Company law, Decision making and Director’s Duties

August 31, 2017 Law

Chapter 2

2.0 Decision devising variety meats

A company has 2 primary variety meats, the members in general meeting and the board of directors. A company is non considered to be autonomous but has a limited competency merely. Within these bounds, the Supreme regulation is doing authority remainders with a general meeting of the members1and the fundamental law may intrench certain rights still farther by incarnating them in the memoranda and supplying that they shall be inalterable2.

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2.1The board of manager

Although one time incorporated, a company is a separate legal entity, but it can merely do determinations and alter its concern through the individuals authorised for that intent, normally the managers, who in bend are accountable to the members.The articles of association normally entrust the managers to pull off the company jointly by supplying them the power to exert the company’s powers to accomplish their undertaking. It should be noted that managers do non hold the power to move separately on behalf of the company3. In pattern, the assignment of a board of managers will be found in the fundamental law of the company which will expressly depute all powers of direction to them4, and they in bend are by and large empowered to stand in – delegate to a commission or pull offing manager. Therefore, the act which gives birth to the company operates as an assignment and deputation by the company.

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[ 1 ]Resolutions and vote

[ 2 ]Calcium 2001, sec 42

[ 3 ] Re Haycraft Gold Reduction and Mining Co [ 1990 ] 2Ch230 ) = tolley’s rights n responsibilities of managers – 4th edition- Martha Bruce FCIS, a member of the lexisnexis group. , pg 13.

[ 4 ]Gower’s rules of modern company jurisprudence, pg 140

2.3 Division of powers between the general meeting and the board

By the terminal of the 19th century it was by and large assumed that the rule remained integral that the general meeting was the company whereas the managers were simply the agents of the company topic to the control of the company in general meeting. Therefore inIsle of Wight Ry. V. Tahourdin5the tribunal refused an application by the managers of a statutory company for an injunction to keep the retention of a general meeting, one intent of which was to name a commission to reorganize the direction of the company. Cotton L.J. said:

“It is a really strong thing so to forestall stockholders from keeping a meeting of the company, when such a meeting is the lone manner in which they can interfere, if the bulk of them think that the class taken by the managers, in a affair intra vires of the managers, is non for the benefit of the company.”

The modern thought is that both the general meeting and the board are organs instead than agents of the company. This is how the tribunals have sometimes described them when sing the company’s liability for their Acts of the Apostless and the differentiation has, since the passage if the European Communities Act 1972 become of greater importance.

2.4 Performance of the board

Stockholders have the power to take some or all of the managers of their company from office or non to re name them. Such determination is often judged harmonizing to the public presentation of the company, by whatever agencies it is measured. However, in the US about one tierce of big companies go farther than this and have introduced formal board rating, frequently assessed externally, to mensurate the board’s public presentation6.

In the contents of the Mauritanian codification of corporate administration, subdivision 2.10 states the board and manager assessment which farther high spots that those managers should be assessed both separately every bit good every bit jointly as a board.

[ 5 ]1883 25 Ch.D. 320, C.A, Gower’s rules of modern company jurisprudence, pg 143

[ 6 ] tolley’s rights n responsibilities of managers, pg 20

2.5 The managers as primary variety meats of the company

Both the managers and the members in general meeting are primary variety meats of the company between whom the company’s powers are divided. The general meeting retains the ultimate control, but merely through its powers to amend the articles and to take the managers.Powers are conferred upon managers jointly as a board which is authorised expressly in the fundamental law. Prima facie therefore they can be exercised merely at board meeting. Otherwise, in the absence of an express mandate in the articles, the board will hold no power to depute such powers7. The board can depute some of the undertakings but must non depute the exercising of its discretion and the axiomdelegatus non potest delegareis regarded as using8.

2.6 Duties of managers

The responsibilities fall into two classs, fiducial responsibilities ( i.e. responsibilities of good religion and honestness ) and responsibilities of accomplishment and attention. There are besides statutory responsibilities as good. Their general intent is the protection of present and future stockholders and ( to a lesser extent ) creditors though they are by and large expressed as being owed to ‘the company’ .

2.6.1 Role of managers

A manager is in a similar place to that of a legal guardian. He is an agent of the company in which he holds office as an employee. Like a legal guardian or an agent he owes fiducial responsibilities to his principal, and in a director’s instance, these responsibilities are to his company9.

[ 7 ]Cartmell’s instance [ 1874 ] L.R. 9 CH.App.691 ] , Gower’s rules of modern company jurisprudence pg 152

[ 8 ]by contrast the usa managers are by and large regarded as possessing original and undelegated powers, which are capable of deputation: Goel [ 1969 ] , 18 I.C.L.Q. 152

[ 9 ]UK company jurisprudence, Nicholas Grier

2.6.2 To whom responsibilities are owed?

2.6.2.1To the company as a whole

As lord Greene MR said in the instance ofRe Smith & A ; Fawcett ltd[ 1942 ] Ch 304 ( CA ) , managers are bound to exert the powers conferred upon them ‘bona fide in what they consider-not what a tribunal may consider-is in the involvements of the company…’this responsibility of honestness and good religion in the exercising of his powers is in fact the primary responsibility of a manager. It should be managers, and non some other individual or organic structure to whom they have purported to depute their powers, who find how the powers vested in the managers are best used to function the involvements of the company’ .

2.6.2.2To Members as a organic structure but non to single stockholders

It should be noted that as a manager of a company is bound by fiducial responsibilities at general jurisprudence, these responsibilities are owed to the company merely. Thus they are non owed to other companies or organic structures corporate with whom the company is associated. This proposition stems fromPercival V Wright10in which a group of stockholders in a company approached the managers with a petition that the managers purchase their portions ; some of the managers did so without unwraping that a purchase of the company’s project was at hand, this being a piece of information which was known to them and to other members of the board, though non to any of the stockholders who were non managers. It was held that the managers must move bona fide for the involvements of the company but they are non in a fiducial responsibility in relation to single stockholders.

-However in Peskin V Anderson [ 2001 ] , it was held that a manager may owe a fiducial responsibility to single stockholders where a manager with particular cognition is purchasing portions for his ain benefit

[ 10 ][ 1902 ] 2 Ch 421

2.6.2.3to Employees

This proviso was inserted in theCalcium 1985 s 309to fulfill unfavorable judgment that a company should be seen to give some attending to those who labour to bring forth the dividends that the members receive.

2.6.2.4to creditors

As creditor, he should be cognizant of the hazard when he is covering with the company. The managers of the company do non usually have a responsibility of attention to any creditor of that company while the company is solvent. InMultinational Gas and Petrochemical Co ltd V Multinational Gas and Petrochemical Services ltd and others [ 1983 ] 1 Ch 258( a instance which involved the alleged misdirection of a solvent company ) Dillon LJ said:

A company owes no responsibility of attention to future creditors. The managers so stand in a fiducial relationship to the company. As they are appointed to pull off the personal businesss of the company and they owe fiducial responsibilities to the company though non to its creditors, nowadays or hereafter, or to single stockholders

2.6.2.5to the board

Directors separately owe a responsibility towards the board.

2.6.3 The involvements of the company as a whole

Modern direction frequently takes the position that the involvements to be taken into history by managers in running a company should include the involvements of non merely the present and future stockholders, but besides the company’s employees, its clients and its creditors11and, in the instance of big public companies at least, the province and the general populace.

[ 11 ]Wiknworth v Edward baron development carbon monoxide ltd [ 1987 ] 1 all ER 114

2.6.4 Fiduciary Duties

Every manager has a fiducial responsibility to move bona fide ( in good religion ) for the benefit of the company as a whole. Otherwise, they will be moving in person else’s involvements, rather frequently themselves.

InAlexander V Automatic Telephone Co [ 1990 ] 2 Ch 56, each member of the company subscribed 6d per portion. The 5 managers so held a board meeting at which it was decided that all members, with the exclusion of the 3 managers who had the largest shareholdings, should hold to pay a farther 2s 6d per portion. The 3 non – paying managers justified their non- payment on the evidences that the articles permitted them as managers to publish portions on such footings as were expedient, and to handle some stockholders otherwise from others. It was held that they failed to transport out their responsibility to move in good religion in the best involvement of the company as a whole ; the managers had obtained a benefit for themselves at the disbursal of the other stockholders. It is to be noted that managers can subjectively believe that they are moving in good religion while transporting out an action for an improper intent.

Proper Purpose Rule Avoid struggle of involvement

It is to profit the company or to assist it carry through the intent for which the company was set up. The dealing must be intra vires, including what is mentioned in the company’s memoranda of association. The dealing must be moderately incidental to the company’s concern.

Conflict of involvement regulation:

When the managers stand to derive personally from a dealing in which the company is involved. It is non the occupation of a manager to better his ain personal place12.

The managers must non vie with the company, nor should they maintain any net incomes, nor contract with the company except when the Articles let it or when it has been approved by a general meeting.

[ 12 ] In Cook V Deeks [ 1916 ] Ac 554

2.6.5 Duty of accomplishment and attention

The managers are expected to pull off the company with due accomplishment and attention ; failure to carry through this common jurisprudence responsibility may ensue in the company or other aggrieved complainant raising an action for carelessness against the managers13, turn outing all 3 of the followers:

  1. That the manager owed the complainant a responsibility to transport out his responsibilities with accomplishment and attention
  2. That the responsibility was non exercised
  3. That the complainant suffered loss

InCity Equitable Fire Insurance Co 1925it was held that Directors need non exhibit in the public presentation of their responsibilities a greater grade of accomplishment and attention than may moderately be expected from a individual of their cognition and experience. They are non bound to give uninterrupted attending to the personal businesss of the company and may depute their powers.

2.6.6 Statutory Duties14

There are two chief types of such responsibilities, the first are imposed on the managers whereas the 2nd are imposed on the company in connexion with the managers.

The 2006 Act sets out seven statutory responsibilities being, responsibility:

• To move within powers ( s.171 )

• To advance the success of the company( s.172 )

• To exert independent judgement ( s.173 )

• To utilize sensible attention, accomplishment and diligence (s. 174 )

• To avoid struggles of involvement (s. 175 )

• Not to accept benefits from 3rd parties (s. 176 )

• To declare an involvement in a proposed dealing or agreement with the company (s.177 ) .

The 2nd type of responsibilities will normally include, responsibility to convene meetings, gestural statutory declarations, deliver histories and other undertakings.

[ 13 ] [ 14 ]UK company jurisprudence, Nicholas Grierpg402, pg409

Some of the other statutory responsibilities will include the Prohibition on revenue enhancement free payments to managers[ 15 ], the degree Celsiusompensation for loss of office[ 16 ]and Directors are required to unwrap involvements in company contracts[ 17 ]. Furthermore, Directors service contracts must be kept unfastened for review[ 18 ]. The company should forbear from giving a manager a contract for more than 5 old ages without blessing from the members[ 19 ]. Substantial belongings minutess[ 20 ]and Loans from Directors to the company[ 21 ]besides demandblessing from members whereby vitamin Directors may non contract at all with their companies without the authorization under the Articles and blessing by an ordinary declaration.

2.6.7 Breach of responsibility

If the managers by O.K.ing some dealing of the company have breached their fiducial responsibility towards the company, it is sometimes allowable for the company to sign the action that was the topic of the breach. In general, confirmation will decide any breach of the directors’ fiducial responsibility unless:

  • The dealing is inherently deceitful,
  • The dealing is non permitted under the company jurisprudence by and large because there are other processs which must alternatively be followed22,
  • The dealing has prejudiced a minority of the members, in which instance the minority might seek damages under the CA 1985 ( s 459 ) ,
  • The dealing by the managers has prejudiced creditors because the company is insolvent. The managers of an insolvent company are treated as the keepers of the company’s assets for the creditors23.

In the instance of deceitful trading, the Court may order the individual to lend to the assets of the company. Application is by and large made by the murderer. On the other manus, Unlawful trading occurs when the manager ought to hold known that there was no sensible chance that the company would avoid traveling into insolvent settlement. In this circumstance, the murderer is merely required to turn out carelessness by the managers.

[ 15 ]Calcium 1985 s 311

[ 16 ]ss215 to 222 CA 2006

[ 17 ]s.182 CA 2006

[ 18 ]ss227 to 230 CA 2006

[ 19 ]ss188 and 189 Calcium 2006

[ 20 ]Calcium 2006 s.190

[ 21 ]Calcium 2006, s. 197 – 225

[ 22 ]Aveling Barford Ltd v Perion Ltd and others [ 1986 ] BCLC 626

[ 23 ]West Mercia Safetywear ltd v Dodd [ 1988 ] BCLC

2.6.8 Relief from Liability

In general, capable to certain exclusions, merely the company may convey an action against a manager to retrieve its losingss. Where proceedings for carelessness, default, breach of responsibility or breach of trust are brought against a manager, the tribunal may alleviate him from liability if it considers both that he has acted candidly and moderately24.A manager may besides use to the tribunal for alleviation where he has ground to anticipate that a claim may be made against him.

Although a company can non relieve a manager from any liability for carelessness, default, breach of responsibility or breach of trust in relation to the company, it may indemnify the manager against defence costs, or costs incurred in an application for alleviation, provided that the manager repays the costs if he is unsuccessful.

2.6.9 Decision

In order to remain in line with their responsibilities managers must maintain a close ticker on the company ‘s public presentation and take appropriate advice and action when necessary. General meeting should be conducted so that stockholders besides can hold their say in the company affairs.

[ 24] CA 1985 s 727

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