This chapter studies the codification of the director’s duties, how breach of duty can be avoided, and the duties in ss 171–74 of the Companies Act 2006 (CA 2006). Sections 171–74 of the CA 2006 provide that a director is under a duty to act in accordance with the company’s constitution; a duty to act in a way that would promote the success of the company; a duty to exercise independent judgement; and a duty to exercise reasonable skill, care, and diligence. Ultimately, the standard expected under s 174 is that of a reasonably diligent person with the general knowledge, skill, and experience that the director has. Meanwhile, a breach of duty may be avoided if the breach is approved or authorized, ratified under s 239, or if the court relieves the director of liability under s 1157.
Chapter
10. Directors’ duties I: duties of performance
Chapter
16. Directors’ duties
This chapter deals with the seven general duties of directors as spelled out in the Companies Act 2006: duty to act within powers; duty to promote the success of the company; duty to exercise independent judgement; duty to exercise reasonable care, skill and diligence; duty to avoid conflicts of interest; duty not to accept benefits from third parties; and duty to declare interest in proposed transaction or arrangement. After providing a background on the codification of directors’ general duties, the chapter turns to the fiduciary duty of directors, including shadow and de facto directors. It also examines statutory requirements involving property transactions; loans, quasi-loans and credit transactions; associated companies and persons ‘connected’ with a director; equitable remedies for breach of duty; the ways in which directors can be relieved of liability; and secondary liability with regard to property.
Chapter
16. Directors’ duties
This chapter deals with the seven general duties of directors as spelled out in the Companies Act 2006: duty to act within powers; duty to promote the success of the company; duty to exercise independent judgement; duty to exercise reasonable care, skill and diligence; duty to avoid conflicts of interest; duty not to accept benefits from third parties; and duty to declare interest in proposed transaction or arrangement. After providing a background on the codification of directors’ general duties, the chapter turns to the fiduciary duty of directors, including shadow and de facto directors. It also examines statutory requirements involving property transactions; loans, quasi-loans and credit transactions; associated companies and persons ‘connected’ with a director; equitable remedies for breach of duty; the ways in which directors can be relieved of liability; and secondary liability with regard to property.
Chapter
14. Directors’ liabilities for breach of duty
This chapter focuses on the extent of a director’s civil liability for breach of fiduciary duty and the liability of third parties involved in some way in that breach of duty. One of the most important issues is the extent of a director’s liability to account. Liability can range from accounting for secret profits to claims for equitable compensation and from personal to proprietary claims. Often, a claim will be affected by limitation issues. It may be complicated by the involvement of third party accessories. Mitigation through reliance on indemnity provisions, insurance and by applying to the court for relief is also considered. The discussion covers: breach of fiduciary duty, liability of third parties, claims for negligence, and managing potential liabilities.
Chapter
20. The derivative claim and the rule in Foss v Harbottle
This chapter discusses further aspects of shareholder remedies, namely the common law multiple derivative claim; derivative claims under Companies Act 2006 (CA 2006), Part 11; the reflective loss principle; personal actions at common law; and specific statutory rights under the CA 2006. At common law, a shareholder aggrieved by a breach of duty by a director could bring a derivative claim on behalf of the company, as an exception to the rule in Foss v Harbottle. That common law claim now remains as a common law multiple derivative claim whereas the ‘ordinary’ derivative claim now is a statutory claim under CA 2006, Part 11. This chapter explores both types of derivative claim and assesses their value to shareholders. An important constraint on shareholder recovery is the principle governing reflective loss which has recently been restated by the Supreme Court. This chapter considers the current position in the light of that development.
Chapter
14. Directors’ duties
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter is concerned with the duties which a director owes to the company, including duty to act within powers, duty to promote the company’s success, duty to exercise independent judgement, duty not to accept benefits from third parties, and duty to avoid conflicts of interest. After reviewing the general duties of directors under Part 10 of the Companies Act 2006, the chapter discusses the fiduciary position of directors, the remedies for breach of directors’ duties, and the liability of those who assist a director in the course of a breach of fiduciary duty. Finally, it considers three ways in which a director who is in breach of duty may be relieved from liability.
Chapter
5. Directors’ Duties
The Concentrate Questions and Answers series offers the best preparation for tackling exam questions and coursework. Each book includes typical questions, suggested answers with commentary, illustrative diagrams, guidance on how to develop your answer, suggestions for further reading, and advice on exams and coursework. This chapter examines the very important topic of directors’ duties. The chapter considers the main duties, as codified in the Companies Act 2006, including: the duty to act within powers (the proper purposes rule); the duty to promote the success of the company; the duty to exercise independent judgment; the duty to exercise reasonable care, skill, and diligence; the duty to avoid conflicts of interest; and the duty to disclose an interest in a proposed transaction with the company. Related areas such as substantial property transactions and liability for breach are considered. This chapter considers who is a ‘director’, examining the concepts of de facto and shadow directors and how far they owe duties to the company.
Chapter
14. Directors’ liabilities for breach of duty
This chapter focuses on the extent of a director’s civil liability for breach of fiduciary duty and the liability of third parties involved in some way in that breach of duty. The discussion considers liability for misapplying trust assets and the recovery of secret profits, commissions, and bribes. The chapter addresses the extent of the liability to reinstate the trust assets, to account for profits made, and to pay equitable compensation for loss caused by the breach of duty. There is also an account of the liability of third parties in dishonest assistance and knowing receipt. The chapter considers potential mitigations for directors in the form of equitable allowances, the scope for limitation defences, the role of indemnity provisions and insurance cover, and the possibility of applying to the court for relief.
Chapter
5. The Board of Directors as an Organ of the Company
This chapter discusses: members’ rights and duties under the Companies Act 2006 and the company’s constitution; the problems in dividing power between the company’s members and directors, and the consequences of that division; the rules of interpretation that apply to constitutional documents; the practical exercise of the decision-making powers given to members, including the formalities of meetings and the possibility of informal agreements; the legal constraints on the exercise of power by shareholders; and the enforcement of the constitution by the members, and their potential use of shareholders’ agreements to achieve what they cannot achieve via the articles.
