Directors' Duties and Transactions

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  • Created by: KG1999!
  • Created on: 21-08-23 19:11
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  • Directors' Duties and transactions
    • They owe a general duty to the company under s170-182 of the CA 2006
    • s170 - Act within their powers
      • Must act in constitution and only exercise powers for what they're for
      • BREACH - decision requiring SH approval but director did not obtain it
    • s172 - Promote success of company
      • Subjective test - long term consequences, interests of employees, good business relationships, impact on envir and community, maintain Co's rep, act fairly between members
      • Insolvency - also consider the interests of the creditors
    • s173 - Exercise independent judgment
      • Can take legal/financial advice but should not let it fetter discretion
      • Delegation - allow but must monitor
    • s174 - Exercise due care, skill and diligence
      • Objective limb - whether they acted with what might be reasonably expected of someone in their position
      • Subjective limb - whether they acted diligently by someone with their general knowledge, skill and experience. Would vary on their role. If someone has 20 years experience they will be held to a higher standard
      • Inactive D would be in breach of duty and may be liable for others wrongdoing due to being inactive
    • s175 - Avoid conflicts of interest
      • Must not make a profit unless company authorised
      • Exceptions = interest created by contract, board authorised
      • Corporate opportunities = BREACH: D invests in C after co decides not to (must account to co for profits made and pay back as they obtained opp to invest as they were a D, D resigns and then takes up opportunity - must account for profits made (if resignation was long before then likely no breach, D sets up competing company - if D poaches clients then they have exploited opportunities that rightly belonged to C
    • s176 - Not to accept benefits from 3rd parties
      • If as a director but not doing anything as D then cannot accept
      • Exception - not infringed if acceptance does not reasonably give rise to conflict, corporate hospitality is allowed but cannot be excessive, articles can allow benefits
    • s177/182 - Declare interest in existing/ proposed transaction/arrangement
      • Must declare nature and extent to other Ds
      • Best practice to make declaration even if they do not have to
      • Exception - if not aware of interest they do not need to announce, if Ds are already aware or ought to be aware, if it involves their service contract
    • Breach of duty?
      • 1. Are they D/former D?
      • 2. Who is duty owed to? Company
      • 3. Who can sue? (C or SHs)
      • 4. Which duty has been breached?
      • 5. Remedies? (accountable for profits, return property, equitable compensation, rescission of C, injunction)
      • 6. Can D avoid liability? (Ratify conduct through voting, relief by court if they were honest, insurance (no breach if board authorised matter, where D acts in accordance with articles,

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