1
Introduction
Being "artificial persons," the companies need natural persons, i.e., directors, to oversee their
day-to-day running and decision making. Activities of companies in the UK are subject to the
Company Act 2006, which is the substantive law that governs the formation, registration,
operationalization, and lifespan of companies.1. The law which was enforced in phases2 repeal
the 1985 companies Act, consolidate company law in England and Northern Ireland, and several
new private and public companies provisions. Notably, the law codifies principles of common
law, for instance, the role of directors. By analyzing a given hypothetical case, this paper
analyses the powers, responsibilities, and liability of directors under the English law and the
recourse, if any, that a company can have for adverse actions of a director.
Brief Summary of Facts
Amy, Ben, Canor, Emma, and Daisy are directors of TurningArt Plc. A company specializing in
video content production for media houses, social media, corporate productions, etc. On the
advice of Emma, one of the directors, the directors enter into a contract of a lease o new
production studios with Big Blog Plc. The rent is expensive and beyond the market value; the
directors did not seek any professional service in making this decision in 2021. Later, in 2022 it
is realized that Emma is a shareholder in Big Block plc.
Ben misleads the company about a venture with Proxy Ltd, a new television network, about an
idea to develop a mini-series based on love stories in the time of Corona. He fails to mention that
Proxy has agreed to make a down payment. Instead, he tells the company that I am likely
unsuccessful but resigns to take up the contract with a new company, Blue Ltd.
Body 1: Emma
Company directors have several duties owed to the company. These duties fall in the larger
bracket of fiduciary duties as sanctioned by the Companies act, 20063. They include duties to act
in the interest of the company, declaration of conflict of interests, and duty to promote the
interest of the company, among others. By advising and leading the directors into signing a lease
agreement at an inflated price with Big Blog Plc., Emma is in breach of her duties in sections
171, 172, 177, and 182 of the Companies Act 2006.
First, a director has a duty to act within their legally conferred powers4. These powers are granted
by the company's constitution, i.e., the articles of association and the memorandum. The duty to
act within powers behooves all directors to act honestly in what they believe is in the best
1 Sealy, Len, and Sarah Worthington. Sealy & Worthington's cases and materials in company law. Oxford
University Press, 2013.
2 The final phase was implemented on October 1,
2009 3 Sections 171-185 of the Companies Act.
4 Section 171 of the Act
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, 2
interest of the company. This position was held in the case of Hogg v Cramphorn5 where the
court said that directors who dilute stock's value to evade a hostile takeover were in breach of
their duties to act within the powers. Emma breached her duty to act honestly and made the
company incur costs that would otherwise be saved and put to other productive use.
Second, Emma is in breach of her duty to promote the success of the company6. There is a non-
exhaustive list of activities that directors must do to promote the interest of the company. Some
of these include the long-term effects of the decisions on the company, the interest of the
employees and the shareholders, the company's reputation, effect of the decision on the
environment and the community under which the company operates. Importantly, the decisions
must be responsive to the needs to foster the company's business relationship with customers,
suppliers, and even the regulators. This duty has roots in early cases like Re Smith & Fawcett
Ltd.7. Further in Murad & Anor v Al-Saraj & Anor8 where the court of appeal held that a
director who fraudulently leads a company to enter into a joint venture agreement to make
profits should disgorge the profit all the profits. Therefore, by advising the company to enter
into an expensive lease agreement.
Moreover, all directors have a duty to declare any interests9. In this duty, a director has to
disclose any interest they hold when engaging the company in any transactions. This duty relates
closely with the duties in section 175 about declaring a conflict of interest and "nonprofits" rules.
The rules on how to make these declarations were outlined in the Lee Panavision Ltd. v Lee
Lighting ltd10. The court suggested that the declaration may be made in a meeting of directors or
the form of a notice to directors, i.e., notice in writing or a general notice11. Since Emma did not
make this notice in 2021 and it was only realized in 2022, it amounts to a breach of her duty to
disclose interests she holds elsewhere.
Finally, Emma breaches her duties in the existing transactions or arrangements. This duty
requires a director to make known to the company any direct or indirect stakes they hold in the
transactions. They must declare the nature and extent of the interest to other directors in line
with the law. This should follow declarations made under section 177, as discussed above. Due
to these breaches, the company can apply remedies granted in section 187 (1) of the Companies
Act. These remedies are similar to those in common law and equity and can include personal
civil liabilities and demand compensation from Emma. Further, the company can terminate its
contract with Emma and rescission the contract.
5 [1967] Ch 254
6 Section 172
7 (1942), where lord Greene put it plainly thus, 'directors must exercise their discretion bona fide in what
they consider not what a court may consider-is in the interests of the company
.'
8 EWCA Civ 959, All ER (D) 503
9 Section 177
10 [1992] S 177(2):
11 Section 184 and 185 of the Companies Act.
This study source was downloaded by 100000858663287 from CourseHero.com on 12-19-2022 12:36:18 GMT -
https://www.coursehero.com/file/148005310/Public-Companies-Law-English-
Introduction
Being "artificial persons," the companies need natural persons, i.e., directors, to oversee their
day-to-day running and decision making. Activities of companies in the UK are subject to the
Company Act 2006, which is the substantive law that governs the formation, registration,
operationalization, and lifespan of companies.1. The law which was enforced in phases2 repeal
the 1985 companies Act, consolidate company law in England and Northern Ireland, and several
new private and public companies provisions. Notably, the law codifies principles of common
law, for instance, the role of directors. By analyzing a given hypothetical case, this paper
analyses the powers, responsibilities, and liability of directors under the English law and the
recourse, if any, that a company can have for adverse actions of a director.
Brief Summary of Facts
Amy, Ben, Canor, Emma, and Daisy are directors of TurningArt Plc. A company specializing in
video content production for media houses, social media, corporate productions, etc. On the
advice of Emma, one of the directors, the directors enter into a contract of a lease o new
production studios with Big Blog Plc. The rent is expensive and beyond the market value; the
directors did not seek any professional service in making this decision in 2021. Later, in 2022 it
is realized that Emma is a shareholder in Big Block plc.
Ben misleads the company about a venture with Proxy Ltd, a new television network, about an
idea to develop a mini-series based on love stories in the time of Corona. He fails to mention that
Proxy has agreed to make a down payment. Instead, he tells the company that I am likely
unsuccessful but resigns to take up the contract with a new company, Blue Ltd.
Body 1: Emma
Company directors have several duties owed to the company. These duties fall in the larger
bracket of fiduciary duties as sanctioned by the Companies act, 20063. They include duties to act
in the interest of the company, declaration of conflict of interests, and duty to promote the
interest of the company, among others. By advising and leading the directors into signing a lease
agreement at an inflated price with Big Blog Plc., Emma is in breach of her duties in sections
171, 172, 177, and 182 of the Companies Act 2006.
First, a director has a duty to act within their legally conferred powers4. These powers are granted
by the company's constitution, i.e., the articles of association and the memorandum. The duty to
act within powers behooves all directors to act honestly in what they believe is in the best
1 Sealy, Len, and Sarah Worthington. Sealy & Worthington's cases and materials in company law. Oxford
University Press, 2013.
2 The final phase was implemented on October 1,
2009 3 Sections 171-185 of the Companies Act.
4 Section 171 of the Act
This study source was downloaded by 100000858663287 from CourseHero.com on 12-19-2022 12:36:18 GMT -
https://www.coursehero.com/file/148005310/Public-Companies-Law-English-
, 2
interest of the company. This position was held in the case of Hogg v Cramphorn5 where the
court said that directors who dilute stock's value to evade a hostile takeover were in breach of
their duties to act within the powers. Emma breached her duty to act honestly and made the
company incur costs that would otherwise be saved and put to other productive use.
Second, Emma is in breach of her duty to promote the success of the company6. There is a non-
exhaustive list of activities that directors must do to promote the interest of the company. Some
of these include the long-term effects of the decisions on the company, the interest of the
employees and the shareholders, the company's reputation, effect of the decision on the
environment and the community under which the company operates. Importantly, the decisions
must be responsive to the needs to foster the company's business relationship with customers,
suppliers, and even the regulators. This duty has roots in early cases like Re Smith & Fawcett
Ltd.7. Further in Murad & Anor v Al-Saraj & Anor8 where the court of appeal held that a
director who fraudulently leads a company to enter into a joint venture agreement to make
profits should disgorge the profit all the profits. Therefore, by advising the company to enter
into an expensive lease agreement.
Moreover, all directors have a duty to declare any interests9. In this duty, a director has to
disclose any interest they hold when engaging the company in any transactions. This duty relates
closely with the duties in section 175 about declaring a conflict of interest and "nonprofits" rules.
The rules on how to make these declarations were outlined in the Lee Panavision Ltd. v Lee
Lighting ltd10. The court suggested that the declaration may be made in a meeting of directors or
the form of a notice to directors, i.e., notice in writing or a general notice11. Since Emma did not
make this notice in 2021 and it was only realized in 2022, it amounts to a breach of her duty to
disclose interests she holds elsewhere.
Finally, Emma breaches her duties in the existing transactions or arrangements. This duty
requires a director to make known to the company any direct or indirect stakes they hold in the
transactions. They must declare the nature and extent of the interest to other directors in line
with the law. This should follow declarations made under section 177, as discussed above. Due
to these breaches, the company can apply remedies granted in section 187 (1) of the Companies
Act. These remedies are similar to those in common law and equity and can include personal
civil liabilities and demand compensation from Emma. Further, the company can terminate its
contract with Emma and rescission the contract.
5 [1967] Ch 254
6 Section 172
7 (1942), where lord Greene put it plainly thus, 'directors must exercise their discretion bona fide in what
they consider not what a court may consider-is in the interests of the company
.'
8 EWCA Civ 959, All ER (D) 503
9 Section 177
10 [1992] S 177(2):
11 Section 184 and 185 of the Companies Act.
This study source was downloaded by 100000858663287 from CourseHero.com on 12-19-2022 12:36:18 GMT -
https://www.coursehero.com/file/148005310/Public-Companies-Law-English-
