Directors Duties' Flashcards
What is the interpretation of directors’ duties under section 170?
Duties are interpreted and applied in the same way as common law rules or equitable principles, allowing for wider interpretation and more flexibility.
This approach provides a broader context for understanding directors’ responsibilities beyond strict statutory language.
What are the repercussions of breaches or threatened breaches of general duties according to section 178?
They have the same repercussions as pre-Companies Act 2006 law under equitable principles and common law.
This includes potential legal actions and liabilities that may arise from such breaches.
Who do the general duties apply to?
- Directors
- Former directors
- Shadow directors (with specific provisions)
Shadow directors are defined under section 170(5) and subject to regulations by the Secretary of State.
When do directors’ duties cease?
Generally when a person ceases to be a director, but the duty to avoid conflicts of interest and the duty not to accept benefits from third parties continue.
These duties persist even after a director’s resignation or removal.
To whom are directors’ duties owed?
Duties are owed to the company.
This means that directors must act in the best interests of the company, not individual members or creditors.
What are the sanctions for breach of duty?
- Claim for damages by the company
- Equitable remedy of tracing profits and property acquired in breach
These remedies can help restore losses incurred due to breaches of duty.
How are directors regarded in terms of fiduciary duties?
Directors are regarded as fiduciaries, historically treated as trustees with a duty to act in good faith in the interests of the company.
This fiduciary relationship emphasizes the trust placed in directors to manage company affairs responsibly.
What is the core duty of directors according to section 172?
Promote the success of the company, considering the interests of members and other stakeholders.
This duty is aimed at ensuring long-term corporate success.
What does the ‘but for’ test assess in directors’ duties?
It examines whether a decision would have been taken ‘but for’ an improper purpose, indicating a breach if the answer is negative.
This test was notably discussed in Eclairs Group Ltd v JKX Oil & Gas plc.
What is the significance of the Enlightened Shareholder Value approach?
It encourages directors to consider the interests of wider stakeholders while promoting the company’s success for members.
This approach aims for stability and long-term benefits to shareholders.
What does section 173 require from directors?
Directors must exercise independent judgment in their decision-making.
This ensures that directors prioritize the company’s best interests over external influences.
What does section 174 outline regarding directors’ care and diligence?
Directors must exercise reasonable care, skill, and diligence, meeting a minimum standard and considering their individual expertise.
This includes an objective and subjective test for assessing a director’s performance.
What is the importance of knowledge of the company’s business for directors?
Directors have a continuing duty to maintain sufficient knowledge and understanding of the company’s business to discharge their duties effectively.
This is crucial for informed decision-making and risk management.
What does the case of Fulham Football Club Ltd v Cabra Estates plc illustrate?
Directors can lawfully agree to restrict their discretion if it is in good faith for the company’s benefit.
This case emphasizes the balance between director autonomy and fiduciary duty.
What is the test for determining good faith in directors’ decisions?
Directors must act in a way they believe to be in the best interests of the company, not necessarily how the court would view it.
This reflects the business judgment rule.
What does section 172(3) indicate about creditors’ interests?
If a company has no reasonable prospect of avoiding insolvent liquidation, creditors’ interests take priority.
This shifts focus from shareholders to creditors in times of financial distress.
What is the primary duty of directors when delegating functions?
Directors must supervise the discharge of the delegated functions
The extent of this duty depends on the facts of the case, including the management role of the director.
In the case of Re Queens Moat House plc (No 2), what was the court’s conclusion regarding the chairman and joint managing director?
The chairman and joint managing director breached their duty of care by failing to question the accounts prepared by the finance director
They should have recognized discrepancies based on available financial information.
What two standards are applied for the duty of care, skill, and diligence for directors?
- Objective standard: Reasonably diligent person
- Subjective standard: Higher standard for directors with specific expertise
This is codified in Section 174 of the Companies Act 2006.
True or False: Directors can blindly rely on the expertise of qualified professionals.
False
Directors have a duty to exercise independent judgment and critically assess information.
What does the duty to avoid conflicts of interest entail for directors?
Directors must avoid situations where they have a direct or indirect interest that conflicts with the interests of the company
This includes exploitation of any property, information, or opportunity.
What is the significance of the case Bray v Ford [1896] in relation to fiduciary duty?
It established that a fiduciary is not allowed to put themselves in a position where their interest and duty conflict
This principle underlines the no conflict and no profit rule.
Fill in the blank: A director must declare their interest in a proposed _______ or arrangement.
transaction
This declaration must include the nature and extent of the interest.
What are the civil consequences of breaching directors’ duties under sections 171–177?
Determined by pre-existing common law and equitable principles
This includes remedies such as return of property or account for profits.
