Fiduciary Duties of Directors Flashcards
(42 cards)
when and where were directors duties developed
in English courts in the 18th and 19th century on a case by case basis
what law does SA follow with regards to directors duties
English law but they have been developed to suit a more localized context
what are the 2 primary duties placed on directors at common law
- fiduciary duties
2. duty to act with care and skill
what are directors duties always in relation to
the company, i.e for the best interests of the company - it refers to both present and future shareholders
what four elements makes up fiduciary duties
- conflict of interest
- exercise power for proper purpose
- duty not to exceed powers
- duty to maintain an unfettered discretion
what is the core fiduciary duty
the duty to avoid a conflict of interest
what are the common law duties of the duty to avoid a conflict of interest
- the no profit rule
- the corporate opportunity rule
what is the no profit rule
Directors may not retain any profit made by them in their capacity as directors while performing their duties as directors. even if the company could not have made the profits themselves, the profits must be disgorged.
why is the application of the no profit rule wide
it applies to any situation in which the director has made some sort of gain
which case best illustrates the no profit rule
Regal Hastings v Gulliver
what did the court find in Regal Hastings
profits made by previous shareholders were profits that rightfully belonged to the company
what was the distinguishing factor of the Phillips case
the person charged with failing to uphold his fiduciary duties was not a director but an employee who was given discretion to do business in SA.
how did the employee in the Phillips case breach fiduciary duties
the employee used the opportunity to make a profit for himself which rightfully belonged to the company
what did the court in Phillips conclude
even though he was not a director he owed a fiduciary duty to the company, the scope of his duties meant that he exercised a discretion similar to that of a director
what did the court in Phillips say did not matter once a fiduciary duty had been breached
it made no difference that the company had not suffered any loss or damage or that the company would not have been able to take up the opportunity itself. As soon as the breach is proved the director becomes liable.
what does the corporate opportunity rule prohibit
prohibits a director from using any contract, information or another opportunity which properly belongs to the company for their own benefit when the opportunity came to them by virtue of their position as a director
what case separated the corporate opportunity rule from the no profit rule
originally they were treated the same but this changed in the Da Silva case
when does a director fall foul of the corporate opportunity rule
where he or she takes an opportunity for himself where the opportunity is in line with the business of the company or closely related to it and where the company was relying on the director to acquire the opportunity for it.
what classifies as a corporate opportunity
something that forms an asset in the estate of the company but it is not confined to property or assets only but extends even to confidential corporate information which director has used to make a profit for himself
what concepts does S76 (3) (b) and (a) emphasize
good faith and the best interest of the company
what is the essential characteristic of statutory fiduciary duties
honesty
what does a director’s duty entail in terms of S76 (3 (a) and (b)
a director must always act in a manner that he or she honestly believes to be in the best interests of the company
what does proper purpose mean
the director must exercise the power for the purpose for which the power was given and not for a collateral or ulterior purpose
what does S75 make compulsory for a director to disclose
a director must disclose a conflict of interest/ personal financial interest/ another entity that has an interest
- personal financial interest
- any material information
- any observations or pertinent insights