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Questions and Answers
What does the duty to promote the success of the company specifically refer to?
What does the duty to promote the success of the company specifically refer to?
Which of the following best describes the duty to exercise independent judgment?
Which of the following best describes the duty to exercise independent judgment?
In the context of duty of loyalty, what does section 176 prohibit directors from doing?
In the context of duty of loyalty, what does section 176 prohibit directors from doing?
The no-conflict principle established in Bray v Ford is fundamentally concerned with which issue?
The no-conflict principle established in Bray v Ford is fundamentally concerned with which issue?
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What is the primary meaning of the duty of care under company law?
What is the primary meaning of the duty of care under company law?
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Which section specifically requires directors to declare their interest in proposed transactions?
Which section specifically requires directors to declare their interest in proposed transactions?
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Which of the following duties focuses on ensuring directors act strictly within their authority?
Which of the following duties focuses on ensuring directors act strictly within their authority?
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What must a director do if a conflict of interest is identified?
What must a director do if a conflict of interest is identified?
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Under s175, what action can potentially constitute a breach for a director?
Under s175, what action can potentially constitute a breach for a director?
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What is the significance of the rule under s176 concerning directors accepting benefits from third parties?
What is the significance of the rule under s176 concerning directors accepting benefits from third parties?
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What does s174 require from directors in terms of their duties?
What does s174 require from directors in terms of their duties?
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What type of opportunities must directors prioritize according to their duties?
What type of opportunities must directors prioritize according to their duties?
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Which of the following best describes a situation where a director has not breached the duty under s175?
Which of the following best describes a situation where a director has not breached the duty under s175?
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What is a potential consequence for directors who fail to act on viable business opportunities?
What is a potential consequence for directors who fail to act on viable business opportunities?
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How does the rule under s176 differ from s175 regarding director benefits?
How does the rule under s176 differ from s175 regarding director benefits?
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What is required of a director under s177 when they are interested in a proposed transaction?
What is required of a director under s177 when they are interested in a proposed transaction?
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Under what circumstance does a director not need to declare an interest according to s177?
Under what circumstance does a director not need to declare an interest according to s177?
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Which scenario illustrates a breach of the duty to avoid conflicts of interest?
Which scenario illustrates a breach of the duty to avoid conflicts of interest?
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What is the primary duty imposed by s175?
What is the primary duty imposed by s175?
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Which of the following is true regarding s176's prohibition on accepting benefits?
Which of the following is true regarding s176's prohibition on accepting benefits?
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In the context of self-dealing transactions, what is required from directors under CA 2006?
In the context of self-dealing transactions, what is required from directors under CA 2006?
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What constitutes a criminal offence according to s182?
What constitutes a criminal offence according to s182?
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What must a director do if they are approached by a client who prefers to work with them personally instead of their company?
What must a director do if they are approached by a client who prefers to work with them personally instead of their company?
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What outcome results from failing to disclose an interest in a self-dealing transaction?
What outcome results from failing to disclose an interest in a self-dealing transaction?
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The duty to promote the success of the company is covered under section s171.
The duty to promote the success of the company is covered under section s171.
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The no-conflict principle allows directors to profit from situations where a conflict of interest exists.
The no-conflict principle allows directors to profit from situations where a conflict of interest exists.
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Under s176, directors are prohibited from accepting benefits from third parties.
Under s176, directors are prohibited from accepting benefits from third parties.
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A director must exercise independent judgment according to section s175.
A director must exercise independent judgment according to section s175.
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The duty of care primarily involves exercising reasonable care, skill, and diligence.
The duty of care primarily involves exercising reasonable care, skill, and diligence.
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Section s177 requires directors to declare their interests in any past transactions.
Section s177 requires directors to declare their interests in any past transactions.
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The duty to avoid conflicts of interest is governed by sections 175 to 177.
The duty to avoid conflicts of interest is governed by sections 175 to 177.
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A director can accept a benefit from a third party if the benefit is considered trivial.
A director can accept a benefit from a third party if the benefit is considered trivial.
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A director automatically breaches their duty of care by failing to pursue every business opportunity.
A director automatically breaches their duty of care by failing to pursue every business opportunity.
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Authorisation by directors is allowed under s176 for accepting benefits from third parties.
Authorisation by directors is allowed under s176 for accepting benefits from third parties.
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Directors must always avoid self-dealing transactions regardless of disclosure requirements.
Directors must always avoid self-dealing transactions regardless of disclosure requirements.
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Directors must exercise a standard of care equivalent to that of a reasonably diligent person in their position.
Directors must exercise a standard of care equivalent to that of a reasonably diligent person in their position.
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A formal communication of a potential conflict of interest is compulsory for all directors under s175.
A formal communication of a potential conflict of interest is compulsory for all directors under s175.
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A director who is not aware of a minor shareholding that could conflict must still declare it according to s177.
A director who is not aware of a minor shareholding that could conflict must still declare it according to s177.
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If a director's service contract is under discussion, they must declare any interest related to it.
If a director's service contract is under discussion, they must declare any interest related to it.
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If a director personally exploits an opportunity without presenting it to the company, they may breach both s175 and the duty of care.
If a director personally exploits an opportunity without presenting it to the company, they may breach both s175 and the duty of care.
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When declaring interests in proposed transactions, a general notice can be used if there is no identified transaction.
When declaring interests in proposed transactions, a general notice can be used if there is no identified transaction.
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The duty under s175 applies only to situations where a director receives a financial benefit.
The duty under s175 applies only to situations where a director receives a financial benefit.
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Directors are required to disclose any existing transactions, even if they have not been discussed in previous meetings.
Directors are required to disclose any existing transactions, even if they have not been discussed in previous meetings.
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Failure to act on a viable opportunity could potentially lead to a breach of duty of care.
Failure to act on a viable opportunity could potentially lead to a breach of duty of care.
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It is sufficient for a director to verbally inform the board of a relevant interest at any time during the negotiation of a transaction.
It is sufficient for a director to verbally inform the board of a relevant interest at any time during the negotiation of a transaction.
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A director's constitutional duties allow them to receive financial benefits from third parties without restrictions.
A director's constitutional duties allow them to receive financial benefits from third parties without restrictions.
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In cases where a personal gain arises from a business opportunity, it must go to the company first.
In cases where a personal gain arises from a business opportunity, it must go to the company first.
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If a situation cannot reasonably be regarded as likely to give rise to a conflict of interest, a director may proceed without disclosing their interest.
If a situation cannot reasonably be regarded as likely to give rise to a conflict of interest, a director may proceed without disclosing their interest.
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Failing to disclose an interest in a self-dealing transaction can result in a criminal offence.
Failing to disclose an interest in a self-dealing transaction can result in a criminal offence.
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Study Notes
Director Duties - Statutory Overview
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Duty of Loyalty (s171-177): Directors must act in the best interests of the company, avoiding conflicts of interest and accepting benefits from third parties. This includes acting within their power, promoting the company's success, and exercising independent judgment.
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Duty of Care (s174): Directors must exercise reasonable care, skill, and diligence, considering their general knowledge and experience (both objectively & subjectively).
Conflict of Interest Rules (ss175-177)
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Self-Dealing Transactions: Directors are REQUIRED to disclose any self-dealing transaction to the board. There is no duty to avoid these transactions, BUT disclosure is mandatory.
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Declaration of Interest (s177): Directors must declare any interest (direct, or indirect) in a proposed transaction with the company to other directors BEFORE the company enters the transaction or arrangement. This disclosure must be accurate and complete.
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Existing Transactions (s182): A director must declare any existing interest in a transaction with the company to other directors; failure to do so is a criminal offence.
Disclosure Methods and Scope
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Methods: Disclosure can occur at board meetings, by written notice, or by general notice (for transactions where no specific transaction is being considered).
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Scope Exclusions: Directors are NOT required to disclose interests if (1) they are unaware (or should reasonably be aware) of both the interest and the transaction; (2) the interest is not likely to create a conflict; (3) other directors are aware of the interest; (4) the interest relates to a service or contract already discussed in board meetings.
Conflict of Interest (s175)
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General Principle: Directors must avoid situations where their personal interests conflict, or could conflict, with the company's interests. This applies to business opportunities, property, and information. The exploitation of personal interests, even if the company could not have exploited these interests themselves, still creates a conflict.
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Possible Conflicts: Conflicts include exploiting corporate opportunities (Regal Hastings v Gulliver, Industrial Development Consultants v Cooley). Failure to act when a good opportunity is available may also be a breach of the duty of care (s174). The potential for conflict must be understood by the director, not simply the potential benefit for the company.
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Authorisation: Directors can authorise a conflict of interest. In certain situations(especially PLCs), authorisation is permitted in the company's articles.
Benefits from Third Parties (s176)
- General Principle: Directors must not accept benefits from third parties for actions as directors. This includes financial and non-financial benefits, unless the benefit is trivial or is a normal part of their employment with the company.
Duty of Care, Skill, and Diligence (s174)
- Reasonable Person Standard: Directors are assessed against an objective "reasonable" person standard, balanced with the director's subjective knowledge and abilities. Directors are expected to use the care and skill reasonably expected of them within their role.
Breach Consequences
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Liability: Directors are individually liable for breaches, unless other directors participated.
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Remedies: Remedies include injunctions, damages, disgorgement of profits, rescission of contracts, dismissal by shareholders/members, etc.
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Equitable Principles: Court can excuse a directors liability even in case of breaches, provided they acted honestly and reasonably. This is particularly important if the director was appointed in exceptional or unusual situations.
Ratification
- Company's Ratification: The company can ratify a director's negligent or improper conduct through a resolution (but not for directors connected to the act)
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Description
This quiz covers the statutory duties of directors, including the Duty of Loyalty and Duty of Care as outlined in relevant sections. It explores conflict of interest rules and the importance of disclosure in self-dealing transactions. Test your knowledge on the responsibilities and obligations of corporate directors.
