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BUSINESS ORGANISATIONS AND AGENCY COMPANY DIRECTORS 435 The following cases illustrate the general principle that directors must act in good faith and in the interest of the whole company: Re W & M Roith Ltd. (1967) 1 WLR 432 – One of the directors of a company was very ill. The Board of Directors of the company signed a new service contract with the sick director in which they agreed to pay his widow a generous pension in the event of his death. The director died shortly after the new contract was signed. It was held that the company was not bound by that contract because the directors have used their power to benefit a fellow director’s widow and not the company. CMS Dolphin Ltd. v Simonet (2001) EWHC Ch 415 The defendant, a director in the claimant company, resigned from the company and formed his own company. He then transferred to this new company the main clients and businesses of his former company. His former company sued him for breach of the duty to act bona fide in the interest of the company as a whole. It was held that the defendant had breached this fiduciary duty by his appropriation of the company’s maturing business and its existing clients. Download free eBooks at bookboon.com Click on the ad to read more
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BUSINESS ORGANISATIONS AND AGENCY 436 COMPANY DIRECTORS 24.11 DIRECTORS’ DUTIES Given the extent of directors’ power; the right of directors to use their discretion in the running of companies; the link between the destiny of companies and the performance of their directors; and the position of directors as fiduciaries, the necessity to have some checks on directors’ powers has long been recognized. To this end, the law has imposed certain duties on them to ensure that they do their jobs properly and do not abuse their positions. These duties, which arose from common law, equitable and statutory principles, have now all been codified in the Companies Act 2006. It must be noted that the duties are owed by all categories of directors to the company itself and not to its members – s. 170(1) CA 2006. The main duties of directors are discussed below. 24.11.1 DUTY TO ACT WITHIN POWERS AND TO EXERCISE IT PROPERLY S. 171 CA 2006 provides that directors must act in accordance with their companies’ constitution and must exercise their powers for the purpose for which they were conferred. They cannot misuse their power to do whatever they liked, or for any collateral purpose. If directors use their powers for an improper or collateral purpose, they will be in breach of duty and the transaction or act in question could be set aside. The application of this rule is often seen in the power of directors to allot companies’ shares. This power should be exercised for the purpose of raising money for the growth of a company when necessary; it is not be used for any ulterior or collateral purpose: In Howard Smith v. Ampol Petroleum (1974) AC 821 , directors allotted new shares in order to destroy the majority control of two shareholders who were opposed to a proposed takeover of the company – a takeover that was sponsored by the board of directors. It was
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  • Fall '19
  • Corporation, Managing Partner

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