Nature of Directors Duty

Nature of directors Duty

1. Misappropriation of corporate property-Secret Profits, Use of Corporate Property, Information or Opportunity

Directors are precluded from making any secret profit and from misusing corporate information and opportunity.

Barbados Companies Act

S 95 (1) Duty of Directors and Officers

Duty of care.95. (1) Every director and officer of a company in exercising his powers and discharging his duties must

(a) act honestly and in good faith with a view to the best interests of the company; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(2) In determining what are the best interests of a company, a director must have regard to the interests of the company's employees in general as well as to the interests of its shareholder.

(3) The duty imposed by subsection (2) on the directors of a company is owned by them to the company alone; and the duty is enforceable in the same way as any other fiduciary duty owned to a company by its directors.

(4) Every director and officer of a company must comply with this Act and the regulations, and with the articles and by-laws of the company, and any unanimous shareholder agreement relating to the company.

(5) Subject to subsection (2) of section 133, no provision in a contract, the articles of a company, its by-laws or any resolution, relieves a director or officer of the company from the duty to act in accordance with this Act or the regulations, or relieves him from liability for a breach of this Act or the regulation.

S 97 Indemnities

Indemnifying directors, etc.97. (1) Except in respect of an action by or on behalf of a company or body corporate to obtain a judgment in its favour, a company may indemnify (a) a director or officer of the company,

(b) a former director or officer of the company, or

(c) a person who acts or acted at the company's request as a director or officer of a body corporate of which the company is or was a shareholder or creditor, and his legal representatives, against all costs, charges and expenses (including an amount paid to settle an action or satisfy a judgment) reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being, or having been, a director or officer of that company or body corporate.

(2) Subsection (1) does not apply unless the director or officer to be so indemnified

(a) acted honestly and in good faith with a view to the best interests of the company, and

(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful.

For derivative action.98. A company may with the approval of the court indemnify a person referred to in section 97 in respect of an action

(a) by or on behalf of the company or body corporate to obtain a judgment in its favour, and

(b) to which he is made a party by reason of being or having been a director or an officer of the company or body corporate, against all costs, charges and expenses reasonably incurred by him in connection with the action, if he fulfills the conditions set out in subsection (2) of section 97.

Jamaica Companies Act 2004

S 172 Directors and other Officers

Number of directors and secretary

(1)  A private company shall have at least one director, but a public company shall have at least three directors, at least two of whom are not employees of the company or any of its affiliates.

(2)  Every company shall have a secretary.

(3)  A sole director of a company shall not also be secretary thereof and no company shall-

(a)  have as secretary to the company, a corporation the sole director of which is a sole director of the company; or

(b)  have as sole director of the company, a corporation the sole director of which is to the company

(4)  It is the duty of the directors of a public company to take all reasonable steps to ensure that the secretary or each joint secretary of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary the company.

(5)  Anything required or authorised to be done by or to the secretary of a company may, if the office is vacant or there is for any other reason no secretary capable of acting, be done by or to any assistant or deputy secretary, or, if there is no assistant or deputy secretary capable of acting, by or to any officer of the company authorised generally or specifically in that behalf by the directors.

(6)  Notice of the appointment of a secretary to a company shall be given to the Registrar in the prescribed form within fifteen days after the date of that appointment.

Cook v. Deeks

The Privy council Held that the contract had come to the profiteers in their capacity and by virtue of their position as directors and as such it belonged in equity to the company. The directors profit making represented a misappropriation of the company property and was therefore not ratifiable by the wrongdoers.

Regal Hastings v. Gulliver

Four Directors who made incidental profits by reason and of in the course of the execution of their office as directors were required to account for the profits notwithstanding that they had acted bone fide throughout. The director’s liability did not depend on fraud or lack of good faith.

Viscount Sankey:

As a general rule of equity, no one who has duties of a fiduciary nature to perform is allowed to enter into agreements in which he has or can have a personal interest conflicting with the interest of those he is bound to protect.

Lord Russel

Directors standing in a fiduciary relationship who in exercise of their powers receive a benefit by virtue of their office are accountable for their profit.

Canadian Aero Service Ltd v. O’Malley

The president and vice president of Canero had been engaged on behalf of the company in negotiations for a large aerial surveying and mapping contract with the government of Guyana. Instead of securing the contract for Canero they resigned and formed there own company and successfully diverted the contract.

The Supreme Court of Canada held:

That their fiduciary duty had survived their resignation and that the duty was enforceable against the directors.

Laskin J identified the relevant factors in determining standards of loyalty, good faith and avoidance of duty.

1.  Position or office held

2.  Nature of corporate opportunity, its rightness, specificity and the directors or officers relationship to it.

3.  Amount of knowledge possessed

4.  Circumstances in which the knowledge was obtained.

5.  Was the knowledge special or private

6.  Circumstances under which the relationship was terminated eg. Retirement, resignation, extended leave or termination

Industrial Development Consultants v. Cooley

The managing director of the company, Cooley, Took part in negotiations with the gas board. The gas board indicated that they did not want to do business with the company but were prepared to deal with Cooley in his private and individual capacity. Cooley thereafter resigned.

The Court found Cooley to be in breach of his fiduciary duty.

Roskill J

Held that Cooley was accountable to the company for the whole of his benefits under the contract or alternatively he was liable in dames for the breach of his service contracts.

New Zealand Netherlands Society “Orange” Inc v. Keys

A director may secure a release or immunity from potential liability by proper negotiations with a competent organ of the company.

Pesco Silver Mines v. Cropper

The strict rule was relaxed because there was a bona fide vote of the board of directors.

The court held that the directors did not violate the conflict rule, therefore, a director was free to make an investment on his own account after the company has considered the proposition and bone fide decided against it.

This principle is based on informed consent.

Gencor v. Dalby

The court found a director liable to account for the benefit or gain obtained or received as a result of the transactions including the diversion of corporate property, arranged in order to be fulfilled by his company. The duty imposed is of a strict nature.

Belmont Finance Corporation Limited v. Williams Furniture

A third party who receives company property with the knowledge that it has been applied for an improper purpose or in breach of directors fiduciary duties is liable to account for it to the company.

2. Conflict of Duty and Interest

JA S 188 Duty of director to disclose payment for loss of office, etc. made in connection with transfer of shares in company

(1)  Where, in connection with the transfer to any person of all or any of the shares in a company, being a transfer resulting from –

(a)  an offer made to the general body of the shareholders;

(b)  an offer made by or on behalf of some other body corporate with a view to the company becoming its subsidiary or a subsidiary of its holding company;

(c)  an offer made by or on behalf of an individual with a view to his obtaining the right to exercise or control the exercise of not less than one-third of the voting power at any general meeting of the company; or

(d)  any other offer which is conditional on acceptance to a given extent,

a payment is to be made to a director of the company by way of compensation for loss of office, or as consideration for or in connection with his retirement from office, it shall be the duty of that director to take all reasonable steps to secure that particulars with respect to the proposed payment (including the amount thereof) shall be included in or sent with any notice of the offer made for their shares which is given to any shareholders.

(2)  If –

(a)  any such director fails to take reasonable steps as aforesaid; or

(b)  any person who has been properly required by any such director to include the said particulars in or send them with any such notice as aforesaid fails so to do,

he shall be liable to a fine not exceeding fifty thousand dollars.

(3)  If –

(a)  the requirements of subsection (1) are not complied with in relation to any such payment as is therein mentioned; or

(b)  the making of the proposed payment is not, before the transfer of any shares in pursuance of the offer, approved by a meeting summoned for the purpose of the holders of the shares to which the offer relates and of other holders of shares of the same class as any of those shares,

any sum received by the director on account of the payment shall be deemed to have been received by him in trust for any persons who have sold their shares as a result of the offer made, and the expenses incurred by him in distributing that sum amongst those persons shall be borne by him and not retained out of that sum.

(4)  where the shareholders referred to in paragraph (b) of subsection (3) are not all the members of the company and no provision is made by the articles for summoning or regulating such a meeting as is mentioned in that paragraph, the provisions of this Act and of the company’s articles relating to general meetings of the company shall, for that purpose, apply to the meeting either without modification or with such modifications as the Minister on the application of any person concerned may direct for the purpose of adapting them to the circumstances of the meeting.

(5)  If at a meeting summoned for the purpose of approving any payment as required by paragraph (b) of subsection (3) a quorum is not present and, after the meeting had been adjourned to a later date, a quorum is again not present, the payment shall be deemed for the purposes of that subsection to have been approved.

Barbados S89-92 Interests in contracts.89. (1) A director or officer of a company

(a) who is a party to a material contract or proposed material

contract with the company, or

(b) who is a director or an officer of any body, or has a material interest in any body, that is a party to a material contract or proposed material contract with the company, must disclose in writing to the company or request to have entered in the minutes of meetings of directors the nature and extent of his interest.

(2) The disclosure required by subsection (1) must be made, in the case of a director of a company

(a) at the meeting at which a proposed contract is first considered;

(b) if the director was not then interested in a proposed contract, at the first meeting after he becomes so interested;

(c) if the director becomes interested after a contract is made, at the first meeting after he becomes so interested; or

(d) if a person who is interested in a contract later becomes a director of the company, at the first meeting after he becomes a director.

(3) The disclosure required by subsection (1) must be made, in the case of an officer of a company who is not a director

(a) forthwith after he becomes aware that the contract or proposed contract is to be considered, or has been considered, at a meeting of directors of the company;

(b) if the officer becomes interested after a contract is made, forthwith after he becomes so interested; or

(c) if a person who is interested in a contract later becomes an officer of the company, forthwith after he becomes an officer.