The One-Tier Board (IVOR nr. 85) 2012/2.6.2:2.6.2 To whom are duties owed?

The One-Tier Board (IVOR nr. 85) 2012/2.6.2

2.6.2 To whom are duties owed?

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

Under common law, directors owe their duties to the company and if they are in default of their duties it is therefore the company that must bring an action against a director (this principle was decided in Foss v. Harbottle, 18431).

Foss v. Harbottle (1843)

Two shareholders brought a claim on behalf of themselves and all other shareholders of the Victoria Park Company alleging that five directors had breached their duties by effecting various fraudulent and illegal transactions, and that there remained an insufficient number of qualified directors to constitute a board. In particular, it was claimed that the directors, in their capacity as directors, had the company buy land from themselves at prices in excess of market value and that in order to fund the purchase, they raised funds for the company by mortgaging Victoria Park's property in an unauthorised manner.

The court noted that it remained possible for a general meeting of Victorie Park's shareholders to be convened, at which the acts of the board could be ratified or otherwise, and that the company was still able to bring a claim by itself. Therefore, the claim by the two shareholders could not proceed.

This case laid down the rule, that where a cause of action is vested in a company, the company is the only proper claimant. Individual shareholders should not generally be allowed to bring claims on behalf of the company.

The principle that duties are owed by the directors to the company is to be found in section 170(1) of the Companies Act 2006.2 The general duties are described in sections 171 to 177 of the Companies Act 2006. Then sections 178-239 give many detailed provisions for different types of transactions, where there can be a conflict of interest. The centrepiece section is section 172 introducing the "enlightened shareholder value". The government described this as "most likely to drive long-term company performance and maximise overall competitiveness and wealth and welfare for all". It also says, "the key company law provision is for the fiduciary duties of directors". These require them to manage the undertaking for the benefit of the company honestly ("in good faith"). That benefit is defined by case law as the interest of members (shareholders) present and future.

Deze functie is alleen te gebruiken als je bent ingelogd.