WS4: Director's Duties; 175 - 177 Flashcards
What is the S175 duty?
Duty to avoid conflict of interest
What is the S176 duty?
Duty not to accept benefits from 3rd parties
What is the S177 duty?
Duty to declare an interest in proposed transactions / arrangements
What does the S175 duty to avoid conflicts of interests entail?
- Directors must avoid situations where they personally have a conflict with interests of the company
- Particularly applies to exploitation of property, information or opportunity, regardless of whether company itself could have exploited it / even knew about it.
- It also applies even if the opportunity in question has been presented only in a personal capacity.
When can conflicts of interests legally occur?
If authorised by the directors;
Private company - authorised by an independent director with no interest in the matter, unless the constitution says otherwise.
Public company - directors can only authorise if expressly permitted by constitution.
What is the Boardman v Phipps understanding of a ‘conflict of interest’?
“Whether a reasonable man looking at the relevant facts and circumstances would think that there is a real and sensible possibility of conflict”
What does S175 expressly exclude?
Transactions or arrangements with the company. These are covered under S177 duty of disclosure as opposed to conflict.
How is a corporate opportunity understood?
As an asset of the company which cannot be misappropriated by directors e.g. benefit of a business opportunity.
Can a director resign from a company to exploit a corporate opportunity which would otherwise be a breach of S175?
No.
Case Law Principles:
-Taking all clients of a previous one to a new company after a falling out - “constructive trustee of the fruits of his abuse”
- Setting up a rival company before resigning - forced to account for profits made in advance but not liable to damage as no losses had been made as a result of breach
- However, if no ulterior motive on resignation / effectively forced out of the company / lack of a relevant connection or link between resignation and the obtaining of the business
Can a director be a director of two competing companies?
Informed consent of both principals would be needed; therefore would need to be authorised by both companies.
Would depend on the facts.
What does s176 duty not to accept benefits from third parties entail?
Replaces equitable principle that fiduciaries must not accept secret commissions / bribes.
Read in conjunction with no-conflict duty; s176 is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
Can directors authorise s176 breach?
No - ratification from shareholders would be required.
What is the duty under S177?
If a director is directly / indirectly interested in a proposed transaction / arrangement with the company, he must declare the nature / extent of that interest to other directors.
Example; buying / selling an asset from the company.
Can be informal.
If duty is disclosed transaction is theoretically not liable to be set aside, but this is subject to constitution.
What is the difference between S177 and S182?
S177 is for a future transaction which is being disclosed in advance
S182 is when a director has an interest in a transaction after it has been entered into by a company.
What is the difference in punishment between S177 and S182?
S182 can lead to criminal sanctions.
