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Directors Duties Flashcards

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1
Q

Under which part of the Companies Act 2006 are directors’ duties codified?

A

Part 10 of the Companies Act 2006.

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2
Q

What is the fiduciary nature of directors’ duties?

A

Directors act as fiduciaries to the company, similar to trustees, and must act in the company’s best interests, avoiding conflicts of interest.

(Aberdeen Railway Co v Blaikie Bros (1854))

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3
Q

What does Section 171 CA 2006 require of directors?

A

Directors must act within the company’s constitution and only for the purposes for which powers are conferred.

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4
Q

What is the proper purposes doctrine?

A

Directors must not misuse their powers for unintended purposes, such as issuing shares to alter control.

(Howard Smith Ltd v Ampol Petroleum Ltd (1974))

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5
Q

What case demonstrated improper use of company assets?

A

Extrasure Travel Insurance Ltd v Scattergood (2003): Funds were improperly transferred between group companies.

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6
Q

What is the key obligation under Section 172 CA 2006?

A

Directors must promote the success of the company for the benefit of its members as a whole.

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7
Q

What is the principle of Enlightened Shareholder Value in Section 172?

A

Directors must balance shareholder interests with long-term consequences, stakeholder relationships, and environmental impacts.

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8
Q

What test is applied to determine compliance with Section 172?

A

A subjective-objective test, as established in Charterbridge Corp Ltd v Lloyds Bank Ltd (1970).

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9
Q

Which case found directors liable for exploiting employees, violating Section 172?

A

Antuzis v DJ Houghton Catching Services Ltd (2019).

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10
Q

What does Section 173 CA 2006 require of directors?

A

Directors must exercise independent judgment.

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11
Q

When can directors rely on third-party advice without breaching Section 173?

A

When such reliance aligns with their independent judgment and is not blind obedience.

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12
Q

What breach was highlighted in Mahoney v Renwick (1896)?

A

A director failed to exercise independent judgment by yielding to shareholder instructions.

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13
Q

What are the remedies for breaching directors’ duties under CA 2006?

A

Compensation, restitution, injunctions, or setting aside improper transactions.

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14
Q

What principle does Section 174 CA 2006 enshrine?

A

Directors must exercise reasonable care, skill, and diligence.

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15
Q

What standard is applied under Section 174?

A

Both an objective standard and a subjective standard based on the director’s knowledge and experience.

(Re City Equitable Fire Insurance Co Ltd (1925))

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16
Q

What does Section 175 CA 2006 prohibit?

A

Directors must avoid situations where they have a direct or indirect conflict of interest with the company.

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17
Q

What case established the strict approach to conflicts of interest?

A

Regal (Hastings) Ltd v Gulliver (1942): Directors profited from their position and were liable to account for such profits.

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18
Q

Under what circumstances can conflicts of interest be authorized?

A

If the board or shareholders approve the conflict in accordance with the company’s constitution.

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19
Q

What does Section 176 CA 2006 prohibit?

A

Directors must not accept benefits from third parties that create a conflict of interest.

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20
Q

What exception exists for third-party benefits under Section 176?

A

Benefits of minimal value, such as corporate hospitality, are generally allowed.

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21
Q

What is the duty under Section 177 CA 2006?

A

Directors must declare any interest in a proposed transaction or arrangement with the company.

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22
Q

What case confirmed the need to disclose conflicts of interest?

A

Gwembe Valley Development Co Ltd v Koshy (2004).

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23
Q

What does Section 178 CA 2006 provide?

A

Breaches of directors’ duties are enforceable under common law remedies, including equitable remedies.

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24
Q

What protection does Section 1157 CA 2006 offer directors?

A

Relief from liability if the director acted honestly, reasonably, and ought fairly to be excused.

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25
Q

What is the duty under Section 182 CA 2006?

A

Directors must declare an interest in any existing transaction or arrangement with the company.

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26
Q

Which case involved a breach of duty due to failure to declare an interest?

A

Re HLC Environmental Projects Ltd (2013).

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27
Q

What is the fiduciary duty of loyalty?

A

Directors must prioritize the interests of the company over personal interests.

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28
Q

What principle governs the duty of confidentiality?

A

Directors must not misuse company information for personal gain.

(Industrial Development Consultants Ltd v Cooley (1972))

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29
Q

What are the defenses to a claim of breach of duty?

A

Ratification by shareholders, statutory relief under Section 1157, or lack of causation between breach and loss.

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30
Q

What is the significance of Howard Smith Ltd v Ampol Petroleum Ltd (1974) for directors’ duties?

A

It reinforced the proper purposes doctrine, requiring directors to act for the intended purpose of their powers.

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31
Q

What are the three objectives of codifying directors’ duties under CA 2006?

A

Clarity, accessibility, and modernisation of directors’ responsibilities.

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32
Q

To whom are directors’ duties primarily owed?

A

To the company, as per Section 170(1) CA 2006.

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33
Q

Which case held that directors owe duties to the company, not individual shareholders?

A

Percival v Wright (1902).

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34
Q

What exception to Percival v Wright was established in Coleman v Myers (1977)?

A

Directors may owe fiduciary duties to shareholders in cases of a ‘special relationship.’

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35
Q

What is the statutory basis for the duty to act within powers?

A

Section 171 CA 2006.

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36
Q

What are the two requirements under Section 171 CA 2006?

A

Act within the company’s constitution and for the proper purposes.

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37
Q

What case is a landmark on the proper purposes doctrine for issuing shares?

A

Howard Smith Ltd v Ampol Petroleum Ltd (1974).

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38
Q

What did the court decide in Guinness plc v Saunders (1991) regarding directors’ remuneration?

A

Directors acted beyond their powers when fixing their own remuneration.

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39
Q

What does Section 172 CA 2006 require of directors?

A

To promote the success of the company for the benefit of its members as a whole.

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40
Q

What model underpins Section 172’s approach to stakeholder interests?

A

The Enlightened Shareholder Value model.

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41
Q

Which case applied the business judgment rule to directors’ discretion under Section 172?

A

ClientEarth v Shell plc (2023).

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42
Q

What case confirmed directors’ duty to consider creditor interests during insolvency?

A

BTI 2014 LLC v Sequana SA (2022).

43
Q

What triggers the duty to consider creditor interests under Section 172(3)?

A

When the company is insolvent or on the verge of insolvency.

44
Q

What does Section 173 CA 2006 require of directors?

A

To exercise independent judgment.

45
Q

What case demonstrated that directors must not blindly defer to others?

A

Madoff Securities International Ltd v Raven (2013).

46
Q

What is the statutory basis for the duty of care, skill, and diligence?

A

Section 174 CA 2006.

47
Q

What are the two standards applied under Section 174 CA 2006?

A

Objective (reasonable person standard) and subjective (director’s specific skills).

48
Q

Which case found non-executive directors liable for negligence?

A

Dorchester Finance Co. Ltd v Stebbing (1989).

49
Q

What does Section 175 CA 2006 require of directors?

A

To avoid conflicts of interest.

50
Q

Which case established the strict approach to conflicts of interest?

A

Regal (Hastings) Ltd v Gulliver (1942).

51
Q

What does Section 176 CA 2006 prohibit?

A

Acceptance of benefits from third parties that create a conflict of interest.

52
Q

What is the duty under Section 177 CA 2006?

A

Directors must declare any interest in a proposed transaction.

53
Q

What does Section 33 CA 2006 establish regarding the company’s constitution?

A

It binds the company and its members as a statutory contract.

54
Q

Which case clarified the enforceability of the company’s constitution?

A

Hickman v Kent or Romney Marsh Sheep-Breeders’ Association (1915).

55
Q

What are de facto directors?

A

Individuals who act as directors without formal appointment.

56
Q

Which case clarified the definition of de facto directors?

A

Smithton Ltd v Naggar (2014).

57
Q

What are shadow directors?

A

Individuals whose directions or instructions the board habitually follows.

58
Q

Which case established key principles on shadow directors?

A

Re Hydrodan (Corby) Ltd (1994).

59
Q

What section of CA 2006 applies general duties to shadow directors?

A

Section 170(5).

60
Q

What does Section 175 CA 2006 require directors to avoid?

A

Situations where personal interests conflict with the interests of the company.

61
Q

What is the leading case on conflicts of interest and corporate opportunities?

A

Regal (Hastings) Ltd v Gulliver (1942).

62
Q

In which case did directors acquire property in breach of their fiduciary duty?

A

Bhullar v Bhullar (2003).

63
Q

What does Section 176 CA 2006 prohibit directors from accepting?

A

Benefits from third parties that may compromise their loyalty to the company.

64
Q

What remedy may a court impose if a director profits from a breach of duty?

A

Restitution of improper gains.

65
Q

Under which statutory provision can directors be indemnified or insured?

A

Companies Act 2006 allows indemnity and insurance within certain restrictions to prevent avoidance of accountability.

66
Q

What does Section 170(2) CA 2006 state about post-resignation duties?

A

Duties under Sections 175 and 176 continue after a director resigns, particularly regarding company property and opportunities.

67
Q

Which case illustrated the misuse of confidential information post-resignation?

A

Safetynet Security Ltd v Coppage (2012).

68
Q

What did the court hold in CMS Dolphin Ltd v Simonet (2001)?

A

A director cannot resign to exploit corporate opportunities they were entrusted with during their tenure.

69
Q

What case established that fiduciary duties do not extend to opportunities the company has declined?

A

Island Export Finance Ltd v Umunna (1986).

70
Q

How does Section 177 CA 2006 relate to proposed transactions?

A

Directors must declare any direct or indirect interest in proposed transactions with the company.

71
Q

What is the difference between Sections 177 and 182 CA 2006?

A

Section 177 applies to proposed transactions, while Section 182 applies to existing transactions.

72
Q

Which case emphasized the need for transparency in disclosing conflicts of interest?

A

Aberdeen Railway Co v Blaikie Bros (1854).

73
Q

What does Section 232 CA 2006 prohibit?

A

Provisions exempting directors from liability for negligence or breaches of duty.

74
Q

How can shareholders ratify a director’s breach of duty?

A

Under Section 239 CA 2006, disinterested shareholders can approve the breach via majority vote.

75
Q

Which case demonstrated that directors could not delegate their fiduciary duties without oversight?

A

Re Barings Plc (No. 5) (1999).

76
Q

What was significant about Re Welfab Engineers Ltd (1990) regarding director relief?

A

Relief was granted as the director acted honestly and reasonably despite a breach.

77
Q

What case illustrates the liability of directors for failing to supervise family members?

A

Lexi Holdings Plc v Luqman (2009).

78
Q

How does the business judgment rule relate to Section 172 CA 2006?

A

It allows directors broad discretion in decision-making unless clear breaches are demonstrated.

79
Q

What duty is triggered when a company nears insolvency?

A

The duty to consider creditor interests under Section 172(3) CA 2006.

80
Q

Which case clarified the directors’ duty to creditors during insolvency?

A

BTI 2014 LLC v Sequana SA (2022).

81
Q

What are the two components of the duty of care under Section 174 CA 2006?

A

(1) Objective standard of a ‘reasonably diligent person’ and (2) subjective consideration of the director’s skills and experience.

82
Q

Which case involved negligence in signing an insurance document?

A

Re D’Jan of London Ltd (1994).

83
Q

What principle was established in Industrial Development Consultants Ltd v Cooley (1972)?

A

A director cannot resign to pursue personal opportunities meant for the company.

84
Q

What are the key remedies for breaches of directors’ duties?

A

Compensation for losses, restitution of gains, injunctions, and disqualification.

85
Q

What is the court’s discretion under Section 1157 CA 2006?

A

To grant relief if directors acted honestly and reasonably.

86
Q

What was the outcome in Boardman v Phipps (1967) regarding fiduciary obligations?

A

Fiduciaries must not profit from their position, even with good intentions.

87
Q

How does Section 175(3) CA 2006 limit conflicts of interest?

A

Allows conflicts in transactions with the company if authorized under specific conditions.

88
Q

What does Section 414CZA CA 2006 require large companies to include in their reports?

A

A Section 172 Statement explaining how directors promoted the company’s success.

89
Q

What are the practical implications of Hogg v Cramphorn Ltd (1967) regarding share issuance?

A

Issuing shares for an improper purpose, such as blocking a takeover, breaches the duty to act within powers.

90
Q

What does Section 175(1) CA 2006 prohibit in terms of conflicts of interest?

A

Directors must avoid situations where they have, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company.

91
Q

Which case established that directors must return profits derived from corporate opportunities?

A

Regal (Hastings) Ltd v Gulliver (1942) established that directors must account for profits gained from opportunities linked to their role, even if the company did not suffer a loss.

92
Q

What principle was highlighted in Bhullar v Bhullar (2003) regarding corporate opportunities?

A

Directors are strictly prohibited from taking opportunities that the company might have an interest in, regardless of whether the company was pursuing the opportunity actively.

93
Q

What is the primary aim of Section 176 CA 2006?

A

To prevent directors from accepting benefits that may compromise their loyalty to the company.

94
Q

What case established that directors must return profits derived from corporate opportunities?

A

Regal (Hastings) Ltd v Gulliver (1942) established that directors must account for profits gained from opportunities linked to their role, even if the company did not suffer a loss.

95
Q

What is the primary aim of Section 176 CA 2006?

A

To prevent directors from accepting third-party benefits (such as gifts or bribes) that could compromise their loyalty or create a conflict of interest.

96
Q

What was the key decision in Safetynet Security Ltd v Coppage (2012)?

A

A director misusing confidential company information after resignation breached their continuing duty under Section 170(2) CA 2006.

97
Q

How does CMS Dolphin Ltd v Simonet (2001) apply to post-resignation duties?

A

It established that directors cannot resign to exploit corporate opportunities they were responsible for pursuing while in office.

98
Q

Under Section 177 CA 2006, what is the key requirement for directors regarding proposed transactions?

A

Directors must declare any personal interest in proposed transactions to the board before the transaction is entered into.

99
Q

What case demonstrated the importance of full disclosure of interests in transactions?

A

Aberdeen Railway Co v Blaikie Bros (1854), where failure to disclose a conflict of interest led to the contract being voidable.

100
Q

What does Section 182 CA 2006 require in relation to ongoing transactions?

A

Directors must declare any interest in an existing transaction or arrangement promptly, ensuring transparency and integrity.

101
Q

What does the court consider when granting discretionary relief under Section 1157 CA 2006?

A

The court assesses whether the director acted honestly and reasonably and whether it would be fair to excuse the breach.

102
Q

How did Re Barings Plc (No. 5) (1999) define directors’ responsibilities in delegation?

A

Directors cannot delegate responsibilities without ensuring adequate oversight and must implement effective monitoring systems to prevent risks.

103
Q

What principle was established in Industrial Development Consultants Ltd v Cooley (1972) regarding resignation and personal gain?

A

A director who resigned to personally exploit an opportunity meant for the company breached their duty to avoid conflicts of interest, as resignation does not absolve them from liability for corporate opportunities.

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