Directors' Duties

Question 1

s.171

Answer 1

Duty to Act Within Powers

Directors must act within powers as set out in the articles / authority using shareholders resolutions. They must also use their powers for a proper purpose.

Question 2

s.172

Answer 2

The directors have a duty to promote the success of the company for the benefit of the members as a whole. This involves adding some long-term value.

In considering how to do this, directors should minute board meetings and consider impact on community / environment, fairness between members, interests of employees etc

Question 3

s.173

Answer 3

Duty to Act with Independent Judgement

Directors can take advice from or rely on other persons but ultimately must make decisions using independent judgment and not fetter future discretion. This will not be breached by the director acting in accordance with the articles or any agreement which fetters future discretion

Question 4

s.174

Answer 4

Duty to Exercise reasonable care, skill and diligence.

Common law duty, only remedy is damages. Judged at whichever is the higher standard of “reasonable care, skill and diligence of a director” or “reasonable care, skill and diligence of that particular director”.

Question 5

s.175

Answer 5

Duty to Avoid Conflicts of Interest

Relates to exploitation of property, opportunities and information, even if the company could not have exploited the opportunity itself.

Does not arise in transactions with the company and the director (e.g service contract) or authorised by other directors or where there is no reasonable risk of conflict arising.

Question 6

s.176

Answer 6

Duty not to accept benefit from third party
Applies to benefits conferred by reason of their position as a director.
Not breached if could not reasonably give rise to conflict.

Question 7

s.177

Answer 7

Duty to Declare Interest in Proposed Transaction by Company

Must declare nature and extent of interest before transaction is entered either by declaration at board meeting or notice in writing.

The interested director cannot vote or count in the quorum of directors unless MA14 disapplied by the articles or unlikely to give rise to conflict of interest or conflict arises from permitted cause.

No declaration required where:
- Ds service contract
- D not actually or constructively aware of the transaction
- Conflict not likely
- Other Ds actually / constructively aware.

Question 8

Remedies (all sections except s.174)

Answer 8

Account for profits
Set aside contract
Damages
Restoration of property
Injunction

Question 9

Circumventing Breach

Answer 9

Ratification by ordinary resolution of the shareholders (or special resolution if this is required by the articles) where there is negligence or some other breach but D cannot vote.