Director's Duties Flashcards
Re Hydrodan (Corby) Ltd
3 categories of directors: de jure, de facto and shadow directors
Where to find how many directors a company need to have?
S 154
Percival v Wright ( s 170(1))
Directors owe their general duties to the company, not to its shareholders
Bristol v West Building Society v Mothew
Ds are considered company’s trustees or agents and are in s fiduciary position in relation to the company
s 172: subjective in nature because it is what the director considers not what court considers would be most likely to promote the success of the company
Re City Equitable Fire Insurance Co Ltd
Ds owe the duty of care and skill to the company at common law + the must first and foremost act on good faith and in the best interests of the company
Law Commission Consultation Paper 1998
Considered the complex law on Ds duties in equitable principles and at common law should be reformed and made simpler by a statutory firm. It assessed the advantages of codification such as certainty and accessibility against its disadvantages such as loss of flexibility
S 170
Ds general duties should be interpreted and applied in the same way as common law rules or equitable principles
Hogg v Cramphorn + Howard Smith Ltd v Ampol Petroleum
Common law duty to act for proper purposes codified by s 171 - it has made the law more accessible whilst maintaining the clarity of the common law
Re Smith & Fawcett
Duty to act bona fide in the interests of the company - s 172: subjective in nature because it is what the director considers not what court considers would be most likely to promote the success of the company
Subjective test - Regentcrest Plc v Cohen - the director must act in the way he considers.
The courts must not get involved in reviewing the exercise of business judgment by directors - Carlen v Drury
Objective test that is not codified - Charterbridge Corp ltd v Lloyds Bank ltd - whether an intelligent and honest director could in the whole of the circumstances reasonably believe the transaction to be for the benefit of the company
S 172
Wider scope than case law: ENLIGHTENED SHAREHOLDER VALUE - the company should be run to generate max wealth for shareholders but also take the properly balanced view of the wider implications of decisions over time
Keay (2007) argued that it is pivotal in providing guidance for directors in their activities and what a director should be aiming towards.
Law Society critics the fact that there is no indication there as to the meaning of success of the company — increased uncertainty cause Ds may have different interpretations.
Plus liabilities Ds seem to have been increased which may deter people from taking up directorship.
Fulham Football Club and Others v Cabra Estates plc
Director should not getter his discretion — s 173 exercise independent judgement
Dorchester Finance Co Ltd v Stebbing + Re Barings plc
Now adopted into s 174 - duty to exercise reasonable care, skill and diligence - subjective and objective tests at common law also adopted
Cook v Deeks + Regal (Hastings) Ltd v Gulliver
S 175 codified the no-conflict and no secret profit rules — duty not infringed if the matter has been effectively authorised by disinterested directors (s 175(4))
Bentinck v Fenn + Aberdeen Railway Co Ltd v Blaikie Bros
Self dealing rules codified into s 177
CODIFICATION OF DIRECTORS DUTIES
- clarification of complex rules
- easier to detect and redress directors’ breach of duties for the shareholders
- duty to promote the success of the company: drafted in vague and ill-defined language
- link to directors’ duties remain - s 170(4)
- period of uncertainty - how to apply the new law?
- accessibility and clarification will prove beneficial in the long run
