This is the complete a - z note on the company law topic, you just have to go through it once and you can easily attempt the question and get A ++ grade in finals
this is a marked answer by a senior professor you just need to read it and you can even write the same just need to change it a bit ...
'The codification of the duties of directors, in the Companies Act
2006,has been a failure. Sections 170-177 of that Act need further
reform.' Discuss.
Company law clearly portray that the director of a company are the
custodians as they have responsibility to protect and manage asset of
company.This paper will contain a detail discussion regarding new
codification which has been set out under the company act 2006.There
are several duties which the director bears , i -e fiduciary duty under
common law also under the insolvency act 1986. and if any misfeasance
occur in company the director wont be able to claim immunity by stating
that he/she was just a nominee, such claim from director will be clearly
rejected (selangor united rubber v cradock)as they were not acting on
on behest of the other person. Essay will also demonstrate that whether
this codification under CA 2006 has achieved its objective or to what
extent they were successful in doing so moreover I don’t agree with the
statement completely.
the company's act 2006 has categorized the common law duty of care
and the fiduciary duty and skills of a director , this act has codified the
duties of directors and the main concept behind creating this seven
general duties was to bring clarity regarding directors duties and if these
seven codified duties duties are breached then the consequences will be
same as if a person has breached any fiduciary duty owned to a
company by directors
The very first duty which is codified under s 171 the director is required
to perform his duties in accordance with the constitution of the
company, as per lord Hoffman he must only utilize his/her power in a
manner they are conferred.
According to lord Wilberforce it must be accessed that use the power
must be for substantial purpose, which refers to use of power for
proper purpose rather then improper. In the light of decision stated in
the eclair group ltd v JKX Oil and gas plc ,followed the ‘article’ and gave a
reminder to the directors, by ensuring their power for a proper purpose
, According to Howard Smith Ltd if an particular action is operating in a
manner which courts are considers as improper purpose then, that will
be regarded as unconstitutional for the director (extrasure travel v
scattergood), as the director have the power to allot shared but he cant
misuse this power to defeat the takeover bit (hogg v cramhorn).In the
case of re smith and fawcett , lord greene stated that Director must
exercise his power for any collateral purpose, lastly in order to access
whether director is acting in good faith must be accessed by taking into
account there , experience , reputation and policies (berger J)
But I can be argued that the objective clause of the company mostly
stated that the company can engage into any type of business, therefore
it can be argued that there is no real explanation of the point as to what
can a director do or and what not fr the business
Before the time these new provisions under CA 2006 , came in to
existence , the directors under s 172 were expected to act in a way he
considers in good faith and his act is in the best interest to promote
success of the company , in order to decide what is the optimal course
of action, to achieve it.
basically this section has been most challenging and became center of
the debate in UK parliament as compared to other provisions in the CA
2006. as this section require director to take there decision while
keeping in mind the int rest of company and its relationship with the
stake holders, there are so much uncertainty regarding operation of s
172 as question also arises here that whether subject or objective test
will be applied to check that whether the director has took the specified
decision by keeping the company's interest as his priority or not.
Initially The test can be considered, subjective in nature as Arden LJ
stated that assessment of good faith and duty of loyalty is a time
honored rule (item software v fassihi) and the subjective test under s
172 (regentcreast plc v cohen) basically asks director that he really
believes that his act or commission was in beneficial for company ?
(parker j).
Penenycuick J later on introduced the criteria to analyse directors action
in comparison with the person who has reasonable skill knowledge , and
the same question will be asked to him , that would he also will the
same transaction in the best interest of company in similar
circumstances (charterbridge v loyds bank) And if he didn’t did so , he
will be held liable for breach under common law , however if we do keen
observation on directors action his interest can be revealed, a which is
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