Chonks Flashcards
(16 cards)
DD General Introduction
Directors owe 7 general duties to their respective company, these duties are set out in s171-177 of the Companies Act 2006. They are interpreted and applied in the same way as common law rules or equitable principles, allowing for wider interpretation. This reflects how old companies used the trust mechanism, Dillon LJ in Multinational gas & Petrochemical Co v Multinational gas & petrochemical Services Ltd (1983) defined the role of directors as owing ‘fiduciary duties to the company’. He went on to clarify that as these duties are owed to the company, ‘the company is the proper plaintiff in an action for a wrong done to the company.”
DD 171 Intro
The duty to act within powers requires a director to act in accordance with the company’s constitution while only exercising their powers for the proper purpose. The court will consider good faith, however, an act done in good faith for a dominant improper purpose will constitute a breach.
DD 172 Intro
The duty to promote the success of the company is based on an equitable fiduciary duty, in Smith and Fawcett Ltd [1942] Lord Greene stated directors must act “bona fide in what they consider-not what the court may consider-is in the interests of the company”. While the primary function of this duty is to find what has the highest probability of promoting the company’s success, enlightened shareholder value is the core principle behind this duty.
directors should consider the long-term impacts of their decisions, taking into account the interests of other stakeholders such as employees, customers, suppliers, and the environment. This soft law reflects society’s shift towards more ethical approaches.
DD 173 Intro
This duty requires directors to make decisions independently, without undue influence from others; ‘directors owe a duty to the company, and to the company alone. … They cannot be dictated to by anyone else.’ (Lord Denning in Boulting v Association of Cinematograph, Television and Allied Technicians [1963] ). There are two circumstances however, where a director may limit his discretion; when acting in accordance with the company’s constitution and within agreements entered into in good faith for the company’s best interest.
DD 174 Intro
Directors must exercise reasonable care, skill, and diligence in carrying out their role. This duty ensures directors meet both objective and subjective standards of competence and attention. It recognises the importance of holding directors accountable based on what is reasonably expected of someone in their position, while also factoring in their individual skills and experience. The ‘objective/subjective’ test was copied from wrongful trading (IA s.214 (4) 1986).
DD 175 Intro
The non-conflict duty has a broad scope which includes ‘indirect interests’ which ‘may possibly conflict’ with the interests of the company. The duty applies to exploitation of any property, information or opportunity immaterial whether company could take advantage of it (industrial Development Consultants Ltd v Cooley [1972]). Lord Herschell’s ‘no conflict no profit rule’ in Bray v Ford [1896] explains the fiduciary nature of this duty ‘‘a person in a fiduciary position… is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.’
DD 176 Intro
a director of a company must not accept a benefit from a third party conferred by reason of his being a director, or his doing (or not doing) anything as director. This is a continuing duty which means an individual who has ceased to be director of a company may still breach this duty and be held liable.
DD 177 Intro
A duty to ensure that if a director is interested directly or indirectly, in a proposed transaction he makes the company aware of that interest in detail (the nature and extent), may be orally in a meeting or by giving notice in writing. Includes matters directors ought reasonably to be aware of. The underlying fiduciary nature of this duty is to avoid conflicts of interest, Lord Herschell’s ‘no conflict no profit rule’ in Bray v Ford [1896] explains the fiduciary nature of this duty ‘‘a person in a fiduciary position… is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.’
DD Remedies Intro
MSP Intro
A minority shareholder has 50% or less of the company’s shares. In respect to MA 3, the board is the appropriate organ to initiate proceedings for wrongs done to the company but may fail to remedy such a wrong or oppress MSHs. The rule in Foss v Harbottle (1843) states A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested. Put simply, Where it is alleged that a wrong has been done to a company, prima facie the only proper [claimant] is the company itself’ (Sealy).
L&S General Introduction
CC General Introduction
MSP ‘Just & equitable’ ground (W/uP)
Another remedy a MSH can seek is the winding up of the company based on a ‘just and equitable ground’ (s122(1)(g) IA 1986), the court will not grant the petition if it is of the opinion that some other remedy is available to the petitioners AND that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. Petitions for winding up can be presented by a ‘contributory’ (s124(1) IA 1986): means every person liable to contribute to the assets of a company in the event of a winding up; includes shareholders who are the registered owners of partly paid shares and they must have ‘clean hands’. court will consider whether the company can be considered a quasi-partnership - Ebrahimi v Westbourne Galleries (1973)
MSP Unfairly prejudicial conduct – Part 30 jurisdiction
The reasonable alternative to winding up, an order from the court to give relief to a shareholder(s) on the ground that the company’s affairs are being conducted in a manner which is ‘unfairly prejudicial’ to the applicant shareholder(s) (ss 994-999, Part 30 CA 2006, ‘Part 30 action’); allows the company to continue in existence but the courts have wide powers to give relief.
MSP Derivative Claim
A minority shareholder may bring a derivative claim on behalf of the company for a wrong done to the company by virtue of Part 11, ss 260-264 CA 2006. The statutory derivative claim retains the principle that a shareholder derives a claim from the company to bring an action in his name against someone (usually a director). The case of recognized that some principles from the old common law, such as judicial discretion and considerations of good faith and corporate benefit, remain relevant when courts assess whether to permit a claim to proceed.
