Directors’ duties are to act within powers, promote success of company and avoid conflict of interest.
Tracey had breached her contract as a director of the business. Under Companies Act (CA) 2006, this act places directors’ duties on a statutory basis although there are common law rules we can also refer to and further guidance can be gained via the case law. Directors’ duties are enforceable in the same way as any other fiduciary duty owed to a company by its directors and remedies available may include: damages or compensation where the company has suffered loss; restoration of the company’s property; an account of profits made by the director; and rescission of a contract where the director failed to disclose an interest. It should be noted that the previous does not apply to the duty to exercise reasonable care, skill and diligence under s.174, which is not considered to be a relating to the relationship between a trustee and the person or body for whom the trustee acts duty. Section 175 of the Act specifically deals with the duty to avoid conflicts of interest. The section makes clear that a conflict of interest may, in particular, arise when a director makes personal use of information, property or opportunities belonging to the company.
Directors do have the option to approve a conflict of interest under s.175, and this preserves the ability of the members of a company to authorise conflicts that would otherwise be a breach of this duty. Applying the rules to the facts of the problem scenario it can be seen that Des has beached his statutory duty under CA 2006 s.175 by allowing a conflict of interest to arise without declaring it to the board and getting the approval of the other directors or indeed the members Regal Hastings Ltd v Gulliver (1942).
The case of Regal Hastings demonstrates the application of the duty of conflict of interest where directors failure to declare profits that were made due by using company information and opportunities was seen as a breach of S175. However in Regal the directors were still part of the Company and in this case scenario Tracey has left the organisation. This raises the important question of the extension of the conflict of interest duty to Directors once they leave the organisation, is there still an obligation to abide by this rule? Following the ruling in IDC it can be seen Mr Cooley was seen as liable under S175 even though he had left, as he took advantage of a corporate opportunity that only came to him due to his work at IDC. Hence once Mr Cooley left the courts felt that this duty did still apply as it was an advantage he gained whilst he was at IDC.
In contrast the case of Island Export may be a ruling that will work in Tracey’s favour. In Island Export the Company had rejected the opportunity to take the contract and therefore when the director who had left the organisation had taken up the opportunity there was no liability. Hence applying this ruling to Tracey...