Directors Duties

Question 1

Who are directors duties owed to?

Answer 1

The company (however, the company may be considered more than the sum total of its members. Specific duties that the CA imposes to have regard to stakeholders etc)

Question 2

What are the directors duties based on

Answer 2

Common law rules and equitable principles. The general duties are to be interpreted and applied in the same way as the common law rules and principles

Question 3

What are the directors’ duties in common law

Answer 3

1. General duty of care
2. Duty to act for proper purpose
3. Limits on liability
4. Duty of good faith
5. Not to act for a collateral purpose
6. Limits in takeovers

Question 4

Where do you find general duty of care in common law

Answer 4

City Equitable Fire Insurance

Question 5

Duty from City Equitable Fire Insurance

Answer 5

Romer J took the approach that directors need not exhibit in his duties a greater degree of skill than may be reasonably expected from a person with his knowledge and experience. Thus, it seems there was a subjective test concerning the duty of care owed.

A director was not bound to give continuous attention to the affairs of his company. Durites are intermittent nature to be performed at periodical board meetings, not bound to attend all such meetings. They can delegate the day to day administration of the company’s business to subordinate managers and employees.

Directors must, of course, act honestly but also must exercise a degree of skill and diligence. Set out three positions as to directors duties:

1. Level of skill is subjective
2. Directors is not required to give continuous attention to her duties
3. Director may delegate her responsibilities

Question 6

Facts of City Equitable Fire Insurance

Answer 6

Bevan, who effectively controlled the other directors committed widespread fraud and embezzlement from the company. The issue was whether his fellow directors, and the company’s auditors, should have been liable to the company for the losses it had suffered. It was held that the directors who had signed the blank cheques in favour of third parties had not done so in circumstances which were suspicious and not found to be liable. This suggested it is enough for directors to rest on their laurels and not be scrupulous in the performance of their duties.

Question 7

General duty of care cases

Answer 7

City Fire Equitable
Lagunas
Brazillian Rubber
D’Jan
Norman

Question 8

Lagunas

Answer 8

Lagunas shows that there is a subjective approach to the standard of performance, and that directors are not liable for all the mistakes they make.

Lindley in this case: if directors act within their powers, if they act with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company they represent, they discharge both their equitable as well as their legal duty to the company.

The amount of care to be taken is difficult to define; but it is plain that directors are not liable for all the mistakes they may make… Their negligence must be not the omission to take all possible care; it must be much more blameable than that: it must be in a business sense culpable or gross

Question 9

Brazillian Rubber

Answer 9

Neville J: “He (the Director) is… not bound to bring any special qualifications to his office. He may undertake the management of a rubber company in complete ignorance of everything connected with rubber, without incurring responsibility for the mistakes which result from such ignorance.”

Question 10

Norman

Answer 10

This case however, as stated by Hoffman in Norman and then in Re D’Jan, saw a move towards a more mixed approach to standard of care.

In Norman, it was held that directors should be assessed by the standard of care of a reasonably diligent person who had the knowledge, skill and experience both od a person carrying out that directors functions objectively and of the defendant subjectively.

Question 11

Re D’Jan

Answer 11

Here, a director was accused of negligence when he had signed an inaccurate fire insurance proposal form with the result being that the company was uninsured when its premises caught fire. The Directors signed the form without having read it. Hoffman considered that the standard of care required was:

if directors act within their powers, if they act with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company they represent, they discharge both their equitable as well as their legal duty to the company

Thus the test was a de minimus objective test and a subjective test

Question 12

Cases for duty to act for proper purpose

Answer 12

Punt
Hogg

Question 13

Punt

Answer 13

Directors were found to have used their power to issue new shares for the purpose of issuing new shares to people who would agree to their plan of blocking a proposed takeover that they considered undersirable.

Byrne J held that power to issue shares had been given to the directors ‘for the purpose of enabling them to raise capital when required for the purposes of the company’ but instead his Lordship considered that the directors had engaged in ‘a limited issue of shares to persons who are obviously meant and intended to secure the necessary statutory majority in a particular interest to prevent a vote in favour of that takeover’

Consequently, Byrne J found that ‘I do not think it is a fair and bona fide exercise of the power because it was not being used for its real purpose.

Question 14

Hoggv Cramphorn

Answer 14

Colonel Cramphorn was a director of a company who dominated the board of directors in practice. He wanted to stop Baxter from taking the company over. To do so, Cramphorn cajoled the other directors into issuing shares to people who would vote against the takeover.

The question arose as to whether or not this was in breach of the directors powers to issue shares. It was held that the power to issue share capital was a fiduciary power that could be set aside if it was exercised for an improper motive. Cramphorn argued that he genuinely believed that this was in the interest of the company. Nevertheless it was held that this was beyond the directors duties because it had been done improperly

Question 15

Duty of good faith

Answer 15

Smith and Fawcett
Stebbing

Question 16

Smith and Fawcett

Answer 16

Lord Greene held that the directors were required to act ‘bona fide in that they consider - not what a court might consider - is the interests of the company and not for any collateral purpose. This has given rise to two statutory principles (in accordance with company constitution and directors must promote the success of the company). In this context, the directors must be exercising their powers properly and in honest belief that they are being used in the interests of the company

Question 17

Stebbing

Answer 17

Two non-executive directors were held to be negligent in not attending board meeting s of a subsequent company. They had also signed blank cheques for a director who rarely attended offices with the result that he embezzled money from the company.

Foster J found that ‘A director must exercise any power vested in him as such, honestly, in good faith and in the interests of the company’

Question 18

Not for collateral purposes

Answer 18

This means that powers delegated to a director pursuant to the constitution must be used for their proper purpose and not as a means of upsetting the constitutional balance of power between directors and shareholders.

in Smith and Fawcett, Lord Greene MR ‘I decline to write into that clear language any limitation other than…that a fiduciary power of this kind must be exercised bona fide in the interest of the company’ This outlines the need to act for the greater good of the company, and not for collateral purpose.

Hogg ‘The power to issue shares was a fiduciary power and if it was exercised for an improper motive, the issue of these shares is liable to be set aside

Question 19

Limits in takeovers

Answer 19

Where a special factual relationship arises between directors and individual shareholders, for example i takeover situations, the courts have been prepared to find that ‘fiduciary duties carry with them a duty of disclosure to shareholders. It has been held that directors, in recommending that a takeover offer should be accepted, owe a duty to shareholders which includes a duty to be honest and not to mislead.

Gething v Kilner.

duties owed by directors of an offeree company to their shareholders in a takeover (offer document excluded the financial advice not to accept takeover on low valuation)

Brightman J: duty to be honest and not to mislead.

This acts to strengthen the position of minority shareholders. Hogg v Cramphorn as well.

Question 20

Directors duties in equity

Answer 20

1. Unauthorised profits
2. Corporate opportunity doctrine
3. Conflicts of interest
4. Profits from bribes
5. Contracts with the company
6. Relief under statute

Question 21

Unauthorised profits cases

Answer 21

Bray v Ford
Boardman v Phipps
Hudson
Equiticorp

Question 22

Bray v Ford

Answer 22

Lord Herschell: “‘It is an inflexible rule of a court of equity that a person in a fiduciary position . . . is not . . . entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.’

Question 23

Gulliver

Answer 23

• Four directors of a company which operated a cinema sought to acquire two further cinemas
• they diverted this opportunity to a separate company which they controlled.
• The first company could not afford to acquire the rights to all the cinemas from its own resources and its four directors were reluctant to give personal guarantees.
• Those four directors and a solicitor subscribed for shares in the second company which consequently took up the opportunity to operate the two further cinemas.

It was held that the directors’ profits had been made from their fiduciary offices as directors.

Lord Russell: The rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence ofbona fides… The liability arises from the mere fact of a profit having, in the stated circumstances, been made.”

Question 24

Defence of authorisation

Answer 24

Hudson

Question 25

Hudson

Answer 25

• the defendant had been managing director of the plaintiff mining company
• He had learned of some potentially profitable mining contracts through his role
• The board of directors of the company decided not to pursue these opportunities after they had had all of the relevant facts explained to them.
• The board of directors decided not to pursue the opportunity in the knowledge that the managing director intended to do so on his own account.
  -Importantly, he had received authorisation with the informed consent of the remained of the board
• Therefore when the managing director resigned and made profits from that opportunity, the company sought to recover the profits he had earned.
• It was held that the managing director had obtained authorisation.

Question 26

Corporate opportunity doctrine

Answer 26

Gulliver, Hudson defence

prohibits officer/director of a corp. from diverting a business opportunity presented to, or otherwise rightfully belonging to, the corp. to himself or any of his affiliates.

Question 27

Gulliver divert

Answer 27

Four directors of a company which operated a cinema sought to divert a business opportunity to acquire two further cinemas to a separate company which they controlled. The first company could not afford to acquire the rights to all the cinemas from its own resources and its four directors were reluctant to give personal guarantees. Therefore those four directors and a solicitor subscribed for shares in the second company which consequently took up the opportunity to operate the two further cinemas. So in essence the directors of a company had decided to divert an opportunity away from the company for which they worked into the second company so they could keep the profits for themselves.

Question 28

Proof of authorisation

Answer 28

Hudson
Cooley
Sutton

Question 29

Cooley

Answer 29

a managing director was offered a deal by one of the company’s clients provided that he worked for them on his own account and not through the company. Without disclosing this fact to the company and claiming to be in ill health, the managing director resigned and entered into a contract with the third party within a week of his resignation. It was held that the managing director had occupied a fiduciary position in relation to his employer company throughout. Therefore held he was required to disclose all information to the company and to account for the profits he had made under his contract. Roskkill found that the director had misled his employer about his reasons for leaving, having pretended to be resigning on account of his ill health was a significant component.

Question 30

Sutton

Answer 30

a director learned of an opportunity to develop a football ground, which he exploited on his own account once his contract of employment had been terminated. It was found that he had not made full disclosure to the claimant company of the extent of the opportunity. Consequently, he was liable to the account to the claimant for the personal profits realised from the transaction.

The only exception is if they permit him to take such opportunities after full and frank disclosure and they have given consent.

Question 31

Fassihi

Answer 31

• Held that, if a director sought to tempt a client away from her employers, then that would constitute a breach of fiduciary duty with the effect that any profits so earned would have to be accounted for by way of constructive trust to the employer company.

Question 32

However, defence of corporate opportunity

Answer 32

If there was no maturing business opportunity

Question 33

Case for no maturing business opportunity

Answer 33

Umunna
Balston
Pyke

Question 34

Umunna

Answer 34

Umunna, it was held that the director did not divert a business opportunity from the company. In that case, the company had a contract with the government of Cameroon to supply post boxes. Mr Umunna resigned from the company once the contract was completed, having worked on that contract and acquired a great deal of expertise in that particular activity. The company ceased pursuing this line of business and after his resignation Mr Umunna entered into a similar contract on his own behalf. The company sued him for the personal profits made under this second contract. It was held that Mr Umunna did not divert a business opportunity away from the company because they had ceased working in that field and Umunna was relying entirely on his own contracts and expertise.

Question 35

Pyke

Answer 35

Mr Pyke was a director of a company, In Plus Ltd, but he had fallen out with his co-director and in consequence he had been effectively excluded from the management of the company.

Mr Pyke decided to set up a company on his own while he was still a director of In Plus Ltd and that company entered into contracts on its own behalf with a major customer of In Plus Ltd. Remarkably the Court of Appeal held that Mr Pyke was not in breach of his fiduciary duties to In Plus Ltd because he had not used any property belonging to them and he had not made use of any confidential information that he had acquired while director of In Plus.

This is because, according to Sedley LJ “the D’s (Mr Pyke’s) duty to the claimants had been reduced to vanishing point by the acts’ of his fellow director and SH Mr Plank… For all the influence he had, he might as well have resigned.”

Question 36

Conflicts of interest

Answer 36

Gulliver
Boardman and Phipps

Question 37

Boardman and Phipps

Answer 37

• the fiduciary may not permit conflict between his personal capacity and his fiduciary
• illustrates the strictness of the principle that originally flowed from Keech v Sandford.
• Here, the beneficiaries suffered no loss when Boardman, a solicitor who advised their trustees, acquired shares in a private company on his own account while advising the trustees as to the trust’s shareholding in that same company.
• Nevertheless, Boardman had to account for the unauthorised profits that were made through his fiduciary office on those shares.
• The roots of the principle ate in equity and in the need to prevent fiduciaries from acting unconscionably

The company’s primary right is for a constructive trust over the director’s profits; the secondary right if there is no property over which the constructive trust can take effect entitles the company to a personal remedy in the form of an account of profits from the director

Question 38

Conflicts of interest additional cases

Answer 38

New Marshonaland - there is no restriction on being a director in two companies; the director is not required to give whole time to one company

Cardiff Savings Bank - Marquis became president and director of the bank when only six months old - no requirement that the director is expected to attend the company.

Question 39

Profits from Bribes

Answer 39

A-G Hongkong v Reid

Question 40

A-G Hongkong v Reid

Answer 40

• a bribe received by a fiduciary must be held on constructive trust from the moment of its receipt
• consequently any property acquired with that bribe is also held on constructive trust
• the company is entitled in equity to any profit generated by the cash bribe received from the moment of its receipt.
• There is personal liability if the property value falls

Question 41

Bribe cases

Answer 41

Ceder capital

Question 42

Ceder

Answer 42

In Ceder Capital, Supreme Court upheld the principle that a bribe or secret commission will be held on constructive trust. So, if a director received a bribe, then that bribe and anything else would be held on constructive trust. As such this means the wrongdoers is fully deprived of the fruits of their wrongdoing.

Question 43

Application of Reid

Answer 43

Tesco Stores v Pook

Question 44

Tesco Stores v Pook

Answer 44

• The principle of Reid was followed here
• the fiduciary had tendered invoices to the company for services that had not in fact been rendered.
• One of these amounts was a bribe that had been paid to the defendant.
  -It was held that the bribe should be held on constructive trust.

Question 45

Alternative to Reid

Answer 45

Lister v Stubbs (now overruled by Reid)
Halifax Building Soc v Thomas (applying lister)
Blake, Sir Richard Scott dissenting to above

Question 46

Approach taken in Lister v Stubbs and Halifax v Thomas

Answer 46

Approach taken in Lister provides a restrictive answer. The principal is confined to a personal claim against the errant fiduciary. The bribe money is deemed property of the recipient and, although she is liable to account for this sum, the resultant obligation is only a debt. This has consequences as the viability of the claim in personum is dependent on the defendant’s solvency. If the defendant is improvident in their financial affairs as well as dishonest, the principal’s claim will be reduced to that of an unsecured creditor. Conversely, the assertion of a proprietary claim confers priority. If the property has been transferred or substituted for other assets, the principal my follow the asset in specie or trace it in equity. Moreover, the proprietary claim enables the principal to capture any increase in value of the property, together with any profits it has engathered.

Reid rejected the reasoning in Lister and Stubbs and held bribe money and its proceeds were held on constructive trust for the principal. The principal therefore acquirese beneficial ownership of the bribe and can trace its value into identifiable substitutes. Therefore the principle in Reid effectively overreaches a Lister and Stubbs analysis.

Question 47

Contracts with the company

Answer 47

Aberdeen Railway

Question 48

Aberdeen Railway

Answer 48

• The company had contracted with John Blaikie for the supply of iron chairs.
• At the time of the contract John Blaikie was both a director of Aberdeen Railway and a partner of Blaikie Bros.
• It was found that no-one, having fiduciary duties to discharge, shall be allowed to enter into engagements in which he has a personal interest conflicting with the interests of those whom he is bound to protect
• His duty to the company is the obligation of obtaining these iron chairs at the lowest possible price.
• His personal interest would lead him in the opposite direction to induce him to fix the price as high as possible.
• This is the very evil against which the rule in question is directed.

Question 49

Companies duties under the 2006 Companies act

Answer 49

To be interpreted in the light of common law and equity. This perhaps limits the process behind the 2006 Act as it is an enlightened share holder approach, rather than a stakeholder or pluralist approach (according to Sarah Worthington)

Question 50

s171 - duty to act within powers case law

Answer 50

Smith & Fawcett
Punt
Hogg v Cramphorn

The court will generally not interpose its own view and will rely on the directors’ honest belief

Question 51

Cases for duty to promote the success of the company (s172)

Answer 51

Ford
Hutton
Fassahi

Question 52

Cases for court not interpose own view

Answer 52

In Regentcrest v Cohen, the court explained that it is not whether, viewed objectively by the court, the particular act or omission was in fact in the interests of the company…rather the question is whether the director honestly believed his act or omission was in the interests of the company. The issue is to the directors’ state of mind.

However, Privy council in Howard Smith, directors of a company purported to be acting in the best interests of the company when issuing enough new shares to cancel out the previous majority shareholding, so they could garner enough shareholder votes to block a takeover that they considered undesirable. It was held that an honest belief that the course of action was in the best interests of the company was not sufficient in itself if the directors’ exercise of their powers was an improper exercise of those powers. Here, it was held that the proper use of a power to issue shares was to raise capital for the company, not to block a takeover bid.

Eclairs group limited - the court is to take a purposive view. They must consider the purpose for which the power was conferred to determine whether the exercise was proper.

As seen this duty evolved out of disputes in which it was typically argued that the power to issue shares is conferred on directors in order to raise capital for the company and that a share allotment for any other purpose is necessarily improper.

Question 53

Dodge v Ford

Answer 53

This is a narrow US definition of fiduciary tasks which focuses on shareholder primacy.

Question 54

Hutton

Answer 54

In this case it was held that the company may play a social role with the results that there may be ‘cakes and ale’ to keep the employees happy and so all of the company’s profits do not need to be distributed to the shareholders. There are factors beyond shareholders.

A company may conduct itself in a way which benefits stakeholders, other than shareholders.

Question 55

Fassihi

Answer 55

A director wanted to divert business from the company to himself and he therefore encouraged the suppliers to make their terms so stringent that they would not be acceptable to the company. This conduct led to negotiations between the supplier and the company breaking down. The director was clearly not acting in the best interests of the company

Although this indicates how a director might not promote the success of the company, it provides little indication at what will be considered promoting success.

Question 56

Duty to exercise independent judgement

Answer 56

In City Equitable Fire Insurance, there was one senior executive, Bevan, who controlled the other directors so Bevan was able to commit numerous frauds with the company’s property; and the collapse of the Mirror group companies revealed that Robert Maxwell had the same control over his fellow directors. In both the Enron and WorldCom collapses there was dominance by a small group of senior executives, which meant that the company’s financial reports and business activities could be falsified.

Thus a fiduciary owes it to the principal to think for himself.

Question 57

Exercise reasonable care, skill and diligence (s173)

Answer 57

Considerations:

Subjective or objective Standard
Attention to duties
Extent of delegation

Question 58

Is this a subjective or objective standard?

Answer 58

Cases of City Equitable Fire insurance, Lugunas Nitrate suggest a subjective measure of this. However this subjective standard is challenged in cases such as Re D’Jan and Norman.

Question 59

Attention to duties

Answer 59

Considerations such as the extent of attention (Re City Equitable Fire Insurance, as contrasted with Stebbing)

Question 60

Extent of delegation

Answer 60

May honestly trust and delegate (City equitable Fire Insurance)

Barings plc:

• Directors have a continuing duty maintain sufficient knowledge and understanding of the company’s business to enable them to properly discharge their duties
• Whilst they are entitled to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of delegated functions.

In Barings, this dealt with a senior management who failed to supervise the activities of employees in the Singapore branch who were able to run up losses large enough to bankrupt the entire institution.

Question 61

Duty to avoid conflicts of interest (s175)

Answer 61

House of Lord in Keech v Sandford is one of the earliest cases in which the principle of equity emerges that a fiduciary may not take unauthorised profits from that fiduciary office.

The roots of this are also seen in Bray v Ford. The basis for the principle was held by the House of Lords in Boardman v Phipps to be that the fiduciary may not permit conflict between his personal capacity and his fiduciary capacity.

Question 62

Authorisation as a defence

Answer 62

Hudson
Cooley
Sutton

Question 63

Corporate opportunity doctrine

Answer 63

If the director is not diverting a business opportunity away from the firm there is no conflict of interest

Question 64

Cases for corporate opportunity doctrine where no maturing business opporunity

Answer 64

Umunna
Pyke

Question 65

Cases reaffirming the traditional principle

Answer 65

CMS Dolphin
Berryland Books

Question 66

CMS Dolphin v Simonet

Answer 66

• Mr Simonet resigned from his position as managing director of CMS Dolphin Ltd and he set up a new company.
• CMS’s staff followed and so did the major clients
• CMS sued Mr Simonet for the profits he made, alleging that he had breached his duty of loyalty to the company.
• Mr Simonet contended that he owed no duty because he had left the company.

Collins J: ‘the underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties’

Question 67

s176 not to accept benefits from third parties

Answer 67

AG Hongkong v Reid - a bribe and anything acquired with the bribe will be held on constructive trust

Cedar Capital - upheld Reid

Abramovich - t has been held latterly in Abramovich that the rational for the constructive trust in Reid was that it would have been as a fiduciary unconscionable for him to retain the benefit from it’ even though that was not the precise rationale used by Lord Templeman. Lord Neuberger in FHR v Ceder Capital considered the imposition of the constructive trust to be ‘Pragmatic

Tesco Stores v Pook and Daraydan Holdings

Question 68

s.177 Duty to declare interest in proposed transaction

Answer 68

The basis of the original equitable principle was expressed by Lord Cranworth in Aberdeen Railway:

It is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect

The effect of s177 is that a director may be involved in such a transaction provided that a declaration of that interest has been made in the manner considered above. Section 177 deals with a declaration before the transaction or arrangement is entered into. If they are aware of their interest a director must declare this before the arrangement is entered into.c

Question 69

Case law for 177

Answer 69

Parker v McKenna

Any benefit derived by the director to such a transaction could be recovered.

James LJ: No agent in the course of his agency, can be allowed to make any profit without the knowledge and consent of his principal; that that rule is an inflexible rule must be applied to this court.

Re Neptune (1995) Lightman J all such conflicts must be disclosed.

Question 70

Directors duties to people other than the company

Answer 70

Shareholders
Creditors

Question 71

Directors duties to shareholders

Answer 71

Percival v Wright

Shareholders wanted to sell their shares and requested the company’s secretary find purchasers. Some directors of the company purchased the shares based on an independent valuation. After the sale, the shareholders discovered that before and during the negotiations for that sale, the board of directors were involved in other negotiations to sell the entire company which would have made those shares substantially more valuable had they come to fruition. The plaintiff sued claiming breach of fiduciary duty in that the shareholders should have been told of these negotiations.

It was held that no fiduciary duty to individual members or shareholders and are entitled to buy shares without disclosing the existence of negotiations for a takeover.

Directors only owe duties to the company. This is codified in section 170.

Dawson v Coats - Lord Cullen, there is no good reason why directors are under a fiduciary duty to shareholders. There is no established authority in which any such fiduciary duty is owed. Directors have but one master, the company”

Question 72

Duties to creditors

Answer 72

Wrongful trading: s214 Insolvency Act 1968

Multinational Gas & Petrochemical: The directors indeed stand in a fiduciary relationship to the company, as they are appointed to manage the affairs of the company and they owe fiduciary duties to the company though not to the creditors, present or future, or to individual shareholders.’ Dillon LJ

Question 73

Sarah Worthington

Answer 73

Former approach puts shareholders at centre stage (ESA): companies are to be run primarily for the benefit of shareholders, although directors are required to take relevant decisions to include interested groups such as employee, customers, the wider community etc.

Pluralist: The ‘pluralist’ view, on the other hand would give shareholders no inevitable primacy, but would require the directors to balance the interests of the relevant stakeholder groups in determining whether a court of action was in the interest of the company.

However, little changed with the introduction of the CA 2006. There is no recommendations for institutional changes in broad structure. There is scant discussion of the relationship between directors and third parties.

Question 74

Prithvijoy Das

Answer 74

Directors are regarded as the kingpins of a company thus the duties of directors are the central concern of company law.

Companies Act shifted its goal from shareholder value ideology towards encouraging a stakeholder approach.

There was a call for an enlightened shareholder value approach where shareholder interests would be balanced with the needs to sustain effective ongoing relationships with employees, customers, suppliers and others.

Question 75

Benefits of codification

Answer 75

Maximising clarity and accessibility.

The determining objective was to reform the law to make it more simple.

Legal certainty

Question 76

Negatives of codifications

Answer 76

Loss of flexibility

If we look at the previous common law, duties of directors have changed particularly in relation to reasonable skill, from the case of City Equitable Fire Insurance. Thus, risks of freezing this in time.

Question 77

Analysis of the statute

Answer 77

The fact that directors owe their duties to the company is not particularly illuminating. It leaves key questions central to corporate theory unanswered regarding what are the company’s interests.

Pluralist approach whereby a company’s interests are aligned with those of the shareholders, creditors, employees and the general public? Evidence of this is seen in that directors must take things into consideration.

Question 78

Enlightened shareholder value

Answer 78

Aims to encourage directors to prioritise long-term success and the interests of other groups. Tries to strike a balance between putting shareholders first and considering other interests, but in reality it doesn’t change much.

An issue is that the statute is ambiguous and could make it difficult to hold directors accountable.

Question 79

Equitable compensation

Answer 79

Guiness plc v Saunders (1990)

Question 80

Guiness plc v Saunders

Answer 80

Special remunerations for an individual director can only be authorised by the board. A committee….however honest and conscientious cannot access impartially the value of its work or the contribution of its individual members. Article 91 authorises the board, and only the board, to grant special remuneration

Question 82

Who may authorise profits

Answer 82

Equiticorp - only shareholder may authorise fiduciary retaining profits