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Directors Duties Crib Sheet Notes

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Directors' Duties

1. Who is a director?
a. 250 Includes a person occupying the position of a director even if not termed that b. 251 Shadow director is a person in accordance with whose directions or instructions directors of a company act

2. Duties of a director?
a. 170(1) general duties are owed by a director of the company to the company (not to the shareholders or other directors) a.i. Directors are subject to fiduciary duties whereby they must be the interests of the company above their own interests. These duties are codified in 172-177 CA 2006 b. 170(2) a person who ceases to be a director continues to be subject to 2 duties b.i. 175 conflict of interest b.i.1. Exploitation of any information, property or opportunity that he became aware of at the time he was a director b.ii. 176 duty not to accept benefit from third parties b.ii.1. Things done or omitted to be done before ceasing to be a director c. 171 Duty to act within powers c.i. Must act in accordance with the company's constitution c.ii. Only exercise powers for the purpose d. 172 Duty to promote the success of the company d.i. Subjective test d.i.1. Director must act in way he considers, in good faith, most likely to promote the success of the company d.i.2. If director makes a business decision in good faith that he believed would benefit the company, the court will not find him in breach d.ii. 172(1) Director must have regard to: d.ii.1. Likely consequences of any decision in the long term d.ii.2. The interests of the company's employees d.ii.3. Need to foster the company's business relationships with suppliers, customers & others d.ii.4. Impact of the company's operations on the community & the environment d.ii.5. Desirability of the company maintaining a reputation for high standards of business conduct d.ii.6. Need to act fairly between members of the company d.iii. Directors should keep minutes of meetings to document their considerations e. 173 Duty to exercise independent judgment e.i. No breach if director acts as authorised by company's articles e.ii. 173(2) Duty is not infringed if director acts in accordance with an agreement entered into by the company which restricts future discretion of its directors e.iii. Duty does not prevent directors relying on advice, as long as directors exercise own judgment in deciding whether or not to follow advice f. 174 Duty to Exercise reasonable care, skill & diligence f.i. Covers negligence or the incompetence of a director f.ii. Subjective & objective test f.ii.1. Director must exercise same standard of care, skill & diligence that would be exercised by a reasonably diligent person with f.ii.1.a. The general knowledge, skill & experience that the director actually has AND f.ii.1.b. The general knowledge, skill & experience that may be reasonably expected of a person carrying out the functions carried out by the director in relation to the company

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