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Who is a director?
Types of Director
De facto directors
Types of Director
Shadow directors
A person might seek to avoid the legal
Types of Director
Alternate directors
A director may, if the articles permit, appoint
Types
ofdirectors
Director
Executive
An executive director is a director who performs
a specific role in a company under a service
contract which requires a regular, possibly daily,
involvement in management.
Non-executive directors
A non-executive director does not have a
function to perform in a company's
management but is involved in its governance
Types of Director
The Chief Executive Officer (Managing
Director)
A Chief Executive Officer (also commonly known
as a Managing Director ) is one of the directors
of the company appointed to carry out overall
day-to-day management function
Number of Director
Every company must have at least one
Duties of Directors
The Companies Act 2006 sets out the seven general statutory
duties of a director.
Who are the duties owed to?
Section 170 makes it clear that directors owe their duties to
the company, not the members.
This means that the only company itself can take action
against a director who breaches them.
Who are the duties owed by?
Every person who is classed as a director under the Act
owes the company a number of duties.
Certain aspects of the duties regarding conflicts of interest
and accepting benefits from third parties also apply to past
directors
Percival v Wright
Mr Percival owned shares per value of 10 in a company whose shares
neither had a market price nor were they quoted on the stock exchange
and were only transferable with the director's approval. Mr Percival through
his solicitors inquired from the company if any body was willing to
purchase their shares 12.55 a priced based on independent valuation. Mr
Wright who was the chairman of a company, with two other directors,
agreed to buy shares from Mr Percival at 12.10 each. Mr Percival then
found out the directors had been negotiating with another person for the
sale of the whole company at far more than 12.10 a share. The directors
had not told Percival. Percival claimed breach of fiduciary duty.
itwasheldthatthedutiesofthedirectorwereowedtothecompany.
TheapplicationofthiscommonlawprincipleisillustratedinPeskinv
Anderson4(2001)wheretheclaimantsfailedtoestablishthatthedirectorsowedduties
totheshareholdersofthecompany
Duties of directors
To act within the power (s171)
This requires a director to comply with the
InHogg v Cromphorn11(1967)
Facts: defendant who controlled Maxwell Group plc and bought the
Daily Mirrorin 1984, fell off his yacht in theCanary Islandson 5
November 1991. It transpired he had used the company pension
funds to fund his own lifestyle.Ian Maxwellwas Roberts son and a
director of Bishopsgate Investment Management Ltd, which was
meant to be safeguarding the company pension plans. He had
signed share transfers from Bishopsgate to Maxwell Group plc for
noconsideration. The shares had been held on trust for a number of
pension schemes. The liquidators of Bishopsgate sued Ian Maxwell
to compensate for the value of the shares, on the basis that it was
an improper use of the company's property.
Held:that Ian Maxwell was liable for the value of the shares, not
even on the basis of any negligence, but merely by misapplying the
assets.[1]
Duties of Directors
Duty to promote the success of the company (s 172)
Duties of Directors
To exercise independent judgment, (173)
Duty to exercise
independent judgment
Broadly this means that directors cannot
allow others to influence their decisions
or to make decisions for them.
A director will not breach this duty if they:
act in accordance with an agreement
entered into by the newly set up
company which restricts the exercise of
the directors discretion
act in a way authorised by the
companies constitution
rely on the advice or work of others in
making their decisions
Duties of Directors
Duty to exercise reasonable skill, care and
diligence (s 174)
This requires a director to be diligent, careful
and well informed about the company's affairs.
If a director has particular knowledge, skill or
experience relevant to his function (for
instance, is a qualified accountant and acting as
a finance director), expectations regarding what
is reasonable will be judged accordingly
(regulation 25). -
[1925],
Facts:some directors who were negligent
escaped liability due to an exclusion clause in
the companys articles.
It was held that the director had no obligation to
give continuous attention to the affairs of the
company.
adirectorwasnegligentinnotreadingfireinsurance
formwhichresultedinthecompanygoinginto
liquidation.HoffmannLJheldthatthestandardofcare
expectedofadirectorwascontainedinthewrongful
tradingprovisionsins214(4)IA1986.
Thisrecognisestheideaofareasonabledirectorand
appliesthehigherofeitheranobjectiveorsubjective
standard.
Duties of Directors
Duty to avoid conflicts of interest
Section 175 CA 2006 - directors, as fiduciaries, must respect
Duties of Directors
Duty not to accept benefits from third parties Under
s.176,
a director must not accept a benefit from a third party,
which is conferred by reason of
(a) his being a director or
(b) his doing (or not doing) anything as director.
This duty is an aspect of the previous general duty to
avoid conflicts of interest, but it has been stated
separately in order to ensure that the obtaining of a
benefit from a third party by a director can only be
authorised by members of the company rather than by
the board.
Duties of Directors
Duty to declare to the companys other directors any
interest a director has in a proposed transaction or
arrangement with the company Under s.177 CA 2006
a director must declare to the other directors any
situation in which they are in any way, directly or
indirectly, interested in a proposed transaction or
arrangement with the company.
Again this further emphasises the duty to avoid a
conflict of interests by ensuring that directors are
transparent about personal interests, which could,
even remotely, be seen as affecting their judgement.
QUESTION
The directors of a company owe a strict and non-negotiable
fiduciary duty to the company. Directors must act in the best
interests of the company and must never allow their personal
interests to conflict with their duties. However, this has not always
been the case and breach of directors duties are rampant in
modern business environment (The Examiner, 2014).
You are required to:
(1). critically examine the laws and legal principles relating to
directors duties in the Companies Act 2006 (approximately 1,500
words) AND
(2). provide one (1) mini case study on how directors duty has
been breached in a publicly listed company in Malaysia or other
countries (approximately 500 words)