Lecture 10B - Fiduciary Duties To act bona fide in the...

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Unformatted text preview: Fiduciary Duties To act bona fide in the interest To of the Co. as a whole of s To act for proper purposes s To avoid conflicts of interests To (overlaps with first duty) (overlaps s Care skill and diligence Care s Persons subject to fiduciary duties at common law -Directors s -Secretary s -Executive officers s Fiduciary Duties supplemented by s.132 s.132 duties imposed on s.132 “officers” “officers” s s.4 definition includes: s x -director x -secretary x -employee x liquidator x receiver/manager s Fiduciary duties and s.132 Fiduciary duties owed to company not duties shareholders shareholders “Bona Fide in Interests of Co. as a Whole” -subjective test s s.132 (1) overlap s “Interests of Co. as a whole” ? s x -corporate entity x -shareholders ? Interests of particular shareholders Percival v Wright s Coleman v Myers s Nominee Directors ? Re Broadcasting Station 2 GB s Levin v Clark s Other Interests ? Co Group ?-Walker v Walker Wimbourne Wimbourne s Employees ?- Parke v Daily Employees News (Third Sched para 7) News s Creditors ?- Kinsela v Russell Creditors Kinsela Kinsela s Duty to exercise Powers for Proper Purposes s 1. Purpose of Power 1. Purpose x -”objective” s 2. Purpose motivating directors x Howard Smith v Ampol Petroleum Howard s Onus of proof on person Onus alleging misuse of powers alleging Share Issues and Proper Purposes s Purpose of share issue x x s -raise capital -other purposes? Breach of duty x x x x x -shares issued to maintain control -to create a new majority or eliminate -to an existing majority an Howard Smith v Ampol Petroleum Whitehouse v Carlton Hotel “Defensive Strategies” Approval of GM for share issue s.132 D s failure to comply-share issue failure rescinded rescinded s Directors controlling GM-same Directors improper purpose ? improper s x Residues Treatment Residues Relief by the Court s.354 s Advance Bank v FAI Advance s Multiple/Mixed Purposes Pinevale v McDonnell & East s “But for” test s Whitehouse v Carlton Hotel Whitehouse s Shareholder approval/ratification Where directors actions are Where improper/in breach of fiduciary duty duty s Retrospective Approval s x Bamford v Bamford Bamford s Prospective Approval x Winthrop Investments v Winn Winthrop Duty to Avoid Conflicts of Interest Prime fiduciary obligation s based on common law and based s.132 (“officers & agents”) s.132 s no need to prove no s x loss to co x unfairness x fraud or dishonesty Payments to Directors No payments to fiduciaries No unless permitted by articles/memo (e.g. Tab A Art 70) 70) s excessive remuneration may be excessive oppressive (s 181) oppressive s Loans prohibited except exempt prohibited private companies (ss 133, 133A)-”persons connected”s122A s122A s includes guarantees s ex’s s performing duties, purchasing performing home, employee scheme, related co related s civil and criminal liability for civil directors in breach directors s Related party property transactions s 132 C approval of GM for 132 disposal of main undertaking disposal s s 132 substantial non-cash 132 transactions transactions s s.132E A co is prohibited from entering co into substantial non-cash transactions transactions s with directors + persons with connected s ex’s-s.132F s approval by GM s winding-up s Hco and wholly owned subco s arms’ length transactions arms’ s 3 Facets of the conflicts rule secret profits rule three tests- The Board of Trustees of the Sabah Foundation v Datuk Syed Kechik Kechik s rule against contracting with co s rule against competing with co s x Regal (Hastings) v Gulliver Undisclosed personal profits s Undisclosed benefits x Furs v Tomkies s misuse of co property/funds x Davies v Davies s taking up a corporate taking opportunity opportunity x Cook v Deeks s Misuse of information x Thomas Marshall v Guinle Confidential Information Thomas Marshall (exporters) Thomas Ltd v Guinle s Overlaps with s. 132 (2) Overlaps improper use of information obtained by officer virtue of position position s Contracts with co at common law material interest , direct/indirect s full disclosure to GM s contract voidable at option of co s Transvaal Lands Transvaal s articles usually contain articles authorisation authorisation s Rule against competing non-executive directors s competition permitted if no competition misuse of confidential information information s Bell v Lever Bros, Hivac s Disclosure Articles provisions s Common law to GM- Furs Ltd Common v Tomkies Tomkies s s.131(1) declaration promptly to s.131(1) BOD by directors interested directly/indirectly in contracts directly/indirectly s material interest s s 131 (4) general notice s s.131(5)-declaration of other s.131(5)-declaration interests interests s s.134-Co. to keep register of s.134-Co. interests interests s Insider Trading Also constitutes breach of Also director’s duties-misuse of confidential informationconfidential remedy for Co. -s.132 (2) s s.132A-insider dealing-remedy s.132A-insider for any person who has suffered loss loss s Common Law Position Percival v Wright Percival s Coleman v Myers s Allen v Hyatt s Duty of care and Diligence - s.132(1A) Traditional Approach s Re City Equitable Fire Re Insurance Ltd s 1. Standard of care and skill s x subjective considerations x variable standard 2. Attendance at board meetings-diligence Re Cardiff Savings Bank s Land Credit Co Land s S.132 (1B) - business judgment S.132 rule rule s Delegation and Reliance on others permitted in absence of grounds permitted for suspicion for s Limits to delegation s x -articles of association AWA Ltd v Daniels (and appeal) appeal) s S.132 (1C) s S. 132 91F) s Recent Cases AWA v Daniels, Norman v AWA Theodore Goddard s distinction between distinction executives/non -executives executives/non s Daniels v Anderson familiarity with co’s business s monitor management s monitor co’s financial position s make necessary inquiries s delegation- “I know nothing” s Insolvent trading s.303(3) Incurring debts at a time when Incurring “no reasonable or probable” expectation that the co can pay its debts its s officer is guilty of an offences.303(3), personally liable if s.303(3), convicted -s.304(2) convicted s difficult to prove-few cases (cf difficult Aust) Aust) s examination of defaulting examination officers-repayment to co officers-repayment s Remedies for Breach of Directors’ Duties s Co’s remedies- Foss v Co’s Harbottle Harbottle x ex’s oppression (s 181) winding- up (s 218(1)(f) Damages/compensation s Accounting for profits s x Regal (Hastings) v Gulliver Rescission s Restitution s s 132(3) if convicted officer to 132(3) pay compensation pay s Relief from breach of duty no exclusions in articlesno s140(1) s140(1) s except allowing interest in except contracts contracts s Court s s 354 s officer acted honestly and ought officer fairly to be excused fairly s ...
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