Corporate Law Case Study: Examining Director's Duties and Obligations

This case study delves into the responsibilities and potential liabilities of a company director, focusing on a scenario where a director of Downing Ltd. accepts a position at a competing company, Twilight Ltd. The analysis centers around the director's breach of duty, specifically addressing conflicts of interest and the obligation to act in good faith for the company's benefit. It references key legal principles, including the concept of a company as a separate legal entity and the fiduciary duties of directors. The study also explores the implications of the director's actions under relevant sections of corporate law, such as the duty to avoid conflicts of interest and the potential for legal action against the director for failing to disclose material interests or seeking proper authorization. Desklib provides a platform for students to access similar case studies and solved assignments for comprehensive learning.

Running head: CORPORATE LAW ASSIGNMENT
Corporate Law Assignment
Name of the Student
Name of the University
Author note

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Answer to Question 1
An individual who monitors the company in executing and exercising the vital programs
and projects is known as the director of the company. Every company has been using these terms
for identifying and defining roles in different departments of the companies. For instance, the
director who manages the department of human resources, has the duty to commence meetings
and take decisions that are linked to the process of human resource development. The Company
Secretaries and Directors Division 1 section 2(1) states that the person who holds the position as
a director of a company is bound to undertake the decisions. According to Section 453, a
company limited by a guarantee or a public company should consist of atleast 2 directors. On the
other hand, as per Section 454, a private company can atleast have one director.
According to the given scenario, Sam was the director of an IT company known as
Downing Ltd. While he was the director of this company, he was asked to work for the Twilight
Ltd. company which was quite similar to the one he was associated with. Therefore, Sam
accepted the offer and he became the director of both the companies (Stout and Blair 2017). A
director will be guilty of breach if Sam continues to be the director of both the companies
simultaneously (Hopkins 2017). It has been specified here clearly that during this time, an
individual cannot hold the position of a director for two or more businesses that give competition
to each other. It is treated to be a part of an unfair method of competition.
The Director is said to have a few duties where he can ignore the interest unless it has
been authorized. The duty of the director is to disclose all the profits incurred by the company
that caused a material interest (Tricker and Tricker 2015). However, in this given scenario, it has
been observed that the director had joined another company without obtaining permission from

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the board of the one he was currently working at. Such a situation is considered to be an act of
ultra vires. It was held in the case Solomon V Solomon that an individual and a company should
not be treated as one entity. A company is said to be a separate legal entity and it has the rights of
a living entity. The Director holds a duty of fiduciary for the interest of the organization so that
he carries out his activities in utmost good faith and goodwill. Extrasure Travel Insurance Ltd V
Scattergood discusses how the director is linked with loyalty and honesty instead of competency.
Duties of a director
A director is said to work with good faith for the company. Several duties are assigned to
him for the benefits of the company. The major duty that he is assigned with is to perform with
good faith so that the goals of the organization can be achieved. A situation of ultra vires will
occur if his activities result against the goodwill of the company.
A director tends to hold a fiduciary position in a company. The company is said to hold
and confer rights for implementing duties that will have effective results. The scenario states that
the director had joined a similar company that can affect the interest of the company (Jia and
Tang 2016). Both the companies are IT companies and hence they deal with the same kind of
business. There are a huge number of possibilities where the director can reveal any kind of
information to a third person and therefore, it can have an effect on the company.
The directors have a duty to ignore the secret profits that have been incurred by the
company as stated in the case of Furs Ltd V Tomkies. A Director is not said to have any right to
attain a situation that is profitable for the company. The company can act without revealing the
material facts of the shareholders.

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The case of Aberdeen Railway Co. v. Balikie Brothers held that there was no question
that could be raised in relation to the fairness and unfairness of the contract formed by the
parties. The Directors will be held liable if they enter into any kind of contract with their own
company.
The situation thus stated that the director was held liable and guilty of performing acts
without asking for permission from the company as it was directly specified in the memorandum
of association. The memorandum defined a director does not have any right to join a company
that has a parallel interest. The interest of the company will get affected. Hence, a company can
take proper legal actions against the director who will be held liable and guilty of the act. As per
Schedule 2, article 16, a director who is said to be in conflict of interest has no authority to vote
during passing the board resolution.
Answer to Question 2
According to Section 465 of the ordinance, it has been described that the duty of a
director is to execute the rights in a vital way for avoiding the conflict of interest (Kraakman and
Armour 2017). CMS Dolphin Ltd v Simonet stated that if the director holds a fiduciary place in
the former company has no right to make use of the contacts for forming the business.
The duty of the director is to avoid any kind of condition that are related to the conflict of
interest that can even exists when a director ceases to be in the course of employment. It is not
valid if the director joins another company without resigning the previous one (Schwartz 2017).
If the director leaves the former company and joins the new company that deals with
similar kinds of goods then the director will pursue the letter of employment while dealing with
situation that prohibits them for joining another organization. A director should disclose all such

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information in the general meeting before the shareholders (Villios 2016). In case of corporate
governance, the director has no such right to provide such common interest to the other
companies. However, the company has the power to disallow.
Therefore, when a company is aware of the fact that the director has breached the duty
then the company will have the authority to ratify the deed under section 473(2). A liable
director is bound to clear the monetary damages that has been caused to the company.

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References:
Barker, R., 2016. The Duties and Liabilities of Directors—Getting the Balance Right. The
Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-
Profit Board Members, p.249.
Hopkins, B.R., 2017. Starting and managing a nonprofit organization: A legal guide. John
Wiley & Sons.
Jia, N. and Tang, X., 2016. Directors’ and Officers’ Liability Insurance, Independent Director
Behavior, and Governance Effect. Journal of Risk and Insurance.
Kraakman, R. and Armour, J., 2017. The anatomy of corporate law: A comparative and
functional approach. Oxford University Press.
Schwartz, M.S., 2017. Corporate social responsibility. Routledge.
Stout, L.A. and Blair, M.M., 2017. A team production theory of corporate law. In Corporate
Governance (pp. 169-250). Gower.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.
Villios, S., 2016. Director penalty notices–promoting a culture of good corporate governance and
of successful corporate rescue post insolvency.