Review, explain and compare the legal aspects of Directors’ duties in the context of M&A activities with reference to English and U.S (federal and state levels as appropriate) Laws.

Topics: Fiduciary, Conflict of interest, Stock Pages: 14 (4812 words) Published: January 20, 2014
A.INTRODUCTION
Industrialisation and globalisation has resulted in the massive expansion of companies and the number of its owners which has in turn led to a separation of ownership and control and the dependence on directors to run the affairs of the company. Corporate decisions affecting the existence of companies are also placed in the hands of these few. This essay seeks to review the duties of directors under UK and US laws in takeover situations and how the courts interpret the decisions taken by directors to determine whether or not the interests of the company and its shareholders was paramount in arriving at their decision.

B.ENGLISH LAW
Under English Law, directors’ duties were traditionally governed by common law and equity and recently, have been codified under Part 10, Chapter 2 of Companies Act (CA 2006). These duties are based on the law of trusts and agency and can be broadly categorised as directors’ fiduciary duties and the duty of care and skill. The four fiduciary duties of directors are the duty to act bona fide; duty to exercise powers for a proper purpose; duty not to fetter discretion in the exercise of powers; and duty not to place oneself in a position where personal interests conflict with the duties of office. In addition, the City Code on Takeovers and Mergers (Takeover Code) also contain provisions which outline the conduct to be observed in takeover and merger transactions in listed and unlisted public companies resident in the UK. It is a general rule of common law that directors’ fiduciary duties are owed to the company and not to individual shareholders based on the act of incorporation and the effect of the distinct legal character of a company. S. 172 CA 2006 has somewhat extended this duty by stating that directors have a duty to promote the success of the company ‘for the benefit of its members as a whole’ and taking into consideration the interests of other stakeholders. In Peskin v Anderson, the court held that though a director's primary fiduciary duty was to the company, in appropriate and specific circumstances a director could be under a fiduciary duty to shareholders. An example of an appropriate and specific circumstance would be in the case of a tender offer which is dependent on shareholders’ approval. In such situations, directors are obliged by law negotiate with the bidder on behalf of the shareholders and therefore owe a fiduciary duty to the shareholders. This view was advanced based on the definition of a fiduciary. A fiduciary is defined as “...someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.” The position however, still remains that no fiduciary duty exists between directors and individual members. The general duties owed by a director to the company under the CA 2006 are: the duty to act within powers; duty to promote the success of the company; duty to exercise independent judgement; duty to exercise reasonable care, skill and diligence; duty to avoid conflicts of interest; duty not to accept benefits from third parties; and the duty to declare interest in proposed transaction or arrangement. These duties are a ‘code of conduct’ prescribing the behaviour expected of directors and addressing the issues of possible conflicts of interests between the directors and the company and negligent acts of the directors in the performance of their duties. Similarly, the Takeover Code provides six general principles which are summarised as: the equal treatment of shareholders of the same class and adequate dissemination of information; a false market must not be created in the securities of the bidder or the target company; and non-frustration of offer without the consent of its shareholders. Duty to act for a proper purpose

S. 171 is a codification of the directors’ fiduciary duty to exercise their powers for a proper purpose. It...

Bibliography: 2. Cleaver, C., (2009) United Kingdom – Takeover Guides, Slaughter and May,UK.
8. Kreider, G. P., (1986) Corporate Takeovers and the Business Judgement Rule: An Update, The Journal of Corporation Law..., 633-650
9. Lamb, D., (1994) United States of America: Directors’ Duties under Delaware Takeover Law, Company Lawyer, vol
12. Wachtell, Lipton, Rosen & Katz, (2007) Takeover Law and Practice 2006, PLI 's Sixth Annual Institute on Securities Regulation in Europe: A Contrast in EU & US Provisions
Books
13. Davis, Prof. (ed.), (1997) Gower’s Principles of Modern Company Law, 6th ed., Sweet and Maxwell

14. Kenyon-Slade, S., (2004), Mergers and Takeovers in the US and UK Law and Practice, Oxford University Press, New York.
UK Cases
1. Bamford v Bamford (1970) Ch. 212
2. Bishopsgate Investment Management Ltd v Maxwell (1993) B.C.C
3. Bristol & West Building Society v Mothew (1998) Ch. 1 at 18
4. Hogg v Cramphorn Ltd (1967) Ch
5. Howard Smith Ltd v Ampol Petroleum Ltd (1974) AC 821
6. Percival v Wright (1902) 2 Ch
7. Peskin v Anderson, (2000) B.C.C. 1110
8. Regal (Hastings) Ltd v
9. Regentcrest Ltd v Cohen (2001) 2 B.C.L.C. 266
10. Smith v
2. Cede & Co. v. Technicolor Inc., 636 A.2d 956 (Del. 1994)
3. Cinerama, Inc
4. Citron v. Fairchild Camera, 569 A. 2d 53 (Del. 1989)
5. Gimbel v
6. Guth v. Loft, Inc., 5 A. 2d 503, 510 (Del. 1939)
7. In Re Abbott Labs
8. In Re Walt Disney Co. Derivative Litigation, C. A. No. 15452 (Del. Ch. May 28, 2003)
9. Kahn v
10. Kahn v. Tremont Corp., A.2d 422 (De. 1997)
11. Minzer v
12. Paramount Communications Inc. V. Time, Inc., A. 2d 1140 (Del. 1989)
13. Parnes v
14. Re Anderson Clayton Shareholders’ Litigation, 519 A. 2d 669 (Del. Ch. 1986)
15. RJR Nabisco, C.A
16. Smith V. Van Gorkom, 488 A. 2d 858, 873 (Del. 1985)
17. Unitrin Inc
18. Unocal Corporation v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)
19. Revlon, Inc
UK Statutes
1. FSA Code of Market Conduct 2001 at http://www.fsa.gov.uk/pubs/policy/ps59_76.pdf visited 9 April, 2010
2. Financial Services and Market Act, 2000
3. Part V, Criminal Justice Act, 1993 (c.36)
Other sources
1. FSA, Enforcing the Code of Market Conduct, FSA at http://www.fsa.gov.uk/pages/doing/regulated/law/focus/conduct.shtml visited 9 April, 2010
2. The Guardian news article ‘Cleaning up murky markets’ by Nils Pratley, dated 15 March, 2010 at http://www.guardian.co.uk/business/2010/mar/15/viewpoint-fsa-takeovers-insider-dealing, visited 9 April, 2010
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