Understanding Directors' Duties
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From the Paper:"Due to the large powers directors of companies possess it is necessary to consider the limits imposed upon them. In Hutton v West Cork Railway Co Bowen LJ explained that when considering the legality of a director's actions a bone fide test is not enough; just because a director acts innocently or legally should not protect their actions. Today under the Companies Act there are limits on the exercise of the powers of directors.
Despite limits to directors' powers, one problem remains; who do directors owe these duties to? The ordinary position is that the duties are owed to the company, but as companies are legal fictions this is not sufficient. This also leads to the issue of the extent directors should consider the interests of shareholders and creditors, against the interests of the company as a whole.
"To conclude on whether directors' duties should promote the interests of individual parties to a company we must explore several key points. Firstly, we will examine current limits on directors' powers from the common law and statute, noting their rationales to set our discussion in context. Secondly, we will consider whose interests these limits genuinely promote, and whether the current position is sufficient.
Ultimately it will become clear that stating duties are owed to 'the company' is insufficient. Instead an 'entity maximisation' approach should be implemented, where duties are owed on the goal of promoting the company as a whole, where different interests will be owed at different times. Advocating for an approach that will allow directors' duties to be owed to the company as a whole, including shareholders and creditors, will allow a more flexible and workable approach to the current law.
"Changing nature of common law duties:The fiduciary duties discussed were not included in the previous 1955 Companies Act , and were not codified until recommendations by the New Zealand Law Commission in 1989 which stated that the common law duties were "inaccessible, unclear and extremely difficult to enforce." As a result of this, they suggested that statutory reforms take place to clarify the position, which occurred with the 1993 Companies Act."
Cite this Research Paper:
Understanding Directors' Duties (2014, June 22) Retrieved January 18, 2021, from https://www.academon.com/research-paper/understanding-directors-duties-153931/
"Understanding Directors' Duties" 22 June 2014. Web. 18 January. 2021. <https://www.academon.com/research-paper/understanding-directors-duties-153931/>