4 Flashcards
s239 CA 2006
Directors may avoid liability if breach is capable of subsequent approval / ratification by sharheolders
Are remedies for breach in the CA 2004?
No s178 provides that common law and equitable remedies still apply
Shareholders sanctions
MA 4 - SR can force to do or not to do
s168 CA 2006 - Removal by SR
s21 CA 2006 - Amendment of Articles
Key powers of directors
MA 3 - Manage company
MA 8 - pass decisions by unanimous consent
Principle of equitable fiduciary duties
- Must not benefit from their position of trust
Case law for Directors Duties
Older case law still valid, as Directors duties are interepted in line with Common Law and Equitable Principles
General Duties of Directors under Part 10 CA 2006
171 - Act within powers
172 - promote success of company
173 - Independent powers
174 - Reasonable skill care and diligence
175 - Avoid CoI
176 - Benefits from third partes
177 - Interest in transactions
s171 - Quick fire
Act within powers
s172 - Quick fire
Promote success of company
s173 - Quick fire
Independent judgement
s174 - Quick fire
Reasonable skill, care and diligence
s175 - Quick fire
Avoid Conflicts of Interests
s176 - Quick fire
Avoid benefits from third parties
s177 - Quick fire
Disclose interests in transactions to the board
Section 171 Components
Act within powers
- Duty to act within company’s constitution
- Duty to exercise powers for the purposes they are conferred (Proper Purposes)`
Proper Purpose
Bona fide interests of the company, not for any collateral purpose.
Hogg v Cramphorn
New shares issued to employees
Special voting rights
Avoid hostile takehover.
* Allotment of shares held to be void and improper use of directors power to issue shares
* Capable of ratification by shareholders.
Howard Smith v Ampol Petroleum Ltd
- Issue of shares to frustrate takeover
- Not proper purpose
- Proper purse raising equity
Eclairs Group Ltd v JKX Oil & Gas Plc
- Disenfranchise for non comopliance
- Corporate raid
- Exploiit minority to get effective voting control, without paying pprice for shares
- Disclosure notices - used to prevent minority voting
- Not proper purposes
Key case for determinining improper purpose
Extrasure travel insurances ltd v scattergood.
Extrasure travel insurances ltd v scattergood.
- Objective test for improper purpose
- Identify power exercise in question
- Identify the purpose of the delegated power
- Identify the substantial purpose of powers use
- Decide if proper
Teck Corporation v Millar
- Overlap between proper purpose and successs (172)
- If takeover will cause substantial damage / be a bad deal
- May be able to issue shares for other reasons that raising capital
Provided it is for benefit of the whole
Section 172
Promote success of the company
* Act honestly and in good faith
* In the interests of the company
* Subjective test - element of objectivity (Reasonable director)
* Success of company - relies on relationships
Defining success
s 172(A)
Long term increase in value
What is not success of a company
- Preference payments - breach of creditors interests
- Hiding director misconduct
Section 173
Independent judgment - bust not agree to fetter discretion of directors
Individual nature of duty
Fulham Football Club v Cabara Estates
Legitimate business interest to fetter directors discretion
Madoff Securities INternational v Raven
Individual nature of duty when acting
Section 174
Duty to exercise reasonable skill and care and diligence
- Reasonable foresight of “reasonably competent”
- Subjective / objective test - whichever is higher.
Re D’Jan of London Ltd
Directors actions measured against the conduct of a reasonably diligent person.
* Must maintain sufficient knowledge
* Must have supervisory oversight if delegate
Re Barubgs Okc
Supervision of a director / Deputy Chairman expected.
Collective and individual duty to maintain sufficient knowledge
Lexi Holdings Plc v Luqman
Two sisters not absolved from brother who stole £60 mill
Negligent and jointly liable for
Defer to creater experience
Legitimate to defer to fellow director with greater experience.
Madoff Securities International Ltd v Raven
Fiduciary directors duties include
175 - Conflict of Interest
176 - Benefits from third parties
177 - Disclose third party transactions
Boardman v Phipps
Whether a reasonable man looking at the relevant facts and circumstances would think that there is a real and sensible possibility of conflict.
Corporate opportunities are…
an asset of the company
These cannot be misappropriated by the director.
Cook v Deeks
3 directors wanted a personal contract for railway company.
Built up considerable good will
= opportunity of company
Can a director resign to exploit a corporate opportunity
Clearly no
Setting up a company to exploit commercial opportunity
Not okay to exploit / not disclose intentions
Can a person have competing directorships
Generally no unless gain informed consent from both principals
Plus Group Ltd v Pyke
- Stoke
- Business relationships deteriorate
- Competing business.
- No breach of duty - large sums of money
Difference between 177 and 182
- Sanctions
- Civil sanctions for failure to disclose prior to transaction
- Criminal sanctions for failure to disclose after transaction
What can be sanction by disclosure to board, and what needs member approval
- 177 - transactions with interest - disclosed to the board
- 190 - 203: provisions do not apply to property transactions, loans and quasi loans
Shareholder approval required for
- Long term service contracts
- Substantial property transactions
- Loans, quasi loans and credit transactions
- Payments for lost offic
Substantial property transactions
- Between company and directors (or connected person)
- Non cash assets
- Require PPR approvalS
Substantial assets
- Exceeds 10% of company asset value and is more than £5k
- Exceeds £100 000
Approval of Substantial Property Transactions
- Approval obtained before by OR
- Or transaction subject / conditional to approval
- Can be approved after the event (s196)
- Does not absolve directors of potential liability
Connected person
- Family (not siblings, aunts, grandparents)
- Companies that director or connected persons own more than 20%
- Business partner
- Trustees of a trust benefitting directors or connected persons
Remedies: Substantial Property Transactions
- Voidable if no shareholder approval
- Unless
- Resitution not possible
- Indemnified
- Rights acquired by another party in good faith for value, without notice of contravention
Directors are liable
To account for profits made, and indemnify the company for losses
Loans to directors
OR required
Shareholders must get a memo - detailing, amount, purpose, company liability, nature of transactions.
Is it possible for shareholders to approve loan transaction after event?
Yes - 214
Does not absolve liability under s2139
Payments for loss of directors
- To be approved by way of ordinary resolution if over £200
- If not approved by shareholders - payment is held on trust for the company
Remedies for breach of fiduciary dity
- Damages
- Injunction
- Account for profits (property and personal)
- Recission
Account for profits - personal remedy
Only profits received as a result of breach are payable
Regardless of whether an honest breach
Profits from fraudulent misrepresentation
All repayable
Account for profits -proprietary remedy
- Profits held on constructive trust where identified as an asset that can be.
FHR European Ventues LLP v Cedar Capital Partners LLC.
FHR European Ventues LLP v Cedar Capital Partners LLC.
10 MILL EURO secret commission,
Held on trust for princial
Relief from liability
- Prior authorisation by directors (175 and 177)
- Prior consent from shareholders (180)
- Ratification by shareholders 239
- Relief granted from court
Prior approval of directors
No breach of duty for the transactions (175 or 177)
s180
Retains common law and equitable rules which allow shareholders to authorise in advance conduct
Not acts that are unlawful
s180
Ratification
Can ratify any conduct amounting to breach of duty
By Ordinary Resolution s 239
Must be passed disregarding votes from connected persons or director involved.
Approval by shareholders will only be effective if….
Decision is honest
Bona fide
In the best interests of the company, including creditors
Relief granted by court
s 1157
Acted honestly = subjective
reasonably = objective
* Considering all circumstances
ought fairly to be excusd
Indemnity and insurance
Cannot exempt from liability - any such provision will be void
But can provide insurance against liability, third party indemnity, pensionscheme indemnity.
