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Directors' Duties and Responsibilities

Directors' Duties and Responsibilities

Explore the responsibilities of company directors, emphasizing acting in good faith and prioritizing company interests. Understand the implications of the 2014 Act, which codifies directors’ duties based on common law and equitable principles. Learn about potential liabilities and the importance of using powers for the company's benefit.

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Directors' Duties and Responsibilities

Quiz • 20 Questions

Directors' Duties and Responsibilities - Flashcards

Flashcards • 10 Cards

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8 min • Summary

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List of Questions20 questions
  1. Question 1
    • To allow directors to prioritize the interests of their appointing shareholder above all else.
    • To guarantee the company's profitability, regardless of market conditions.
    • To ensure directors always agree with shareholder decisions.
    • To prevent directors from exploiting their position for personal gain, ensuring they act in the company's best interests.
  2. Question 2
    • It created entirely new duties for directors, unrelated to previous laws.
    • It removed the possibility of nominee directors.
    • It eliminated all common law duties of directors.
    • It codified directors' duties, basing them on existing common law and equitable principles.
  3. Question 3
    • Individual shareholders.
    • The employees of the company.
    • The specific shareholders who appointed them.
    • The company as a whole.
  4. Question 4
    • The interests of the employees to ensure job security.
    • The interests of the directors themselves to secure their positions.
    • The interests of the company's creditors.
    • The interests of the shareholders who invested the most.
  5. Question 5
    • Perfection in all business decisions.
    • Relying exclusively on advice from other directors without independent judgment.
    • The degree of competence and skill that a person with their knowledge and experience should possess.
    • A guarantee that the company will not incur any losses.
  6. Question 6
    • When they are too busy to handle all the tasks themselves.
    • To avoid personal liability for potential errors.
    • If the company's constitution allows and the nature of the business requires it.
    • Whenever they feel another employee is more competent.
  7. Question 7
    • The courts will always defer to their judgment.
    • There are no consequences as long as they believed they were acting in good faith.
    • The decision is valid, but the directors may face internal disciplinary action.
    • Their subjective belief is not a defense, and they can be held liable for breach of duty.
  8. Question 8
    • Only disclose their interest if asked by another director.
    • Nothing, as long as they don't personally benefit financially.
    • Declare their interest to the company and refrain from voting on the matter.
    • Vote in favor of the transaction if they believe it's beneficial for the company.
  9. Question 9
    • They only need to disclose the benefit to the shareholders at the next annual meeting.
    • They can keep the benefit if they acted honestly.
    • They are automatically entitled to keep the benefit.
    • They must hold it in trust for the company, even if the company could not have taken the opportunity itself.
  10. Question 10
    • A profit made from a personal investment unrelated to the company.
    • A profit made by a director using their powers to advance their own interests at the company's expense, without proper disclosure or approval.
    • A profit made by the company that is not publicly announced.
    • A profit made from a transaction that was fully disclosed and approved by the company.
  11. Question 11
    • The approval of the members will always suffice.
    • If the members approve the contract or where the constitution/ articles of association authorise the transaction or arrangement, then the contract may be entered.
    • The director can act without disclosing his interests.
    • Even with member approval, the contract is automatically void.
    • Member approval has no bearing on a director's fiduciary duties.
  12. Question 12
    • Only if the contract is particularly large or significant.
    • When the matter is first considered at board level.
    • Only if they are directly asked by another board member.
    • At any point before the contract is finalized.
  13. Question 13
    • No special obligations apply as long as the loan is at market rate.
    • Directors only need to disclose loans if they default on the repayment.
    • Special disclosure obligations apply to loans, quasi-loans, credit transactions, guarantees and securities given to or for directors or shadow directors or persons connected with them.
    • Disclosure is only required for loans exceeding a certain amount.
  14. Question 14
    • A record of the votes taken on each contract.
    • Copies of the declarations by directors in respect of their interest must be set out in a book kept for that purpose.
    • Only the names of the directors who made declarations.
    • A summary of the contracts in which directors have an interest.
  15. Question 15
    • The director is only liable if they intended to deceive the company.
    • The failure on the part of the director to comply with the disclosure obligation is an offence.
    • Nothing, as long as the company does not suffer a loss.
    • The contract in question is automatically void.
  16. Question 16
    • Only if they directly commit fraud or embezzlement.
    • A director in default in relation to the particular matter may be convicted of an offence.
    • Only if the company is unable to pay the fine.
    • Never, as the company is a separate legal entity.
  17. Question 17
    • Claiming ignorance of the law.
    • Shifting blame to another director.
    • Asserting that the company benefited from the action.
    • Showing that he acted honestly or reasonably in relation to the matter.
  18. Question 18
    • Unintentional oversight of the offence.
    • Any director, officer or manager who consents to, participates in, ratifies or approves the particular act, may be prosecuted for the offence.
    • Only direct involvement in the offence.
    • Only active planning and execution of the offence.
  19. Question 19
    • Only with shareholder approval.
    • Except in relation to liability incurred by the director in defending criminal or civil proceedings in which he succeeds or is acquitted or in connection with an application in which he obtains relief from the court.
    • For any liability incurred in the course of their duties.
    • Only for liabilities arising from unintentional negligence.
  20. Question 20
    • They can transfer the liability to another director.
    • They have no recourse and must always bear the full liability.
    • The court has the power to relieve an officer from liability for negligence, breach of duty or default, where the officer has acted reasonably and honestly, and it appears in the circumstances reasonable that he should be excused.
    • They can appeal to the shareholders for forgiveness.
List of Flashcards10 flashcards
  1. Card 1
    HintThink loyalty and acting for the company, not self.Memory TipCompany first, always.
  2. Card 2
    HintUse powers for the company's mission, not personal gain.Memory TipPowers for mission, not own ambition.
  3. Card 3
    HintDuties are now written in law.Memory TipDuties in writing, know them well.
  4. Card 4
    HintThink of the overall company, not one person.Memory TipCompany first, shareholders second.
  5. Card 5
    HintUse your skills wisely.Memory TipSkills up, company soars.
  6. Card 6
    HintDelegation can be okay if you select wisely.Memory TipTrust, but verify.
  7. Card 7
    HintDon't take opportunities that should benefit the company.Memory TipThe company is first.
  8. Card 8
    HintTransparency and approval required for conflicts of interest.Memory TipApprove conflicts quickly.
  9. Card 9
    HintTransparency with all stakeholders to avoid conflictsMemory TipAlways disclose
  10. Card 10
    HintIgnorance is no defence.Memory TipKnow right.

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