IPP INT Assessment

DIRECTORS’ DUTIES
QUESTIONS TO ASK
 What is MAKE-UP/STRUCTURE of (intended) companies? Shareholders/directors
 Other DIRECTORS – who are the other directors?
 Any service contracts? Any former directors who have left recently?
 What are the company’s ARTICLES? (internal rules) Any SPECIAL ARTICLES? Director behavior/Quorum
 What is the FINANCIAL STATE of the COMPANIES or CLIENT? In order to pay, if needs be
 What is your RELATIONSHIP with OTHER PARTIES? Other directors/or directors AND shareholders – re ratify
 What are your OBJECTIVES and CONCERNS? How do you best envisage this being resolved?
 Any existing INSURANCE the company has for breach?

LIABILITY OF DIRECTORS
 SLP: This translates that a company is a legal body which is separate to both its owners and the people who run it on a
day to day basis.
 Generally, not held liable for company’s debts and liabilities as director as long as no personal guarantee
 Actual/apparent authority: if exceeds, personally liable/indemnify the company for any loss it has suffered/profit
 Breach of duty: If breaches, then will incur liability and action may be taken against the director

DUTIES HELD BY DIRECTORS

 A director OWES GENERAL DUTIES TO THE COMPANY under the Companies Act 2006 – multiple duties can
apply to a director in any given situation, and they must comply with ALL
 HOLD DIRECTORS TO ACCOUNT FOR WAY THEY RUN COMPANY – protect the company by regulating behavior
 COMPANY CAN SUE THE DIRECTOR (by acting through the board of directors)

 To act within powers

 Act in accordance with constitution and only exercise powers conferred on them.

 To promote success of the company

 Act in good faith to promote the success of the company for the benefit of the members (subjective –
whether at time, director thought that it would?) – consider long term consequences e.g.

 To exercise independent judgment

 Must not fetter/restrain discretion – e.g. if they decide to not contract out decision-making where
appropriate

 To exercise due care, skill and diligence

 Objective limb: Acted with general knowledge, skill and experience that would be reasonably
expected?
 Subjective limb: Acted diligently by a person with D’s general knowledge, skill and experience that
that director has? – consider their role/experience.
 To avoid conflicts of interest (LIKELY)
 Avoid a situation which risks having direct/indirect conflict of interest
 Must not make a profit from being director (even if company also profits from it)
UNLESS company authorized
 Check articles do not bar it – if MA, doesn’t
 The interested director cannot count as the quorum – minimum no of directors needed (2)
IPP INT Assessment
 Not to accept benefits from third parties
 If benefits given to you because you are a director/or for doing/not doing something as director, must
not accept UNLESS cannot be reasonably regarded as likely to give rise to conflict – corporate
hospitality generally allowed (check it is not out of the ordinary though)

 To declare interest in proposed/existing transaction of arrangement

 If a director of a company is in any way, directly or indirectly, interested in a proposed/existing transaction
or arrangement with the company, he must declare the nature and extent of that interest to the other
directors.
 Make this at the directors’ board meeting or by notice in writing
 If MAs, director concerned with not be able to vote or count in the quorum.

CONSEQUENCES OF BREACH OF DUTIES/REMEDIES FOR COMPANY

 Accountable for profits made – more certain, more usual – MOST COMMON
 CONSIDER: Can the director pay?
 Return company property – if director holds property on trust – still have the property?
 Pay equitable compensation to the company at judge’s discretion = in addition?
 Rescission of a contract entered into as a result of the breach – though limitations
 Injunction against the D who THREATENS the breach
 NB – Due care, skill and diligence: Common law damages for professional negligence

CAN THE DIRECTOR AVOID LIABILITY FOR BREACH?

 Ratification: Shareholders can ratify (formal consent) the director’s conduct even if amounts to a breach – then
company cannot subsequently take action for that breach.
 Do this by an OR – if director also shareholder, his votes and those of any shareholders’ connected with him
do not count – but do form part of quorum.
 Cannot be done if unfair or oppressive to minority of SH.
 Relief by the court: Court may relieve a director of liability – may be done before or after proceeding issued
 Director acted honestly and reasonably (inactivity may be held as unreasonable).
 Considering all circumstances, he ought fairly to be excused.
 Dis-adv of this – time and costs uncertain, my charging time is difficult to estimate, detrimental
to company relations, costs if lose – pay other sides costs

 Insurance: A company can purchase insurance for a director to cover their risk of liability
 Any provision in contract/articles which purports to exempt director from liability is void – can only indemnify
via insurance
 Authorization (conflict of interest): NO breach if board authorizes matter giving rise to conflict by passing resolution
 As long as articles do not prohibit
 Director in question cannot vote or count in the quorum – may be invalid
 ASK FOR EVIDENCE OF BOARD MINUTES
 Where breach has been authorized/absolved, transaction cannot be set aside

NEXT STEPS
 Get evidence FROM CLIENT
 Board minutes – that quorum was/was not met for authorisation
 Evidence of breach (contract/invoice)
 Service contract
 Talk to shareholders FIRST – negotiate/discuss possibility that they will ratify
 I will send Letter summarizing what was said
 What I propose is that we have further meeting to discuss this possibility (next week – organize time in due
course?) and, if applicable, discuss application to court/paying for breach
 Costs – on assumption that next meeting and SHs willing (no more than few more hours – region of ).
If going to court, then difficult to estimate but more in region of