Slide Business Law

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DUTIES OF DIRECTOR
Introduction
Duties and liabilities are imposed on officers of a company, including directors, both by common law and statute. Thus, directors owe their companies fiduciary duties at common law. These duties are further supplemented by the Act.

Officer –section 4(1)

FD
duty of care skill and diligence
statutory duty

The fiduciary duties of directors may be conveniently examined under the following categories. Director owe a duty to: Act bona fide and in the interests of the company as a whole; Use powers for their proper purposes

Avoid conflic of interests; and

What is fiduciary?
A fiduciary relationship is the relationship between a person in a position of trust, the fiduciary, and the person for whose benefit the fiduciary acts A fiduciary’s powers are exercised on behalf of others who are in a position of dependance.

1. Duty to act bona fide in the best interest of the company The general rule regarding exercise of directors’ power was expressed in Re Smith and Fawcett Ltd (1942) Ch 304 where a director is required to act bona fide in the interest of a company, he must act according to what he considers, not what a court may consider, is in the interest of the company : The directors are the ones to determine what is best for the company.

The duty to act bona fide in the interests of the company is subjective duty. There is no breach where the directors act in what they honestly believe to be in the interests of the company. The courts are generally reluctant to override the business judgment of directors. Directors are presumed to have acted bona fide for the benefit of their company and those persons alleging a breach of duty bear the onus of proving that this is in fact not the case. To whom is a fiduciary duty owed?

Duty to the company
Directors of a company are in fiduciary relationship to the company and that, as a consequence of their status as fiduciaries, directors owe a duty to act in good faith for the benefit of the company. Duty to individual shareholder

Whilst director must act bone fide in the interests of the shareholders, this does not mean that they owe duties to particular shareholder.
In Percival v Wright
Percival v Wright
A director of a company was approached by a shareholder wishing to sell his shares. The director agreed to buy them but did not disclose that there was an impending takeover bid at a substantially higher price. The shareholder afterwards sought to rescind the contract for the sale of his shares on the basis that the director breached his fiduaciary duty to him by failing to disclose the information concerning the impending takeover even though it did not eventuate. Percival v Wright

The court rejected the shareholder ‘s claim.

It held that directors only owe fiduciary duties to the company as a whole and not to individual shareholder.
Duty to creditors
As a general rule, if a company is in solvent state, the courts do not readily impose a fiduciary duty upon the directors to creditors, present or future, of the company. There is an emergent principle that the directors in discharging their duty in good faith for the benefit of the company as a whole, must have regard to the interests of creditors especially in a situation where the company is insolvent or nearing insolvency.

At that time, the creditors are to be seen as having a direct interest in the company and that interest cannot be overriden by the members of the company.

The duty of the directors to consider the best interests of the company concerns not exclusively those of the member but may alos include those of its creditors.

Duty to employees
Malaysian Act does not expressly provide that the directors of a company are to have regard to the interest of the company’s employees’ in the performance of their functions.

2.Use powers for their proper purposes
Directors have wide powers of management under the AOA.
Their duty is...
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