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Directors Duties

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  • November 19, 2011
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Fiduciary Duties of Directors
1)Duty to act in good faith in the interests of the company In Re W & M Roith Ltd [1967] 1 All ER 427, the controlling director of a company had given many years services without having a service contract. He was then given a service agreement providing for payment of a pension to his widow if he died while still a director. He was already in poor health at this time and he died two months later. The pension was paid for several years and then the company went into liquidation. The director’s executors put in a claim in the liquidation for the capitalized value of the pension. The liquidator rejected the claim. It was held that the claim could not be supported. The pension was not for the benefit of the company, nor incidental to the carrying on of the company’s business.

2)Duty to exercise powers for proper purpose
In Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC821, Ampol Petroleum and Bulkships Ltd together owned 55% of the issued share capital of R W Miller (Holdings) Ltd. Ampol and Howard Smith Ltd were making competing takeover bids for Miller. The directors of Miller favored Howard Smith’s bid, which was higher, but there was no prospect of this bid succeeding because Ampol and Bulkships would not have accepted Howard Smith’s offer. The evidence showed that Miller was in need of further capital. The directors of Miller resolved to allot new shares to Howard Smith for two purposes; first, to raise the capital needed, and secondly to reduce the holdings of Ampol and Bulkships to enable Howard Smith’s bid succeed. Ampol challenged the validity of the allotment. It was held that the allotment was not valid. Its dominant purpose was to alter the balance of power, and this was not the purpose for which the director’s power to allot shares had been given.

3)Duty to avoid conflicts of duty and interest
In Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, Regal owned one cinema and wanted to buy two others and sell...