reality test’. Further, in Foster Bryant vBryant(2007)
the law on directors’ duties was considered. This case
concerned the alleged breach of a director’s fiduciary
duties during a period of notice after he had resigned as
a director but when his resignation had not yet taken
effect. It was said by the court:
[A director] has an obligation to deal towards it with
loyalty, good faith and avoidance of the conflict of duty
and self-interest...A requirement to avoid a conflict
of duty and self-interest means that a director is pre-
cluded from obtaining for himself, either secretly or
without the informed approval of the Company, any
property or business advantage either belonging to
the Company or for which it has been negotiating, espe-
cially where the director or officer is a participant in
the negotiations.It went further to provide ‘directors, no less than em-
ployees, acquire a general fund of skill, knowledge and
expertise in the course of their work, which is plainly in
the public interest that they should be free to exploit in
a new position’.
The seven general statutory duties are set out below:
Duties owed to the company
Section 170 makes clear that the duties are owed to the
company and this gives directors a shield against claims
by a wide variety of interest groups. The duty is to the
company and not outsiders.
Duty to act within powers
This states that a director must act in accordance with
the company’s constitution and use those powers only
for the purposes for which they were granted.
Note: the major constitutional document is the
articles and not the memorandum.
Duty to promote the success of the company
Under s 172, a director of a company must act in a way
that he or she considers to be in good faith and would be
most likely to promote the success of the company for
the benefit of its members as a whole.
The Act goes on to state that, in fulfilling the duty
imposed by this section, a director must (so far as rea-
sonably practicable) have regard to:
■the likely consequences of any decision in the long
term;
■the interests of the company’s employees;
■the need to foster the company’s business relation-
ships with suppliers, customers and others;
■the impact of the company’s operation in the com-
munity and the environment;
■the desirability of the company maintaining a reputa-
tion for high standards of business conduct;
■the need to act fairly as between members of the
company.
Note: the duty is owed to the company alone and not
to any other stakeholder, e.g. the workforce. However,
what is new is that stakeholder interests must be con-
sidered. This could lead to litigation in the sense that
in reaching a particular decision the interests of one or
more stakeholders were not considered fully or at all.
Board meetings could become more difficult in terms of
decisions taken. Has the board got a trail of evidence
showing that relevant consideration was given?
Duty to exercise independent judgement
Section 173 provides that a director of a company must
exercise independent judgement. This duty, the section
states, is not infringed by acting:
■in accordance with an agreement made with the com-
pany that restricts the exercise of discretion by its
directors; or
■in a way authorised by the company’s constitution.It is not certain whether delegation of duties, which is
not dealt with by the duties expressly, is included. It
probably neither permits nor restricts delegation. This
matter should be dealt with in the articles.
Duty to exercise reasonable care, skill
and diligence
This means, according to s 174, the care, skill and dilig-
ence that would be exercised by a reasonably diligent
person with:■the general knowledge, skill and experience that may
reasonably be expected of a person carrying out the
functions carried out by the director in relation to the
company; and
■the general knowledge, skill and experience that the
director has.This test is not new but is relatively underdeveloped by
the courts.
Duty to avoid conflicts of interest
Section 175 provides that a director must avoid a situation
in which he or she has or can have a direct or indirect
interest that conflicts or may conflict with the interests
of the company. The duty is not infringed:Part 2Business organisations