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Company Law and Corporate Governance Assignment

   

Added on  2020-04-29

12 Pages2902 Words306 Views
Running Head: Law 1Law

Law2Introduction:Academic debate related to scope and form of director’s duties is considered as oldest topic in company law and corporate governance. Before 1st October 2007 duties related to the company’sdirectors are derived from common law, statutory provisions, and especially from Companies Act 1985 in England and Wales. On 8th November 2006, Royal Assent was given to Companies Act 2006 which includes the new statutory provisions related to the general duties of directors. These rules replace the statutory provisions stated in part X of the Companies Act 19851.Companies Act 2006 defines number of director’s duties and these duties state the obligations owned by directors towards the company and shareholders. The most important changes occurred in relation to duties of directors from old common law position are: statutory requirement is stated in relation to directors to exercise their duty in good faith while deciding upon the business and transactions of the company, and it also permit the independent directors to authorize any conflict of interest arises between company’s directors and the company. Section 175 and 1762 of the Companies Act 2006 defines two important duties of director’s that are duty to avoid conflict of interest and duty not to get benefit from third parties. This paper discusses the duties stated under section 175 and 176, and how these duties are different from thecommon law predated legislation from the current provisions3. In other words, how current position represent clear framework related to director’s behavior in this area. All the facts are 1Everymanlegal. Directors’ Conflict of Interest after the Companies Act 2006, <https://www.everymanlegal.com/wpcms/wp-content/uploads/2016/10/Fact-Sheet-Directors-Conflict-of-Interest-after-the-Companies-Act-2006.pdf>, Accessed on 22ndOctober 2017. 2Companies Act 2006- Section 175. 3Companies Act 2006- Section 176.

Law3supported by case laws and statutory provisions of Companies Act 2006. Lastly, paper states the brief conclusion which summarize above stated facts and result. Statutory Provisions of Companies Act 2006:Duty stated under section 175 and 176 are predicted on the basis of equitable doctrines related to prevention of conflicts of interest stated in case law Boardman v Phipps4 and bribes stated in case law Attorney-General for Hong Kong v Reid5. Section 175:1st October 2008 is the date from which directors of the company are introduced with their new obligation under section 175 of the Act. As per this section directors are under statutory obligation to avoid any situation which can directly or indirectly conflicts or possibly may cause conflicts of interest with the interest of the company. It must be noted that this duty is completelyseparated from the duty stated under section 176 which states duty not to accept benefit from third parties and also duty to declare interests arising in relation to a transaction or arrangement with the company. Duty stated under section 175 of the Act will not infringed if matter has been authorized by the other directors of the company as per the rules stated under Companies Act 2006. This new power states if conflicts are authorized by the directors is in addition to the shareholders ability to allow the conflict under existing law either by passing resolution or by authorizing in Articles of Association6.4 Boardman v Phipps [1967] 2 AC 47. 5 Attorney-General for Hong Kong v Reid [1994] AC 324. 6 Lexology, Companies Act 2006 – Section 175: directors' duty to avoid conflicts of interest, < https://www.lexology.com/library/detail.aspx?g=0454a3e3-ebe9-402f-8289-a6a9d2b4bb0e>, Accessed on 22nd October 2017.

Law4Duty is considered as broader in nature such as this duty simply states to avoid taking profits from any conflict of interest or prevents from causing loss to the company or to the shareholders.Therefore, this duty is breached even if director’s fails to avoid the situation when there may be conflict of interest. In short, when conflict arises between the personal interests of the director’s and interest of the company. In other words, directors of the company must not enter into any agreement where interest of the company is clashed with the interest of the director’s, and they must not make any secret profit by using their position of director in unfair manner. This can be understood through case law Aberdeen Rly Ltd. v Blaikie Brothers,7 in this case Court stated that no one is allowed to enter into any agreement for his own personal benefit or if chances werethere that interest of person clashes with the interest of other members of the company. This section is recently considered by bench of queen also in case law Cambridge v Makin [2011] EWHC 12 (QB).8Difference between common law rules and section 175 of CA 2006:Section 175 of CA 2006 show important changes as compared to existing common law, and this section imposed positive duty on director to avoid conflicts instead of disabling the directors to act in such circumstances. Duty stated under section 175 will not be breached in two situations; firstly situation does not considered as situation which gives rise to conflict of interest and secondly situation is not authorized by the board. However, common law does not provide any such defense. CA 2006 introduces the mechanism of board approval which is considered as response to the questions which states requirement of shareholders’ approval for such conflicts isunduly construct. Generally, companies address the need of shareholder’s sanction by including provision in the AOA which allowed the directors of the company to continue the particular act 7 Aberdeen Rlwy. Co. v Blaikie Bros. (1854) 1 Macq. 461 at p. 471.8 Cambridge v Makin [2011] EWHC 12 (QB).

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