LW · Certificate Level

Company Law — Management and Administration

Directors (appointment, removal, types, the seven statutory duties under CA 2006 ss.171-177), the company secretary, company meetings (AGMs, general meetings, resolutions — ordinary, special, written), minority shareholder protection (s.994 unfair prejudice petition, derivative claims under ss.260-264), and corporate insolvency procedures (administration, company voluntary arrangements, liquidation — voluntary and compulsory, wrongful trading s.214, fraudulent trading s.213, director disqualification under the CDDA 1986).

42 min read

Learning Objectives

•Describe how directors are appointed, removed, and the different types of director
•State and explain the seven statutory duties of directors under CA 2006 ss.171-177
•Describe the role and qualifications of the company secretary
•Distinguish between ordinary resolutions, special resolutions, and written resolutions
•Explain the rights of minority shareholders and the remedies available to them
•Describe the main corporate insolvency procedures: administration, CVA, and liquidation
•Explain the concepts of wrongful and fraudulent trading and the consequences for directors
•Describe the grounds for director disqualification under the CDDA 1986

Directors

Directors are the persons responsible for managing the company's affairs. The board of directors exercises the powers of the company on behalf of the members (subject to the articles and shareholder resolutions).

Appointment and Removal

Appointment:

First directors are named in the application for registration (Form IN01) and take office on incorporation
Subsequent directors are appointed in accordance with the articles — typically by ordinary resolution of the shareholders or by the existing board (to fill a casual vacancy, subject to shareholder ratification at the next AGM for plcs)
Every company must have at least one director who is a natural person (not a corporate director) — s.155 CA 2006. Private companies need at least 1 director; public companies need at least 2.
A person must be at least 16 years old to be a director (s.157)
Persons disqualified under the CDDA 1986 cannot be appointed as directors

Removal (s.168 CA 2006):

A director can be removed at any time by ordinary resolution (simple majority >50%) of the shareholders — regardless of any provision in the articles or any service contract
Special notice of 28 days must be given to the company of the intention to propose the resolution
The company must send a copy to the director, who has the right to make written representations (circulated to shareholders) and to attend and speak at the meeting
Removal does not affect the director's right to compensation for breach of their service contract (if the contract term has not expired)
Note: in private companies with weighted voting rights or Bushell v Faith clauses (shares carry extra votes on a removal resolution), the practical effect of s.168 can be undermined — but the statutory right itself cannot be excluded

Types of director:

Executive director: Employed by the company in a management role (e.g., CEO, CFO, COO). Has both a service contract and directorial duties.
Non-executive director (NED): Not an employee; provides independent oversight, challenge, and guidance. Key role in corporate governance (see BTF topic).
Managing director: A director given overall authority to manage the company's business by the board under the articles. Has apparent (ostensible) authority to bind the company.
Shadow director (s.251): A person who is not formally appointed as a director but in accordance with whose directions or instructions the directors are accustomed to act. Subject to many of the same duties and liabilities as a formally appointed director.
De facto director: A person who acts as a director without being formally appointed. Also subject to directors' duties.
Alternate director: A person appointed by a director to attend and vote at board meetings in the director's absence (if the articles permit).

Directors' Statutory Duties (ss.171-177 CA 2006)

CA 2006 codified directors' duties in seven statutory duties. These duties are owed to the company (not to individual shareholders, creditors, or employees — though s.172 requires directors to have regard to wider stakeholders).

Section	Duty	Key requirements
s.171	Act within powers	Act in accordance with the company's constitution (articles). Exercise powers only for the purposes for which they were conferred (proper purpose doctrine). Do not use powers for an improper or collateral purpose.
s.172	Promote the success of the company	Act in the way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing so, have regard to: long-term consequences, employee interests, business relationships with suppliers/customers, community/environment, reputation, and fairness between members. This is "enlightened shareholder value."
s.173	Exercise independent judgement	Exercise their own judgement and not simply follow the instructions of another person (e.g., a dominant shareholder) without applying their own mind. Does not prevent reliance on professional advice.
s.174	Exercise reasonable care, skill and diligence	The standard is both objective (the care, skill, and diligence of a reasonably diligent person with the general knowledge, skill, and experience that may reasonably be expected of a person carrying out that function) AND subjective (if the director has greater actual knowledge/skill/experience, they are held to the higher standard). This is a dual objective/subjective test.
s.175	Avoid conflicts of interest	Avoid situations where a direct or indirect interest conflicts (or may conflict) with the interests of the company. Applies particularly to the exploitation of property, information, or opportunity — regardless of whether the company could have taken advantage of it. Does not apply to transactions with the company (covered by s.177). Conflicts can be authorised by the board (in private companies, if the articles permit; in public companies, only if authorised by independent directors under the articles).
s.176	Not to accept benefits from third parties	Must not accept benefits (e.g., bribes, gifts, hospitality) from third parties conferred by reason of being a director or doing/not doing anything as a director. Does not apply if the benefit cannot reasonably be regarded as giving rise to a conflict of interest (i.e., trivial or inconsequential benefits).
s.177	Declare interest in proposed transactions	If a director has a direct or indirect interest in a proposed transaction or arrangement with the company, they must declare the nature and extent of that interest to the other directors before the transaction is entered into. For existing transactions, s.182 imposes a similar duty. Failure to declare is a criminal offence (for existing transactions under s.183).

Remedies for breach of duty: The remedies are the same as for breach of fiduciary duty at common law and equity (s.178): account of profits, damages/compensation, injunction, rescission of the transaction, restoration of property. The company (not individual shareholders) brings the claim — but shareholders can bring a derivative claim on behalf of the company (see below).

The Company Secretary

The company secretary is an officer of the company responsible for ensuring compliance with administrative and legal requirements.

Private companies: Not required to have a company secretary (optional) — s.270 CA 2006
Public companies: Must have a qualified company secretary — s.271. Qualifications include: member of a recognised professional body (ICAEW, ACCA, CIMA, etc.), a solicitor or barrister, or a person who appears to the directors to be capable by virtue of having held the office or being qualified by training/experience.

Key duties: Filing documents at Companies House (annual accounts, confirmation statement, changes to directors/secretary/registered office), maintaining statutory registers (register of members, register of directors, register of PSC — people with significant control), organising board and general meetings (notices, agendas, minutes), ensuring compliance with company law requirements.

Authority: The company secretary has apparent authority to bind the company in matters of administrative and procedural nature (Panorama Developments v Fidelis Furnishing Fabrics [1971]).

Meetings and Resolutions

Shareholders exercise their powers through resolutions passed at general meetings or (for private companies) by written resolution.

Types of meeting:

Annual General Meeting (AGM): Required for public companies only — must be held within 6 months of the accounting reference date (s.336). Business typically includes: receiving accounts, appointing/reappointing auditors, electing/re-electing directors, approving dividends. Private companies are not required to hold AGMs unless their articles require it.
General meeting (GM): Any meeting of shareholders that is not an AGM. Can be called by the directors at any time. Members holding at least 5% of the voting shares can requisition the directors to call a GM (s.303). If directors fail to call it within 21 days (meeting to be held within 28 days), the members can convene it themselves.

Notice requirements:

AGM (plc): at least 21 days' clear notice
All other general meetings: at least 14 days' clear notice
Notice must state: date, time, place, general nature of business, and that members have the right to appoint a proxy

Types of resolution:

Type	Majority required	Used for
Ordinary resolution	Simple majority (>50%) of votes cast	Most routine business: appointing/removing directors, approving dividends, appointing auditors, general authority to allot shares
Special resolution	75% of votes cast	Important constitutional matters: amending articles, changing company name, reducing share capital, winding up voluntarily, disapplying pre-emption rights

Written resolutions (private companies only — s.288-300):

Private companies can pass resolutions without holding a meeting — the resolution is circulated to members, who indicate agreement in writing
An ordinary written resolution requires a simple majority of total voting rights (not just those voting)
A special written resolution requires 75% of total voting rights
Not available for: removing a director (s.168) or removing an auditor (s.510) — these require a meeting so the affected person can attend and speak
Public companies cannot use written resolutions

Proxies: Every member has the right to appoint a proxy to attend and vote at a general meeting on their behalf (s.324). A proxy need not be a member of the company.

Minority Shareholder Protection

The majority rule (Foss v Harbottle [1843]) provides that the proper claimant for wrongs done to the company is the company itself, and the will of the majority prevails. However, this can leave minority shareholders vulnerable to abuse by the majority. The law provides several protections:

1. Unfair prejudice petition (s.994 CA 2006):

A member may petition the court if the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of the petitioner specifically
Examples of unfairly prejudicial conduct: Exclusion from management in a quasi-partnership company, excessive remuneration to director-shareholders, diversion of business to another company, failure to pay dividends while directors receive large salaries, breach of shareholders' agreement or legitimate expectations
Remedies (s.996): The court has wide discretion and may: order the majority to purchase the minority's shares at a fair value (the most common remedy), regulate the future conduct of the company's affairs, require the company to refrain from doing an act or to do a specified act, authorise a derivative claim
s.994 is the most commonly used minority protection remedy in practice

2. Derivative claims (ss.260-264 CA 2006):

A member may bring a claim on behalf of the company against a director (or former director) for breach of duty, negligence, default, or breach of trust
The claim is brought in the company's name and any remedy goes to the company (not the individual shareholder)
The member must first obtain permission from the court to continue the claim. The court will consider: whether the member is acting in good faith, whether the act has been authorised or ratified, and whether a hypothetical director acting for the company's benefit would continue the claim
The court must refuse permission if the act has been authorised or ratified by an unconnected majority of members

3. Just and equitable winding up (s.122(1)(g) Insolvency Act 1986):

A member may petition the court to wind up the company on the ground that it is just and equitable to do so
Typically used in quasi-partnership companies where there has been a breakdown of trust between the members (Ebrahimi v Westbourne Galleries [1973])
This is a last resort — the court will usually prefer alternative remedies (e.g., s.994 share purchase order)

4. Other protections:

Special resolutions (75%) required for major constitutional changes — gives the minority a blocking stake if they hold >25%
Right to requisition a general meeting (5% of voting shares)
Right to appoint a proxy and attend/vote at meetings
Pre-emption rights on new share issues (protecting against dilution)

Corporate Insolvency

A company is insolvent when it cannot pay its debts as they fall due (cash-flow insolvency) or its liabilities exceed its assets (balance-sheet insolvency). Several procedures are available under the Insolvency Act 1986 (IA 1986):

Administration

Administration is a rescue procedure designed to give the company breathing space while an administrator (a licensed insolvency practitioner) manages the company's affairs to achieve the best outcome for creditors.

Objectives (in order of priority): (1) rescue the company as a going concern, (2) achieve a better result for creditors than immediate winding up, (3) realise property to make a distribution to secured or preferential creditors.

Moratorium: Once in administration, a moratorium applies — no legal proceedings can be commenced or continued against the company, no winding-up petition can be presented, and no creditor can enforce security without the administrator's or court's consent. This gives the company breathing space.

Appointment: The administrator can be appointed by the court, by the holder of a qualifying floating charge, or by the company or its directors (out-of-court appointment).

Company Voluntary Arrangement (CVA)

A CVA is a binding agreement between the company and its creditors, supervised by a licensed insolvency practitioner. The company proposes a compromise or arrangement to repay all or part of its debts over a period of time (typically 3-5 years). The proposal must be approved by at least 75% in value of creditors voting.

A CVA binds all unsecured creditors, including those who voted against it (provided the 75% threshold is met). It does NOT bind secured or preferential creditors without their consent. It allows the company to continue trading while repaying debts.

Liquidation (Winding Up)

Liquidation is the process of ending the company's existence — a liquidator is appointed to collect and realise the company's assets, pay its debts (to the extent possible), and distribute any surplus to members. The company ceases to exist once dissolved.

Two types:

Compulsory liquidation (by the court):

A winding-up petition is presented to the court (usually by a creditor, but also by the company, directors, contributories, or the Secretary of State)
Most common ground: the company is unable to pay its debts (s.122 IA 1986). Evidence includes: failure to pay a statutory demand for a debt exceeding £750 within 21 days, or execution of a court judgment that is returned unsatisfied.
Other grounds include: just and equitable (s.122(1)(g)), public interest
An Official Receiver is appointed initially, then may be replaced by a private-sector liquidator

Voluntary liquidation:

Members' voluntary liquidation (MVL): For solvent companies — the directors must make a statutory declaration of solvency (swearing the company can pay its debts within 12 months). Initiated by special resolution. Used when the members wish to close down the company (e.g., retirement, shareholders want to extract assets). The liquidator distributes assets to members after paying creditors.
Creditors' voluntary liquidation (CVL): For insolvent companies — no declaration of solvency. Initiated by special resolution. The creditors have the right to appoint the liquidator and a liquidation committee. The liquidator realises assets and distributes to creditors in the statutory order of priority.

Order of priority in liquidation:

Fixed charge holders — paid first from the specific assets subject to the fixed charge
Costs of the liquidation (liquidator's fees and expenses)
Preferential creditors — primarily employees' claims (wages up to £800, holiday pay, pension contributions)
Prescribed part — a portion of floating charge assets set aside for unsecured creditors (up to £800,000)
Floating charge holders — paid from the remaining floating charge assets
Unsecured creditors — paid pari passu (equally, proportionally) from remaining assets
Members (shareholders) — receive any surplus (extremely rare in an insolvent liquidation)

Wrongful Trading, Fraudulent Trading, and Director Disqualification

Wrongful trading (s.214 IA 1986):

A director may be personally liable to contribute to the company's assets if: (a) the company has gone into insolvent liquidation, (b) before the commencement of winding up, the director knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation, and (c) the director did not take every step to minimise the potential loss to creditors
The test is both objective (what a reasonably diligent person with the general knowledge/skill/experience to be expected of that director would have done) and subjective (if the director has greater actual knowledge/skill, the higher standard applies)
Only the liquidator can bring a wrongful trading claim
This is a civil liability — the director contributes money, not a criminal sanction (though it may lead to disqualification)

Fraudulent trading (s.213 IA 1986):

If the business has been carried on with intent to defraud creditors or for any fraudulent purpose, any persons who were knowingly party to the fraud may be declared personally liable for the company's debts
Requires proof of dishonesty (intention to defraud) — a higher threshold than wrongful trading
Also a criminal offence (s.993 CA 2006) — punishable by imprisonment and/or fine

Director disqualification (Company Directors Disqualification Act 1986 — CDDA):

A court may disqualify a person from being a director (or involved in company management) for a period of 2 to 15 years
Grounds include:
- Conviction of an indictable offence in connection with the management of a company
- Persistent default in filing returns/accounts with Companies House
- Unfitness — the most common ground (s.6 CDDA): where a person was a director of a company that became insolvent and their conduct makes them unfit to be a director. The court must make a disqualification order of at least 2 years if unfitness is established.
- Wrongful or fraudulent trading
- Being an undischarged bankrupt acting as a director
Effect: A disqualified person cannot act as a director, liquidator, administrator, or receiver. They cannot directly or indirectly be concerned in the promotion, formation, or management of a company without the court's permission. Acting while disqualified is a criminal offence and the person is personally liable for the company's debts incurred during the period of contravention.

Examiner Focus

Directors' duties (ss.171-177) are tested very frequently. You must be able to: name all seven duties, apply them to a scenario, and identify which duty is breached. The most commonly tested are: s.172 (promote success — enlightened shareholder value), s.174 (care/skill/diligence — dual test), s.175 (conflicts — business opportunities), and s.177 (declare interest in transactions).

Common Pitfall

Directors' duties are owed to the COMPANY, not to individual shareholders, employees, or creditors (though s.172 requires directors to have regard to wider interests). Only the company can enforce the duties — individual shareholders must use a derivative claim (ss.260-264) if the company refuses to act.

Study Tip

For s.174 (care/skill/diligence), remember the DUAL test: the standard is the HIGHER of (a) what a reasonable person in that role would do (objective floor), and (b) what the specific director with their actual knowledge/skill/experience should do (subjective ceiling). A qualified accountant-director is held to a higher standard than a non-specialist director.

Examiner Focus

Know the order of priority in liquidation: (1) fixed charge, (2) liquidation costs, (3) preferential creditors (employees), (4) prescribed part for unsecured creditors, (5) floating charge, (6) unsecured creditors (pari passu), (7) members. This is frequently tested.

Watch Out

Wrongful trading (s.214) is CIVIL (director contributes money to the company — only the liquidator can bring it). Fraudulent trading (s.213) is CIVIL AND CRIMINAL (requires dishonesty/intent to defraud — higher threshold). Don't confuse them. Wrongful trading is much more commonly examined because it has a lower threshold (knew or ought to have known).

Common Pitfall

Directors can be REMOVED by ordinary resolution (s.168 — simple majority >50%) but articles can be AMENDED only by special resolution (s.21 — 75%). Written resolutions CANNOT be used to remove a director — a meeting must be held so the director can attend and speak.

Key Definitions

Director

A person responsible for managing the company's affairs. Owes seven statutory duties to the company under CA 2006 ss.171-177. May be executive, non-executive, or shadow.

Shadow director (s.251)

A person not formally appointed as a director but in accordance with whose directions or instructions the directors are accustomed to act. Subject to many of the same duties and liabilities.

s.172 duty

The duty to promote the success of the company for the benefit of its members as a whole, having regard to long-term consequences, employees, suppliers/customers, community/environment, reputation, and fairness between members.

s.174 duty

The duty to exercise reasonable care, skill, and diligence — measured by a dual objective/subjective test. The higher of: what a reasonable person in that role would do, or what the specific director (with their actual knowledge/skill) should do.

Ordinary resolution

A resolution requiring a simple majority (>50%) of votes cast. Used for most routine business (appointing/removing directors, approving accounts, appointing auditors).

Special resolution

A resolution requiring at least 75% of votes cast. Used for important constitutional matters (amending articles, changing name, reducing capital, voluntary winding up).

Written resolution

A resolution passed without a meeting (private companies only). Circulated to members who indicate agreement in writing. Cannot be used to remove a director (s.168) or auditor (s.510).

Unfair prejudice (s.994)

A petition by a member to the court where the company's affairs are conducted in a manner unfairly prejudicial to members' interests. The most commonly used minority protection remedy. Typical remedy: share purchase order.

Derivative claim (ss.260-264)

A claim brought by a member on behalf of the company against a director for breach of duty. The claim is in the company's name and any remedy goes to the company. Requires court permission to continue.

Administration

A corporate rescue procedure. An administrator manages the company's affairs to achieve the best outcome for creditors. A moratorium prevents legal proceedings against the company.

Company Voluntary Arrangement (CVA)

A binding agreement between the company and its creditors to repay debts over time. Requires 75% approval by value of voting creditors. Binds all unsecured creditors.

Compulsory liquidation

Winding up ordered by the court, usually on the ground that the company is unable to pay its debts. An Official Receiver/liquidator is appointed to realise assets and distribute to creditors.

Members' voluntary liquidation (MVL)

A voluntary winding up of a SOLVENT company. Directors make a statutory declaration of solvency. Used when members choose to close the company.

Creditors' voluntary liquidation (CVL)

A voluntary winding up of an INSOLVENT company. No declaration of solvency. Creditors appoint the liquidator.

Director disqualification

A court order under the CDDA 1986 prohibiting a person from acting as a director for 2-15 years. Grounds include: unfitness (most common), fraudulent/wrongful trading, persistent default in filings.

Key Formulas

Worked Examples

Practice Questions

Question 1 of 8

A director can be removed from office by the shareholders by:

Question 2 of 8

The duty under s.174 CA 2006 requires a director to exercise:

Question 3 of 8

In a compulsory liquidation, which of the following creditors is paid FIRST from the company's assets?

Question 4 of 8

A derivative claim under ss.260-264 CA 2006 is brought by:

Question 5 of 8

Section 172 CA 2006 requires directors to promote the success of the company for the benefit of:

Question 6 of 8

A shadow director is:

Question 7 of 8

The most common remedy in an unfair prejudice petition (s.994) is:

Question 8 of 8

Under the CDDA 1986, a person can be disqualified as a director for a period of:

Source and Version

Syllabus: ICAEW ACA Certificate Level 2026 · Reviewed: 2026-05-04

ICAEW ACA syllabusLocal syllabus coverage review

Company Law — Formation and Constitution

Company Law — Capital and Financing