LML4806 - Study unit 3 2023 with verified questions and answers

What is meant by partial codification of directors duties? The object of partial codification of directors duties is to make the law clearer and more accessible, particularly for directors. Directors must comply with both statutory and common law fiduciary duties. What do fiduciary duties require? - avoiding a conflict of interests between the director's personal interests and the interest of the company - not exceeding the limitations of his or her own power - maintaining an unfettered discretion - exercising his or her powers for the purpose for which they were conferred Duty of Reasonable Care Section 76(4)(a) (as set out above) thus protects only informed and reasonable business decisions. If the requirements of the section are satisfied, a director will not be liable for honest and reasonable mistakes or honest errors of judgment that he or she may have made in managing the business of the company. The director will be deemed to have complied with his or her duty to act in the best interests of the company and the duty of reasonable care, skill and diligence. conflict of interest A person in a fiduciary position has a legal duty to prevent a conflict between his own interests and those of the people he serves - a director cant get a benefit other than that which has been entitled to him through his directors remuneration. This is known as secret profits and the rule applies even if the advantage was obtained openly, in good faith and at no expense to the company. A director cant make personal gain from the use of information he got in his capacity as director (it applies even if the director has resigned). Fiduciary duty and duty of care, skill and diligence Section 76(3) - provides that a director must exercise the powers and perform the functions of a director: - in good faith and for a proper purpose - in the best interests of the company - with the degree of care, skill and diligence that may reasonably be expected of a person - carrying out the same functions in relation to the company as those carried out by that director and - having the general knowledge, skill and experience of that director - both an objective and subjective test