Directors Duties Essay

2154 words - 9 pages

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business and company law

Section 228(1) of the Companies Act 2014 details the eight fiduciary duties directors of companies are obliged and compelled by law to comply with. The question is why it is necessary through the application of law to limit director’s decision making responsibility. The potential for directors to abuse their positions of power with regards to company’s assets in the daily running of the company seems limitless even when directors are in their own perception acting bona fides with regards to their decisions. Section 228(1) is so important and appropriate to business law as Directors are persons who according to ...view middle of the document...

In the case of Peso Silver Mines Ltd v Cropper (1966), Cropper had acted with the interest of the company first and foremost. Cropper had presented the offer to the company and the company had subsequently rejected the offer bona fide. The rejection of the proposal presented by Cropper allowed him to make the investment on his own account. In the eyes of the law, Companies Act 1948(199), he had made a disclosure to the board and was therefore entitled to proceed with his transaction. The Companies Act 2014 section 229(1)(2) permits directors to have other interests but is always dominated by section 228 of the Companies Act 2014. The courts do not put limits on how significant or insignificant a transaction may be and whether the event is discovered after a director ceases to act as a director to the company. In the case of Philip Towers v Premier Waste Management Ltd (2011) the misuse of company property came to light after Towers had ceased his directorship but was held accountable for the costs incurred during his term.
Section228 (1) (b) sets out a directors duty ‘to act honestly and responsibly in relation to the conduct of the affairs of the company’. Section 228(1) (b) is so crucially important and applicable when a company has identified that it is approaching or indeed has entered insolvency. A director that continues to acquire credit during or approaching insolvency is deemed to be carrying on trading in a reckless manner and can be held personally liable for some or all of the debts under section 297A of the Principal Act. To continue trading and acquiring credit during uncertain times could have severe knock on effects for creditors to the company and could be detrimental to such creditors ability to continue trading themselves. If a company is incurring debts and acquiring credit at times of uncertainty and there is adequate information that demonstrates a creditor will never receive a payment for such debts then according to case Re William C Leitch Bros Ltd[1932] 2 Ch 71.) ‘It is, in general, a proper inference that the company is carrying on business with intent to defraud’ Wright and Creighton (1991p162). A director’s position implies that they are persons with experience and quite usually of sound educational background that they ought to reasonably know when the threat of insolvency exists or has been realised. In the case of DKG Contractors Ltd (1990) BCC903 the breach of the director’s duties to act honestly was further enforced by the Insolvency Act 1986 under sections 211 and 214. Two further cases that highlight the contrasting actions of directors are Mond v Bowles &ors (2011) and Earp v Stevenson (inhouse lawyer .co.uk). In the Mond case the directors did everything in their power to limit the losses of the creditors while in the Stevenson case the director acted in such a reckless manner and with no regard for his creditors that he indeed breached his duty of responsibility as director. Directors ought to...

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