Duties and Responsibilities of Directors Flashcards
What is the primary responsibility of directors under CA 2006?
A. To act in the best interests of the company as a whole.
B. To maximise shareholder value at all costs.
C. To ensure the company makes a profit every financial year.
D. To always follow the instructions of the majority shareholder.
A. To act in the best interests of the company as a whole.
Explanation: Directors must act in the interests of the company, not individual shareholders (s 172 CA 2006).
Under s 171 CA 2006, which of the following is a director’s duty?
A. To consider only short-term profits when making decisions.
B. To act within the company’s constitution and only use powers for their proper purpose.
C. To delegate all decisions to the shareholders.
D. To ensure the board votes unanimously on all matters.
B. To act within the company’s constitution and only use powers for their proper purpose.
Explanation: s 171 CA 2006 imposes a duty to follow the company’s constitution and not misuse powers for personal gain.
A director is considering whether to move the company’s operations overseas. What must they take into account under s 172 CA 2006?
A. Only the financial benefits to the directors.
B. The long-term consequences and the impact on employees, customers, and the community.
C. The personal interests of the company’s majority shareholder.
D. The short-term increase in share price.
B. The long-term consequences and the impact on employees, customers, and the community.
Explanation: s 172 CA 2006 requires directors to consider long-term success, employees, customers, the environment, and fairness.
What does the duty to exercise independent judgment under s 173 CA 2006 mean?
A. Directors must always follow legal and financial advice without question.
B. Directors must exercise their own judgment but can take advice from others.
C. Directors must always make decisions collectively with the shareholders.
D. Directors must make decisions that favour themselves over the company.
B. Directors must exercise their own judgment but can take advice from others.
Explanation: s 173 CA 2006 allows directors to seek advice but requires them to make independent decisions.
A director has special expertise in finance but ignores key financial reports before approving a major investment. Which duty has been breached?
A. Duty to act within powers (s 171).
B. Duty to promote the success of the company (s 172).
C. Duty to avoid conflicts of interest (s 175).
D. Duty to exercise reasonable care, skill, and diligence (s 174).
D. Duty to exercise reasonable care, skill, and diligence (s 174).
Explanation: s 174 CA 2006 requires directors to use their own skills and expertise in decision-making.
A director issues new shares to dilute a shareholder’s voting power rather than to raise capital. Which duty has been breached?
A. Duty to promote the success of the company (s 172).
B. Duty to act within powers (s 171).
C. Duty to exercise reasonable care, skill, and diligence (s 174).
D. Duty not to accept benefits from third parties (s 176).
B. Duty to act within powers (s 171).
Explanation: Directors must not misuse their powers for improper purposes. Issuing shares to dilute voting power rather than raise capital breaches s 171 CA 2006.
A director follows the advice of a controlling shareholder without considering other perspectives. Which duty is breached?
A. Duty to avoid conflicts of interest (s 175).
B. Duty to exercise independent judgment (s 173).
C. Duty to exercise reasonable care, skill, and diligence (s 174).
D. Duty to act within powers (s 171).
B. Duty to exercise independent judgment (s 173).
Explanation: s 173 CA 2006 requires directors to think independently, even if shareholders provide advice.
A director signs a contract that commits the company to borrowing beyond its permitted limits under the Articles. Which duty is breached?
A. Duty to avoid conflicts of interest (s 175).
B. Duty to exercise reasonable care, skill, and diligence (s 174).
C. Duty to act within powers (s 171).
D. Duty to promote the success of the company (s 172).
C. Duty to act within powers (s 171).
Explanation: Directors must comply with the company’s constitution (s 171 CA 2006). Exceeding borrowing limits set in the Articles breaches this duty.
A director follows legal advice about a business decision but does not consider other relevant factors before acting. Have they breached any duties?
A. No, because legal advice is always binding on directors.
B. Yes, they have breached the duty to exercise independent judgment (s 173).
C. Yes, they have breached the duty to act within powers (s 171).
D. No, as long as they followed expert advice, they have acted properly.
B. Yes, they have breached the duty to exercise independent judgment (s 173).
Explanation: s 173 CA 2006 allows directors to take advice but requires them to make their own decision. Simply following advice without assessing its impact breaches this duty.
The board of XYZ Ltd approves a factory expansion plan but fails to consider its impact on employees and the environment. Have they breached any duty?
A. No, because the decision benefits shareholders.
B. Yes, they have breached the duty to avoid conflicts of interest (s 175).
C. Yes, they have breached the duty to promote the success of the company (s 172).
D. No, as long as the company is profitable.
C. Yes, they have breached the duty to promote the success of the company (s 172).
Explanation: s 172 CA 2006 requires directors to consider long-term consequences and stakeholder impact.
A director is offered a gift from a supplier in exchange for awarding them a contract. Which duty is breached?
A. Duty to act within powers (s 171).
B. Duty to promote the success of the company (s 172).
C. Duty to avoid conflicts of interest (s 175).
D. Duty not to accept benefits from third parties (s 176).
D. Duty not to accept benefits from third parties (s 176).
Explanation: s 176 CA 2006 prevents directors from receiving personal benefits from third parties that may influence their decisions.
Under s175 CA 2006, a director must avoid which of the following?
A) Entering into transactions with the company
B) Situations that may result in a conflict of interest
C) Making decisions that result in a financial loss
D) Hiring employees from competing companies
B - Situations that may result in a conflict of interest
Explanation: s175 CA 2006 requires directors to avoid actual or potential conflicts of interest unless board approval is obtained.
A director breaches s176 CA 2006 when they do what?
A) Accept a bonus from the company
B) Accept a small company-branded pen from a supplier
C) Accept a personal cash gift from a client seeking a contract
D) Accept a corporate discount available to all employees
C - Accept a personal cash gift from a client seeking a contract
Explanation: s176 CA 2006 prohibits directors from accepting benefits from third parties that may influence their decision-making.
What is a director’s primary responsibility under s177 CA 2006?
A) To prevent other directors from acting negligently
B) To declare any interest in a proposed company transaction
C) To declare any interest in an employee contract
D) To ensure the company’s financial records are accurate
B - To declare any interest in a proposed company transaction
Explanation: s177 CA 2006 requires directors to declare any direct or indirect interests before a transaction is entered into.
Peter, a director of TechNova Ltd, is also a shareholder in a startup that TechNova is about to invest in. What does s175 require Peter to do?
A) Nothing, as a shareholder interest does not count
B) Seek the approval of TechNova’s board
C) Immediately sell his shares in the startup
D) Transfer his shares to a third party
B - Seek the approval of TechNova’s board
Explanation: s175 CA 2006 requires directors to avoid conflicts of interest unless authorised by the board.
Sarah, a director of EcoPower Ltd, is offered a free luxury holiday by a company hoping to win a supply contract. What should she do under s176?
A) Accept the trip since it does not benefit her financially
B) Accept the trip and later declare it to the board
C) Politely decline the offer to avoid any conflict of interest
D) Accept the trip only if she informs the company shareholders
C - Politely decline the offer to avoid any conflict of interest
Explanation: s176 CA 2006 prohibits directors from accepting benefits that could create a conflict of interest.
John is a director of Builders Ltd and his cousin owns 40% of a company that is about to sign a contract with Builders Ltd. What must John do under s177?
A) Declare the indirect interest to the board
B) Abstain from voting on the transaction
C) Resign as director to avoid conflicts
D) Do nothing, as family members’ interests do not count
A - Declare the indirect interest to the board
Explanation: s177 CA 2006 requires directors to declare indirect interests, such as business connections involving family members.
A director of AlphaTech Ltd learns about a potential investment and buys shares in the target company before AlphaTech can act. Which duty has been breached?
A) Duty to promote the company’s success
B) Duty to act within powers
C) Duty to declare an interest in a proposed transaction
D) Duty to avoid conflicts of interest
D - Duty to avoid conflicts of interest
Explanation: s175 CA 2006 prevents directors from exploiting business opportunities that belong to the company.
A director of GreenFoods Ltd is invited to a high-profile event with expensive gifts from a supplier. What does s176 require them to do?
A) Accept only if the supplier wins the contract
B) Accept the gift and inform the board afterward
C) Refuse the gift and report it to the board
D) Accept the gift if it does not influence their decision
C - Refuse the gift and report it to the board
Explanation: s176 CA 2006 requires directors to avoid accepting benefits that may influence their decisions.
If a director breaches their duty under s175 CA 2006, which of the following is a possible consequence?
A) The director may be fined but can continue as a director
B) The transaction may be set aside and profits recovered
C) The breach can only be resolved by company dissolution
D) The director is automatically disqualified for 10 years
B - The transaction may be set aside and profits recovered
Explanation: Remedies for breach of fiduciary duties include rescinding contracts and recovering profits made by the director.
Under s177, how should a director declare an interest in a proposed transaction?
A) Verbally to the board only
B) By written notice to all directors or at a board meeting
C) By notifying the shareholders in writing
D) By making a personal note of it for future reference
B - By written notice to all directors or at a board meeting
Explanation: s177 CA 2006 requires directors to declare conflicts in writing or at a board meeting before the transaction takes place.
A director of SpeedyDelivery Ltd is found guilty of accepting personal payments from suppliers. Which remedy is available under s176?
A) The company can claim damages and seek to recover the payment
B) The director will be automatically removed from office
C) The director will face criminal prosecution
D) The shareholders must vote to approve the payment
A - The company can claim damages and seek to recover the payment
Explanation: s176 CA 2006 allows companies to recover financial benefits improperly received by directors.
