Directors and Director’s duties
• Director- “director”-an individual brought in for the assistance of the company.
• Joint responsibility for determining and implementing the co’s policy
• Individually and collectively liable for the acts and/or negligence of the co
• Usually manage the company affairs-a consequence pf the case of Salmon v Salmon.-
A company is a separate legal person. The directors will essentially owe their duties
to the company.
Categories of directors
Executive Director
o Executive director-engage in the day to day management of the company’s affairs,
Non-executive director
o Brought onto to a company’s board of directors due to their experience, in which
they contribute to the managerial sector of the company. The law does not
distinguish between non-executive and executive directors duties within the law
Shadow Directors
o Company or person “in accordance with whose directions or instructions the
directors of the company are accustomed to act”. TCA 2006
o Excludes professional advice-from i.e. An accountant or Solicitor are not
shadow directors.
De iure = formally appointed companies articles of associations
• De facto = not formally appointed but acts openly, as if he had undertaken
It is essential to mainly focus on the principle, rather than the effects in a problem question.
,The purpose of directors duties.
Directors have broad discretionary powers, Requires laws to overlook the
amount of discretionary powers.
Efficiency gains from centralised management
Risk of directors’ shirking(avoiding) their responsibilities
Directors’ duties constrain management behaviour
Apply to public and private companies
Pre companies Act 2006
o Previously a case law framework of directors duties, Problems: duties were uncertain
as well as the unawareness of duties of non-legal individuals.
o Supported by statute on certain points (CA 1985)
Types of duties-Companies Act 2006
• These duties apply to every decision which the directors take:
• Fiduciary duties
Duty to act in good faith in the interests of the company
Duty to act within powers
Duty not to fetter discretion-A director must not limit their discretion
Duty not to make a profit at the company’s expense
• Common law duties of care and skill-Deals with the aptitude of an individual who is
carrying out the task.
To whom are the duties owed to?
• Percival v Wright [1902] 2 Ch 421.
• Swinfen Eady J: directors “must act bona fide for the interests of the company”
• ‘interests of the company’-(Intrests of its shareholders as a whole) - difficult to
interpret.-
• What is ‘the company’?
• Company v members
,Directors duties to shareholders-s.171 AND S.177
Principal authority :
Greenhalgh v Arderne Cinemas Ltd [1951
“the phrase, ‘the company as a whole’ does not (at any rate in such a case as the present)
mean the company as a commercial entity distinct from the shareholders]. It means the
[shareholders] as a general body.”
Evershed M. R
Companies Act 1985:
309. Directors to have regard to interests of employees.
(1) The matters to which the directors of a company are to have regard in the performance
of their functions include the interests of the company’s employees in general, as well as the
interests of its members.
(2) Accordingly, the duty imposed on directors is owed by them to the company (and the
company alone) and is enforceable in the same way as any other fiduciary duty owed to a
company by its directors.
(3) This section applies to shadow directors as it does to directors.
N.B. No case law has been recorded on s 309!!!
Directors duties to creditors
• “when a company is insolvent the interests of the creditors intrude’’
• Brady v Brady [1989] :
“The interests of the company are to be equated with the interests of the shareholders in
general except when the company is insolvent or of doubtful solvency or whether the
proposed act would be prejudicial to creditors’ at which point the interests of the creditors
become paramount.”
• Kinsela v Russell Kinsela Pty Ltd [1986]:
• Colin Gwyer and Associates Ltd v London Wharf Ltd [2003]
• Interests of company traditionally equated with the interests of shareholders
• power to appoint and remove directors (s 303, CA 1985)
• Directors indirect duty towards creditors when company becomes insolvent or is of
doubtful insolvency
• Directors required to have regard to employee concerns,
• “A supposed legal duty which is not matched by a remedy is a nonsense.”
Sealy, L. S. (1987)
, Directors and Directors Duties-Codifying Directors Duties
Greene Committee 1926 – “To attempt by statute to define the duties of directors would be
a hopeless task.”
• Law Commission Report 1999-Dealt with the codification of directors duties in
regards to duty of care.
• Company Law Review Steering Group 1998-2001-Reccomednded the codification of
director duties. Directors of small companies cod not know the full extent of their
duties due to a lack of money for legal advice.
• “to clarify their responsibilities and improve the law regulating directors’ conflicts of
interests…” - Company Law Reform Bill – White Paper 2005)
Enlightened Shareholder Value v Pluralist approach
Directors’ Duties, CA 2006-s.170-Scope and duties.
Key provisions
• 170 Scope and nature of general duties
• 171 Duty to act within powers-Determining whether a director is using their
powers for the purposes for which they have been granted.
•
• 172 Duty to promote the success of the company
• 173 Duty to exercise independent judgement-Director must not fetter their
discretion, becomes essential in context of nominee directors-w(appointed
by particular shareholder, represent a certain interest of a shareholder within
the company). They owe their duty to the company.
•
• 174 Duty to exercise reasonable care, skill and diligence-Deals with the idea
of competence
• 175 Duty to avoid conflicts of interest-Not always dishonest
• 176 Duty not to accept benefits from third parties-Possible bribing-usually
pertinent with third world countries.-Deals with the conflict of interests.
• 177 Duty to declare an interest in proposed transaction or arrangement.
====
• Director- “director”-an individual brought in for the assistance of the company.
• Joint responsibility for determining and implementing the co’s policy
• Individually and collectively liable for the acts and/or negligence of the co
• Usually manage the company affairs-a consequence pf the case of Salmon v Salmon.-
A company is a separate legal person. The directors will essentially owe their duties
to the company.
Categories of directors
Executive Director
o Executive director-engage in the day to day management of the company’s affairs,
Non-executive director
o Brought onto to a company’s board of directors due to their experience, in which
they contribute to the managerial sector of the company. The law does not
distinguish between non-executive and executive directors duties within the law
Shadow Directors
o Company or person “in accordance with whose directions or instructions the
directors of the company are accustomed to act”. TCA 2006
o Excludes professional advice-from i.e. An accountant or Solicitor are not
shadow directors.
De iure = formally appointed companies articles of associations
• De facto = not formally appointed but acts openly, as if he had undertaken
It is essential to mainly focus on the principle, rather than the effects in a problem question.
,The purpose of directors duties.
Directors have broad discretionary powers, Requires laws to overlook the
amount of discretionary powers.
Efficiency gains from centralised management
Risk of directors’ shirking(avoiding) their responsibilities
Directors’ duties constrain management behaviour
Apply to public and private companies
Pre companies Act 2006
o Previously a case law framework of directors duties, Problems: duties were uncertain
as well as the unawareness of duties of non-legal individuals.
o Supported by statute on certain points (CA 1985)
Types of duties-Companies Act 2006
• These duties apply to every decision which the directors take:
• Fiduciary duties
Duty to act in good faith in the interests of the company
Duty to act within powers
Duty not to fetter discretion-A director must not limit their discretion
Duty not to make a profit at the company’s expense
• Common law duties of care and skill-Deals with the aptitude of an individual who is
carrying out the task.
To whom are the duties owed to?
• Percival v Wright [1902] 2 Ch 421.
• Swinfen Eady J: directors “must act bona fide for the interests of the company”
• ‘interests of the company’-(Intrests of its shareholders as a whole) - difficult to
interpret.-
• What is ‘the company’?
• Company v members
,Directors duties to shareholders-s.171 AND S.177
Principal authority :
Greenhalgh v Arderne Cinemas Ltd [1951
“the phrase, ‘the company as a whole’ does not (at any rate in such a case as the present)
mean the company as a commercial entity distinct from the shareholders]. It means the
[shareholders] as a general body.”
Evershed M. R
Companies Act 1985:
309. Directors to have regard to interests of employees.
(1) The matters to which the directors of a company are to have regard in the performance
of their functions include the interests of the company’s employees in general, as well as the
interests of its members.
(2) Accordingly, the duty imposed on directors is owed by them to the company (and the
company alone) and is enforceable in the same way as any other fiduciary duty owed to a
company by its directors.
(3) This section applies to shadow directors as it does to directors.
N.B. No case law has been recorded on s 309!!!
Directors duties to creditors
• “when a company is insolvent the interests of the creditors intrude’’
• Brady v Brady [1989] :
“The interests of the company are to be equated with the interests of the shareholders in
general except when the company is insolvent or of doubtful solvency or whether the
proposed act would be prejudicial to creditors’ at which point the interests of the creditors
become paramount.”
• Kinsela v Russell Kinsela Pty Ltd [1986]:
• Colin Gwyer and Associates Ltd v London Wharf Ltd [2003]
• Interests of company traditionally equated with the interests of shareholders
• power to appoint and remove directors (s 303, CA 1985)
• Directors indirect duty towards creditors when company becomes insolvent or is of
doubtful insolvency
• Directors required to have regard to employee concerns,
• “A supposed legal duty which is not matched by a remedy is a nonsense.”
Sealy, L. S. (1987)
, Directors and Directors Duties-Codifying Directors Duties
Greene Committee 1926 – “To attempt by statute to define the duties of directors would be
a hopeless task.”
• Law Commission Report 1999-Dealt with the codification of directors duties in
regards to duty of care.
• Company Law Review Steering Group 1998-2001-Reccomednded the codification of
director duties. Directors of small companies cod not know the full extent of their
duties due to a lack of money for legal advice.
• “to clarify their responsibilities and improve the law regulating directors’ conflicts of
interests…” - Company Law Reform Bill – White Paper 2005)
Enlightened Shareholder Value v Pluralist approach
Directors’ Duties, CA 2006-s.170-Scope and duties.
Key provisions
• 170 Scope and nature of general duties
• 171 Duty to act within powers-Determining whether a director is using their
powers for the purposes for which they have been granted.
•
• 172 Duty to promote the success of the company
• 173 Duty to exercise independent judgement-Director must not fetter their
discretion, becomes essential in context of nominee directors-w(appointed
by particular shareholder, represent a certain interest of a shareholder within
the company). They owe their duty to the company.
•
• 174 Duty to exercise reasonable care, skill and diligence-Deals with the idea
of competence
• 175 Duty to avoid conflicts of interest-Not always dishonest
• 176 Duty not to accept benefits from third parties-Possible bribing-usually
pertinent with third world countries.-Deals with the conflict of interests.
• 177 Duty to declare an interest in proposed transaction or arrangement.
====
