Directors: Duties and Obligations Flashcards
When can directors be personally liable in a contract?
If they contract to be liable
If actual authority is exceeded, company may be liable but directors will be liable to the company (Weeks v Propert 1873)
Can directors buy from or sell ‘property’ to the company?
Yes, but only with members approval.
Can directors be given loans by the company?
Yes, but only with members approval.
There are some exceptions that don’t need approval, such as loans to directors for business purposes.
What are the consequences of a breach of duty?
Generally, the company can be set aside and directors held personally liable to the company.
Members can ratify breach of duty if they wish.
S.171 CA 2006 - Duty to act within powers
Director must:
Act in accordance with company’s constitution
Only exercise powers for the purposes for which they are conferred.
S.172 CA 2006 - Duty to promote the success of the company
Must have regard for: Consequences of decisions Employees Business Relationships Community Reputation Acting Fairly
S.173 CA 2006 - Duty to exercise independent judgement
Must not be influenced by other interest or other people.
S.174 CA 2006 - Duty to exercise reasonable skill, care and diligence
Must do this with:
What would be expected of a reasonable director
What would be expected of that particular director (held to higher standard if particularly skilled or knowledgeable)
S.175 CA 2006 - Duty to avoid conflicts of interest
Avoid putting themselves in a position where their duties are conflicted with personal or other business interests.
S.176 CA 2006 - Duty not to accept benefits from third parties
Do not take bribes or benefits in kind
S.177 CA 2006 - Duty to declare interest in proposed transaction or arrangement
Directors must declare any interest to the board. Obligation is removed if directors already know or ought to, but better to disclose everything.
What are the remedies for breach of duty?
Company can ratify the breach
Company may indemnify the director against liability
If neither of the above, director is personally liable.
What other situations can a Director be personally liable?
If he acts when bankrupt
Wrongful trading
Fraudulent trading
‘Phoenix’ company cases
What reasons does Company Directors (Disqualification) Act 1986 give for disqualification?
Unfit due to conduct Bankruptcy Criminal offences Fraudulent or wrongful trading Persistent default in filing returns and documents
How else can directorship be terminated?
Resignation
By members’ vote
On liquidation (power moves to liquidator)
