Directors Duties Step by Step Guide For Problem Questions
1. Purposes of a director
A Director- “director”-is 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-IF APPLICABLE EG:
Due to Martin being a Executive director that engages with the day to day
management of the company’s affairs, he would be expected to have the certain
level of skills and aptitude to avoid breaching s175….
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.
, 2. To whom are the duties owed to?
However it seems apparent to us that …. Has breached several duties that are owed to the
company which can be illustrated in…
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
3. s170-177-USING THE BELOW IRAC METHOD FOR EACH SUB-SECTION
IRAC METHOD FOR PROBLEM QUESTIONS
Issue: Identify the issues that are present within the scenario and who we are
advising-Advice (random shareholders) if company can take action on any breaches
(no remedies discussion) / what can company do (remedy).-Discuss how you’ll deal
with possible remedies that the company may be able to raise against the director.
Rule: State the rule that is applicable to scenario clearly, so simply re-write what the
rule is expected for the scenario.
Application/Analysis: Apply the rule to the scenario firstly, question whether or
not it is applicable to it then form some form of analysis.
o This should therefore enable you to argue both sides effectively.-It may be
one thing but on the other hand-
o Whilst doing this you must use case law to support your arguments for each
point-If there has been an apparent breach explain why there has been one,
explain your reasoning then provide an example from case law to support
your argument.
o This answer may also be influenced by the context of the scenario which
must be taking into play. This means is there anything the court will take into
play which may either intensify the claimant claim or mitigate the defendants
liability.
, Conclusion-Arrive at an informed conclusion-Steer away from saying it would be
up for the court to decide. For example-“It seems likely that Bryan will be found
liable for the breach of S175…reason being….
CHECKLIST YOU MUST NOT FORGET THIS FORMAT.USE HEADINGS
EG
Adams Possible Breach of s175-In relation to the failure to ensure the
receipts were up to date.
1. S175 Considerations
IRAC METHOD FOR EACH SECTION
2. POSSIBLE REMEDIES
IRAC METHOD FOR EACH SECTION
3. POSSIBLE DEFENCES FOR …
IRAC METHOD FOR EACH SECTION
4. CONCLUSION
175-177-These 3 may be used interchangeable, when dealing with the conflict of interests
• S.170 Scope and nature of general duties
• (1) The general duties specified in sections 171 to 177 are owed by a director of a
company to the company.- Percival v Wright [1902]
• (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.
1. Duty to act within powers
o A director of a company must—
o (a) act in accordance with the company’s constitution, and
o (b) only exercise powers for the purposes for which they are conferred.
1. Purposes of a director
A Director- “director”-is 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-IF APPLICABLE EG:
Due to Martin being a Executive director that engages with the day to day
management of the company’s affairs, he would be expected to have the certain
level of skills and aptitude to avoid breaching s175….
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.
, 2. To whom are the duties owed to?
However it seems apparent to us that …. Has breached several duties that are owed to the
company which can be illustrated in…
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
3. s170-177-USING THE BELOW IRAC METHOD FOR EACH SUB-SECTION
IRAC METHOD FOR PROBLEM QUESTIONS
Issue: Identify the issues that are present within the scenario and who we are
advising-Advice (random shareholders) if company can take action on any breaches
(no remedies discussion) / what can company do (remedy).-Discuss how you’ll deal
with possible remedies that the company may be able to raise against the director.
Rule: State the rule that is applicable to scenario clearly, so simply re-write what the
rule is expected for the scenario.
Application/Analysis: Apply the rule to the scenario firstly, question whether or
not it is applicable to it then form some form of analysis.
o This should therefore enable you to argue both sides effectively.-It may be
one thing but on the other hand-
o Whilst doing this you must use case law to support your arguments for each
point-If there has been an apparent breach explain why there has been one,
explain your reasoning then provide an example from case law to support
your argument.
o This answer may also be influenced by the context of the scenario which
must be taking into play. This means is there anything the court will take into
play which may either intensify the claimant claim or mitigate the defendants
liability.
, Conclusion-Arrive at an informed conclusion-Steer away from saying it would be
up for the court to decide. For example-“It seems likely that Bryan will be found
liable for the breach of S175…reason being….
CHECKLIST YOU MUST NOT FORGET THIS FORMAT.USE HEADINGS
EG
Adams Possible Breach of s175-In relation to the failure to ensure the
receipts were up to date.
1. S175 Considerations
IRAC METHOD FOR EACH SECTION
2. POSSIBLE REMEDIES
IRAC METHOD FOR EACH SECTION
3. POSSIBLE DEFENCES FOR …
IRAC METHOD FOR EACH SECTION
4. CONCLUSION
175-177-These 3 may be used interchangeable, when dealing with the conflict of interests
• S.170 Scope and nature of general duties
• (1) The general duties specified in sections 171 to 177 are owed by a director of a
company to the company.- Percival v Wright [1902]
• (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.
1. Duty to act within powers
o A director of a company must—
o (a) act in accordance with the company’s constitution, and
o (b) only exercise powers for the purposes for which they are conferred.
