Directors’ Duties and Remedies for Breach

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  • Created by: Edward
  • Created on: 15-03-17 22:57
Revenue and Customs Commissioners v Holland (2010)
Def able to escape liability through complex web of 4 companies, all of which had one common corporate director
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Automatic Self-Cleansing Filter Syndicate Company v Cunninghame (1906)
Directors are powerful and autonomous
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The Gramophone and Typewriter v Stanley (1908)
Directors are not servants or agents of shareholders- they are not bound to follow instructions or given orders
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CA 2006, s 156A
A person may not be appointed a director of a company unless the person = a natural person
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CA 2006, ** 157-161
De jure directors are ones who are formally appointed
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Re Kaytech International (1999)
De facto directors are ones who are not formally appointed but acts openly, as if s/he had undertaken directorial role in the conduct of the company’s affairs
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CA 2006, s 251(1)
A SD = a person who has neither been appointed a director, nor acts as a director, may be treated as a director if he is a person in acc with whose direcins or instructions the directors of the company are accustomed to act
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Re Hydrodam (1994)
Millet J: de factor director = a person who assumes to act as a director; an SD = a person who claims not to be a director, but one who lurks in the shadows shelters behind other, i.e. the directed
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CA 2006, s 154
Every priv company must have at least one director and every public at least 2
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Sec of State for Trade and Industry v Deverell (2001) and Ultraframe (2005)
Determining whether person = a SD: not nec for SD to give directions/instructions over whole field;not nec to show de jure directors acted in subservient manner;governing maj must follow SD directions
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Barron v Potter (1914)
Where the directors=unable/unwilling to exercise the powers of management conferred by the articles, then the gen powers of management revert back to the members
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Salmon v Quin & Axtens (1909)
Directors’ powers of management = ‘subj to the articles’ – thus, provisions can be inserted into the articles that affect the balance of power
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Automatic Self-Cleansing Filter Syndicate v Cuninghame (1906)
In such cases, the power to manage is vested in the directors and the members have no right to interfere in the company’s management, unless such a power has been reserved to the members via the articles or statute
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Kinsela v Russel Kinsela (1986)
When company is insolvent the creditors’ interests intrude
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Brady v Brady (1989)
Oliver LJ: the interests of the company are to be equated with shareholders’ interests in gen except when company is onsolvent or doubted insolvency or whether proposed act would be prejudicial to creditors’ interests at which point creditors interes
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CA 2006, s 170(3)
General duties are based on certain common law rules and equitable principles as they apply in relation to directors
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CA 2006, s 178(1)
Remedies under common law will continue to apply re statutory duties
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CA 2006, s 170(1)
Directors owe duties to company and not generally members, creditors, employees or anyone else
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CA 2006, s 171
(a)duty to act in acc with company’s contn; and (b) duty to exercise powers only for purposes for which they are conferred
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Howard Smith v Ampol Petroleum (1974)
Where directors exercise their powers for several purposes, court should objy determine what the dominant purpose is
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Eclairs Group v JKX Oil & Gas (2015)
Held: disenfrnahcisement was ivalid as the directors exercised trhe power in Art 42 to ensure that their resolutions passed at upcoming AGM and this was clearly an improper purpose
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Hogg v Cramphorn (1967)
Where directors act for an improper purpose, such acts are voidable at company’s instance and the directors in q’n may be required to compensate the company for any loss sustained – however, both conseqs can be avoided if members ratify the breach of
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CA 2006, s 172
A director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of the company as a whole (subj to restrictions re creditors in insolvency (s 172(3))
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Hutton v West Cork Rly (1883)
s 172 not wholly subj – lunatic (Extrasure Travel Insurance v Scattergood (2003): provided director’s decision is honest, it does not matter that it was unreasonable)
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Charterbridge Corpn v Lloyds Bank (1970)
Where director has not considered whether act/omission will promote success of company for members- subj test=unhelpful; in such cases, proper test=whether an intelligent and honest man in director’s positions could have reasonably believed that the
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Fulham FC v Tiguana (2004)
Subj nature – key factor+ whether director honestly considers that it is in company’s interests to know about breach
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Item Software v Fassihi (2004)
Director should disclose their own breach if in company’s interests (extends to fellow director’s breach (British Midland Tool v Midland International Tooling (2003))
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Mutual Life Insurance of NY v Rank Organisation (1985)
Where interests of company and part of its members conflict, pref given to company
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Tesco Stores v Pook (2003)
Failure to disclose (s 172) may justify summary dismissal
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CA 2006, s 172(1)
Director must consider: likely long-term conseqs; interests of compay’s employees; impact of company’s operation on the comty and environment;reputation of high standard; need to act fairly between members
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CA 2006, s 173
Duty to exercise independent judgement
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Kregor v Hollins (1913)
(s 173) – common law duty not to fetter their discretion when exercising their powers
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S 173(2)
(a) Duty will not be breached where directors act in acc with an agreement duly entered into by company that restricts the future exercises of discretion by ots directors (b) no breach where acts in way authorised by company’s constn
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CA 2006, s 174
Duty to exercise reasonable care, skill and diligence (old common law (Re City Equitable Fire Insurance (1925) – criticised (Re Cardiff (1892))
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Re D’Jan of London (1994)
Courts added obj element to create dual subj/obj test to s 174 duty
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CA 2006, s 174(2)
Standard expected is reasonably diligent person with (a) gen knowledge, skill and exp that may reasonably be expected of a person carrying out the functions carred out by the director re to the company, and (b) the gen knowledge, skill, and exp that
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Re Barings (No 5) (2000)
CA: directors, both collectively and indy, have a continuing duty to acquire and maintain a sufft knowledge and understanding of the company’s business to enable them properly to discharge their duties
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CA 2006, s 175
Director must avoid a situation where he has or can have a direct or indirect interest that conflicts or possibly may confluict with company’s interests (s 175(2) in particular re exploitation of any prop, info and oppty and it is irrelevant whether
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Towers v Premier Waste Management (2011)
Fact that profit made by director=negligible is irrelevant
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CA 2006, s 175(3)
s 175 only applies between director and 3rd party (not director and company)
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Bhullar v Bhullar (2003)
Exteremly strict applicn of s 175
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Hely-Hutchinson v Brayhead (1968)
Where director fails to obtain valid authorisation, ay resulting contract is voidable at company’s instance, provided 3rd party involved had notice of the director’s breach
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Aberdeen Railway v Blaikie Bros (1854)
The company can also require the director to accountfor any profit made as result of conflict
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Industrial Dev’t Consultants v Cooley (1972)
Director who fails to disclose existence of a confluict may, in addition to breaching (now s 175) also breach the duty to act in company’s interest (now s 172)
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CA 2006, s 176
A director must not accept from 3rd party a benefit conferred by reason of his being a director, or by doing (or not doing) anything as a director
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CA 2006, s 176(4)
s 176 duty will not be breached where acceptance of benefit cannot reasonable be regarded as likely to give rise to a conflict of interest
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Shipway v Broadwood (1899)
Should director accept unauthorised 3rd party benefit, the company rescind the contract and the benefit can be recovered
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Boston Deep Sea Fishing v Ansell (1888)
Breach of s 176 could also summarily dismiss director
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CA 2006, s 177
If a director of company = in any way, directly or indirectly, interested or proposedtrasnaction or arrangement with the company, he must declare nature and extent of that interest to the other directors (must be made before company enters such trans
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CA 2006, s 173(3)
s 175 does not apply re transactions between director and company; s 177 does apply to such transactions
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CA 2006, s 182
Where director is interested in an existiong transn/arr’t that has been entered into by the company, he must declare the nature and extent of that interest to the directors
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CA 2006, 232(1)
Provisions in company’s articles exclusing liability for neg, default, breach of duty or breach of trust = void
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CA 2006, s 233
Provisions requiring company to indemnify the directorfor losses sustained due to his breach of duty are also generally void
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CA 2006, s 239
Provides statutory scheme re ratificatrions of acts committed by directors that amount to neg, efault, breach of duty, or breach of trust
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CA 2006, s 1157
Directors who have acted honestly and reasonably and ought fairly to be excused
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CA 2006, s 168(1)
Company may by ordinary resolution at a meeting remove a director before the expiration of his period of office, notwithstanding anything in any agreement between it and him (although removal does not depive director of compensatin payable as a resul
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Company Directors Disqualification Act 1986, s 6
A person can be disqd if he is a director of a company that has become insolvent, and his conduct as director makes him unfait to be concerned in the management of the company – common ground
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CDDA 1986, s 10
A person can be disqd if he is found to have engaged in fraudulent or wrongful trading
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CDDA 1986, s 15
A person who acts as a director whilst disqd can be personally liable for company’s debts and liabilities incurred during duration of the contravention
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CDDA 1986, ** 15A-C
Courts can make compensation orders against a person providing that (i)person is subj to a disq’n order or undertaking, and (ii)conduct to which order or undertaking relates has caused loss to one or more creditors of an insolvent company of which th
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Directors are powerful and autonomous

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Directors are not servants or agents of shareholders- they are not bound to follow instructions or given orders

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Preview of the back of card 3

Card 4

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A person may not be appointed a director of a company unless the person = a natural person

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Card 5

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De jure directors are ones who are formally appointed

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