LAWS10083 Company law- Directors., Study notes of Law

Download LAWS10083 Company law- Directors. and more Study notes Law in PDF only on Docsity! Directors Duties - Seminar 3 - Week 3  In regards to substantial property transactions the protection has been made stronger due to the thorough codification of the common law- this also brings about lesser problems than those seen in duties and principles as being found in common law  If a duty of care is breached the company can only seek compensation i.e. damages can be obtained for loss by following the common law regime of damages. There is no voidability of the contract.  Delaware courts standard i.e. breach of duty of care has to be irrational not the same duty as that under negligence where the duty is of a reasonable prudent man. Difference between gross imprudence and gross negligence: • Overend, Gurney & Co. v Gurney (1868-69) L.R. 4 Ch. App. 701, 714: The directors “may have acted imprudently, but not with such gross imprudence as to make themselves liable.” • Lagunas Nitrate Co. v. Lagunas Syndicate [1899] 2 Ch. 392, 435: “Negligence must be not the omission to take all possible care; it must be more blameable than that: it must be in a business sense culpable or gross negligence.” The court makes it clear that simply the omission to take all possible care is not enough, there must some element of wilful or deliberate conduct that leads to the imprudence. This has the element of bad faith as a result. This can be seen as disadvantageous to members of the company as the bar is raised to show a director is negligent or has breached his duty of care- this is because there is a claim that members have the power to appoint the directors of the company and thus should suffer the consequences of their appointments and should generally not appoint directors who would be negligent. Intermittent and subjective duty of care:  [A director] is not […] bound to take any definite part in the conduct of the company's business, but so far as he does undertake it he must use reasonable care in its despatch. Such reasonable care must […] be measured by the care an ordinary man might be expected to take in the same circumstances on his own behalf. • What is meant by this standard: the case of Re City Equitable Fire Insurance Case clarified things up: In Re City Equitable Fire Insurance Company, Limited [1925] Ch. 407, 428-429: the court articulated a standard that was seen to be subjective but controvery over this shows that there could have been a misinterpretation of the ruling of the court. • subjective (?) standard of care: “A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience” Comparing this to s.174 of CA 2006: which has both and objective and subjective element to it: But the standard in s. 174 is higher than that of this case: here the subjective element allows a director to get away with something he was not knowledgeable about; whereas in s. 174 the part of carrying out the functions by the director means that the threshold is higher. • intermittent nature of directors’ duties: “A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed.” It safe to say that this is no longer acceptable under s. 174 of the CA 2006- a director will not be able to defence himself by saying that he only has a duty when he sits in at board meetings- that’s a whole load of bullshit • Reliance on others “In respect of all duties that […] may properly be left to some other official, a director is, in the absence of grounds for suspicion, justified in trusting that official to perform such duties honestly.” This is valid under the current law. • Change of judicial approach: Re D’Jan of London Ltd [1993] B.C.C. 646, 648- basic document and the insurance broker checked the wrong boxes and the director failed to check and as a result he was liable: • “(…) In my view, the duty of care owed by a director at common law is accurately stated in s 214(4) Insolvency Act 1986. It is the conduct of a reasonable diligent person having both • the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and (this is the objective test) • the general knowledge, skill and experience that that director has (this is a subjective test) • Both on the objective test and […] on the subjective test, [the director] did not show reasonable diligence when he signed the form. He was therefore in breach of his duty to the company. s. 174 of the CA 2006:  This is almost similar to the standard of care referred to in the Insolvency Act 1986 s. 214  Care skill and diligence- they have different meanings or is it the overall duty of a director in that they overlap with each other.  What are the kind of actions required for a director to rely of s. 174 (2) (a)? there is a presumption that the director meets the standard and that therefore it is for the opposing party to prove that the director has not met his duty of care. One action refers to monitoring of duties that have been delegated, this monitoring has to be active: monitoring is perhaps the most important part of the duty of care. It can be followed thus that if the director fails to monitor, he would have breached his duty and this would be an action of the director that could trigger the breach of his duty.  For non exec directors: the most important function in terms of governance is the role of monitoring as he is an independent outsider (no bs relations with board members and the company): the main function would thus be monitoring the actions of the executive directors. They act as a counter balance for the insiders or the executives. The difficulties