Director Duties Prob PDF

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Question 5 Zone B 2019You have been consulted by Huan, the Chairperson of the board of directors of Oldstuff plc, a company dealing in antiques. She tells you about three sets of events which recently occurred at Oldstuff.a) In June 2018, Kong, who was then a director of Oldstuff, secretly decided t...

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Question 5 Zone B 2019 You have been consulted by Huan, the Chairperson of the board of directors of Oldstuff plc, a company dealing in antiques. She tells you about three sets of events which recently occurred at Oldstuff. a) In June 2018, Kong, who was then a director of Oldstuff, secretly decided to set up a new business in competition with Oldstuff. In July, he bought premises from which to conduct his new business. In September 2018, he resigned as a director of Oldstuff. In October 2018, he negotiated a large and very profitable contract with Janet for his new business. Janet had been a client of Oldstuff, and in October 2018 Oldstuff was still actively trying to get further contracts from Janet. However, Janet had already decided not to award any new contracts to Oldstuff because she was unhappy with the service Oldstuff had given her in the past. b) Vanya has never been appointed a director of Oldstuff, but has regularly attended its board meetings. In December 2018, she negotiated for Oldstuff to purchase a Greek statue for £1 million. It is now clear the statue was only worth £600,000. Vanya is a world-famous expert on Greek statues. c) In April 2019, Oldstuff agreed to purchase a set of paintings from George, a director of Oldstuff, for £300,000. Because of a downturn in Oldstuff’s business, it no longer wants these paintings.

Advise Huan whether Oldstuff could take any action in respect of these events.

Introduction -

This is a question on Dierctors Duties and the key principles are from S 170 – S 178 CA 2006 The company will bring an action towards all the above named persons.

First Issue A) In June 2018, Kong, who was then a director of Oldstuff, secretly decided to set up a new business in competition with Oldstuff. In July, he bought premises from which to conduct his new business. In September 2018, he resigned as a director of Oldstuff. In October 2018, he negotiated a large and very profitable contract with Janet for his new business. Janet had been a client of Oldstuff, and in October 2018 Oldstuff was still actively trying to get further contracts from Janet. However, Janet had already decided not to award any new contracts to Oldstuff because she was unhappy with the service Oldstuff had given her in the past. -

Kong is the Director of Oldstuff, he had decided to secretly set up a new business in competition with Oldstuff. In July 2018 he had bought premises to set up his own business and in September 2018 he resigned as a Director of Oldstuff.

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Kong in the process had also taken positive steps to set up his company without disclosure to Oldstuff. The act of renting a business premises amounts to a positive step and is to be construed as a breach of S 175 CA 2006- British Midland Tool.

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OTF, Kong had negotiated with Janet for several large and profitable contracts, Janet had had already decided not to award any new contracts to Oldstuff because she was unhappy with the service Oldstuff had given her in the past

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S 170(2) CA 2006 - A person who ceases to be a director continues to be subject—

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(a)to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director, and

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(b)to the duty in section 176 (duty not to accept benefits from third parties) as regards things done or omitted by him before he ceased to be a director.

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IDC v Cooley – this amounts to usurping a corporate opportunity.

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OTF, Kong is contracting with Janet who used to contract with Oldstuff this amounts to a conflict of interest as Thermascan Ltd v Norman

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suggest that, if the knowledge Kong is using his knowledge in contacting Jent for contracts and if he had learned of that knowledge from his previous company then it would amount to a breach of s.175 it amounts to confidential information or trade secrets.

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Moreover, he also takes a contract from Janet, a client of Oldstuff. He seems to have used his knowledge while a director to profit personally; see Regal and IDC v Cooley.

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It does not seem to matter that Janet was unwilling to deal again with Oldstuff – IDC v Cooley.

Second Issue B) Vanya has never been appointed a director of Oldstuff, but has regularly attended its board meetings. In December 2018, she negotiated for Oldstuff to purchase a Greek statue for £1 million. It is now clear the statue was only worth £600,000. Vanya is a world-famous expert on Greek statues. -

OTF, Vanya although never been appointed as a director, regularly attends its board meetings. This makes her a de facto director.

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This makes her a de factor Director. Section 250 CA 2006 states that ―director‖ includes any person occupying the position of director, by whatever name called.‖

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In the case of SS for Trade and Industry v Hollier and Re Gemma Ltd, the essence of occupying the position of a director seems to be attendance at board meetings, with the same rights of decision-making as other directors.

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OTF Vanya had negotiated for Oldstuff to purchase a Greek statue for £1 million. It is now clear the statue was only worth £600,000. Vanya is a world-famous expert on Greek statues. This would require a discussion on S 174 CA 2006. -

S 174 (1) CA 2006 – Duty to exercise reasonable care skill , and diligence. S 174(2)CA 2006-Care , skill and diligence that would be exercised by a reasonably diligent person. a)General knowledge, skill and experience that may reasonably be expected of a person carrying out the duties of a director( General) b)The general knowledge skill and experience that the director has. (Specific) OTF the issue here is would have any other director behaved the same wat by rejecting such a corporate opportunity? Re Brazillian Rubber Plantation 1911

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-Neville J ( A director may undertake the management of a rubber company in complete ignorance of everything connected with rubber without occurring responsibility for the mistake which may result from such ignorance) This is a subjective test as if a director is of a different field and decides to manage a rubber factory(something entirely different) Norman v Theodore Goddard [1991] has a two stage test A de minimis, objective test – what is required of the reasonable director carrying out the particular functions that they’re responsible for A subjective test – whether, judged by the experience, skill and knowledge that the individual director has, they’ve fallen below a certain standard in their conduct. Re D Jan London 1994 Mr D jon was held liable to the company for loss caused by the company’s insurers repudiating liability and a fire policy as he had signed an incomplete proposal without reading it. Held the director was negligent for signing an incomplete form. The general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and The general knowledge, skill and experience that that director has. OTF, would have any other directly behaved differently? Consider commercial factors OTF Vanya is a world famous expert on Greek statutes- This would require a discussion on the subjective element.

Third Issue C) In April 2019, Oldstuff agreed to purchase a set of paintings from George, a director of Oldstuff, for £300,000. Because of a downturn in Oldstuff’s business, it no longer wants these paintings. -

OTF, George is a Director of Oldstuff Ltd, the company bought a set of paintings from George worth £300,000. Since George is a Director of the company, there is a need for disclosure under S 177 CA 2006.

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Furthermore - S 190 (1) - A company may not enter into an arrangement under which—

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(a)a director of the company or of its holding company, or a person connected with such a director, acquires or is to acquire from the company (directly or indirectly) a substantial non-cash asset, or

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(b)the company acquires or is to acquire a substantial non-cash asset (directly or indirectly) from such a director or a person so connected, unless the arrangement has been approved by a resolution of the members of the company or is conditional on such approval being obtain.

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S 195(2)CA 2006- Will render such a transaction to be void if there is no declaration.

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Connected persons are defined under S 252 CA 2006 includes director’s family (S 253 CA 2006)

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Substantial property transaction will require declaration. OTF there is no declaration, and that will make the transaction void

Conclusion -

OTF Kong has breached his fiduciary duties and the transaction that is involved in amounts to a breach of conflict of interest.

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Vanya is a De- Facto Director and is liable under S 174 CA 2006

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George is liable under S 177 CA 2006 and S 190 CA 2006...