Company Law Directors Duties 1 Lecture 5

Topics: Board of directors, Tort, Fiduciary Pages: 5 (1712 words) Published: March 4, 2015
Directors Duties 1

Types of directors: Ordinary, de facto, shadow directors and non executive directors. Table A section 80 is the cornerstone of corporate governance. Gives the directors powers to act as they see fit for the benefit of the company.

Directors have a FIDUCIARY relationship with the company – trust and confidence. The distinguishing obligation of a fiduciary is the OBLIGATION OF LOYALTY. Shadow directors – not appointed by the board – have a decisive say in managing from a distance. Other directors do not have to accept their advice – but must be ACCUSTOMED to doing so. It does not count if advice is being provided from a professional capacity. Case Law: Fyffes plc V DCC – argued Flavin was a shadow director of DCC. HELD: not a shadow director. A company can be a shadow director of another company.

Fyffes case: HELD that DCC was probably a shadow director of Lotus green. De Facto directos: Act as directors without having been appointed – may be deemed to be a director and share their duties. Shareholders cannot interfere with directors functions unless they alter the articles or remove the director. Directors can take decisions against the majority of shareholders. Articles give directors certain powers and shareholders cannot disregard these. But where NO SUCH POWERS ARE GIVEN, then shareholders can direct members to do or refrain from certain acts. Case Law: Ryanair V aer lingus 2011 – owned 30%. Directors refused to table resolution. Held: Directors had ultimate authority. Members resume control when: No capable directors can act. (no official directors, directors become deadlocked, refuse to discuss business matters etc.) When directors exceed their authority: - up to the shareholders to ratify action or take action against director. Case Law: Bamford V Bamford – Director allots shares for an IMPROPER PURPOSE. Shareholders could ratify the decision or make him pay for the shares. Leading Irish authority on shadow directors: Case law: Horocroft ltd 2009 Sets out principals that apply re shadow directors. Action commenced by liquidator who wanted to charge mr David Cullen. Liquidators are required to submit application to Director of corporate enforcement within 6 months. Liquidators MUST then bring restriction orders against all directors. DOC can release them from having to do this. Stephen Cullen was his brother and sole member of Horocroft. Building company JJR owed over 2 million by Horocroft. David listed as cheque signatory, architect thought he was the boss. Horocroft had sold him cheap land. McKechnie J sets out the principles to be applied in deciding whether a person is a shadow director for the purposes of s 27(1). Two elements:

definition - ‘a person in accordance with whose directions or instructions the directors of a company are accustomed to act.’ Professional advisor exception - ‘unless the directors are accustomed to so act by reason only that they do so on advice given by him in a professional capacity.’ In relation to first element -Court must find that the directions/instructions were given by the person in question and that the true directors (or a majority of them) were accustomed to act upon them. There must be cause and effect between directions and implementation. HELD:

McKechnie J held that on the balance of probabilities he was not. 1. There was no evidence of sale at an undervalue of the land 2. Although he was authorised to sign cheques he never did – could be explained by the familial relationship between David and Stephen 3. His hands-on role in relation to the construction work on the hotel could be explained by his being the property owner. 4. The determination of whether someone is a shadow director is very fact driven.

Not involved in the day to day running of the business, may act in an advisory role. Directors have certain minimal responsibilities: To keep abreast of the companies financial position, to...
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