Duties of Directors in Company Law
Info: 8111 words (32 pages) Essay
Published: 27th Mar 2019
Jurisdiction / Tag(s): UK Law
Essay title:
“At common law, once a person accepts appointment as a director he comes a fiduciary in relation to the company and is obliged to display the utmost good faith towards the company and in his dealings on its behalf”.
Howard v Herrigel 1991 2 SA 660(A) 678
Critically discuss with reference to statute and case
law on how duties of directors are owed to the company as a whole, and whether
at any point directors could abuse this power and privilege.
Executive Summary:
Directors have the privileged position of running companies without being required to put up any capital. They are generally subject only to limited restrictions in the articles of association, but are otherwise granted all of the power of the company. Throughout the years, common law and equitable duties have been developed through case law, meaning that directors were subject to numerous duties governing their actions. However it was not until the introduction of the Companies Act 2006, (“Act”) that these duties were laid out in statute in a clear and succinct way and companies and shareholders were given increased statutory measures to enforce these duties. The main driving force between this codification was to ensure that directors could be held accountable for their actions.
There has been much debate surrounding the duties laid out in the Act, and whether they go far enough to ensure that directors cannot abuse their power and privilege. S172 of the Act has been instrumental in ensuring that companies move towards a more enlightened shareholder value approach to corporate governance, by making it a requirement that the interests of various stakeholders are taken into account during decision making. But it stopped short of obliging companies to act in the best interests of stakeholders other than shareholders. Some commentators argue that the codified duties represent a great step forward in enabling companies to hold directors accountable, whereas others believe that they do not go far enough. Much of the case law on directors’ duties pre-dates the Act, suggesting that companies and/or shareholders remain reluctant or unable to enforce their rights against directors. The government has recently announced details of a new draft regulation that will increase the obligations on companies regarding the accountability of directors under s172 of the Act, by obliging certain companies to report on how they have taken the interests of stakeholders into account.
It is
clear that the duties in the Act are wide-ranging and clearly laid out, but
there has not been the influx of claims that was anticipated prior to its
enactment. One reason for this is that in the main these duties are only
enforceable by the company itself. This would mean the board of directors
turning against one of their own, which could risk the reputation of the company,
and its ability to attract directors in the future and is often a costly
process. A new enforcement method for shareholders was also introduced in the
Act, the statutory derivative claim, but it has been rarely used and appears to
be a costly, ill-effective measure.
In
conclusion analysis shows that the UK now has an effective framework for
ensuring the accountability of directors, by virtue of the general duties laid
out in the act, but that these are rarely enforced. Companies have been given
the tools to ensure that directors do not abuse their powers, but they do not
appear to be using these. The reasons for this are complex but, given the vast
range of legislation outside of the Act that places additional obligations and
responsibilities on directors, and the sometimes severe penalties for breaching
this legislation, it is possible that directors are simply abusing their power
less than in the past. The government has made it clear that it does not intend
to legislate much more in this area, meaning that if companies want to ensure
accountability of directors, it is up to them to make this happen.
Introduction:
Prior
to the enactment of the Act, there was concern that companies and shareholders
were unable to hold directors accountable for their actions. The traditional
fiduciary duty and duty of care were viewed as not going far enough to ensure
that directors were obliged to act in the best interests of the company, and
there was concern that these duties were only owed to the company itself, and
not other stakeholders. In some cases, directors were abusing the power given
to them by shareholders, with few consequences. This essay sets out to establish
that the Act has given companies and shareholders the tools they need to ensure
accountability, but that in most instances these tools are not fully utilised,
meaning that directors remain free to abuse their powers, albeit with the risk
of serious consequences.
Background:
All
companies are required to have at least one director[1]. The term director is not
defined in the Act but is described as applying to “any person occupying the
position of director, by whatever name called.”[2] This definition incorporates
not only those directors who have been validly appointed (de jure directors),
but also de facto[3]
and shadow directors[4] and recent amendments to
the Act clarify that, where and to the extent possible, directors duties also
apply to shadow directors.[5] A director is therefore
defined by the role he performs, rather than his title.
Powers
are conferred upon directors by the articles of association and, in some cases,
other contractual arrangements. The model articles (which are generally adopted
either in full or in part) include a section on directors’ general authority,
which provides that “subject to the articles, the directors are responsible for
the management of the company’s business, for which purpose they may exercise
all the powers of the company”.[6] Prior to the Act, many
companies adopted “Table A” articles, which included a similar provision. Therefore,
unless otherwise restricted by the articles, directors have the exclusive power
to manage the company, with responsibility for deciding and implementing
strategy, managing the operations of the company and setting its objectives. To
balance this power, directors are subject to various duties, which, until the
introduction of the Act, were based on common law and fiduciary principles and viewed
by many as insufficient. The duties enshrined in sections 171-177 of the Act
(“General Duties”) represent significant reform in this area, providing a sole
reference point for directors and giving companies the legislative power to hold
them accountable.
The
General Duties are based on and interpreted in the same way as common law rules
and equitable principles[7] and much of the case law
relating to directors’ duties pre-dates the Act. In Burns v Financial Conduct Authority[8]
it was noted that “…the substantial body of existing case law in which those
rules and principles have been stated, developed and refined continue to apply
with undiminished authority in relation to the interpretation and application
of the statutory duties”. The fact that much of the relevant case law pre-dates
the Act suggests that the new enforcement powers have not been used effectively.
The General Duties
Section
171 of the Act covers the duty of a director to act in accordance with the
company’s constitution and to only exercise his powers for the purpose for
which they are conferred. This is known as the “proper purpose” rule and
replaces the common law principle established in Balls v Strutt[9].
The leading authority on the proper purpose rule is the recent Supreme Court
decision in Eclairs Group Ltd and
Glengary Overseas Ltd v JKX,[10]
which specified that “the proper purpose rule is not concerned with excess
of power by doing an act which is beyond the scope of the instrument creating
it as a matter of construction or implication. It is concerned with abuse of
power, by doing acts which are within its scope but done for an improper
purpose”. The Supreme Court made it clear that where directors have more than
one purpose, the duty will be breached if they allow themselves to be
influenced by an improper purpose. Other acts that have been found to be a
breach of this duty include using powers to create new shares for the sole
purpose of diluting a shareholder’s voting power and blocking a takeover bid,[11] and transferring assets
from one company to another in which the individual was a director, for no
consideration.[12]
Section
172 of the Act replaced the fiduciary duty to act in the best interests of the
company that was first established in Smith
& Fawcett[13] and is the most wide-ranging
duty. It requires a director to promote the success of the company for the
benefit of its members as a whole, having regard to a list of other
stakeholders including the company’s employees, customers and suppliers and the
likely long-term consequences of any decision. The courts confirmed in Re Southern Counties Fresh Foods[14]
that the test remains subjective, meaning that the question for courts is
whether the director honestly believed that his actions were in the best
interests of the company.
It is
important to note that s172(1) only requires directors to have regard to the
matters listed in sections a-f, and does not go further. This section is viewed
by some as promoting the principle of “enlightened shareholder value” and
hailed as an important advance in corporate governance, because it requires
directors to consider other stakeholders, even though priority is still given
to the interests of the members. This is an improvement on the situation prior
to the Act. It has, however, been described by critics as akin to the emperor’s
new clothes, bringing little or nothing new to the table, with the situation
for stakeholders (other than shareholders) being the same as prior to its
enactment.[15]
It is clear that the government views this duty as a priority, as is
demonstrated by the recently published draft regulations[16] requiring large and
medium sized companies to publish a statement annually (from 1 January 2019)
explaining how their directors have complied with their obligations under
s172(1) and the ways in which they have considered the factors listed in that
section when performing their role (“Draft Regulations”). This will increase accountability
and discussion in this area, as the information will be publically available for
scrutiny by all stakeholders but does suggest that the government believes the current
requirements in this area do not go far enough.
This
is the only duty that can be owed to a person other than the company, as
s172(3) confirms that it is subject to any enactment or rule of law requiring
directors in certain circumstances to consider or act in the interests of the
creditors of the company.[17] Prior to the Act, this
was already the position at common law where a company was insolvent[18], and when the solvency of
the company was doubtful,[19] and this goes hand in
hand with the provisions of the Insolvency Act 1986 (“IA”) relating to wrongful
and fraudulent trading.
Section
173 of the Act covers the duty to exercise independent judgment. The government
has made clear that this duty will not prevent directors from relying on advice
from professionals as long as they decide for themselves whether to rely on
such advice. It will also not be infringed by a director acting in accordance
with an agreement entered into by the company that restricts the future
exercise of discretion by directors or in a way authorised by the company’s
constitution[20].
In practice this duty obliges a director to think for himself, meaning he is
accountable for his decisions.
Section
174 of the Act concerns the duty to exercise reasonable care, skill and
diligence. The test set out in this section is a two-tier test, covering both
the general knowledge, skill and experience that may reasonably be expected of
a person carrying out the specific functions being carried out by the director
(an objective test) and the general knowledge, skill and experience that the
director has (a subjective test). The director must always demonstrate that he has
acted in a way that is compatible with the objective test, but if he has any
special knowledge or skills, he would need to demonstrate compliance with the
subjective limb as well. This was in line with developments prior to the Act in
Re D’Jan of London Limited[21],
which confirmed the correct test as the two-stage test set out in the IA. Until
then, the objective test set out in Re
City Equitable Fire Insurance Co Ltd[22]
was deemed to be the correct test.
Section
175 of the Act provides a duty to avoid a situation in which a director has, or
may have, a direct or indirect interest that conflicts or may conflict with the
interests of the company. This duty will not be breached if the conflict has
been authorised by the other directors in advance, or if the situation cannot
reasonably be regarded as likely to give rise to a conflict of interest. The concept
of a potential conflict was considered and explained in Boardman v Phipps where it was established that there must be a
real sensible possibility of conflict for this duty to be infringed:[23]
The fact that a conflict can be authorised by the board increases the risk that
directors will not properly consider this duty.
This duty
continues after a person ceases to be a director (Act s170(2)(a)) with regards
to any opportunity or property that they first became aware of when they were a
director, therefore a director cannot resign from his position and subsequently
take advantage of a business opportunity that he found out about through his
directorship.[24]
Section
176 of the Act sets out a duty not to accept benefits from third parties by
reason of his being a director or doing (or not doing) anything as a director,
replacing the fiduciary duty not to exploit the position of fiduciary for
personal benefit. This duty will not be infringed if the acceptance of the
benefit cannot reasonably be regarded as likely to give rise to a conflict of
interest.[25]
This duty also continues to apply after an individual ceases to be a director
and it is worth noting that the board cannot authorise this. In addition, the
Bribery Act 2010, which came into force on 1 July 2011 strengthens this duty by
making the acceptance or offering of a bribe a criminal offence.
Section
177 of the Act incorporates the duty to declare an interest in a proposed
transaction or arrangement. The declaration must be made before the company
enters into the transaction/arrangement but is not required if it cannot
reasonably be regarded as likely to give rise to a conflict of interest[26]. Once declared, a
director with a potential interest in a transaction is still permitted to vote
(subject to the company’s articles)[27], meaning that in reality
this requirement may have little effect.
Of all
the General Duties, the duty in section 172 is the only one that really
advanced the position of stakeholders – all of the other duties reflect the
position at common law prior to the Act. The main advantage of the Act is that
they are all set out in the same place and easily accessible for directors.
Other Duties
In
addition to the General Duties, there are numerous other statutory requirements
that directors must comply with. The IA provides that a director can be accused
of wrongful trading[28] or fraudulent trading[29]. If a director is held
liable for wrongful or fraudulent trading he may also be served with a
disqualification order under the Company Directors Disqualification Act 1986 (“CDDA”).
A liquidator or administrator is required to submit a report to the Secretary
of State if the conditions for disqualification of a director appear to be
satisfied, and the courts can then make a disqualification order, disqualifying
the person from acting as a director or manager of a company for a maximum of
fifteen years. A court can also apply for such an order if it believes the
person has demonstrated “unfit conduct”, which includes fraudulent behaviour,
conduct that seeks to deprive creditors of assets and failure to comply with
regulatory requirements.[30]
Directors
can also be held personally liable for failure to comply with health and safety
and environmental legislation, and directors of listed companies must comply
with additional obligations under the Listing Rules. The Draft Regulations will
also introduce additional obligations for directors.
Overall
it is clear that outside of the General Duties, there are numerous other
obligations that must be considered by directors when carrying out their duties.
How are directors’ duties enforced and what are the remedies for breach?
Directors
duties are owed to the company therefore in the main enforceable only by the
company itself[31],
although if the company’s solvency is in doubt or it is insolvent, the
directors also owe duties to the company’s creditors by virtue of s172(3) and
this can be enforced by the liquidator or administrator. It is therefore
generally for the board to decide whether or not to pursue a claim against a
director, which can raise issues, such as a fear of negative publicity for the
company, a concern on the part of the other directors that they should have
paid more attention to the conduct of the director in question and the costs
involved with the legal action. In addition if all of the directors were
complicit in the behaviour of the director, it is unlikely that they will bring
a claim against themselves. The remedies available for breach or threatened
breach of the General Duties are the same as were previously available under
common law or equity,[32] namely injunction,
restitution, accounting for profits, restoration of company property and
setting aside the transaction, as well as damages. For breaches of s174 duties
the most likely remedy is damages.
Dissatisfied
shareholders of companies whose shares are publicly traded can choose to sell
their shares and exit the company. For shareholders of private companies this
can be more problematic as there are often restrictions placed on the transfers
of shares. Shareholders also have the power to remove a director by ordinary
resolution, however this process is not always straight forward. The Act
introduced a new procedure enabling shareholders to bring a derivative action
against directors in certain circumstances[33] and they also have the
right to bring a claim for unfair prejudice[34]. There are however serious
limitations with both. The derivative claim is brought on behalf of the
company, so the shareholder would not personally benefit and the claimant has
to prove that they have a prima facie case at the initial hearing, otherwise
the court will refuse permission for the claim to be brought. For example in Mission Capital v Sinclair[35] an application to proceed was refused on the basis
that a director acting in the best interests of the company would not proceed
with the claim. One additional barrier is cost – not only the cost
involved in bringing the application but the potential for the shareholder to
be required to pay the company’s costs if the application fails. Prior to its
introduction, there were concerns that the derivative claim procedure would lead
to an influx in claims, but this fear so far appears to be unfounded. In reality,
this remedy has rarely been sought – from 1 October 2001 to 1 October 2012 only
16 cases were heard in which permission was sought to bring a claim.[36] This suggests that this
procedure is not seen as an effective mechanism for shareholders to hold directors
accountable for their actions and that the courts are adopting a restrictive
approach when considering whether or not a claim should be allowed[37]. The s994 unfair
prejudice claim can be brought by a shareholder however they must prove that
the acts of the director that amounted to the breach of duties also unfairly
prejudiced them. This process only benefits the shareholder themselves and is
also costly, but it appears to be used more regularly that the derivative
claim. Shareholders must also consider any negative publicity that these claims
may bring to the company.
Abuse of directors’ power and privilege
One of
the driving forces behind the codification of the General Duties was to prevent
directors from abusing their power by providing them with a clear set of rules
to follow. As all the duties are now laid out in statute and easily accessible,
it is clear that this objective has been achieved. There are, however, some who
feel that these duties do not go far enough and that by not making directors
accountable to stakeholders (other than shareholders) an opportunity has been
missed to rein in their power. Nevertheless directors are human beings who
dedicate their time and efforts to the management of companies, sometimes with
little remuneration and it can be argued that “making directors potentially
liable to an undetermined number of potential claimants may deter good and
diligent people from accepting management or directional positions”.[38] A balance must be struck
between keeping the role of director attractive and ensuring that directors are
accountable for their actions.
The
other issue to consider is enforcement. Unless enforced effectively, the
General Duties will not have a great impact on governance. “The prescription of
duties can educate and set out norms of conduct, but unless there is some form
of effective enforcement there is, arguably, no deterrence.”[39] It can be argued that
directors are more likely to behave badly if they know they are unlikely to
face consequences and that, to remedy this, more companies should be using the
powers given to them under the Act. However it must also be remembered that
companies have to balance the commercial risk of pursuing a claim against a
director (reputational risk, cost, disruption) against the potential rewards.
In many cases it seems that the risks outweigh the rewards. So do directors
abuse their powers and privileges? In some instances, yes. A quick analysis of
recent cases brought before the courts shows that this does still happen. In
March 2018 a case was brought by a liquidator against two directors who are
alleged to have signed a solvency statement knowing that the company would not
be able to meet its liabilities over the next three months[40] and Eclairs Group Ltd v JKX Oil and Gas plc[41]
is another recent example of directors being held to have breached their
general duties. More difficult to quantify, however, is the number of breaches
that do not result in cases being brought to trial.
In the
UK, governance is done on a voluntary basis, by way of a code to be adhered to,
on a “comply or explain” basis. If listed companies do not comply with the
provisions of the UK Corporate Governance Code, they have to explain the
reasons for this non-compliance. There is a clear preference for leaving
companies to regulate themselves, rather than imposing statutory obligations
like those found in other jurisdictions. One reason for this is because
companies are run for the benefit of the shareholders who often reap great
rewards through the actions of directors, therefore the government and the
courts are reluctant to involve themselves too much in their running. In
addition, neither the government nor the courts are experts in the area of
running a company – this is the role of directors and it is arguable that they
should be left to carry out this role, within the confines of the restrictions
placed upon them in the articles.
In
conclusion, it is clear that the scope of the General Duties themselves is not
an issue – it is the effectiveness of the remedies available to companies
and/or shareholders to act in the event of a breach of these duties, and a
seeming unwillingness to enforce these remedies. More analysis is needed to
understand the reasons for this. This leaves directors free to abuse their
position, but if they choose to do so they could be faced with heavy penalties
in other areas of law, and be disqualified from acting as a director. It is
therefore not something that would be without sanction. Overall it is for
companies and shareholders themselves to decide whether or not they want to
hold directors to account – the government has made it clear that it does not
intend to interfere in this area, therefore unless companies take the
initiative, things will not change. The General Duties have given them the
tools to ensure accountability – it is up to them how they use them.
Bibliography
Books
M Bruce (2018) Rights and duties of directors 2017/18 (London, Bloomsbury
Professional) Available from https://www.bloomsburyprofessionalonline.com/view/rights_duties_directors/b-9781784514433-0000040.xml accessed on 8 July 2018.
Research Handbook on Directors’ Duties edited
by Adolfo Paolini, 2015 https://ebookcentral.proquest.com/lib/bpp/reader.action?docID=1876069&query=
accessed on 7 July 2018.
Journals/insight
A Keay, ‘An assessment of private
enforcement actions for directors’ breaches of duty’: Civil Justice Quarterly 2014 available
from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018
A Keay, ‘The Public Enforcement of
Directors’ Duties: A Normative Enquiry’: Common Law World Review 1 June 2014 available
from https://www.lexisnexis.com/uk/legal/results/enhdocview.do?docLinkInd=true&ersKey=23_T27700296425&format=GNBFULL&startDocNo=1&resultsUrlKey=0_T27700303395&backKey=20_T27700303396&csi=302152&docNo=2&scrollToPosition=0 accessed on 7 July 2018
Company Directors Disqualification Act 1986 and
Failed Companies: A guide to Director Disqualification published by the
Insolvency Service – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/657922/CDDA-and-failed-companies-november-2017.pdf
Company Law Newsletter 2016 – Co. L.N. 2016, 380, 1-5 – ‘Holding
Directors to account in order to promote good corporate governance and protect
the public from abuse of limited liability’ available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=ID74322C0CC1C11E5A863FEB6F2987947&hitguid=ID74322C0CC1C11E5A863FEB6F2987947&rank=12&spos=12&epos=12&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018.
E Lynch, ‘section 172: a
ground-breaking reform of directors’ duties, or the emperor’s new clothes?’:
Company Lawyer 2012 – Legislative comment. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&hitguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&rank=15&spos=15&epos=15&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018.
Practical Law Corporate,
‘Directors’ duties: corporate governance influences’. Available from https://uk.practicallaw.thomsonreuters.com/Document/Ib555475ce83211e398db8b09b4f043e0/View/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a5608677d83549e%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DIb555475ce83211e398db8b09b4f043e0%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=2acc972334a4fa489795ad0064c6a127&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=81E54770939FE169A0EC85D8018E6949&comp=pluk accessed on 8 July 2018.
Practical Law Corporate,
‘Directors’ general duties under the Companies act 2006’. Available from https://uk.practicallaw.thomsonreuters.com/Document/I8abc8a251c9a11e38578f7ccc38dcbee/View/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a519a927d8353f2%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DI8abc8a251c9a11e38578f7ccc38dcbee%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=4eb30202395e5de67b09b3f59d9635f5&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=BE64F835341B2CD4BF82D8F285B2BBE7&comp=pluk accessed on 3 July 2018.
Practical Law Restructuring and
Insolvency, ‘Insolvency and considerations for directors’. Available from https://uk.practicallaw.thomsonreuters.com/Document/I8abc8a2b1c9a11e38578f7ccc38dcbee/View/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a54f7c57d83545f%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DI8abc8a2b1c9a11e38578f7ccc38dcbee%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=ef7e2247b9795d7e5bc4d9706eb77783&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=63C914BE00A98D2B13498BBAB14DCA2B&comp=pluk accessed on 3 July 2018.
W Steel, University of Chester,
‘Directors’ statutory general duties’, Westlaw UK. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I1AC5730042AA11E6BBCFD56F4511DC47&hitguid=I1AC5730042AA11E6BBCFD56F4511DC47&rank=2&spos=2&epos=2&td=4000&crumb-action=append&context=21&resolvein=true accessed on 3 July 2018.
Westlaw UK, ‘Directors’ Powers and
Duties’, Westlaw UK. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I9BDCFF00238E11E8AF109485D6FFCB62&hitguid=I9BDCFF00238E11E8AF109485D6FFCB62&rank=3&spos=3&epos=3&td=4000&crumb-action=append&context=21&resolvein=true accessed on 3 July 2018.
Z Azeez, Nabarro LLP, ‘Directors’
breach of duty’, Westlaw UK. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I0882E7E141E111E2B04DB1A5559F7264&hitguid=I0882E7E141E111E2B04DB1A5559F7264&rank=1&spos=1&epos=1&td=4000&crumb-action=append&context=21&resolvein=true accessed on 3 July 2018.
Cases
Balls v Strutt [1841] 66 E.R.984 1 Hare 146
Bishopsgate Investment Management Ltd (In liquidation) v
Maxwell (No. 1) [1994] All E.R. 261
Boardman v Phipps [1967] 2 A.C. 46
Burns v Financial Conduct Authority [2017] EWCA Civ 2140
[65]
Colin Gwyer and Associates Ltd and another v London Wharf (Limehouse)
Ltd and others [2003] BCC 885
Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and
Gas plc [2015] UKSC 71
Foss v Harbottle [1843], 67 E.R. 189
Howard Smith Ltd v Ampol Petroleum Ltd [1974] A.C.821
Industrial Development Consultants Ltd v Cooley [1972] 1
W.L.R. 443
LHR Services Limited (In liquidation) v Trew [2018] EWHC
600 (Ch)
Liquidator of West Mercia Safetywear Ltd v Dodd and another
[1988] 4 BCC 30
Mission
Capital plc v Sinclair [2010] 1 BCLC 304 (Ch)
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
Re D’Jan of London Limited [1993] BCC 646
Re Southern Counties Fresh Foods Ltd [2008] EWHC 2810
Smith v Fawcett, re [1942] Ch. 304
Statutes
Bribery Act 2010
Companies Act 2006
Company Directors Disqualification Act 1986
Insolvency Act 1986
The Companies (Miscellaneous Reporting) Regulations
2018, due to come into force on 1 January 2019, subject to Parliamentary
approval
UK Corporate Governance Code
[1] Companies Act s154(2) – a public company must have at least two
directors
[2] Companies Act 2006, s250
[3] A person who has not been validly appointed as a director but who acts
as if they are a director and is treated as such by the board
[4] Any person in accordance with whose directions or instructions the
directors of the company are accustomed to act (Companies Act 2006, s251(1)).
[5] Companies Act 2006, s170(5) as substituted by the Small Business,
Enterprise and Employment Act 2015
[6] Model articles for private or public companies limited by shares,
s3
[7] Companies Act 2006, s170(3) and s170(4)
[8] Burns v Financial Conduct Authority [2017] EWCA Civ 2140 [65]
[9] Balls v Strutt [1841] 66 E.R.984 1 Hare 146
[10] Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc
[2015] UKSC 71
[11] Howard Smith Ltd v Ampol Petroleum Ltd [1974] A.C.821
[12] Bishopsgate Investment Management Ltd (In liquidation) v Maxwell
(No. 1) [1994] All E.R. 261
[13] Smith v Fawcett, re [1942] Ch. 304
[14] Re Southern Counties Fresh Foods Ltd [2008] EWHC 2810
[15] Company Lawyer 2012 – Legislative comment – section 172: a
ground-breaking reform of directors’ duties, or the emperor’s new clothes? –
Elaine Lynch – https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&hitguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&rank=15&spos=15&epos=15&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July
2018
[16] The Companies (Miscellaneous Reporting) Regulations 2018, due to
come into force on 1 January 2019, subject to Parliamentary approval
[17] Companies Act 2006, s172(3)
[18] Liquidator of West Mercia Safetywear Ltd v Dodd and another [1988]
4 BCC 30
[19] Colin Gwyer and Associates Ltd and another v London Wharf
{Limehouse) Ltd and others [2003] BCC 885
[20] Companies Act 2006, s173(2)
[21] Re D’Jan of London Limited [1993] BCC 646
[22] Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 [para 428]
[23] Boardman v Phipps [1967] 2 A.C. 46 [para 124]
[24] Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443
[25] Companies Act 2006 s176(4)
[26] Companies Act 2006 s177(6)(a)
[27] Companies Act 2006 explanatory note 354
[28] if it he knew or ought to have known at some point prior to an insolvent
winding up or administration that there was no reasonable prospect of the
company avoiding liquidation but did not minimise the potential impact for
creditors
[29] Fraudulent trading requires the business to be carried on with the
intention of defrauding creditors (or for another fraudulent purpose) in the
period leading up to the insolvent winding up or administration.
[30] Company Directors Disqualification Act 1986 and Failed Companies: A
guide to Director Disqualification published by the Insolvency Service – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/657922/CDDA-and-failed-companies-november-2017.pdf
[31] Established in Foss v Harbottle [1843], 67 E.R. 189
[32] Companies Act 2006, s178
[33] A statutory derivative claim
can be brought by members under Companies Act 2006 s11
[34] Companies Act 2006,
s994
[35] Mission Capital plc v Sinclair [2010] 1 BCLC
304 (Ch)
[36] Civil Justice Quarterly 2014 C.J.Q. 2014, 33(1), 76-92 – An
assessment of private enforcement actions for directors’ breaches of duty –
Andrew Keay https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true accessed 8 July 2018
[37] M Bruce (2018) Rights and duties
of directors 2017/18 (London, Bloomsbury Professional) Available from: https://www.bloomsburyprofessionalonline.com/view/rights_duties_directors/b-9781784514433-0000040.xml accessed on 8 July
2018.
[38] Research Handbook on Directors’ Duties edited by Adolfo Paolini,
2015 https://ebookcentral.proquest.com/lib/bpp/reader.action?docID=1876069&query=
accessed on 7 July 2018.
[39] Civil Justice Quarterly 2014 C.J.Q. 2014, 33(1), 76-92 – An assessment of
private enforcement actions for directors’ breaches of duty – Andrew Keay https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true accessed 8 July 2018
[40] LHR Services Limited (In liquidation) v Trew [2018] EWHC 600 (Ch)
[41] Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc
[2015] UKSC 71
Cite This Work
To export a reference to this article please select a referencing stye below:
Related Services
View allRelated Content
Jurisdictions / TagsContent relating to: "UK Law"
UK law covers the laws and legislation of England, Wales, Northern Ireland and Scotland. Essays, case summaries, problem questions and dissertations here are relevant to law students from the United Kingdom and Great Britain, as well as students wishing to learn more about the UK legal system from overseas.
Related Articles
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have your work published on Lawteacher.net then please click the following link to email our support team::
Request essay removal