Company Law Essay. S.741 (1) defines a director as including any person occupying the position of director by whatever name

The Directors of Rancid Ltd have issued shares for two purposes. It is necessary to try to ascertain the substantial purpose for which this share was issued. The power to allot shares is a fiduciary power which is now subject to S.80 of the Company Act 1985. The purpose of allotting shares is to raise capital and no other purpose. In this case, we can say that issuing shares to raise capital was the substantial purpose. This is because Rancid Plc needed capital and assuming there was no risk of a takeover, there is a high probability that the directors would still have had to allot shares. The power to allot shares was used for its proper purpose as well as for the benefit of the company. However it is worth mentioning that Directors no longer have unfettered discretion to issue shares.

Another Fiduciary duty of directors is that they are not to put themselves in a position where their duties to the company and their personal interest conflict. That is to say, they cannot make unauthorised profits from a corporate transaction, must disclose all interests in such transactions and must not compete with the company.

S. 317 Companies Act 1985 provides that a director who is in anyway directly or indirectly interested in any actual or proposed contract, transaction or arrangement with the company to disclose the nature of the interest at a meeting of a board of directors. Disclosure should be at the first meeting of the Board when the transaction is discussed. Directors can give a general notice to the board that they are interested in any transaction with a particular company.  Jemima while still a director at Rancid Ltd failed to disclose of her interest to the board. Under S.317 CA 1985, it is a criminal offence not to disclose your interest liable to a fine and the company is allowed to avoid the contract and recover any benefit Jemima makes from the contract.

A director is in a fiduciary position so he is not allowed to make undisclosed secret profit by reason of that position. Jemima was able to know of the project because of her position as a director in Rancid Ltd. Following Boardman v Phipps ,  knowledge is an asset. In CMS Dolphin Ltd v Simonet, it was asserted that a director must not divert to his own use any maturing business opportunity that his company is pursuing even after resignation. Jemima has stolen a business opportunity here and she has to account for any profit she made from the project.

Cork Crackling Plc had previously discussed the project with Rancid Ltd. Rancid Ltd was interested except they wanted Cork Crackling to give them more information. In IDC V Cooley, Mr Cooley worked for a company that was submitted a tender to the Gas Board for a project. Mr Cooley was approached individually by the Gas Board to the effect that they wanted him to be the project manager. Mr Cooley resigns on grounds of ill health. The company he worked for had 20% chance of getting the contract. The court held that the company still had a genuine interest in the contract so Mr Cooley had to account for the profits he made from the contract. This is similar to the situation here in that there is already a project available and Rancid was still interested because they were waiting for more information about the project. Assuming Rancid Ltd had rejected the business proposal; Jemima would be able to take the deal as seen in Peso Silvermines v Cropper . Jemima knowing that Rancid Ltd was still interested in the project should have gone back to inform Rancid Ltd when she got more information about the project because as a director she is to act bonafidely for the benefit of the company.

If Jemima makes a profit from this project as rumoured then she is liable to account to Rancid Ltd. Following Regal (Hastings) Ltd v Harrison , the test imposed on accounting for unauthorised profit is a very strict test.  R Ltd owned one cinema and wanted to buy two more so as to sell all three together. They formed a subsidiary company to buy the two cinemas but were unable to provide all the capital required. The directors except one decided to subscribe to shares in the subsidiary company and as a result they could buy the cinemas. They sold the three cinemas together and made a profit. Court held that directors that subscribed to the shares had to account for the profit they made because it was only through their knowledge as a director in Regal that they were able to make that profit The directors of Regal could have ratified the breach but they did not so they had to account.  It does not matter that the company could not have made the profit without you, so even if Cork Crackling Plc no longer wanted Rancid Ltd but Jemima, it does not matter. Jemima has to account for all the profits she made.

S.727, CA 1985, provides that in proceedings for negligence, default breach of duty or breach of trust against a director or other officer or auditor of a company, it appears that he has acted honestly and reasonably and that having regard to all the circumstances, including those connected with his appointment, he ought fairly to be excused, the court may relieve him, wholly or partly, from liability on such terms as he thinks. Jemima cannot be relieved under s.727 because she has not acted honestly and reasonably

In Conclusion the directors of Rancid Ltd are can make the allotment of shares. Rancid Ltd has a claim against Jemima to account for the profits she made from the project.