Director Duties

Question 1

What is the main function of director duties?

Answer 1

• To ensure the loyalty of directors

Question 2

What ways do the interest of shareholders and directors diverge?

Answer 2

• Directors may engage in transactions that benefit themselves at the expense of the company known as self-dealing transactions.
• Directors act with insufficient care or diligence in relation to the business operations of the company.

Question 3

What are the 2 common law duties?

Answer 3

• Care, diligence and skill

- Loyalty and good faith

Question 4

The common law duty of loyalty and good faith can be divided into three specific duties. They are?

Answer 4

• The duty to act in good faith in the interests of the company
• The duty to act for a proper purpose
• The duty to avoid conflicts of interest.

Question 5

The common law of care, diligence and skill has what specific duty?

Answer 5

• The duty to act with reasonable care, diligence and skill

Question 6

The statutory duties of the common law duty of loyalty and good faith are?

Answer 6

• Disclosure and self-clearing rules ss 139 -149
• Duty to comply with constitution and act s134
• Duty to act for proper purpose s133
• Duty to act in good faith in the best interests of the company s131

Question 7

The statutory duties of the common law duty care, diligence and skill are?

Answer 7

• Duty to act with care, diligence and skill s137
• Duty to avoid reckless trading s135
• Duty re obligations s136

Question 8

Who owes the duties in common law?

Answer 8

• Directors

- Senior executive officers who like directors can be regarded as fiduciaries.

Question 9

Who is a fiduciary?

Answer 9

• A fiduciary is a person who expected to act in the interests of another person. The fiduciary cannot use his or her knowledge or position to benefit themselves rather that the person on whose behalf the fiduciary is required to act.

Question 10

What is an executive director?

Answer 10

• an executive director is a person who is both a director and a full-time employee of the company.

Question 11

To who are the duties owed?

Answer 11

• Directors owe their duties the company

Question 12

Which statutory duties are owed to the company?

Answer 12

• Act in good faith and in the best interests of the company
• Exercise powers for a proper purpose
• Avoid reckless trading
• Not agree to the company incurring certain obligations
• Exercise care
• Not disclose make use of or act on company information

Question 13

Can duties be owed to an individual shareholder?

Answer 13

• Yes duties can be owed to shareholders. They may also be duties owed to the company such as duties to:
  Supervise the share register
  Disclose interests
  Disclose share dealings

Question 14

Coleman v Myers [1977]

Answer 14

• concerns a breach of fiduciary duty that existed between the directors and the shareholders.

Question 15

the duty to take care can arise from a number of sources. They are?

Answer 15

• S 137 of the act
• A contract between the director and the company
• The common law

Question 16

Statutory duty section 137 states?

Answer 16

• A director of a company when exercising powers or performing duties as a director must exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation
  a) The nature of the company; and
  b) The nature of the decision; and
  c) The position of the director and the nature of the responsibilities undertake by him or her.

Question 17

What are the four standards of care expected by directors?

Answer 17

• Care, skill, diligence, delegation and reliance

Question 18

Care

Answer 18

• A director must exercise reasonable care. This is expressed as a director being required to exercise the degree of care that a reasonable director would exercise in the company’s circumstances and with the same responsibilities as the director, taking in to account the nature of the company and decision.

Question 19

Skill

Answer 19

• All directors must possess the skill necessary to have a basic understanding of the business of the company and its financial status.

Question 20

Diligence

Answer 20

• Directors require the degree of diligence that a reasonable director would exercise.

Question 21

Delegation and reliance

Answer 21

• An important aspect of the duty of care is the extent to which directors may delegate certain functions to others and rely on those people to perform the functions properly.

Question 22

Business judgement rule

Answer 22

• Is the principle where the courts will not review the merits of the business decisions made by directors.

Question 23

What is it meant by good faith?

Answer 23

• When it is said that a director must act in good faith this means that the director must act honestly.