The basic goal, identified by the paper, of the directors is the success of the company.

The directors should

be concerned mainly with the best interest of the company’s employees, customers and suppliers in
addition to its own interest and that of its shareholders. This is to help maintain and improve company’s
reputation in the business world and its impact on business community. Although this could be perceived
as a definite improvement on the previous directors’ duties it could lead to confusion which one is likely to
turn into litigation as some of the duties outlined in the proposal are rather nebulous. In the process of
promoting company’s success it could become rather difficult for the directors to decide the strategy which
would be in everybody’s best interest. Although, the paper supports the directors’ duties towards
employees and customers, the duties towards its creditors are still under review as it requires the directors
to identify the risk to creditors as soon as company starts to suffer financial difficulties and runs the risk of
going into insolvent liquidation. However, this particular aspect is considered in more detail in the
Insolvency Act 1986 and it should not, therefore, be included in the Company law.
It is vitally important that the directors should consider implications of their short and long-term actions.
They should also take into account how their actions would affect the parties interested in the company’s
affairs.
The directors are required to volunteer information to auditors as failure to do so would attract unlimited
fines and two year prison sentence. Under current legislation section 389 A of the Companies Act 1985 it is
an offence to deliberately make a false statement to the auditor but a deliberate intention to mislead is not
necessary in order to establish an offence. Also if a company and its directors are convicted of flouting
company law they could be named in a central register, similar to ‘naming and shaming’ strategy. In
general the directors are owed duties to the company rather than to the individual shareholders. This then
follows that the company itself, and not the shareholders, who is normally able to bring the claim.
Obviously, this could be a problem when it comes to enforcing these duties as the directors are in control of
the company’s affairs.
It is interesting to note that a company can only be sued for a wrongdoing performed by itself, rather than it
agents unless these agents have exceeded their authority.
Another important proposal is with regard to a contract which a company itself is unable to accept due to
lack of resources for example, then a director may be able to take that contract personally for his own
benefit. This allows directors to make full use of information, property etc which belong to the company for
their own benefit without the consent of the shareholders and members provided they obtain the
authorisation from the Board of Directors to do so. The important difference here which must be noted is, in
case of private companies, the board of directors will have such powers to authorise a director to exploit a
corporate opportunity like that unless it has been expressly denied in the company’s constitution. On the
other hand, in case of Public limited companies, the board of directors will not have such powers bestowed
upon them as they need authorisation from the shareholders first unless a specific provision to authorise
such transaction has been made in the company’s constitution.
Conclusion
The express and implied terms of a directors’ employment contract are covered by agency and fiduciary
duties stated by the company’s constitution and by statute. If the majority shareholders of the company are
unhappy with the directors’ conduct of the company’s affairs, are the directors allowed to just shun the
wishes stating that majority shareholders’ wishes are not in the best inertest of the company as a whole?.
No. However, this must be kept in mind that fifty one percent of the shareholders can pass an ordinary
resolution to remove the directors of the company. On the other hand if the directors try to carry out the
wishes of the majority shareholders only, they are restricting their discretion which is awarded to them in
trust for the company as a whole and therefore they may become liable to the minority shareholders for
causing unfair prejudice. It is interesting to note that in Boulting v Association of Cinematograph, Television
and Allied Technicians Lord Denning MR stated that if the directors wanted to prefer majority shareholders’
interest they can do so as long as it is in the best interest of the company. If the director’s decision affects
different groups of shareholders then he must act fairly.
From the above discussions it is apparent the directors’ duties to the company are fiduciary and as an
agent of the company. They are accountable to the shareholders regardless of their shareholding. The
analysis shows that the director’s owes duty of care and skill primarily to his principal, the company. It is
worth considering that fiduciary duties are owed to “corporate beneficiaries” including duty of good faith.
Bibliography 1. Company Law by Charelsworth and Morse page 119 published by Thomson Sweet &
Maxwell, Sixteenth Edition
2. Company law by Hicks & Goo, 5th Edition
3. Gower and Davies’ Principles of Modern Company Law, Seventh Edition by Paul Davies published by
Sweet & Maxwell
4. Company Law by Janet Dine published by Palgrave Law Masters fourth Edition
5. Levy Solicitors’ Web site: Article by Peter watson