7 - Directors' Duties

• Section 171 – Directors’ Duty to Act Within Powers
• Section 172 – Directors’ Duty to Promote the Success of the Company
• Section 173 – Directors’ Duty to exercise independent judgement
• Section 174 – Directors’ Duty to exercised reasonable care, skill and diligence
• Section 175 – Directors’ Duty to avoid conflicts of interest
• Section 176 – Directors’ Duty to not accept benefits from third parties
• Section 177 – Directors’ Duty to declare interest in proposed transaction or arrangement
• Before the introduction of CA2006, directors were under a duty to act bona fide in the interests of the company.
• Directors only need to have regard to the s 172(1) factors
• The s 172 (1) factors were designed to give effect to the enlightened shareholder value approach which argues that long-term financial gain is best achieved if the company takes into account the interest of wider stakeholder groups
• S 172 Breaches - an agreement is voidable at the company level and if it results in a loss, then the director in breach may be liable to compensate the company.
• s 174 breaches - the director in breach will be required to compensate for any losses as a result of the breach of futy.
• s 175, duty to avoid conflicts of interest, can apply to former directors. This is to prevent a director from vacating office and then competing with the company using information and opportunities they acquired as a director.
• The s175 duty will not be infringed where the conflict has been authorised by the company.
• s175 breach - the contract would be voidable in the company's instance, as long as the other party to the contract knew of the breach. The director may be required to account to the company for any gains made.
• The consequences of an s176 breach are:

  ·        Contract providing the benefit can be rescinded by the company

  ·        Company can recover benefits from director / claim damages from the director or third party

  ·        Company can dismiss the director

  ·        If the breach amounts to the bribe, it could be an offense
• The transactions involving directors that require member approval are:

  ·        Long-term service contracts

  ·        Substantial property transactions

  ·        Loans, quasi-loans and other credit transactions

  ·        Remuneration and payments for loss of office