Chapter 7 - Directors' Duties Flashcards
(28 cards)
What are the general duties of directors under CA 2006?
There are seven statutory duties (ASPIRIN):
A act within powers
S success of the company (promote)
P personal judgement (independent judgement)
I informed care, skill and diligence
R remove conflicts of interest
I interest disclosure
N no benefit from third parties.
To whom are directors duties owed?
Duties are owed to the company, not to individual shareholders or third parties.
What does the duty to promote the success of the company entail?
Under s.172, directors must act in good faith to promote the success of the company for the benefit of its members, considering factors like long-term consequences, employee interests and community impact.
What is the standard of duty of care, skill and diligence?
A dual objective test: the general knowledge, skill and experience expected of a director, and the actual knowledge, skill and experience of the particular director (s.174).
What is the consequence of breaching a directors duty?
The company may bring a claim for remedies such as damages, restitution or injunctions. Shareholders may bring a derivative claim on behalf of the company.
How can directors avoid liability for breach of duty of care?
Through member approvals (ratification), court relief, or indemnity / insurance in limited circumstances.
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s.171 CA 2006
Duty to act within powers.
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s.172 CA 2006
Duty to promote the success of the company.
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s.173 CA 2006
Duty to exercise independent judgement.
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s.174 CA 2006
Duty to exercise reasonable care, skill and diligence.
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s.175 CA 2006
Duty to avoid conflicts of interest.
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s.176 CA 2006
Duty not to accept benefits from third parties.
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s.177 CA 2006
Duty to declare interest in proposed transactions.
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Derivative Claim
A claim brought by a shareholder on behalf of the company for breach of duty.
What is the purpose of codifying directors’ duties in the Companies Act 2006?
To clarify and consolidate common law and equitable principles, making them more accessible and consistent.
How does the duty to promote the success of the company (s.172) balance shareholder and stakeholder interests?
Directors must act in good faith for the benefit of members, but also consider long-term consequences, employee interests, community impact and environmental factors.
What is the significance of the subjective and objective test in s.174?
It ensures directors are judged both by a general standard and their personal experience and qualifications.
Can directors delegate their duties?
Yes, but they must still exercise independent judgement and ensure proper oversight of delegated tasks.
What is the difference between a conflict of interest and a declaration of interest?
A conflict (s.175) involves a situation that may compromise a directors loyalty; a declaration (s.177) is about transparency in proposed transactions.
What are the consequences of breaching directors’ duties?
The company may seek remedies such as damages, restitution or injunctions. Shareholders may bring derivative claims.
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Fiduciary Duty
Obligation to act loyally and in the bests interests of the company.
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s.172 CA 2006
Duty to promote the success of the company for the benefit of its members as a whole.
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s.175 CA 2006
Duty to avoid conflicts of interest.
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Ratification
Shareholders approve a director’s breach to prevent liability (s.239)
