Company Law Lecturer: Ms. Lesley Walcott Date: September 16th, 2003
Download 288.43 Kb.
|
- Navigate this page:
- DIRECTORS STATUTE
- Lecturer: Ms. Lesley Walcott Date: October 23
- Lecturer: Ms. Lesley Walcott Date: October 28
DirectorsThe companies acts empower the directors to manage the business and affairs of the company96, subject to a unanimous agreement of the shareholders97 . The companies acts provide the statutory power which reflects the common law, and the common law position obtains in Jamaica and Belize. Barbados and other new law jurisdictions (like Bahamas and Trinidad and Tobago) gives a two-fold duty to directors. S.95(1)(a) under a duty to act honestly and in good faith with a view to the best interests of the company. S.95(1)(b) places directors under a duty of care duty and skill that a reasonable prudent person would exercise in comparable circumstances. S.95(2) provides that where the director exercises his fiduciary duty to the company he is to have regard to the “interest of the employees in general and to the shareholders.”
Lecturer: Ms. Lesley Walcott Date: October 23rd, 2003. Nature of Fiduciary Duties The director’s power to mange is not unfettered. Limitations are imposed on the exercise of his duty in the form of statute and the common-law. In new law jurisdictions, directors are under a statutory obligation to act honestly and in good faith with view to the best interest of the company. See for example S. 95 of the Barbados, S. 99 Trinidad & Tobago, S. 86 Bahamas Companies Acts. The statutory requirement that directors act honestly and in good faith with a view to the best interests of the company summarises the notion that directors are fiduciaries enabling their conduct over the company property to be tested against equitable standards. The strengths and weaknesses of the standard (the ex statutory standards) to act in good faith lie in its generality. It is a broad statement about what is expected from directors and officers. In new law jurisdictions such as Trinidad & Tobago, Barbados and the Bahamas which refer to “directors and officers” statute began this: - Officers defined in S. 2 as CEO, Corporate Secretary, Treasurer. St. Kitts has a curious definition of an officer as a director or liquidator of the corporation. It’s weakness arises from the difficulty of what constitutes prudent behaviour, good faith and the best interest of the corporation. Rule 1: - (Belize and Jamaica) Directors when exercising their directorial power must act bona fide in what they consider, not what the court considers is in the best interest of the company. See the case of Mills v. Mills [1958] 60 CLR 150 where as a result of tension between the managing director of the company who was also a large ordinary shareholder and his nephew who was a director and the holder of a large number of preference shares. The managing Director utilised his votes and those of family members and resolved that certain accumulated profits be capitalised and distributed to ordinary shareholders in the form of bonus shares. This was designed to ensure that the managing director continued to control the company. Latham CJ noted the difficulty of applying the test of “acting in the interest of the company” where there are different classes of shares, for the character of the act must necessarily adversely affect the interest of one class of shareholders while benefiting the other. In such circumstances he states, the question becomes what is fair between the different classes of shareholders i.e. what is the moving**** cause. He held that the exercise of the power was proper. Rule 2: - directors must not act for any collateral purpose, the duty to exercise powers for a proper purpose requires that those powers must be exercised for the purpose for which those powers were granted. If Directors issue shares of the company for the purpose of conserving their own power, the resolution concerning the shares would be set aside or an injunction would be granted. Before the court will intervene it must be established that the director acted from an improper motive or arbitrarily and capriciously. See the case of Hogg v. Cramphorn Ltd. [1969] 1 All ER 977 where directors attached special voting rights to preference shares so as to thwart a hostile take-over bid. The director believed that the acquisition of control by a prospective take-over bidder would not be in the best interest of the company or its staff. Nevertheless the court held it was improper use of the directors power and while accepting that the board acted in good faith, they noted that the primary purpose of the scheme was to ensure control of the company. Rule 3: - this relates to contracts between a director and the company. A contract made by a company with one of its directors or with a company or firm in which he has an interest is voidable at the instance of the company. See the case of Aberdeen Rly. Co. v. Blaikie Bros.[1854] 4 MAC 461, where an arrangement to manufacture iron chains was set aside on the ground that the chairman of its board of directors was the managing partner of that company. The rationale for this was that in the discharge of duties one must not place oneself in a situation where your interests and duty conflict, and in accordance with equity, a director is prohibited from dealings unless he can point to full disclosure. Trinidad & Tobago S.93 and Barbados S. 86 & 90. A director or officer of a company who is a party to a material contract or proposed material contract with the company must disclose in writing or request to have entered into the minutes the nature and extent of his interests. Note the following: - The onus is on the director to point to full disclosure, failure to satisfy this requirement may lead to a loss of office, avoidance of the contract, or loss of profits. It is possible under S. 94 of the Trinidad & Tobago and S. 90 of the Barbados Companies Act for a director to give general notice. Bribes See the case of Mahesan v. Malaysian Housing Society [1978] 2 WLR 444 Remedies: -
rescission of contract an action for money had and received (The company can sue him as a constructive trustee of the bribe money.) damages the official is liable to instant dismissal and will forfeit any claim he may have to commission or bonus relating to the transaction concerned Rule 4: - directors are precluded from making any secret profit and from misusing corporate information and opportunity. Corporate fiduciaries and officers normally consider a range of commercial opportunities as a function of their office. Where directors acquire for themselves property rights which they are regarded as holding in equity on behalf of the company, they will be held to be in breach of their strict fiduciary obligation. One must determine the point at which such an opportunity may be said to belong to the company. If an executive resigns from the corporation, at what point does that implicit contract with respect to obligations between the company and the executive terminate? At what point is former employee free to capitalise on information gleaned while in the services of the corporation? The implicit contract will in general extend beyond the termination of the employment. See the case of Regal (Hastings) Ltd. v. Gulliver 98[1942] 1 All ER 378 where Viscount Salkey*** laid down the conflict test. The general rule of equity is that: - “no one who has duties of a fiduciary nature to perform is allowed to enter into agreements in which he has or can have personal interest conflicting with the interest of those he is bound to protect.” See the case of Peso~ Silver Mines Ltd. v. Cropper [1966] DLR (2nd ed.) 1 where the strict rule was relaxed because there was a bona fide vote of the board of directors, thus the court held that the directors did not violate the conflict rule. Therefore, a director is free to make an investment on his own account after the company has considered the proposition and bona fide decided against it. It is important to note that the principle is dependent upon informed consent. See Canadian Aero Services Ltd. v. O’Malley [1973] 40 DLR (3rd) 371 where Laskin J identified the relevant factors required in determining standards of honesty, loyalty and good faith: -
the position held the nature of the corporate opportunity “its rightness or specificity” and the directors or officers relationship to it. the amount of knowledge possessed the circumstances in which the knowledge was obtained was the knowledge special and private? the circumstances under which the relationship was terminated, for example, retirement, resignation, sick-leave. It is clear that a criterion for business opportunity is property rights. Economic theory suggests that if an executive appropriates an investment opportunity for private account which was anticipated by the participants in the capital market that gain belongs to the firm. In the case of Industrial Development Consultants Ltd. v. Cooley [1972] 2 All ER 162, Cooley was the managing director of the company and as a representative of the company he took part in negotiations with the gas board which said expressly that they did not want to do business with the company. They wanted to do business with Cooley in his private capacity. Cooley resigned and Roskill J held that he was accountable to the company for the whole of his benefit under the contract. Lecturer: Ms. Lesley Walcott Date: October 28th, 2003. Duty Of Care Diligence and Skill In the case of Re City Equitable Fire Ins. [1925] Ch. 407 Justice Romer outlines the duty as follows: - A director need not exhibit a greater degree of skill than that usually associated with persons in that position. A director need not give continuous attention to the affairs of the company, his duties are of an intermittent nature to be performed at periodical board meetings. A director is justified in the absence of suspicion to delegate or trust some other official. See also the case of Re Brazilian Rubber Plantations & Estates Ltd. [1911] 1 Ch. 425 where it is noted that if the director has special knowledge he must give the company the benefit of it. In the case of Re Cardiff Savings Bank, Marquis of Bute [1892] 2 Ch. 100 where the director attended one board meeting in 38 years, the court found that he was not in breach of his duty of care diligence and skill. The case of Re Pavlides v. Jensen [1956] Ch. 565 demonstrates that mere negligence is insufficient to constitute a breach of care diligence and skill. The sale of an asset at under value will not without more be a breach of care diligence and skill. There must be mala fides on the part of the director. He must have benefited from the sale at under value to establish a breach. Dovey v. Cory [1901] AC 477 examined the third prong of Justice Romer’s directors duties. The court found the director was entitled ton rely on statements made by the chairman. The directors can also protect themselves through indemnity insurance, or they can insert a clause in the bylaws or articles to protect themselves from liability. Barbados Companies Act S. 101. In the case of Re Brazilian Rubber Plantations & Estates Ltd. [1911] 1 Ch. 425 there was an indemnity clause in the articles of association that was given effect to. Download 288.43 Kb. Share with your friends:
|