Duties of Directors and Winding Up
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Transcript of Duties of Directors and Winding Up
Directors: Appointment, power, duties and liabilities
Winding up of company: meaning, modes
Companies Act 1956
Sec 2(13) of companies act of 1956
Defines a director as ‘any person occupying the position
of a director, by whatever name called’
In general, a person is said to be occupying a position of
a director, if he has been charged with the responsibility
of directing, conducting and controlling the affairs of a
company
Disqualification of directors
A person with unsound mind
An un discharged insolvent
Person who has applied to be adjudicated as an insolvent and
his application is pending before court of law
Person convicted by court for moral turpitude
Person disqualified by order of an court to act as director
A person who failed to pay call money, on his shares for six
months from date the call became due
Disqualifications……………a person who is already a director of a public company
which,—
(i) has not filed the annual accounts and annual returnsfor any continuous three financial yearscommencing on and after the first day of April,1999; or
(ii) has failed to repay its deposit or interest thereon ondue date or redeem its debentures on due date or paydividend and such failure continues for one year ormore.
Qualification Of Director Under the act, only individuals can become directors
There is no academic, technical qualifications for a director
Section 270 of act, requires a director to hold qualification shares in
the company, and it should be fixed by the articles of company
The nominal or face value of the qualification shares of director
fixed by articles should not exceed rs 5000.
The qualification shares must be acquired by a person elected as a
director within 2 months of his appointment
As per section 149 , director appointed by promoters of a newly
incorporated firm, director must pay for qualification shares before
certificate to commence business is obtained
Contd…..
For the purpose of the calculation of the qualification shares,only shares included in the share certificate in the name ofdirector are taken into account, share warrants in his nameshouldn’t be taken into account.
Qualification shares held by director should be disclosed inthe prospectus
With in two months of his appointment, he should file withthe registrar a declaration specifying the qualification sharesheld by him
Consequences of failure to acquire
qualification shares
He ceases to be a director automatically, soon after theprescribed period (2 MONTHS)
Even after expiry of the stipulated period, if he continuesto act as a director, he will be fined for period he wasacting as a director.
He can be restrained from acting as a director ofcompany by an order of injunction issued by ancompetent court
Different Ways of Appointment Of
Directors
By the promoters of company
By the subscribers to memorandum of association
By deeming the subscribers to the memorandum as the
first directors
By the company in general meetings
By the board of directors
By third parties
By the principle of proportional representation
By the central government
Kinds of directorship
Whole-time Directorship
A person cannot be appointed as a whole-time director
in more than one company.
Part-time Directorship
Not more than 15 companies excluding the directorships
of, private companies [other than subsidiaries or holding
companies of public company(ies)].
Contd………….
i. unlimited companies,
i. associations not carrying on business for profit or which prohibit payment of a dividend, and
ii. alternate directorships (i.e., he is appointed to act as a director only during the absence or incapacity of some other director).
Duties of DIRECTORS
1. Fiduciary duty (relationship of legal and ethical trust)
Exercise powers honestly and bona fide for the benefit of the
company
They must not make any secret profit out of their positions
2. Duties of care, skill and diligence
Directors should carry out their duties with reasonable care
and skill, diligence
Standard of care: depending upon nature of work, division of
power, customs and remunerations
Other duties
To attend board meetings
Not to delegate his functions except to the extent
authorized by the act or constitution of company
To disclose his interest
POWERS OF DIRECTORS
General powers of board
Powers to be exercised at board meetings
Powers to be exercised with the approval of company in
general meetings
Political contributions
Liabilities of directors
Liability to third party
Liability to company
Liability to breach of statutory duties
Liability of acts of his co-directors
De facto and De jure liability
REMOVAL OF DIRECTORS
Directors can be removed by
1. Share holders
2. Central government
3. Company law board
WINDING UP OF COMPANY
The legal process by which a joint stock company is broughtto an end, that is completely closed down, is calledliquidation
In other words, Liquidation is a process by which a businessof company is wound up
And in the course of winding up, its assets are realized,liabilities are paid off and the surplus if any, is distributedamong the members in accordance with their rights
Modes of winding up
Compulsory winding up or winding up by order of the
tribunal
Voluntary winding up
Winding up subject to the supervision of the tribunal
Circumstances leading to Compulsory
winding up
If the company has passed a special resolution that it should be
wound up by tribunal
If a public company has failed to hold statutory meeting or file
statutory report to registrar of companies
If it has not commenced business within year of its
incorporation
If the number of members has fallen below seven in case of
public company and below 2 in Pvt. Ltd.
If the company is unable to pay debts
If the tribunal is of the opinion that it is just and equitable that
the company should be wound up
Voluntary winding up
Winding up which is brought about voluntarily without
interference of the tribunal of companies through any order,
but winded up voluntarily by members of company or by the
creditors
Voluntary winding up is of 2 types:
Members voluntary winding up
Creditors voluntary winding up
Circumstances of voluntary winding up
When company is solvent, and winding up decision isbrought in by members.
When the period for which the company has beenformed has expired and company has passed ordinaryresolution
When the event on happening of which the companyshould wound up has occurred and company has passedordinary resolution
When a company has passed a resolution that it shouldwound up voluntarily
Winding up subject to supervision If a member or creditor puts an application for supervision of
tribunal, after company has passed special resolution forvoluntary winding up, tribunal can entertain the same andpass such order to protect interest of, company, membersand creditors.
Tribunal can exercise full control over winding up ofcompany
Can appoint new liquidator in the place of existing liquidator
Can put restrictions on existing liquidator
Or appoint additional liquidator to act on behalf of tribunal,along with existing liquidator
Thank you