Directors Duties
5. Director’s Duties
Director’s Duties are part of the idea of risk management; because they take risks all the time, they require a certain element of regulation. The law must provide a way of mitigating against the risk, so creditors and shareholders can have potential recourse. This is all done indirectly; the company will recover in the event of a breach of duty arising. If the company recovers and suffers no harm, then that protects shareholders and makes sure their investments are secure. It also protects the creditors, who are more likely to get paid.
The Directors owe their duties to the legal entity- the company. This is intended as a protective requirement for both shareholders and creditors. When the director pays back or compensates the company, the creditors have a pool for recovery and the shareholders do not count the loss directly.
The person who takes the case for a director’s breach is the company, not a shareholder or creditor, subject to some exceptions.
See Dawson International v Zouts Patton, where a company was subject to a takeover bid and the Shs wanted to dispose of shares. The directors, however, felt that this was not in the best interests of the company. It was found that the Directors are allowed to act in a way if that way is in the best interests of the company, even if it is against the interests of the shareholders.
See also Re Frederick Inns, where a company became insolvent. When this happens, the directors duties are transferred to the creditors. They have a duty to the creditors not to dissipate the company’s assets. This has been criticised by Fehily as a very vague judgment. Seems more a creation of a new duty rather than a transfer.
Courtney has criticised the 1990 Act at s52, where Directors owe a duty to the company to take into account the interests of employees and shareholders.
Obligation not to make a secret profit
Directors are not allowed to appropriate or direct business ooportunities to themselves
Director’s Duties are part of the idea of risk management; because they take risks all the time, they require a certain element of regulation. The law must provide a way of mitigating against the risk, so creditors and shareholders can have potential recourse. This is all done indirectly; the company will recover in the event of a breach of duty arising. If the company recovers and suffers no harm, then that protects shareholders and makes sure their investments are secure. It also protects the creditors, who are more likely to get paid.
The Directors owe their duties to the legal entity- the company. This is intended as a protective requirement for both shareholders and creditors. When the director pays back or compensates the company, the creditors have a pool for recovery and the shareholders do not count the loss directly.
The person who takes the case for a director’s breach is the company, not a shareholder or creditor, subject to some exceptions.
See Dawson International v Zouts Patton, where a company was subject to a takeover bid and the Shs wanted to dispose of shares. The directors, however, felt that this was not in the best interests of the company. It was found that the Directors are allowed to act in a way if that way is in the best interests of the company, even if it is against the interests of the shareholders.
See also Re Frederick Inns, where a company became insolvent. When this happens, the directors duties are transferred to the creditors. They have a duty to the creditors not to dissipate the company’s assets. This has been criticised by Fehily as a very vague judgment. Seems more a creation of a new duty rather than a transfer.
Courtney has criticised the 1990 Act at s52, where Directors owe a duty to the company to take into account the interests of employees and shareholders.
Obligation not to make a secret profit
Directors are not allowed to appropriate or direct business ooportunities to themselves