F4 – Management Regulation and

Admiration of Companies
Tutor Question

The multi-task questions that appear in Section B of the exam contain several tasks based on the same scenario.
Read through the background and the first Task for this question.

Background for Tasks 1, 2 and 3 Task 1

In 2017 Ger was disqualified from acting as a company Which of the following categories of director applies to
director for a period of 10 years under the Company Ger?
Directors Disqualification Act 1986 for engaging in
fraudulent trading. A. De facto director

However, he decided to continue to pursue his B. De jure director

fraudulent business and, in order to avoid the
consequences of the disqualification order, he C. Non-executive director
arranged for his accountant Kim to run the business on
his instructions. Although Kim took no shares in the D. Shadow director
company, and was never officially appointed as a
director, he nonetheless assumed the title of managing
director.

This task tests knowledge of different types of directors. To start, make a brief note of the meaning each term.

 A de facto director openly performs the functions of a director but has never been appointed
 A de jure director is a director who has been properly appointed
 A non-executive director is not involved in the executive management of the company but has an oversight
and governance role
 A shadow director exerts the influence and power consistent with being a director but away from the day-to-
day running of the business

So, which of these definitions best fits Ger? Ger is exercising influence and power over the business, but is doing
so at arm’s length, through Kim. Therefore, Ger is a shadow director, and the correct answer is Shadow director.
Moving on to Task 2. The same background applies. Read through the requirement for Task 2.

Background for Tasks 1, 2 and 3 Task 2

In 2017 Ger was disqualified from acting as a company Which of the following categories of director applies to
director for a period of 10 years under the Company Kim?
Directors Disqualification Act 1986 for engaging in
fraudulent trading. A. De facto director

However, he decided to continue to pursue his B. De jure director

fraudulent business and, in order to avoid the
consequences of the disqualification order, he C. Non-executive director
arranged for his accountant Kim to run the business on
his instructions. Although Kim took no shares in the D. Shadow director
company, and was never officially appointed as a
director, he nonetheless assumed the title of managing
director.

The background scenario tells us that Kim was never appointed as a director, but uses the title of managing
director. When answering Task 1 we defined a de facto director as someone who openly performs the functions
of a director but has never been appointed. Therefore, Kim is clearly a de facto director - and the correct answer
is De facto director.
Moving on to Task 3. Again, the same background applies. Read through the requirement for Task 3.

Background for Tasks 1, 2 and 3 Task 3

In 2017 Ger was disqualified from acting as a company Which of the following characteristics apply to non-
director for a period of 10 years under the Company executive directors?
Directors Disqualification Act 1986 for engaging in
fraudulent trading. A. They are involved in the day-to-day business of the
company
However, he decided to continue to pursue his
fraudulent business and, in order to avoid the B. They owe fiduciary duties to the company
consequences of the disqualification order, he
arranged for his accountant Kim to run the business on C. They attend, but do not vote at, meetings
his instructions. Although Kim took no shares in the
company, and was never officially appointed as a D. They have contracts of employment with the
director, he nonetheless assumed the title of managing company
director.

When answering Task 1, we defined a non-executive director as someone who is not involved in the executive
management of the company but has an oversight and governance role.

This information enables us to eliminate two of the options provided as possible answers. We are able to eliminate
the option ‘They are involved in the day-to-day business of the company’. We are also able to eliminate the option
‘They have contracts of employment with the company’.

Looking at the other two options, non-executive directors do have voting powers, so the option ‘They attend but
no not vote at meetings’ is incorrect. The remaining option is ‘They owe fiduciary duties to the company’. Fiduciary
duties are related to trust, honesty and acting in the best interest of the company. Non-executive directors do owe
fiduciary duties to the company, so the correct answer is; they owe fiduciary duties to the company.