Description of Directors Duties - Case Study Example

Introduction A director owes a company as entity fiduciary duties in the daily operations of the body corporate. The responsibility roles left to the directors at times expose the shareholders to risks when the directors decide the abuse the powers and privileges they are accorded. Therefore, the law only mentions directors to be fiduciaries having decided to act after appointment on behalf of the company they represent (Adams 2012). Directors are highly respected individuals, and they are assigned specific roles and due to the position they hold they must always act in due diligence. George’s Duties There are two legal personalities Islington Limited and Fon Plc and George’s duties are based on such. This means the companies are separate legal entities from their owners; they can own property, can sue, and be sued. Furthermore, they are able through their agents to engage in contractual agreements. George is a director of both the two after convincing and poaching Maggi from a negotiation with Islington Limited. Fon Plc formed by Maggi and George: George having provided the capital; has hit the road and makes profits of up to 1 million Euros per annum as planned. George is not allowed to act beyond his powers or employ their powers into an improper use. This is because the scenario above exposes them to legal suit irrespective of whether they thought it was for a better course for the company. Therefore, their position concerning the issue is open to question and challenge even if they were acting on behalf of the company, which they were not. It follows that in forming Fon Plc, George as one of the directors in Islington Limited had the duty of formerly informing the other directors. As individual companies, Islington Limited and Fon Plc have all the rights that every company has; therefore, they can sue each other and be sued by other parties since George did not inform the other directors. Under common law, George is bestowed with defined duties towards the company and not the shareholders. This is according to the case Percival v Wright where it was ruled that the directors of the company did not owe the shareholders any disclosure of information. This concerns the impact that the sale of their shares would have on the share value of the company (Adams 2012). An investment in company shares is sensitive and requires George as the investor to investigate the company profile before engaging in any transactions. In trust and confidence, directors such as George have the following duties: Duty to act within Power that is defined by the companys Articles and they have to discharge such powers within the defined purpose (Lowy 2003). Their actions outside their powers make them vulnerable irrespective of whether the decisions they made is of benefit to the organization (Bacon 2003). Consequently, their decisions outside their jurisdictions are subject to a challenge hence have to be careful. A director cannot even allot shares to friendly shareholders to gain their support, as the same would be rendered voidable. Secondly, the directors have a role in promoting the company to succeed (Clinch 2009). The directors must be in the position of accommodating third party views as these have the impacts of enriching a companys decision-making. The decisions range from whether the company should invest or save before undertaking and investment. In addition, George have a duty of making and implementing independent assessments. Such judgments must be distinct from the influence of any third party whatsoever (Spiro n.d.). Furthermore, George had the duty of making sure that reasonable care, diligence, and skill is exercised while handling their roles. This happens in a two-tier perspective: the first instance, the skills should be subjective to the position occupied and possession of minimum knowledge. The second tier involving the subjective test demand: this is in with respect to whether the directors possess expert knowledge and use the same in the company (Wild and Weinstein 2011). The most important roles or duty of a director in our case is to keep away from conflicts of interest. In this respect, directors are not allowed to engage in activities that conflicts with the operations of the company in which they are directors hence George has unsubordinated this requirements (MacIntyre 2012). George should not therefore use any form of information related to Islington to their advantage. If it is proved that George engages in any act considered to conflict in interest, any agreements or contracts between the two entities are rendered voidable (Keenan and Riches 2011). Corporate opportunity principle expounds on the fact that any form of corporate opportunity is a company asset (Zimmer n.d.). If a director is found to have disregarded this principle and engaged in actions that deprive the company of benefits like George did. The profits reaped will be directed to the company deprived. For example is has been witnessed that an expert director failed to secure a contract with their company. Instead, he took to direct the contract to their personal company without informing the company he was working for to seek the necessary approval (Slapper and Kelly 2013). He would later be required to disclose all the profits earned from the contract due to a conflict of interest. George’s Legal position George has gone behind Islington directors and formed a company with Maggi. The company has picked so well and was making profits and hence George has exploited the principle of Corporate Opportunity benefits. It makes him one of the shareholders of Fon Plc benefiting from the 1 million Pounds per annum profit (Hyytinentakalo n.d.). George’s legal position is to pay for the damages caused to Fon Limited out of the profits they make by operating with Maggi in the new venture. This is due to the legal requirement that establishes that the company that a director may want to join as a director and shareholders should not be engaged in competitive business (Richards 2013). In addition, the fact that George has formed another company should not affect the operations of Islington Limited. George is also required to inform Islington Management of his intentions of forming another company with Maggi. However, George did not adhere to all these and the case are likely to be against him. My advice to George George is already exposed and is likely to suffer in terms of paying damages. The best way is for him to exercise the termination of options of directorship from Islington Limited. He can undertake this by tendering in a resignation through a notice given to the Board of Directors (Dunfee n.d.). This will save him from the legal suit, as he will argue that at the time of the suit he had ceased being a director in Islington Limited. This will also give him room to concentrate in the operations of the Fon Plc limited. However, if he waits for the law to take its course, and the decisions of the courts go against him. First, the board will institute his dismissal from office as provided for in section 168 (1), CA 2006 (Marson 2011). Here, the remaining directors will simply pass a resolution to remove George from Office due to malpractices, use of company information to benefit himself. This will be after giving George 28 days to defend himself of the reasons behind his dismissal (Elliott and Quinn 2013). The courts decisions will also make orders that George submit the profits gained while exploiting Islingtons Corporate Opportunity. Such actions have the impacts of reaping of George naked in varied perspectives. Georges arguments During the suit after resigning, George can argue that Fon Plc is a legal entity entitled to its independence and distinct operations. This is presented through the principle of corporate personality (Emerson 2004). The principle gives a company power that are distinct from those of its shareholders. The consequences of this for Fon Plc will be limited the liability from its members. Fon Plc will sue and be sued in case of breach. A property that is already in its name will remain as its own and not for George or Maggi. George and Maggi remain to hold the position of the company employees hence protected profits. Furthermore, directors of a company are not allowed to accept benefits of any form in their position as the directors of the company (Hardwicke & Emerson 2002). In the court, George can, therefore, argue that Fon Plc is an independent entity, and the moneys the company make under its name hence he does not own a bit. He would argue that he has not received any secret profits and that he would have disclosed the same (Fracone n.d.). The disclosures of receiving secret profits must be disclosed to the board, and the disclosure is only conclusive when it is presented before the shareholders to authorize. Action in good faith is not action in good faith unless it is revealed and ratified before a general meeting (Mccarty n.d.). Conclusion The agreement between George and Maggi to form a different company is not an illegal one because these are two distinct individuals able to engage with free consent. The wrong part is the manner in which it took place where George went behind his fellow directors and established an entity with conflicting interests. The matter must, therefore, be handled amicably for continuity of both ventures. References Adams, A. (2012) Law for Business Students. 7th.ed. Harlow: Pearson Education Ltd. Bacon, J. (2003) Corporate directorship practices,. Clinch, P. (2009) Business Law: An introduction to information sources. Business Information Review, 3-17. Dunfee, T. (n.d.) Relationship between Ethics in Business and Law. The Law Journal of America Elliott, C. and Quinn F., (2013) Tort Law 9th ed. Harlow: Longman Emerson, R. (2004) Business law (4th ed.). Hauppauge, N.Y.: Barrons. Fracone, J. (n.d.) BUSINESS LAW IS BUSINESS LEGAL. A Journal Law, 7-10. Hardwicke, J., & Emerson, R. (2002) Business law (2nd ed.). Hauppauge, N.Y.: Barrons Educational Series. Hyytinentakalo, A. (n.d.) Corporate Law and Small Business Finance: Mandatory v. Enabling Rules. 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