Directors - Duties and Responsibilities Flashcards
(24 cards)
What happens to directors’ duties if the company becomes insolvent?
duties shift focus to the interests of the creditors
s.171 Duty to act within powers. What are the 2 limbs?
- Act within company’s constitution
- only exercise powers for their proper purpose
When would a director breach s171?
- Exceeding authority under the Articles
- Using powers for improper purposes, eg. personal benefit
s.172 - Duty to promote the success of the company - what is the core requirement?
A director must act, in good faith, in the way that most likely promotes the success of the company for the benefit of its members as a whole?
s.173 - duty to exercise independent judgement - when is acting without independent judgement permitted?
- Director acts per agreement binding on the company
- Director acts under proper constitutional authority to delegate or follow others
s.174 duty of reasonable care, skill and diligence. How is the standard asessed?
Using a dual objective and subjective test
Objective - what is expected of a reasonably diligent person with that role
Subjective - the actual knowledge, skill and experience of that director
What is the remedy for breach of s.174?
Damages
s.175 - duty to avoid conflicts of interest - what situations fall within s175?
- Exploiting corporate property, information or opportunities
- Becoming a director of a competitor company
What are the exceptions to s.175?
- conflict cannot be reasonably regarded as likely
- conflict relates to a director’s transaction with the company
- the situation is authorised by the directors not involved in the conflict
s.176 duty not to accept benefits from 3rd parties - what are the exceptions?
Where the benefit cannot be reasonably regarded as giving rise to a conflict
Can the board authorise a breach of s.176?
No, but the shareholders may approve or ratify it
s.117 duty to declare interests in proposed transactions - how can a declaration be made?
- At board meeting
- In writing
- by general notice
When is no declaration under s117 required?
- the director is not aware (or could not reasonably be)
- the interest cannot reasonably give rise to conflict
- the matter relates to the director’s service contract being considered by the board
What does MA 14 say about directors with conflicts?
A director cannot vote or count in quorum on matters where they have a conflict of interest
What are the exceptions under MA 14?
- the company disapplies MA14 by ordinary resolution
- the interest cannot reasonably cause conflict
- the interest arises from a permitted cause
How can a company permanently allow conflicted directors to vote?
By amending the Articles to remove or modify MA 14
Who can bring a claim for breach of duty?
only the company
what does s178 CA say about remedies?
Remedies for breach are the same as those for breach of fiduciary duties under common law/equity
What remedies are available (except for s174)?
- Injunction
- setting aside transaction
- restitution/account of profits
- restoration of property
- damages
Can shareholders authorise a director’s breach of duty in advance?
Yes - subject to full disclosure and company law
What does s239 CA allow shareholders to do?
Ratify a director’s conduct after the breach by ordinary resolution, including:
- Negligence
- Default
- Breach of duty
- Breach of trust
Can a director vote on their own ratification?
No - shares held by the director (or connected persons) are disregarded
Can unlawful acts be ratified?
No
Can breaches be ratified during insolvency?
No - once a company is insolvent, directors owe duties to creditors, and shareholders cannot ratify breaches
