Business law lecture 5
Bushell v Faith : entrenching/weighted voting
■ Article 9 "In the event of a resolution being proposed at any general meeting of the
company for the removal from office of any director, any shares held by that director
shall on a poll in respect of such resolution carry the right to three votes per share
and regulation 62 of Part 1 of Table A shall be construed accordingly.“
■ 300 shares equally divided between three shareholders, two of which were directors
■ A resolution to remove a director failed even though there was a 2:1 majority in
favour because of the article above
■ Note this device is only viable in private companies
Directors’ authority to manage
■ Original view of the directors: Isle of Wight Railway Co v Tahourdin (1883)
■ Automatic Self Cleansing Filter Syndicate v Cunningham
■ Scott v Scott [1943] 1 All ER 582
■ Breckland Group Holdings Ltd. v London & Suffolk Properties Ltd
Model Articles
■ 3. Directors’ general authority
■ Subject to the articles, the directors are responsible for the management of the
company’s business, for which purpose they may exercise all the powers of the
company”
Shareholders’ residual power
■ “4.(1) The shareholders may, by special resolution, direct the directors to take, or
refrain from taking, specified action.
■ (2) No such special resolution invalidates anything which the directors have done
before the passing of the resolution”
■ And where there is no effective board:
■ Barron v Potter
■ Alexander Ward v Samyang Navigation [1975] 1 WLR 673
■ Dignam chapter 14
■ Introduction
■ The fiduciary position of Directors
■ To whom do directors owe their duties
■ The general duties CA 2006, Part 10
■ Remedies
Sources of the law relating to directors’ duties pre 2006 common law and a bit of statute
■ Specific duties were imposed by the Companies Acts such as filing documents and
ensuring accounts were produced, with fines and disqualification for default, eg s.
387
■ Originally the general duties were not contained in the Acts: therefore it was left to
the courts to develop the law
■ Company law work was assigned to the Court of Chancery so…
, Directors as fiduciaries
■ Historically treated as trustees – ie a position of trust- must not benefit from that
position-called to account as trustees
■ In Towers v Premium Waste Management Ltd (2011) Mummery LJ summed up
fiduciary nature of the office of director:
■ “A director of a company is appointed to promote its success and to protect its
interests…special relationship with the company generated fiduciary duties on the
part of the director. …duty of loyalty and a duty to avoid a conflict between his
personal interests and his duty to the company.”
2006 Act-reform: duties now set out in statute Part 10
■ Law Commission No 261 (Company Directors: Regulating Conflicts of Interests and
Formulating a Statement of Duties) proposals feeding in to:
■ The Company Law Review (initiated in March 1988) which led to:
■ The Companies Act 2006, Part 10 Duties are set out in sections 170-177
■ Remember that the directors in practice control the company-its success or failure
largely depends on them.
What exactly are the duties of directors
■ The Companies Act contains the following list:
■ S 171 to act within powers
■ S 172 to promote the success of the company
■ S173 duty to exercise independent judgment
■ S 174 duty to exercise reasonable care, skill and diligence
■ S 175 duty to avoid conflicts of interest
■ S 176 duty not to accept benefits from third parties
■ S 177 and 182 duty to declare interest in proposed transactions or arrangements.
■ CA 2006 is silent as to whether or not the list is exhaustive.
Directors’ Duties are owed to the company itself
Section 170
■ S 170 states that (1) The general duties specified in sections 171 to 177 are owed by
a director of a company to the company… and
■ (3) The general duties are based on certain common law rules and equitable
principles as they apply in relation to directors and have effect in place of those rules
and principles as regards the duties owed to a company by a director.
■ (4) The general duties shall be interpreted and applied in the same way as common
law rules or equitable principles, and regard shall be had to the corresponding
common law rules and equitable principles in interpreting and applying the general
duties.
To whom do the directors owe their duties?
■ Potentially a number of individuals or bodies to whom the directors might owe
duties: the company, the members, the employees, the creditors for example.
Bushell v Faith : entrenching/weighted voting
■ Article 9 "In the event of a resolution being proposed at any general meeting of the
company for the removal from office of any director, any shares held by that director
shall on a poll in respect of such resolution carry the right to three votes per share
and regulation 62 of Part 1 of Table A shall be construed accordingly.“
■ 300 shares equally divided between three shareholders, two of which were directors
■ A resolution to remove a director failed even though there was a 2:1 majority in
favour because of the article above
■ Note this device is only viable in private companies
Directors’ authority to manage
■ Original view of the directors: Isle of Wight Railway Co v Tahourdin (1883)
■ Automatic Self Cleansing Filter Syndicate v Cunningham
■ Scott v Scott [1943] 1 All ER 582
■ Breckland Group Holdings Ltd. v London & Suffolk Properties Ltd
Model Articles
■ 3. Directors’ general authority
■ Subject to the articles, the directors are responsible for the management of the
company’s business, for which purpose they may exercise all the powers of the
company”
Shareholders’ residual power
■ “4.(1) The shareholders may, by special resolution, direct the directors to take, or
refrain from taking, specified action.
■ (2) No such special resolution invalidates anything which the directors have done
before the passing of the resolution”
■ And where there is no effective board:
■ Barron v Potter
■ Alexander Ward v Samyang Navigation [1975] 1 WLR 673
■ Dignam chapter 14
■ Introduction
■ The fiduciary position of Directors
■ To whom do directors owe their duties
■ The general duties CA 2006, Part 10
■ Remedies
Sources of the law relating to directors’ duties pre 2006 common law and a bit of statute
■ Specific duties were imposed by the Companies Acts such as filing documents and
ensuring accounts were produced, with fines and disqualification for default, eg s.
387
■ Originally the general duties were not contained in the Acts: therefore it was left to
the courts to develop the law
■ Company law work was assigned to the Court of Chancery so…
, Directors as fiduciaries
■ Historically treated as trustees – ie a position of trust- must not benefit from that
position-called to account as trustees
■ In Towers v Premium Waste Management Ltd (2011) Mummery LJ summed up
fiduciary nature of the office of director:
■ “A director of a company is appointed to promote its success and to protect its
interests…special relationship with the company generated fiduciary duties on the
part of the director. …duty of loyalty and a duty to avoid a conflict between his
personal interests and his duty to the company.”
2006 Act-reform: duties now set out in statute Part 10
■ Law Commission No 261 (Company Directors: Regulating Conflicts of Interests and
Formulating a Statement of Duties) proposals feeding in to:
■ The Company Law Review (initiated in March 1988) which led to:
■ The Companies Act 2006, Part 10 Duties are set out in sections 170-177
■ Remember that the directors in practice control the company-its success or failure
largely depends on them.
What exactly are the duties of directors
■ The Companies Act contains the following list:
■ S 171 to act within powers
■ S 172 to promote the success of the company
■ S173 duty to exercise independent judgment
■ S 174 duty to exercise reasonable care, skill and diligence
■ S 175 duty to avoid conflicts of interest
■ S 176 duty not to accept benefits from third parties
■ S 177 and 182 duty to declare interest in proposed transactions or arrangements.
■ CA 2006 is silent as to whether or not the list is exhaustive.
Directors’ Duties are owed to the company itself
Section 170
■ S 170 states that (1) The general duties specified in sections 171 to 177 are owed by
a director of a company to the company… and
■ (3) The general duties are based on certain common law rules and equitable
principles as they apply in relation to directors and have effect in place of those rules
and principles as regards the duties owed to a company by a director.
■ (4) The general duties shall be interpreted and applied in the same way as common
law rules or equitable principles, and regard shall be had to the corresponding
common law rules and equitable principles in interpreting and applying the general
duties.
To whom do the directors owe their duties?
■ Potentially a number of individuals or bodies to whom the directors might owe
duties: the company, the members, the employees, the creditors for example.
