Understanding Directors' Duties and Conflicts of Interest in the Context of the CA 2006, Study notes of Law

Download Understanding Directors' Duties and Conflicts of Interest in the Context of the CA 2006 and more Study notes Law in PDF only on Docsity! Chapter 11 Directors’ Duties II: Conflicts of Interest Here, basic guidance to the end-of-chapter questions will be provided. 1. Define the following terms:  corporate opportunity doctrine;  substantial property transaction;  non-cash asset;  quasi-loan. Term Definition corporate opportunity doctrine The rule which provides that a director breaches his duty (notably the duty in s 175 of the CA 2006) if he takes advantage of property, information or an opportunity and, in doing so, his interest conflict with those of the company substantial property transaction A transaction between a director (or a person connected with the director) and the company that requires member approval under s 190 of the CA 2006 non-cash asset Any property or interest in property, other than cash quasi-loan Where the company agrees to pay a sum on behalf of the director, or where the company reimburses expenses incurred by another party due to the actions of the director, on the understanding that the director (or someone acting on his behalf) will later reimburse the company 2. State whether each of the following statements is true or false and, if false, explain why:  the s 175 duty applies only in relation to transactions or arrangements between a director and the company;  a director of a company cannot also act as director for a competing company;  a s 175 conflict can only be authorised by the members;  a s 176 third-party benefit can only be authorised by the members;  s 177 provides that a director who has an interest in a proposed transaction/arrangement with the company must obtain the authorisation of the other directors;  a breach of s 182 is a criminal offence;  if a director fails to obtain member approval for a service contract over two years in length, then the contract is void;  a loss of office payment made to a director of a quoted company will only be valid if it is approved by a resolution of the members.  The s 175 duty applies only in relation to transactions or arrangements between a director and the company: This statement is false. The s 175 duty will not apply in relation to a conflict of interest arising out of a transaction or arrangement with the company.  A director of a company cannot also act as director for a competing company: This statement is false. There is no general rule prohibiting a director from acting for a rival company.  A s 175 conflict can only be authorised by the members: This statement is false. It is possible for a s 175 conflict to be authorized by the members, subject to specified limitations.  A s 176 third-party benefit can only be authorised by the members: This statement is true.  Section 177 provides that a director who has an interest in a proposed transaction/arrangement with the company must obtain the authorisation of the other directors: This statement is false. Section 177 merely requires the director in question to disclose the interest to the other directors.  A breach of s 182 is a criminal offence: This statement is true.  If a director fails to obtain member approval for a service contract over two years in length, then the contract is void: This statement is false. The contract will remain valid, but the term relating to contract length will be void.  A loss of office payment made to a director of a quoted company will only be valid if it is approved by a resolution of the members: This statement is false. A loss of office payment made to a director of a quoted company will be valid if (i) it is approved by a resolution or the members, or; (ii) it is consistent with the approved remuneration policy. 3. ‘The treatment of conflict of interest duties in the CA 2006 is inelegant and serves to render the law more complex and confusing that was the case under the common law. The no-conflict and no-profit rules were much easier to understand.’ Do you agree with this statement? Provide reasons for your answer. Introduction  Every essay should begin with a succinct introduction that demonstrates that you understand the essay question. Briefly explain what the essay is about and set out what the essay will discuss and how it will be structured.  This essay requires you to discuss the conflict of interest duties found in the CA 2006. The common law duties  It is worth beginning by looking at the how the common law dealt with conflict of interest, which was primarily to impose two duties upon directors.  The first was the ‘no conflict rule’, which provided that a director could not have an interest which conflicted with that of the company.  The second was the ‘no profit rule’, which provided that a person in a fiduciary position (such as a director) was not entitled to make a profit from their office.