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Alternate directors

What is an alternate director and what are his powers and responsibilities?

An alternate director is only possible if it is permitted by the articles. This is covered in more detail in the answer to the next question as are the formalities of appointment. The precise powers of an alternate director may depend on the articles but Table A permits wide powers.

An alternate director does what the name suggests - he acts as an alternate to the director that appoints him. Regs. 66 and 69 of Table A specify:

'An alternate director shall be entitled to receive notice of all meetings of directors and of all meetings of committees of directors of which his appointer is a member, to attend and vote at any such meeting at which the director appointing him is not personally present, and generally to perform all the functions of his appointer as a director in his absence but shall not be entitled to receive any remuneration from the company for his services as an alternate director. But it shall not be necessary to give notice of such a meeting to an alternate director who is absent from the United Kingdom.'

'Save as otherwise provided in the articles, an alternate director shall be deemed for all purposes to be a director and shall alone be responsible for his own acts and defaults and he shall not be deemed to be the agent of the director appointing him.'

This means that an alternate director can do everything that his appointer can do and is personally responsible for his actions. Only one person can act at any one time and an alternate director ceases to act when his appointer assumes his responsibilities.

If the alternate director is also a full director of the company, he will have two votes at board meetings, his own and his vote as an alternate. They may be cast in different ways.

Alternate directors are permitted by the new model articles for public companies, but not by the new model articles for private companies.

Who can be an alternate director and what are the formalities of appointment and removal?

An alternate director is only possible if it is permitted by the articles. It is permitted by Table A which provides that a director may appoint any other director as his alternate or any person willing to act who has been approved by a resolution of the directors. Special articles may provide that a director may appoint any person as his alternate and that the directors do not have the power to reject his choice. An alternate director is relieved of his position and powers when this fact is communicated to the directors by the appointing director.

An appointment is made by notification to the directors by the appointing director and, if it is required by the articles, a confirming resolution is passed by the directors. The appointment may be for a specified period or it may be an indefinite appointment. Details should be entered in the register of directors and secretary, and Companies House should be informed within 14 days on Form AP01.

Nominee directors

What is a nominee director?

It depends what you mean by the term. Never forget the words of Humpty Dumpty in Alice Through the Looking Glass 'When I use a word, it means just what I choose it to mean - neither more nor less'.

Strictly speaking there is no such thing as a nominee director. The law does not recognise the concept of one person acting as a delegate director for another person. Nevertheless, it is a widely used term and you probably have a shrewd idea of what it is likely to mean in practice.

A nominee director may be on the board because of a contract or shareholders' agreement, or because of an informal arrangement that he will represent the interests of a particular person or group. He may represent a parent company, a major shareholder or member, the unions, a staff association, one or more unpaid creditors or a local council, and there are many more possibilities. The formalities of appointment of a nominee director are the same as the formalities of appointment of any other director.

Are there any special dangers for nominee directors?

Yes there are. All directors, including nominee directors, have duties to the company as a whole and to the members as a whole, and if the company has financial difficulties to the creditors as a whole. There are other duties, and in particular worker directors may take comfort from section 172 of the Act which requires directors to have regard to the interests of the company's employees.

It should be noted that the reference is to the employees in general, not to just some sections of them. It should also be noted that the primary responsibility is to the members as a whole.

A nominee director must not put the interests of the person or group that he represents ahead of the interests of the members as a whole. It can be a fine line calling for individual interpretation. It is sometimes argued that serving the interests of a particular group is in the interests of the members as a whole. For example, a contented workforce and well-informed creditors may well be in the interests of the members, but reliance on this can be taken past the point of what is reasonable.


Can you give a practical example of how a nominee director might get it wrong?

I will do better than that and give two practical examples:

Scenario 1 - Failing to stand up to the directors of a parent company

John is finance director of ABC Ltd, which is 90 per cent owned by XYZ Ltd. ABC Ltd is profitable and soundly financed. In fact it has a million pounds in the bank and an unused borrowing facility of two million pounds. XYZ Ltd, on the other hand, is unprofitable and faces financial difficulties. John receives a telephone call from Jenny the finance director of XYZ Ltd instructing him to pay over all the money that he can lay his hands on. John immediately sends three million pounds to XYZ Ltd. Shortly afterwards XYZ Ltd goes into insolvent liquidation. The three million pound loan is valueless and as a result ABC Ltd also goes into insolvent liquidation.

John has wrongly put the interests of his company behind the interests of the holding company. The creditors of ABC Ltd will not get paid in full and the shareholders of ABC Ltd (including the 10 per cent who are outsiders) will lose money. The consequences for John could be very serious.

Scenario 2 - Putting the interests of one group of workers ahead of duty to the company

Susan is a director of ABC Ltd and represents the interests of the factory employees on the board. The directors reluctantly decide that redundancies in the factory are necessary. They agree that they will work out precise details and discuss them with the people involved in a months time, but that meanwhile confidentiality is very important. Susan immediately tells the factory workers who promptly commence a damaging strike. This is not in the interests of the members and it is not in the interests of the employees who are not employed in the factory. Susan has failed in her first duty to the company and its members as a whole.

 
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