WS4: Director's duties: remedies and relief from liability Flashcards
What sets out the consequences of breach of a directors duties?
Equitable relief for all apart from s174 which is a common law principle, and so the only remedy is damages.
S179 - more than one of the given duties can apply in any given case, so it is common to sue a director for breach of more than one duty.
What are the remedial options for breach of fiduciary duty?
Account for profits - personal / proprietary remedy
Damages
Rescission
Injunction - prevent directors from breaching their duties.
How does the account for profits personal remedy operate?
Directors are liable to account to the company for profits received from breach of duties.
Doesn’t matter if they acted honestly or not.
Only profits as a result of the breach are payable.
E.g. ‘disgorging a secret profit’
Do directors hold profits of their breach of duty on constructive trust for the company?
Profits are held on constructive trust in all cases where these profits can be identified as an asset capable of being held on constructive trust.
How can directors be relieved of liability for breach of duty under CA?
Prior consent / approval / authorisation by shareholders / directors where relevant
Ratification by shareholders
Relief granted by the court under S1157
Effect of prior approval by directors?
Under S175 or S177 - effect of this is that no breach of duty has taken place, and transaction is not liable to be set aside.
Director in question must not count in quorum / vote in relation to authorisation.
Effect of prior approval by shareholders?
S180 allows shareholders to authorise in advance conduct which would otherwise constitute a breach of duty
Can authorise breaches of duty / negligence but not illegality
Directors must have given full disclosure
Effect of shareholder ratification?
Ratification occurs by ordinary resolution disregarding the votes of any director involved / connected persons.
What condition is both S180 and S239 approval contingent on?
That decision is honest, bona fide, and in the best interests of the company, including creditors.
What is the S1157 relief test?
Director can be excused if:
- Acted honestly
-Acted reasonably
-Considering all the circumstances of the case, the director ought to be fairly excused.
BOP on director for parts one and two, then court considers part three.
Can a company exempt a director from liability in negligence, default, breach of duty or breach of trust?
No, any provision that attempts to do this would be void under S232
What are the exceptions to directors exemptions from liability?
- Insurance against liability
- Qualifying third party indemnity provisions
- Qualifying pension scheme indemnity provisions
