Company Law Essay Help : Directors' Duties
Cases referred to in this section
Re Faure Electric Accumulator Co (1888) 40 ChD 141
Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89 CA
Re Smith & Fawcett Ltd [1942] Ch 304, [1942] 1 All ER 542, CA
John Crowther Group plc v Carpets International plc [1990] BCLC 460
Percival v Wright [1902] 2 Ch 421
Peskin v Anderson [2001] 1 BCLC 372, CA
The position of the director is as agent for the company (Re Faure Electric Accumulator Co (1888) 40 ChD 141 - although directors are not agents for the shareholders: Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89 at 106, CA, per Buckley LJ) and they are given the powers and duties to carry on the whole of its business, subject to any restrictions conained in the articles of association and of course, any statutory restrictions.
The directors of a company owe a fiduciary duty to act bona fide in what they consider to be the interests of the company (and not for any collateral purpose) (Re Smith & Fawcett Ltd [1942] Ch 304, [1942] 1 All ER 542, CA); and to make full and honest disclosure to the shareholders before they vote on a resolution (John Crowther Group plc v Carpets International plc [1990] BCLC 460).
The director's obligation to act bona fide in the interests of the company includes an obligation to have regard to the interests of the creditors generally when the company is insolvent or of doubtful solvency or on the verge of insolvency since in such circumstances it is the creditors' money which is at risk.
Where the company is part of a group and has its own separate legal identity and its own separate creditors, the directors must continue to act in the interests of the company rather than the group.
Directors do not owe fiduciary duties to shareholders, although duties may be owed to shareholders where there is a special factual relationship between the directors and the shareholders in the particular case capable of generating fiduciary obligations. Likewise, directors do not owe fiduciary duties to the company's creditors (Percival v Wright [1902] 2 Ch 421; Peskin v Anderson [2001] 1 BCLC 372, CA).
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