Critical Analysis of Director's Duty within Company Law: Legal Aspects

This report provides a critical discussion of a director's duty to act within their powers, a key aspect of legal aspects of business, referencing the Companies Act 2006 and relevant case law. The report explains that directors are required to adhere to the articles of association and only exercise powers for authorized purposes. It details the implications of exceeding these powers, referencing key cases such as Re Smith and Fawcett and Punt v Symons, which highlight the legal consequences of acting beyond one's authority. The analysis further discusses the importance of directors acting in 'bona fide' and the potential for legal action if duties are breached, as illustrated by the case of Towers v Premier Waste Management Limited. In conclusion, the report emphasizes that directors are hired for specific purposes and must obtain shareholder approval for decisions beyond their assigned powers, with a clear emphasis on the personal liability for any violations. This report is a student contribution to Desklib, a platform providing AI-driven study tools and past assignments.

Legal Aspects of
Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
By referring to relevant legislation and case law, critically discuss the following duty of a
director of a company: Duty to act within powers....................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................5

INTRODUCTION
Legal Aspect is simply categorised as the language of law which has been described the
legislative body of the nation. Here, certain rules and regulations are explained which is
mandatory to be considered at the time of making decision. If in any of the situation company
fails to perform their part of work then, there is high chances that legal actions can be taken upon
the entity. In context of the file, there will be the detail discussion about the duty of director
which they are required to follow while conducting any of the work within the premises of a
company. Also, different examples will be included in it.
MAIN BODY
By referring to relevant legislation and case law, critically discuss the following duty of a
director of a company: Duty to act within powers.
Companies Act 2006 discusses about the rules and regulations which is required to be
followed by any of the entity while making any of the decision. Even certain rules and
regulations has been formed for director which they are needed to follow. One of the section 171,
explains about the duty to act within the power, where it has explained that director is not
capable of taking any of those decision where there don’t have the power (Hudson, A., 2017).
Any of the decision which are being taking by the director must be authorized by the member
else legal actions can be taken upon the director.
Looking at the present scenario, performing any of the work is very important where
proper guidelines must be followed. In case of section 171 of Companies Act 2006, it clearly
indicates about two major work which is to be done by the director. Firstly, they are required
work as per the Article of Association or the constitution of an organization. The second duty
which is to be performed within section 171 is all about to only exercise powers for the purposes
for which they were conferred within the organization. These are the main power which is to be
considered by any of the director while exercising any of the duty.
While discussion about the first duty in detail, it can be easily explained that in any of the
circumstances, the director of the company will not get the right to take any of those decision due
to director impact can be seen upon Article of Association. It is because to control the decision
making ability of director (Clarke and Henderson, 2016). It is also essential to control fraudulent

activity which can take place if their power is not restricted. It is said that directors are the one of
who controls more than half of the work within the nation and in this respective situation if any
of the wrong decision can create huge issue for the organization. It is necessary to control all of
this activity so that fraudulent work can be reduced within the organization. There is other reason
as well for the commencement of this particular section such as it mandates the director to check
the power before taking any of the decision in favor of organization (McCracken and et. al.,
2018). The chances of risk bearing decision will reduce automatically which will certainly
delivery the way to accomplish the goals. Director will have to put their efforts because of the
implementation of this section upon the company that how their decision can meet the criteria of
the companies’ constitution. The principle case is too place between Re Smith and Fawcett,
where it held by the judges that director must act in “bona fide”. Along with it two principle
were introduced which clearly indicates that in any of the circumstances making decision beyond
the power will create legal issues against them whether decision was in favor or not of the
company. The another example where director work beyond the capacity of company’s
constitution is between Punt v Symons. It was observed in the case that directors of the
company took the decision related with issuing the share for the purpose of raising fund but it
was necessary to understand that director do not hold this particular power in any of the
circumstances (Hannigan, 2018). It was held that directors of the company didn’t act bona fide
for the organization as power were utilized wrongly and penalty were imposed.
The another clause which is included in section 171 is that director must be able to
perform those work only for which they have been assigned within the organization. If any of
those condition occurs where director will not perform the work for which they have been
assigned, then legal action can be taken by the member of a company. Only certain work is
possible which can be done by director such as appointment of auditor, duty to attain meetings,
trying to keeping information secret and not trying to generate secret profit. Also, not taking
those decisions where they are not authorized by the company. One of the landmark case is
between Towers v Premier Waste Management Limited (2011), it was decided in this
particular case, the judges held that although the decision taken by the company was not creating
any of the issue for the organization (Directors Duty, 2018). But, it was found that there was the
beach of duty from the side of director. In a result, he should pay the company an amount based
on what it would have cost him in the open market.

CONCLUSION
From the above discussion, it can be further concluded that in any of the circumstances,
directors of the company are hired for specific purpose and they must do the work where they
have been given the power. If in case, director required to take any of the specific decision then
prior approval from the shareholder is must. But, if approval has been not taken then in that
respective situation legal action can be taken against the director and he can be made personally
liable.
REFERENCES
Books & Journals
Hudson, A., 2017. Understanding company law. Taylor & Francis.
Clarke, B. and Henderson, G. E., 2016. Directors as guardians of the public interest: lessons from
the Irish banking crisis. Journal of Corporate Law Studies, 16(1), pp.187-220.
McCracken, M. and et. al., 2018, March. A study of human capital reporting in the United
Kingdom. In Accounting Forum (Vol. 42, No. 1, pp. 130-141). Taylor & Francis.
Hannigan, B., 2018. Company law. Oxford University Press, USA.
Online
Directors Duty. 2018. [Online]. Available Through:
<https://www.elementalcosec.com/guides/directors-duties/>