Lecture 8 - Directors Duties - Jerome Chan PDF

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Directors Duties - Jerome Chan...

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If theres a problem q on directors duties… If essay question, depending on q may have to discuss…

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When looking at directors duties, must always remember s.170(4) CA 2006 because it’s about using common law principles, even though its already codified in CA As a director, who do you owe a duty to? The company Foss v Harbotte Peskin v Anderson Percival v Wright Advantages of codification as compared to common law – its clearer, accessibility, its more reliable Disadvantages – difficult to change/amend, S.171 duty on part of director to act within its powers – must act in accordance with company’s constitution and exercise those powers for the purposes for which they are conferred This is also called the proper purpose doctrine Dalby v Bodily (2005) Fraser v Oystertec plc (2004) S.17 would lead us to the constitution of the company – AA’s As the director, you must exercise the powers that you have been provided for and for the purpose you’ve been given them E.g if you’ve been given power to sign deal for 1mill. If you sign above this, you have breached s.171 – ultra vires 171 is commonly associated with fiduciary duties of a director

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Once you’re done with 171, follow with 172 172 – director must promote the success of the company in good faith, for the benefit of its members as a whole and in doing so have regard into: o The consequences of any decision in the long run o Company’s employees o Relationship with suppliers, customers and others o Impact on the company’s operation on the community and the environment o Desirability of the company in maintaining a reputation for high standards o Act fairly between members of the company

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Reed Smith v Forcett Directors are bound to exercise the powers conferred on them bona fide upon what they may consider is in the interest of the company, not what the court may consider – court doesn’t want to interfere with affairs of company This is a subjective test – because duty is subjective Enlightened shareholder value principle – promoting the success of the company in good faith while taking into account supplementary req. of 172(1(f)) The list in 172 is not exhaustive Since its not exhaustive, lots of pressure on directors Prior to 2006 act, directors only had to take into account effect on employees Irrespective of whether directors are in breach of 172, shareholders can’t sue directors, because it would be the company who sues

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172 also poses questions Professor Andrew Key – s.172 is pivotal Most likely won’t bring an action against your own peers, so how is 172 going to assure that directors should be held accountable?

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S.173 – directors must not exercise independent judgement, not being influenced, decisions must be authorised by company’s constitution S.174 – duty to exercise reasonable care, skill and diligence S.174 is derived from common law principle of duty of care and skill ‘Directors have both collectively and individually a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duty as directors.’ Re Barings (No.5) [1999] 1 B.C.L.C. 433 at 489. per Jonathan Parker J In this case, directors weren’t aware of what rogue trader was doing, downfall of the rogue trader was that there was a large chunk of money missing, they found the account and someone hid all the losses in that account

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Lexi Holdings Plc (In Administration) v Luqman [2009] EWCA Civ 117 ‘Complete inactivity as a director, the judge held, “is by definition unreasonable”. This is a long way away from Re Cardiff Savings Bank, where complete inactivity as a director relieved the Marquis of Bute of liability since the court held that he was entitled to rely on the active directors who attended meetings!’ ‘Woe to the inactive director’ [2008] Company Lawyer 161 (listen to recording) Recent cases seem to suggest that the principle has changed Why become a director in the first place? (listen to rec) With 174, take into account these cases Dorchester Finance v Stebbing (1989) case with non-execute directors (they’re not employees of the company) in trouble because they signed blank cheques Norman v Theodore Goddard (1991) Re D’Jan of London Limited (1994) Situation where director signed an inaccurate fire insurance proposal form to ensure the company’s property without checking its content HELD: conduct was a breach under 174 on part of director S.175- duty to avoid conflicts of interests If you have insider info about a company, (listen to recording)...