Question 2:
This essay examines the consequences of Sunil's decision to take the contract from
Ian and to conceal this from the other directors. I will investigate, the corporate
opportunity doctrine,1 the duty of good faith,2 and the fiduciary duty of directors. 3 I will
use legal precedents and legislation, including the Companies Act 2006 4 to reach my
conclusion in demonstrating that Sunil violated s.175 5 by failing to prevent conflicts of
interest, s.1766 receiving benefits from third parties, and s.177 7 by failing to declare
interest in planned transactions/arrangements.
To begin, directors are responsible for running a company and making decisions. 8
The directors and shareholders of a small company are usually the same individuals
and in major corporations, there is clear demarcation between the two. Directors
must be held accountable for their actions because of the enviable position they
hold.9 Some of this authority comes from laws that forbid/compel particular activities,
like selling shares below nominal value10. The responsibilities put on directors are a
form of control and may be seen as distinct obligations or as facets of a single
fiduciary responsibility.11 If there is just one obligation, it is to the shareholders as a
collective and not as individuals, to behave in good faith for the benefit of the
corporation as a whole.
In ‘Percival’,12 a director purchased shares from another company member at a price
below what the director knew a third party had shown interest in purchasing all of the
shares for. The selling member sued for failing to uphold fiduciary obligations. It was
decided the buying director had no reporting duty to the vendor shareholder as the
obligation was owed to all shareholders rather than the one.
Sunil was obligated to inform the other directors about the offer he had received and
have integrity in his dealings, unlike in Percival. 13 By Ian believing the quote was
“high”, Sunil required a "little extra" and informed the other directors that the contract
fell through. Sunil had a commitment to operate in directors fiduciary duties, but he
did not.
1
Thomas reuters, 'Corporate Opportunity Doctrine'(Practical Law , 2022) <https://uk.practicallaw.thomsonreuters.com/0-383-
6380?transitionType=Default&contextData=(sc.Default)&firstPage=true> accessed 6 April 2023
2
Thomas reuters, 'Duty of good faith' (Practical Law ,2022) <https://uk.practicallaw.thomsonreuters.com/1-107-6164?
transitionType=Default&contextData=(sc.Default)> accessed 6 April 2023
3
Jonathan Munnery, 'Understanding a company director’s fiduciary duties and consequences of failing these duties' (Begbies
Trainer Group, 11 February 2021) <https://www.begbies-traynorgroup.com/articles/director-advice/understanding-a-company-
directors-fiduciary-duties-and-consequences-of-failing-these-duties>accessed 6 April 2023
4
The Companies Act 2006
5
The Companies Act 2006 cl section 175
6
The Companies Act 2006 cl section 176
7
The Companies Act 2006 cl section 177
8
Chris Taylor, Company Law (5th Edition edn, Pearson2019) Page 81
9
Chris Taylor, Company Law (5th Edition edn, Pearson2019) Page 81
10
The Companies Act 2006 cl section 580
11
Chris Taylor, Company Law (5th Edition edn, Pearson2019) Page 88
12
Percival v Wright [1902] 2 Ch 421
13
Percival v Wright [1902] 2 Ch 421
This essay examines the consequences of Sunil's decision to take the contract from
Ian and to conceal this from the other directors. I will investigate, the corporate
opportunity doctrine,1 the duty of good faith,2 and the fiduciary duty of directors. 3 I will
use legal precedents and legislation, including the Companies Act 2006 4 to reach my
conclusion in demonstrating that Sunil violated s.175 5 by failing to prevent conflicts of
interest, s.1766 receiving benefits from third parties, and s.177 7 by failing to declare
interest in planned transactions/arrangements.
To begin, directors are responsible for running a company and making decisions. 8
The directors and shareholders of a small company are usually the same individuals
and in major corporations, there is clear demarcation between the two. Directors
must be held accountable for their actions because of the enviable position they
hold.9 Some of this authority comes from laws that forbid/compel particular activities,
like selling shares below nominal value10. The responsibilities put on directors are a
form of control and may be seen as distinct obligations or as facets of a single
fiduciary responsibility.11 If there is just one obligation, it is to the shareholders as a
collective and not as individuals, to behave in good faith for the benefit of the
corporation as a whole.
In ‘Percival’,12 a director purchased shares from another company member at a price
below what the director knew a third party had shown interest in purchasing all of the
shares for. The selling member sued for failing to uphold fiduciary obligations. It was
decided the buying director had no reporting duty to the vendor shareholder as the
obligation was owed to all shareholders rather than the one.
Sunil was obligated to inform the other directors about the offer he had received and
have integrity in his dealings, unlike in Percival. 13 By Ian believing the quote was
“high”, Sunil required a "little extra" and informed the other directors that the contract
fell through. Sunil had a commitment to operate in directors fiduciary duties, but he
did not.
1
Thomas reuters, 'Corporate Opportunity Doctrine'(Practical Law , 2022) <https://uk.practicallaw.thomsonreuters.com/0-383-
6380?transitionType=Default&contextData=(sc.Default)&firstPage=true> accessed 6 April 2023
2
Thomas reuters, 'Duty of good faith' (Practical Law ,2022) <https://uk.practicallaw.thomsonreuters.com/1-107-6164?
transitionType=Default&contextData=(sc.Default)> accessed 6 April 2023
3
Jonathan Munnery, 'Understanding a company director’s fiduciary duties and consequences of failing these duties' (Begbies
Trainer Group, 11 February 2021) <https://www.begbies-traynorgroup.com/articles/director-advice/understanding-a-company-
directors-fiduciary-duties-and-consequences-of-failing-these-duties>accessed 6 April 2023
4
The Companies Act 2006
5
The Companies Act 2006 cl section 175
6
The Companies Act 2006 cl section 176
7
The Companies Act 2006 cl section 177
8
Chris Taylor, Company Law (5th Edition edn, Pearson2019) Page 81
9
Chris Taylor, Company Law (5th Edition edn, Pearson2019) Page 81
10
The Companies Act 2006 cl section 580
11
Chris Taylor, Company Law (5th Edition edn, Pearson2019) Page 88
12
Percival v Wright [1902] 2 Ch 421
13
Percival v Wright [1902] 2 Ch 421
