Business Law and Practice notes - BPP Law School - High Distinction Level notes!
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The Roles, Responsibilities & Requirements of Directors-
Directors auth to manage the company-
Aside from those decisions that require shareholder approval, the board are free, generally to make
decisions on other matters
MA 3 – 5 – deal with directors managing the company
They can employ people, set pay, enter contracts with customers/ suppliers, and buy/ sell, raise funds
Responsible for putting together company accounts & supplying auditors w/ info
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Director’s accountability-
to ensure companies are run for the benefit of, amongst others, their shareholders and for the
protection of the company’s creditors, directors’ actions and powers are restricted and regulated by
statute.
Dealt w/ in Part 10 CA ‘06 - general duties & specific restrictions
Under a company’s articles, directors are generally empowered to exercise all the powers of a company
in order to manage the company’s business on a day-to-day basis. Directors must exercise these powers
in accordance with their statutory duties.
S170 – 177
A director owes duties to the company and is subject to obligations under statute – CA ‘06 & IA
‘86
S170(5) - these duties also apply to shadow directors where they are capable of applying
-
The statutory duties under CA 2006 are:
, To act within their powers;
To promote the success of the company for the benefit of the members as a whole;
o See the non-exhaustive list the directors must regard
To exercise independent judgment;
To exercise reasonable care, skill and diligence;
To avoid conflicts of interest;
Not to accept benefits from third parties; and
To declare any interest in a proposed transaction.
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Remedy for breach of duty against directors-
The duties are owed to the company by the director, not the shareholder – so in a breach, the company
has a claim against them
s.178, the consequences of a breach of directors’ duties are the same as for breach of the
corresponding common law or equitable principles
o All directors duties are fiduciary (NOT s174)
damages
With the exception of the duty to exercise reasonable care, skill and diligence under s.174, the statutory
duties are enforceable in the same way as fiduciary duties owed by directors to their company.
Remedy for breach of the duty to exercise reasonable care, skill and diligence:
o Injunction
o Setting the transaction aside, restitution and account of profits
o Restoration of company property held by the director
o Damages
Breach could also be grounds for termination of an executive directors service contract/ dis qualification
of a direction under Company Directors Disqualification Act ‘86
-
Seeing as the directors are the minds of the company – they would bring the claim against themselves …
which they are unlikely to do
So shareholders may be able to bring a derivative claim - seeking relief on behalf of the company
– damages for which would be awarded to the company. Not the sharehodler
S260 – express right to bring DC where directors have breached duty/ acted negligently – even
where they did not benefit directly
o Requirement to obtain permission from the Court to continue such a claim - proving a
prima facie case
o No claim can be brought where a majority of shareholders approved the directors’
conduct in advance / where the shareholders have since ratified that conduct.
, A derivative action is likely to be commenced where only a minority of shareholders want to take action
in a case, for example, where the majority are prepared to accept the director’s behaviour or where the
delinquent directors hold sufficient shares to block any moves against them.
if a majority of shareholders support action against the director for breach of duty, a derivative
action will not be necessary. This is because the directors will cause the company to bring a
claim in any event, knowing that, if they do not do so, the majority of shareholders can remove
intransigent directors from the board and appoint more co-operative individuals who are
prepared to bring the claim.
-
Former common law duties of directors-
Prior to the CA ‘06 - directors duties were mostly from common law and equity
The CA is to apply and be interpreted in the same way as the common law sources
Duties under former regime:
common law duty of skill and care;
fiduciary duties / duties in equity, e.g.:
o duty to act bona fide in the interests of the company;
o duty to act within powers and for proper purposes and not for any collateral purpose
(e.g. not for personal gain or with a conflicting interest);
o duty not to misapply company property (e.g. making a prohibited loan to a director);
o duty to account for a secret profit (i.e. a profit made by virtue of one’s office, perhaps
involving a contract between the director and a third party, which is not approved by
the company);
o duty to avoid conflicting interests and duties; ando duty not to fetter their own
discretion.
2. Disclosure-
The CA 2006 requires certain details about a company's directors to be disclosed. The required
disclosure may be to the public generally, to the members of the company concerned or simply to the
directors, depending on the information concerned.
Disclosure of identity of directors & secretary-
Every company must maintain a register of both its directors (s167) and secretaries (s276) – it available
for inspection by the public – s1085(1)
S162 – 164 , s167 – Directors
o Particulars of what should be registered – s163(1) and 164
S275 – 278 – secretaries
o Particulars of what should be registered s 277(1) and 278(1)
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