ACCA LW · Chapter 10
Directors, company secretary and meetings MCQs with Answers
13 multiple-choice questions on Directors, company secretary and meetings for ACCA LW Corporate and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under s168 Companies Act 2006, how may the members remove a director before the end of their period of office?
- A) By special resolution passed as a written resolution
- B) By ordinary resolution at a meeting, of which special notice has been given
- C) By a unanimous resolution of the board of directors
- D) Only by an application to the court
Show answer & explanation
Answer: B) By ordinary resolution at a meeting, of which special notice has been given
Section 168 permits removal of a director by ordinary resolution at a meeting, notwithstanding anything in the articles or any agreement. Special notice (28 days) must be given to the company, and the director has a right to be heard and to circulate written representations. A written resolution cannot be used to remove a director (s288).
Question 2
The articles of a small company provide that on a resolution to remove a director, that director's shares carry three votes each. Following Bushell v Faith, what is the effect of such a provision?
- A) It is void because it contradicts s168
- B) It is valid, and may in practice allow the director to defeat a resolution for removal
- C) It is valid only in public companies
- D) It is valid only if the director holds a majority of the shares in any event
Show answer & explanation
Answer: B) It is valid, and may in practice allow the director to defeat a resolution for removal
In Bushell v Faith the House of Lords upheld a weighted voting clause, holding that Parliament had only required an ordinary resolution and had not restricted how votes could be attached to shares. As a result, a director with sufficient weighted votes can defeat a resolution to remove them. Such clauses are common in small private companies; listed companies are subject to additional listing and governance expectations.
Question 3
Which statutory general duty of directors requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to factors such as employees and the environment?
- A) Section 171
- B) Section 174
- C) Section 172
- D) Section 177
Show answer & explanation
Answer: C) Section 172
Section 172 is the duty to promote the success of the company, and requires directors to have regard to factors including long-term consequences, employees' interests, relationships with suppliers and customers, the community and environment, reputation and fairness between members. Section 171 concerns acting within powers, s174 reasonable care, skill and diligence, and s177 declaring interests in proposed transactions.
Question 4
Directors allotted shares to a friendly company in order to destroy an existing majority shareholder's ability to block a takeover bid, even though they honestly believed this was in the company's interests. Following Howard Smith v Ampol Petroleum, which duty did they breach?
- A) The duty to avoid conflicts of interest (s175)
- B) The duty not to accept benefits from third parties (s176)
- C) No duty, because they acted honestly
- D) The duty to act within powers and exercise them only for the purposes for which they are conferred (s171)
Show answer & explanation
Answer: D) The duty to act within powers and exercise them only for the purposes for which they are conferred (s171)
Directors must exercise their powers for a proper purpose, a duty now in s171(b) Companies Act 2006. In Howard Smith v Ampol Petroleum the power to allot shares was used primarily to manipulate control rather than to raise capital, so it was used for an improper purpose, regardless of the directors' honesty. A similar result was reached in Hogg v Cramphorn.
Question 5
How is the standard of care, skill and diligence required of a director under s174 Companies Act 2006 measured?
- A) By the general knowledge, skill and experience reasonably expected of a person carrying out the director's functions, and also the general knowledge, skill and experience the director actually has
- B) Solely by the director's own actual knowledge and experience, however limited
- C) By the standard of a qualified accountant in every case
- D) By whether the director acted honestly, irrespective of competence
Show answer & explanation
Answer: A) By the general knowledge, skill and experience reasonably expected of a person carrying out the director's functions, and also the general knowledge, skill and experience the director actually has
Section 174 sets a dual objective and subjective test, derived from s214 Insolvency Act 1986 and applied in Re D'Jan of London. The minimum is the objective standard expected of a reasonably diligent person carrying out the director's functions; a director with greater actual skill (such as a qualified accountant) is held to that higher standard. Honesty alone is not enough.
Question 6
A managing director was approached personally by a potential client who said it would not deal with his company. He resigned, claiming ill health, and took the contract himself. Following Industrial Development Consultants v Cooley, what was the position?
- A) He was not liable, because the client would never have contracted with the company
- B) He was not liable, because he had resigned before taking the contract
- C) He was liable only to pay damages for breach of his service contract
- D) He was liable to account to the company for the profits, because he had used an opportunity that came to him while a director
Show answer & explanation
Answer: D) He was liable to account to the company for the profits, because he had used an opportunity that came to him while a director
A director must not exploit any property, information or opportunity, and it is immaterial whether the company could have taken advantage of it, as now stated in s175(2). In IDC v Cooley the director obtained the information while a director and was liable to account for his profit despite resigning first; s170(2) extends the duty to former directors in respect of opportunities of which they became aware while directors.
Question 7
Under the Company Directors Disqualification Act 1986, when must the court make a disqualification order?
- A) Whenever a director resigns within a year of appointment
- B) Where a director of a company which has become insolvent is found to have conduct that makes them unfit to be concerned in the management of a company
- C) Whenever a company makes a trading loss
- D) Whenever a director fails to attend board meetings for six months
Show answer & explanation
Answer: B) Where a director of a company which has become insolvent is found to have conduct that makes them unfit to be concerned in the management of a company
Section 6 requires the court to disqualify a person who was a director of an insolvent company if their conduct makes them unfit; the order must be for at least two years and not more than fifteen. Other grounds, such as persistent default in filing or conviction of an indictable offence connected with a company, are discretionary. Acting while disqualified is a criminal offence and leads to personal liability for debts incurred.
Question 8
Which of the following statements about the company secretary is correct under the Companies Act 2006?
- A) Every company must have a company secretary
- B) A public company must have a company secretary, but a private company is not required to have one unless its articles require it
- C) A company secretary must always be a qualified accountant
- D) A company secretary has authority to bind the company to any contract, including trading contracts
Show answer & explanation
Answer: B) A public company must have a company secretary, but a private company is not required to have one unless its articles require it
Section 270 removed the requirement for private companies to have a secretary, while s271 requires a public company to have one; s273 requires the directors of a public company to ensure the secretary has appropriate knowledge and experience, for example a recognised professional qualification. Following Panorama Developments v Fidelis Furnishing Fabrics, a secretary has apparent authority only for administrative contracts, such as hiring cars, not for trading contracts generally.
Question 9
Under the Companies Act 2006, what majority is required to pass a special resolution at a general meeting?
- A) A simple majority of the votes cast
- B) At least 90% of all members of the company
- C) Unanimity of all members present
- D) Not less than 75% of the votes cast by members entitled to vote
Show answer & explanation
Answer: D) Not less than 75% of the votes cast by members entitled to vote
A special resolution requires a majority of not less than 75% of the votes cast (s283), whereas an ordinary resolution requires a simple majority (s282). On a written resolution of a private company, the majority is calculated by reference to the total voting rights of eligible members rather than votes cast. Special resolutions are needed for matters such as altering the articles or changing the company's name.
Question 10
Which of the following CANNOT be passed by a private company as a written resolution under the Companies Act 2006?
- A) A special resolution to alter the articles
- B) A resolution to remove an auditor before the end of their term of office
- C) An ordinary resolution to authorise the directors to allot shares
- D) A special resolution to change the company's name
Show answer & explanation
Answer: B) A resolution to remove an auditor before the end of their term of office
Section 288 excludes from the written resolution procedure a resolution under s168 to remove a director and a resolution under s510 to remove an auditor before the end of their term. These require a meeting so that the director or auditor can make representations. Other ordinary and special resolutions of a private company may be passed in writing.
Question 11
Members of a company holding at least 5% of the paid-up voting share capital deposit a request for a general meeting. Under s303-304 Companies Act 2006, what must the directors do?
- A) Call a meeting within 21 days of receiving the request, to be held not more than 28 days after the notice convening it
- B) Hold the meeting within 7 days of the request
- C) Call a meeting only if the board agrees with the proposed resolution
- D) Refer the request to the court for approval
Show answer & explanation
Answer: A) Call a meeting within 21 days of receiving the request, to be held not more than 28 days after the notice convening it
Members representing at least 5% of the paid-up capital carrying voting rights may require the directors to call a general meeting. The directors must call the meeting within 21 days of the request, and it must be held within 28 days of the notice. If the directors fail to do so, the requesting members may call it themselves and recover reasonable expenses from the company.
Question 12
What is the minimum period of notice required for a general meeting (other than an AGM) of a private company under the Companies Act 2006, unless short notice is agreed?
- A) 14 days
- B) 7 days
- C) 21 days
- D) 28 days
Show answer & explanation
Answer: A) 14 days
Section 307 provides that a general meeting of a private company, and a general meeting of a public company other than an AGM, must be called by at least 14 days' notice. An AGM of a public company requires at least 21 days' notice. 28 days is the period of special notice that must be given to the company of certain resolutions, such as removal of a director.
Question 13
A minority shareholder alleges that the directors have breached their duties to the company by selling company assets to themselves at an undervalue. Under Part 11 Companies Act 2006, what claim may the shareholder bring, and on whose behalf?
- A) A personal claim for damages paid directly to the shareholder, without the court's permission
- B) A derivative claim on behalf of the company, with the permission of the court
- C) A claim for unfair dismissal against the directors
- D) A derivative claim on behalf of the company's creditors
Show answer & explanation
Answer: B) A derivative claim on behalf of the company, with the permission of the court
Under the rule in Foss v Harbottle the proper claimant for a wrong done to the company is the company itself. Part 11 (s260 onwards) allows a member to bring a derivative claim on the company's behalf for negligence, default, breach of duty or breach of trust by a director, but the member must obtain the court's permission to continue it. Any remedy belongs to the company. Separately, a member may petition under s994 for unfairly prejudicial conduct.