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Company law - directors duties

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Introduction

The company is not a natural person therefore someone must act on behalf of the company. The power of management is largely left to the directors. There is no precise definition of a director, however S250 Companies Act 2006(CA) states that a director 'includes any person occupying the position of director, by whatever name called'. It is evident this is a very broad meaning. 1 S170 (4) provides that the general duties shall be interpreted and applied in the same way as common law rules or equitable principles. The Company Law Review, Modern Law Review for a competitive economy: final report. (London: DTI June 2006), Vol 1 recommends a statement of director's duties so that, particularly, directors of smaller companies are more aware of their duties.2 The final report further talks about how the duties in their present form were misunderstood, unclear and imperfect in a number of cases. 3 It is important to remember that the directors owe the duty to the legal person 'the company' which was understood to be the providers of capital4. This duty is owed to the shareholders as a body and not the individual shareholders. This point was illustrated in the case of Percival-v-Wright (1902) 2 Ch 421 where it was held that the directors were not in a breach of duty when they failed to mention secret takeover negotiations to individual shareholders as the court took the view that premature disclosure of the takeover negotiations would have been detrimental to the shareholders. The CA 2006 re-states the common law position in s170 (1) ...read more.

Middle

In order to restrict the potential abuse of power within the corporation, directors in exercising their powers are subject to a number of controls and restrictions imposed by statute, common law and equity. In law directors are fiduciaries and agree to undertake to act for, or on behalf of the company where they have been appointed. Fiduciary duties can be seen to be an umbrella term to cover many aspects of director's duties in common law18. It can now be argued that at times this can be seen as unclear therefore the introduction of the CA 2006 can be said to bring greater clarity as it breaks down all the duties separately. A key principle applicable to anyone in a fiduciary position is that a director must avoid actual or possible conflicts of interests or duties. The case of Aberdeen Railway Co-v- Blaikie Bros (1854) 1 Macq 461 where it was classically stated in the following terms, 'No one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect'. CA 2006 S175 (1) accurately reflects the dictum above and codifies an approach long held at common law. Jason points out a very important issue that under common law, a conflict of interest caused by the director can only be excused or approved by the shareholders unless there are other procedures provided for in the articles of association (add case). ...read more.

Conclusion

12 In Fulham Football Club Lt-v- Cabra Estates Plc [1994] 1 B.C.L.C 363 the Court of Appeal held that there was no rule hat director's cannot bind themselves, fetter their discretion, as to the future exercise of their power in a particular way if the contract is for the benefit of the company. 13 Mukwiri, J. (2008) Directors' duties in takeover bids and English Company Law. International Company and Commercial Law Review.19(9), 281-289 14 This is where the liquidator sought to make the other directors liable in negligence for failing to detect the frauds. 15 A basic objective standard of reasonable care such as might be expected of an ordinary person acting on his or her own behalf. 16 That a director need not exhibit greater skill than can be expected of a person of his or her knowledge and experience. 17 Bruce, M. (2005) Rights and Duties of directors. Seven Edition. West Sussex: Tottel Publishing. 18 Bourne, N (1998) Principles of Company Law. 3rd edition. London: Cavendish Publishing 19 Chuah, J. (2007) The new Companies Act 2006 and Directors' Duties. Finance and Credit Law.6(3) 20 On occasion this rule is regarded as the 'secret profit' rule. 21 Mukwiri, J. (2008) Directors' duties in takeover bids and English Company Law. International Company and Commercial Law Review.19(9), 281-289 22 The House of Lords held that Regal was entitled to recover the personal profit made by the former directors, because the opportunity to make profit arose only through knowledge they had gained as directors. ?? ?? ?? ?? 1 ...read more.

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