lOMoARcPSD|17625498
Directors Duty Essay 1
Company law (University of London)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Zainub Gillani ()
, lOMoARcPSD|17625498
Directors have common law, statutory and fiduciary duties to
prevent the abuse of powers by directors. These duties are
generally owed to the company by the directors, and the duties
are not owed to individual shareholders (Percival V Wright). The
fiduciary and common law duties are now codified in the
Companies Act 2006.
Under s.171 CA 2006 directors have duty to act within their
powers, to abide by the terms of the company. Duty to exercise
their powers under the company’s constitution for proper purpose
is usually at issue in relation to directors power to issue new
shares. If the power to issue new shares is made with the object
of undermining the majority shareholding of a person this would
constitute a breach of the proper purpose doctrine. In Howard
Smith Ltd v Ampol Petroleum Ltd (1974), it was held by the Privy
Council that the allotment is made in breach of the proper
purpose doctrine as it had the effect of destroying ab existing
majority or creating a new majority which did not previously exist.
As such the allotment was held to be invalid. But in Tech Corp Ltd
v Millar (1972) the British Columbian Supreme Court held that an
allotment of shares designed to defeat a takeover was proper
even though this was against the wish of the existing shareholder
and deprived him of control. So it appears so long the directors
are acting in the best interest of the company they are unlikely to
be found to be in breach of proper purpose doctrine.
S.172 required directors promoting shareholder interests, to take
account of the factors affecting the company’s relationships and
performance. The question of what will promote the success of
the company is one for the director’s good faith judgement. This
appears to be a purely subjective test but it seems highly unlikely
that this interpretation will stand primarily because it makes
monitoring of directors practically impossible. Since in S.170(3)
and (4), they stated that “regard shall be had to the
corresponding common law rules and equitable principles in
interpreting and applying the general duties” an objective
element is likely to be incorporated. Time will tell whether this
Downloaded by Zainub Gillani ()
Directors Duty Essay 1
Company law (University of London)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Zainub Gillani ()
, lOMoARcPSD|17625498
Directors have common law, statutory and fiduciary duties to
prevent the abuse of powers by directors. These duties are
generally owed to the company by the directors, and the duties
are not owed to individual shareholders (Percival V Wright). The
fiduciary and common law duties are now codified in the
Companies Act 2006.
Under s.171 CA 2006 directors have duty to act within their
powers, to abide by the terms of the company. Duty to exercise
their powers under the company’s constitution for proper purpose
is usually at issue in relation to directors power to issue new
shares. If the power to issue new shares is made with the object
of undermining the majority shareholding of a person this would
constitute a breach of the proper purpose doctrine. In Howard
Smith Ltd v Ampol Petroleum Ltd (1974), it was held by the Privy
Council that the allotment is made in breach of the proper
purpose doctrine as it had the effect of destroying ab existing
majority or creating a new majority which did not previously exist.
As such the allotment was held to be invalid. But in Tech Corp Ltd
v Millar (1972) the British Columbian Supreme Court held that an
allotment of shares designed to defeat a takeover was proper
even though this was against the wish of the existing shareholder
and deprived him of control. So it appears so long the directors
are acting in the best interest of the company they are unlikely to
be found to be in breach of proper purpose doctrine.
S.172 required directors promoting shareholder interests, to take
account of the factors affecting the company’s relationships and
performance. The question of what will promote the success of
the company is one for the director’s good faith judgement. This
appears to be a purely subjective test but it seems highly unlikely
that this interpretation will stand primarily because it makes
monitoring of directors practically impossible. Since in S.170(3)
and (4), they stated that “regard shall be had to the
corresponding common law rules and equitable principles in
interpreting and applying the general duties” an objective
element is likely to be incorporated. Time will tell whether this
Downloaded by Zainub Gillani ()
