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Law Notes Company Law Notes

Directors' Duties Ii Notes

Updated Directors' Duties Ii 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

Textbooks 137

Gower pp514-533: Overview of the No-Conflict Rules 137

Transactions with the Company (Self-Dealing) 137

Transactions between the Company and Directors Requiring Special Approval of Members 139

Gower pp540 – 68: Conflicts of Interest and the use of Corporate Property, Information and Opportunity 141

Duty not to Accept Benefits from Third Parties 145

Remedies for Breach of Duty 146

Gower pp576-586: General Provisions Exempting Directors from Liability 148

Relief Granted by the Court 150

Liability of Third Parties 150

Cases 151

Bhullar v Bhullar [2003] 2 BCLC 241 151

CMS Dolphin Ltd v Simonet [2001] (remedies) 152

Fulham Football Club v Cabra Estates [1994] 1 BCLC 363 153

Gwembe Valley Development Co v Koshy [2004] 1 BCLC 131 153

Industrial Development Consultants v Cooley [1972] 2 All ER 162 154

Item Software (UK) Ltd v Fassihi [2004] 155

Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 155

Towers v Premier Waste Management Ltd v Fielding [2005] EWCA Civ 923 156

Allied Business and Financial Consultants v Shanahan (sub nom O’Donnell v Shanahan) [2009] EWCA Civ 751 157

Plus Group Ltd v Pyke [2002] 2 BCLC 201 157

FHR European Ventures LLP v Cedar Capital Partners [2014] UKLSC 54 158

Articles 158

Grantham, Can Directors Compete with the Company (2003) MLR 109 158

Prentice and Payne, The Corporate Opportunity Doctrine (2004) 120 LQR 198 158

Prentice and Payne, Directors’ Fiduciary Duties (2006) 122 LQR 558 158

Edmunds and Lowry, The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duties and its Remedies (1998) 61 MLR 515 160

Kershaw, Does it Matter How the Law Thinks about Corporate Opportunities (2005) 25 Legal Studies 533 160

Farrar and Watson, Self-Dealing, Fair Dealing and Related Transactions – History, Policy and Reform (2011) 11 Journal of Corporate Law Studies 495 160

Gummow, Dishonest Assistance and Account of Profits [2015] CLJ 405 160

Questions 160

Textbooks

Gower pp514-533: Overview of the No-Conflict Rules

Dir = fiduciary – must not place self in position where there is a conflict between their duties to the company and their personal interests or duties to others – Lord Herschell per Bray v Ford [1896] – a strict rule needed as human nature is such that there would be ‘danger’ of the fiduciary being ‘swayed’ by improper motives.

The no-conflict rule is reflected in the CA 2006:

  • No self-dealing transactions – SS175(3), 177, Pt 10, Chs 3 & 4

  • Dir must not make personal use of company property, information or opportunities: SS175(1), (2)

  • Dir must not receive benefits from third parties in exchange for exercising their Dir powers a certain way: S176

These no-conflict rules form the core of the Dirs’ duties of good faith and loyalty, which by themselves are too vague to be meaningfully enforced.

Transactions with the Company (Self-Dealing)

The scope of the relevant position

S175 – general duty to avoid conflicts of interest but specific rules on self-dealing transactions are found in S175(3): ‘this duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company’.

The normal rules are relatively laid-back and typically just require proper notification and permission being granted by the board. Trustee-like relationship between company and Dir meant that self-dealing transactions could be avoided: Aberdeen Railway Co v Blaikie Bros (1854) – Lord Cranworth LC pointed out that a company may only act through its officers so any self-dealing transaction can be set aside regardless of how substantively fair it is.

Approval mechanisms

However, this is not a blanket ban on self-dealing: there may be good commercial reasons by contracting with a director, who would have good knowledge of the company’s requirements. At common law, this was shareholder approval but this was cumbersome. Many changed their AoA to simply require disclosure to the board not approval by members. This is the position in S177 now.

Proposed transactions – S177, Ch 2 of Pt 10; existing transactions – S182, Ch 3 of Pt 10.

Duty to declare interests in relation to proposed transactions or arrangements

Dir who is ‘in any way, directly or indirectly; interested in a proposed transaction or arrangement with the Co must declare to other Dirs the ‘nature and extent’ of that interest before Co enters into arrangement – S177(1); if declaration, once made, later becomes incomplete or inaccurate, further disclosure is required – S177(3).

Purpose of disclosure requirement

Aim of S177 is to put other Dirs on notice of conflict so they can take necessary steps to safeguard Co position – what exactly they must do is within their discretion but inadequate precaution would be a breach of their duties of care and perhaps good faith. Act allows conflicted Dir to vote and count towards quorum though model articles for public and private Cos (Arts 14 and 16) both exclude this power.

Who is subject to this duty?

S177 – wrt proposed transactions – is a general duty of Dirs, so therefore also applies to shadow Dirs although only ‘to the extent capable of so applying’ (S170(5)). S182 wrt existing transactions explicitly applies to shadow Dirs per S187(1). Of course there is the argument that shadow directors simply order the real directors what to do so disclosure would be meaningless but the de jure directors do not always do what the shadow director tells them to do.

The interests to be disclosed

Dir to disclose any interest in a ‘transaction or arrangement’, which includes both contracts and other arrangements – Re Duckwari (No 2) [1998]. Does not matter whether or not the contract is entered into by the board or by one of the subordinate managers.

Direct and indirect interests must be disclosed – eg of indirect – shareholding in company which is the other party or being member of a contracting partnership, reflecting the common law position – Aberdeen Railway Co v Blaikie Bros.

Dir must disclose nature and extent of relevant interest eg Dir X is a...

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