SGS 11 Flashcards
Where are directors duties found?
ss.170 – 177 and 182 – 185 CA 2006.
MAs 3 and 5 deal with the power of the directors to manage the company.
Key provisions for Directors are found in Part 10 of CA2006 which include directors’ general duties and other restrictions
Important to note that s.170(5) provides that the general duties of directors apply to shadow directors where and to the extent that they are capable of so applying.
S.171 CA 2006.
Duty to act within powers
A director of a company must—
(a)act in accordance with the company’s constitution, and
(b)only exercise powers for the purposes for which they are conferred.
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A company’s articles or the CA 2006 may prohibit directors from entering into transactions of a certain value or type without shareholder consent.
This provision places directors under a statutory duty not to permit such transactions without first following the required approval.
S.172 CA 2006
Duty to promote the success of the company
Directors have an overarching duty to act in a way that they believe will benefit the company. This provision sets out a series of stakeholder factors that directors should consider when making decisions, including
- The likely consequences of the decisions in the long-term
- interests of the company’s employees
- The need to foster the company’s business relationships with customers, suppliers and others
- The impact on the community and environment
- need to build and preserve the companys reputation
s.173 CA 2006
Duty to exercise independent judgement
Directors must not compromise their own independence. This duty is not typically a main focus of the LPC
s.174 CA 2006
Duty to exercise reasonable care, skill and diligence
(1) A director of a company must exercise reasonable care, skill and diligence.
(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with—
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
(b) the general knowledge, skill and experience that the director has.
s.175 CA 2006
Duty to avoid conflicts of interest
A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
S.176 CA 2006
Duty to not accept benefits from third parties
(1) A director of a company must not accept a benefit from a third party conferred by reason of—
(a) his being a director, or
(b) his doing (or not doing) anything as director.
(2) A “third party” means a person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate.
S. 177 CA 2006
Duty to declare interest in proposed transaction or arrangement
(1)If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors.
(2) The declaration may (but need not) be made—
(a) at a meeting of the directors, or
(b)by notice to the directors in accordance with—
(i) section 184 (notice in writing), or
(ii) section 185 (general notice).
RELATIONSHIP BETWEEN CA 1.177 AND MODEL ARTICLE 14
Note that this section only creates a duty to disclose an interest. It is MA 14 that restricts the ability of directors to vote when they have a personal interest in a transaction. MA 14 prohibits a director with an interest in a transaction from voting on whether the transaction can be approved.
What are the statutory duties under CA 2006?
- To act within their powers
- To promote the success of the company for the benefit of the members as a whole (contains factors to consider)
- To exercise independent judgement
- To exercise reasonable care, skill and diligence
5, To avoid conflicts of interest. - Not to accept benefits from third parties; and
- To declare any interest in a proposed transaction
What are the remedies for breach of duty against directors?
Under s.178 the consequences of a breach of directors’ duties are the same as for a breach of the corresponding common law or equitable principles.
The statutory duties are enforceable in the same way as fiduciary duties owed by directors to their company (with the exception of the duty to exercise reasonable care, skill and diligence under 174).
Remedy for a breach of the duty of care, skill and diligence is usually damages.
Remedies for breaches of other general duties include:
- an Injunction;
- Setting aside of the transaction, restitution and account of profits;
- Restoration of company property held by the director; and/or
- Damages
A breach of duty could also be grounds for the termination of an executive director’s service contract or for disqualification as a director under the Company Directors Disqualification Act 1986
Section 260 gives shareholders an express right to bring a derivative claim where directors have, for example, breached their statutory duties or acted negligently. Although, most of the time, if a majority of shareholders support action against the director for breach of duty, a derivative action will not be necessary . A derivative action is likely to be commenced, where only a minority of shareholders want to take action in a case.
Other Directors’ Duties
To the extent not expressly provided in the CA 2006, directors have some duties that derive from common law and equity.
