Priya specializes in director and officer liability and its mitigation through both insurance and corporate governance solutions. This article was first published in the edition of Boardroom Briefings: Priya was previously an attorney at WSGR.
Acting within powers[ edit ] s. For instance, were a director to issue a large number of new shares, not for the purposes of raising capital but to defeat a potential takeover bid, that would be an improper purpose. It is also largely accepted in most jurisdictions that this principle should be capable of being abrogated in the company's constitution.
Directors must exercise their powers for a proper purpose. While in many instances an improper purpose is readily evident, such as a director looking to feather Duties of directors or her own nest or divert an investment opportunity to a relative, such breaches usually involve a breach of the director's duty to act in good faith.
Greater difficulties arise where the director, while acting in good faith, is serving a purpose that is not regarded by the law as proper. The seminal authority in relation to what amounts to a proper purpose is the Privy Council decision of Howard Smith Ltd v.
The court rejected an argument that the power to issue shares could only be properly exercised to raise new capital as too narrow, and held that it would be a proper exercise of the director's powers to issue shares to a larger company to ensure the financial stability of the company, or as part of an agreement to exploit mineral rights owned by the company.
But if the sole purpose was to destroy a voting majority, or block a takeover bid, that would be an improper purpose. Not all jurisdictions recognised the "proper purpose" duty as separate from the "good faith" duty however.
It sets out six factors to which a director must have regards in fulfilling the duty to promote success. Previously in the United Kingdom, under the Companies Actprotections for non-member stakeholders were considerably more limited see e.
The changes have therefore been the subject of some criticism. The test is a subjective one—the directors must act in " good faith in what they consider—not what the court may consider—is in the interests of the company For example, it may benefit a corporate group as a whole for a company to guarantee the debts of a "sister" company,  even if there is no "benefit" to the company giving the guarantee.
Similarly, conceptually at least, there is no benefit to a company in returning profits to shareholders by way of dividend. However, the more pragmatic approach illustrated in the Australian case of Mills v.
That is the general doctrine. Bona fides cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company, and paying away its money with both hands in a manner perfectly bona fide yet perfectly irrational… It is for the directors to judge, provided it is a matter which is reasonably incidental to the carrying on of the business of the company… The law does not say that there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company.
This does not mean, however, that the board cannot agree to the company entering into a contract that binds the company to a certain course, even if certain actions in that course will require further board approval.
The company remains bound, but the directors retain the discretion to vote against taking the future actions although that may involve a breach by the company of the contract that the board previously approved. Care and skill[ edit ] Main article: Duty of care business associations Traditionally, the level of care and skill a director must demonstrate has been framed largely with reference to the non-executive director.
However, a more modern approach has since developed, and in Dorchester Finance Co Ltd v Stebbing  BCLC the court held that the rule in Equitable Fire related only to skill, and not to diligence.Preview the article The Recognition of Directors Owing Fiduciary Duties to Creditors - Re Pantone Ltd and Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd by John Lowry, Reader in Law, Queen Mary College, University of London.
The following paper will outline the main duties that directors and officers have. Further the following article will examine the liability that will ensue for the breach of such duties. The responsibilities and duties of a company director This guide provides directors with a general overview of the key duties and obligations of the role.
The Companies Act imposes certain general duties on a director of a UK limited company. Generally, in addition to the requirement to ensure compliance with general and specific laws applying to your company’s operations, your primary duty is to the shareholders.
The Duties of the Directors has been ensemble under Section of the Act and applies to all types of Directors including Independent Directors.
The Duties and Responsibilities can be broadly classified into two categories. Duties and Responsibilities of Directors. Whether you are a newly appointed director, or are thinking about becoming a director, you will need to be aware that directors have many obligations and legal responsibilities.