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Law Notes Company Law Notes

Directors’ Duties I Notes

Updated Directors’ Duties I Notes

Company Law Notes

Company Law

Approximately 805 pages

Company law notes fully updated for recent exams in the UK. These notes cover all the major LLB company law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Canada, Hong Kong or Malaysia (University of London). These notes were formed directly from a reading of the cases and main texts and are vigorous, concise and very well written.

Everything is conveniently split up by topic as you can see by the list o...

The following is a more accessible plain text extract of the PDF sample above, taken from our Company Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Contents

General Reading 110

Gower pp461-514: Chapter 16 – Directors Duties 110

Introduction 110

To Whom and by Whom are the Duties Owed? 110

Directors’ Duties of Skill, Care and Diligence 114

Introduction to Ds’ Various Duties of Good Faith and Loyalty 115

Duty to Act within Powers 116

Duty to Exercise Independent Judgement 118

Duty to Promote the Success of the Company 119

Key Cases to Note 123

Eclairs Group Ltd v JKX Oil & Gas Plc [2015] UKSC 71 123

Liquidator of West Mercia Safteywear v Dodd [1988] BCLC 250 126

Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244 126

Howard Smith Ltd v Ampol Ltd [1974] 1 All ER 1126 127

Re Smith and Fawcett [1942] Ch 304 127

Regentcrest plc v Cohen [2001] 2 BCLC 80 128

Charterbridge Corporation v Lloyds Bank [1970] Ch 62 128

GHLM Trading Ltf v Maroo [2012] EWHC 61 129

Fulham Football Club Ltd v Cabra Estates plc [1994] 1 BCLC 363 (CA) 129

Articles 130

H. Hansmann and R. Kraakman: The Anatomy of Corporate Law 2nd Ed (OUP, 2009) – Chapter 2: Agency Problems 130

P. Davies, Directors’ Creditor-Regarding Duties in Respect of Trading Decisions Taken in the Vicinity of Insolvency (2006) 7 EBOLR 301, pp327-29 132

D Ahern, Directors’ Duties, Dry Ink and the Accessibility Agenda (2012) 128 LQR 114 132

Parkinson, Disclosure and Corporate Social and Environmental Performance: Competitiveness and Enterprise in a Broader Social Frame [2003] Journal of Corporate Law Studies 3 133

A Keay, Moving Towards Stakeholderism? Constituency Statutes, ESV and More: Much ado about little? (20122) 22 EBLR 1 133

Supervision Questions 133

General Reading

Gower pp461-514: Chapter 16 – Directors Duties

Introduction

Usually, CoAoA give boards unusually wide discretionary powers for reasons of efficiency. However, this creates a risk of misuse, particularly in the interests of senior management rather than the company. This is an age-old problem that continues despite CA 2006.

A few approaches:

  • Constitution and power of the board, and shareholder power to remove Ds

  • Extent to which shareholders can intervene in company management, or subject management performance to critical review

    • Perhaps the best method is simply well-directed criticism of the board and the use of the threat of removal – a sort of soft power, rather than allowing shareholders too much power to interfere with good management

  • Restrictions from company law itself – fiduciary powers, which were previously entirely common law – Law Comm and CLR pushed for statutory restatement, which took place in Ch 2 Part 10 CA 2006

    • Aim was to promote understanding of basic principles by directors themselves

    • However, note that Part 10 is a general overview of directors’ duties not a detailed, comprehensive list

    • Law Society and leading solicitors’ firms thought codification was dangerous as it would freeze the law in time but this is not true as the CA 2006 expressly preserves the common law principles and says common law and equitable precedents should be used as interpretative guides.

    • However, sometimes, the Act is more than codifying – it also reforms – eg SS140(3),(4) – standard of care expected of directors; authorisation by independent directors of conflicts of duty – in such cases, the courts should not refer to the old common law precedents (Hansard)

    • It was hoped a similar scheme on remedies for breaches of directors’ duties would be enacted in statute but the Government eventually abandoned this part of the proposal. However, Nolan’s work for the CLR paper has been published. As a result, S178 of the Act simply says remedies will be the same as they were at common law.

To Whom and by Whom are the Duties Owed?

To whom are the general duties owed and who can sue for their breach?

The company

Duties primarily owed to the company – S170(1). This means the duty is not owed to individual shareholders or employees, and only those who act for or on behalf of the company can enforce these duties. Who can act on behalf of the company was an area of controversy until clarification and reform in CA 2006.

Although there may be an ex turpi causa issue where the actions of directors are attributed to the company as against third parties, this does not mean companies cannot sue directors for wrongdoing while in office or else this would undermine D duties. However, the actions of the director may be attributed to the company depending on the ‘nature and factual context of the claim in question’ per Lord Neuberger, Bilta (UK) Ltd (In Liquidation) v Nazir [2015]. One workable rule may be to say that no individual can rely on his own act counting as a corporate act so as to give them either a claim or defence against the company.

Individual shareholders

Statutory duties are only owed to the company but the Act does not purport to answer the question whether fiduciary or other duties are owed to others. At common law, there is a reluctance to recognise such duties. That would undermine the collective nature of the shareholders’ association in a company and the rule that the duties are owed to and are enforceable by the company. If this were the case, then the rules on derivative action could be easily circumvented.

However, there may be special factual situation where directors do owe fiduciary duties to individual shareholders, but this does not apply simply by virtue of their office. Peskin v Anderson [2001] per Mummery LJ – fiduciary duties may be owed where there is a ‘special factual relationship between the directors and the shareholders’.

What are examples of such a relationship?

  • Where shareholders have authorised Ds to sell their shares in the context of a takeover: Breiss v Woolley [1954] – agency relationship

  • However, there is no general duty owed to shareholders individually: Percival v Wright [1902]

Should the rule on special factual relationship be extended beyond the situation of agency? Coleman v Meyers [1977] NZCA found a fiduciary duty to arise even without agency in the context of a small family company...

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