Cookpride Ltd: A Detailed Analysis of Director's Duties and Breaches

This report examines a case study involving Cookpride Ltd, a company specializing in manufacturing domestic ovens. The analysis focuses on the breaches of duties by the company's directors, including Jack, Linda, Kim, and Maggie, in relation to a business opportunity involving a new commercial fridge design. The report delves into the specific actions of each director, highlighting conflicts of interest, failure to act in the company's best interest, and potential financial irregularities. It references the Companies Act 2006 and relevant case law, such as Bhuller v Bhuller, Regal Hastings v Gulliver, IDC v Cooley, O'Donnell v Shanahan, and Peso Silver Mines v Cropper, to illustrate the legal principles governing director duties. Furthermore, the report provides advice to Graham, a minority shareholder, on potential actions he can take against the directors. The analysis covers duties such as acting for proper purposes, avoiding conflicts of interest, and promoting the success of the company, with a focus on the responsibilities of directors under the law.

Law of Business Organisation
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Table of Contents
Introduction......................................................................................................................................3
Scenario............................................................................................................................................3
PART (a)................................................................................................................................4
Part b).....................................................................................................................................7
Conclusion.......................................................................................................................................9
References......................................................................................................................................10
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Introduction
Business organisation law is referred to the different ways of business that can be legally
formed under state laws. Along with this, to incorporating as a corporation, the business can be
formed as limited liability companies, partnership and different form of business. There are
different types of organisation operate their business and they set specific, tax, management and
liability benefits and drawbacks. There are different types of law which a company should follow
with respect to carrying out business in a legal manner. The present report is based on the
scenario in which Cookpride ltd is a company that is specialised in manufacturing domestic
ovens and other cooking appliance. This study covers breached duties while carrying out the
business by directors of Cookpride Ltd. Apart from this advice will be provided to Graham, a
minority shareholder in Cookpride ltd that he can initiate any action against the directors of the
company.
Scenario
Jack, Maggie, Kim, and Linda are the directors of Cookpride Ltd, a company which is
specialised in manufacturing domestic ovens and other cooking appliance. Each director of the
company holds 10% of the shares of the company and remaining shares are held by Graham and
four other shareholders. Kim is inexperience and lives abroad and he takes less part in business
activities. Along with this she only occasionally attends boards meeting when use to be in a
town. In the month of January 2016, Board of director received an offer from Mackenzie Snow
for CookPride Ltd in order to manufacture Snow’s newly patented design for heavy duty
commercial fridge’s in respect to return for a percentage of profits which comes from sales of the
products. Snow’s was designed that can be used for Aerofoils so that energy in the commercial
open fridge can be saved and from laboratory test, it shows incredible potential energy savings.
In the Month of March, the board convened to discuss Snow offer and Jack advised the board to
reject the offer invention which was done is different from the company existing lines. Along
with this Jack is supported by Linda and Maggie for rejecting the proposal. Since after sometime
in the month of July Jack resigns and incorporates Hardhome Ltd. To acquired snow’ patent and
started manufacturing the commercial fridges and make the huge profit. However, Cookpride
spotted serious irregularities in the last two sets of annual accounts. From investigation it is
identified that Jack had secretly been defrauding Cookpride ltd for significant sum of money.
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PART (a)
Advice Jack, Linda, Kim and Maggie whether the have breached any of their duties as directors
of Cookpride Ltd.
The given scenario reflect that Jack, Linda, Kim, and Maggie are the managing director
of Cookpride Ltd and they sell products such as domestic oven and other cooking appliance. All
the directors hold 10% of the shares of the company. Among four of them, Kim is less
experienced and take less part in the business operations. The company had received the offer
from Mackenzie Snow and design new commercial fridge and from laboratory test, it is proven
that fridge can save potential energy. Apart from this at the board meeting, Jack advised rejecting
the offer because it is not meet the line of business and Cookpride need to equip and adapt its
factor specification for manufacturing the products. Jack do not inform company that cost which
is required for modification these fridges is less than dollar 150,000 which is not the huge sum of
money. Along with this he also not reveals the in-market demand for this fridge is high which
help the company in making the huge profit. Instead of this he only states that board to approve
this transaction with snow for his own personal benefits. Linda supported him as she believed
that this venture will not be profitable for her. However, Maggie disagreed with the statement but
Jack offers him loan approval due to which she gets agreed. Kim one of the managing director
does not know about the whole incident.
Therefore, from the above scenario, it is clear that Jack, Linda, Kim, and Maggie had
breached the contract and their duties as a director of Cookpride Ltd.
There are some duties and responsibilities of managing directors under companies act 2006
(Elani, Law and Ces, 2015).
The section 170 of the companies act 2006 states that the basic duties of directors are
those which are less down under section 171 to 177 of the companies act. Some of the duties are
as follows
Duty to act proper purposes:
The duty of the director is to act for proper purposes which are codified in section 171 of
company law 2006. As per this rule, the director can use their power within the company and
only for the reasonable purposes for the best interest of the company. Along with this directors
are fiduciary agents of company and they cannot use their power beyond the company rules for
their own benefits.
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Therefore, from above case, it is analysed that Jack managing director of the company had use
power for its personal profit (Coen, 2017). Along with this he had do not make any decision in
the board meeting for company interest and fail to inform company related to the profit which
they can gain from selling Snow Fridge. Apart from this Kim was not aware of the meeting and
proposal and she was not provided any information regarding the snow fridge.
Different cases based on breach of contract
The rule of breach of contract can be explained by the case of Bhuller Vs Bhuller it
shows that a director owes a duty to avoid conflict of interest including through the exploitation
of a corporate opportunity. In this case, the business which is carried out is of grocery stores and
also owned a commercial property which they led to the tenant (Vergouwen, 2013). His tenant
uses part of the adjacent property as a caring part and one of the company directors notice a sign
of the sale. It is one of the worthwhile opportunity for the company which was not
communicated by one of the managing directors. There was a conflict in this case and director
was acted as a breach his duty to the company. In another case of Regal Hastings V Gulliver, it
shows that Regal managing director of company negotiated for the purchase of two cinemas in
hasting. There are five directors on the board and one of the directors resign and set new
company from his shares get increased (Ceausescu and Lazar, 2016). The new director claim on
behalf of the company against Gulliver and other directors with respect to not share profit with
him. As directors are not liable for activities which are carried out the company. This case shows
the strictness of the prohibition on the conflicts of interest irrespective of the intentions of the
directors. In, IDC V Cooley case, Mr, Cooley who was the managing director of the claimant and
his duties include procuring business in the field of developing gas depots. There was
unsuccessful negotiation take place between Mr. Cooley and his private capacity. Along with
this he also indicates that the contracts can be prepared with him personally. In the meeting,
managing director states the company did not have the contract with it and he resigned the
company and entered into a new contract with the Gas board (Blanke and Chiesa, 2013).
Therefore, he was accountable for the profit and fiduciary obtains a benefit in breach of his duty.
This case shows that it is the duty of managing director to pass the information which he
gathered at the time when he was in the post of managing director. This case was held as a
private interest conflicted where managing director breach the contracts for his own benefit.
Case O'Donnell V shanahan
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Above case study provides an understanding about the appeal which was made by one party or
claimant against the direction of the company after the dismissal of her previous petition against
an order to his company's director for the defendants to purchase the share of the company at fair
value. By Saying that the company acted unfairly towards her. The co-director of the company
has acquired, other companies if they have the sole directors, the property of the company was
considered as the property of her company (Certo, 2015). The claimant appeal against the
directors has been succeeded as the directors only have the general trusteeship of the company,
not the owner. An order of inquiry on directors have been given by the court of appeal, the point
of difference is that the existence of opportunities is considered as relevant for the company not
for directors, they have the duty to inform the company about it. Director of company was found
to be guilty in this case for selling the share of company at fair value without informing the
claimant party.
Peso Silver Mines V Cropper [1966]
The above business case study provides an understanding about the case of illegality
between the two parties first is Cropper which was the managing director company PESO and
the company was given the authority for mining of minerals from the 20 square miles in the
territory of Yukon (Chmiel, Fraccaroli and Sverke, 2017). The second party was Dickson who
made an offer to Peso for purchasing some unauthorized claims. Later on, the offer was rejected
by Board of the director in meeting as it peso's strained financial situation. But the cropper and
three other members have taken up those claims after meeting with Dr. A who approach the
cropper. The issue, in this case, Cropper was not having the authority to took up those claims and
he has also refused to comply with the request of chairman to turn over his interest from cash
bow at cost (McMains and Mullins, 2014). Company has made the action against cropper
declaration that he needs to deliver shares of Peso which was held by him in trust
From the above different cases, it is clearly reflected that Jack, a managing director of Cookpride
Ltd has breached the contract for its self-interest. Jack advise to the reject the offer of Snow
freeze and he also hides the information related to demand in the market of the freeze which
consumes fewer energies. As it is one of the opportunities for the company to make the good
profit through selling new freeze. Along with this, he resigned from the Cookpride ltd company
and incorporate Hardhome Ltd through acquired snow patent manufacturing the commercial
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fridges and made the huge profit. This all shows that Jack had been secretly defrauding
Cookpride Ltd. Of the significant sum of money. On the other side, Maggie who is another
managing director of the involved in the breach of contract for its own interest because she wants
the loan of 80,000 dollars.
From the companies act 2006, there are some duty for avoiding conflict of interest which are as
follows:
 A managing director of business should avoid a situation in which they have a direct and
indirect interest of conflicts
 The duty of infringed in this if the situation cannot reasonably be regarded which can
give rise to a conflict of interest and if the matter has been authorises by the directors.
 As per the section 170 of the companies act the general duties in section 171 to 177
owned by a director for the corporation in certain cases. They need to find out those
duties which continue at the time when person ceases to be director therefore duty under
this I section 175 to avoid fight of interests (Blau, Ferber and Winkler, 2013).
 Section 172 of the companies act- A duty of promoting the success of the company.
 According to this section, a company director should act in a way that he considered in
good faith and put efforts in promoting the success of the company in respect to provide
benefit to the member of the company’s
Part b)
Advice Graham a minority shareholder in Cookpride Ltd, that he should initiate for an action
against the directors of the company at the time when rest of shareholder are against the
litigation.
It is important for managing of the director to consider its stakeholder but priorities the success
of the company. Graham a minority shareholder in Cookpride Ltd suffer from loss due to
directors interest (Hair Hult and Sarstedt, 2016). Cases
Smith V Fawcett [1984]
As per the given scenario, primary duties of the director which were imposed by law is to
act on what is the favour and think about the interest of the company and not for their own
collateral purpose. Further, the duty of the director is considered as subjective when they
exercise their discretionary powers which are bona fide and not given by the court are considered
to be the interest of the company. From the perspective of Lord Greene MR, this principle will
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only apply in case of the discretion conferred by the articles of organization on its directors. The
present case is free from doubt and directors can exercise their discretionary powers in what they
considered for the interest for the company, not required to follow the court's consideration and
also not for the collateral purpose. The question behind the true construction of that article was
that the directors are limited by any other thing rather than their bona fide view for the interested
of the organisation. After that, it was also said that the director would also need to have the
witness who claims his actions to be correct and reasons for the account of his motives. If those
reason are proved to be wrong then the person whom the burden of proof lies should have
required to be taken for cross-examination.
From section 260 (S 1): - minority shareholders suing on behalf of the company
Section 260 defines that statutory derivative claim as a procedure which is used by the
company should be for the benefit of the company. According to this section, an in few situations
a shareholder can go to court in respect to prevent some action which is being taken by the
directors that can harm the company and claim against if they suffered from any loss. However,
it is important for the shareholder to make claim on the behalf of the company because firmly
suffers from wrongdoing. If any harm caused to the company then it also indirectly harms the
shareholders. There are some rights of minorities shareholder such as there are many provisions
for companies act 2013 in which company needs to deal with the situation where minority
shareholder right has been protecting and the same is divided into different major heads (Argenti,
2015). According to companies act, it is important to protect the minority shareholders from the
mismanagement and oppression. A minority shareholder within the company does not have the
power to influence the management and sometimes their interest is also not regarded in the
company. But they can use different ways to protect their shares such as bringing an unfair
prejudice claim, winding up petition.
From the companies act 2006, it is a statutory right for a firm’s shareholder that the can
bring a claim against the directors on the behalf of the company. To bring a derivative claim lead
to existed under English law but it exacts relaxed the obligation which must be fulfilled with
respect to bring such claims for being pursued (Blanke and Chiesa, 2013). For a derivate,
permission is granted by the high court under the section 261(4) c of the act they need to order a
company board to reconsider whether to pursue a defense to a claim against the company
(Gaynor and Muir,2014).
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For an example, in the case of Stimpson Vs Sothern landlord’s association, the court identified
that director was working in accordance with the sect 172 duty and it had not sought to continue
the claim under sec 263(2)(a). While the issue of good faith where the judge identified that
complainant had taken action for retaining the control of the firm and he does not want to lose it
so he finds out it through the merger. However, from this motive shows a lack of good faith that
not matter but it is a certain factor for the application.
From the case of Smith V croft is the case related to the concerning derivative claims. As
per the principal it allows a derivative claim in order to continue the court for the minority claim.
In this case minority shareholder had claimed for recovering the money which is paid by the
contrary to the financial assistance prohibition (Elani, Law and Ces, 2015). The had up to 14 %
of share and defendant help high number of share while other shareholder who do not want
litigation. The result of this case was that if plaintiff were minority however if wrongdoers had
taking out of the equation then, they do not have right to sue (Armstrong. and Taylor, 2014).
From the looking all the above case it is advised to Graham who hold minority
shareholder that they can sue in court on behalf of the company as because managing director
was identified as breach of contracts.
Conclusion
From the above report it is concluded that there are many duties and responsibilities of
the managing director of companies. Further it is important for them to do not breach the
contract for their own interest. If any duties are breach by director then company can sue in court
against him and ask for the compensations. Further it is concluded that, for the minorities
shareholder there are some act under law according to which managing director cannot do any
wrong which can harm the company and minority shareholders. For derivate claim shareholder
can sue in court against the directors.
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