedure in the company’s constitution

Proceedings of the board – section 160 schedule 3, Companies Act 1993 check the company’s constitution Who can call a meeting? – sch 3 cl 2 Notice requirements – sch 3 cl 2(2) Quorum – sch 3 cl4(2) Decision-making – sch 3 cl 5(3) Use of technology sch 3 cl3(b)

Delegation of Board Powers Section 130(1) - Subject to any restrictions in the constitution of the company, the board of a company may delegate to a committee of directors, a director or employee of the company, or any other person, any 1 or more of its powers other than its powers under any of the sections of this Act set out in Schedule 2. Section 130(2) – director is responsible for the exercise of the power by the delegate as if the power had been exercised by the board, unless the board— (a)believed on reasonable grounds at all times before the exercise of the power that the delegate would exercise the power in conformity with the duties imposed on directors of the company by this Act and the company’s constitution; and (b)has monitored, by means of reasonable methods properly used, the exercise of the power by the delegate.

Delegation of Board Powers A person to whom a power has been directly delegated and who has consented, acquiesced or exercised that power will be “deemed” to be a director of the company for the purposes of certain provisions in the Companies Act 1993, including the duties of registered directors in respect of the exercise of that power – s126(1)(c)

Delegation of board powers Section 130 delegation to committee of directors single director Employees Audit Committee Remuneration Committee Delegation to CEO

Delegation of board powers R v Murray Wright Ltd [1969] NZLR 1069 (SC) Mason v Lewis [2006] 3 NZLR 225 (CA) - the Court held that directors were nevertheless required to reach their own informed view, and that directors had to take reasonable steps to guide and monitor the management of the company. The defence under s 130(2) had not been made out because the directors knew that no adequate system was in place and there not receiving any accounts, so that they could not have have "relied" on others

Validity of Director’s acts – section 158 The acts of a person as a director are valid even though— (a) the person’s appointment was defective; or (b) the person is not qualified for appointment

Validity of Director’s acts Northwestern Autoservices Ltd [1980] 2 NZLR 302 (CA) Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA)- (acts of person acting as "de facto" director valid even though he was disqualified from acting as director due to bankruptcy)

Major Transactions A major transaction must not be entered into by a company unless it is approved by special resolution or contingent on approval by special resolution – s 129(1)

Major Transactions major transaction, in relation to a company, means: (a)the acquisition of, or an agreement to acquire, whether contingent or not, assets the value of which is more than half the value of the company’s assets before the acquisition; or (b)the disposition of, or an agreement to dispose of, whether contingent or not, assets of the company the value of which is more than half the value of the company’s assets before the disposition; or (c)a transaction that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities, including contingent liabilities, the value of which is more than half the value of the company’s assets before the transaction.

Directors’ rights to information Section 191 of the Companies Act 1993 inspection of records prevention