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Breach of Fiduciary Duty of Director

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    According to S. 4(1) of Companies Act (CA) 1965, director includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with those directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director. Directors have a fiduciary duty to the company which is duty to act in good faith in best interest of the company and act for a proper purpose.

    In the case of Re Smith and Faweett Ltd [1942] 1 All ER 542, it established that a director must act bona fide in the interest of the company. Furthermore, under S. 132(1) of CA 1965, it states that a director of a company must exercise his power at all the times for a proper purpose and in good faith in the best interest of the company. In S. 132(2) of CA 1965, improper use of company’s property, position, corporate opportunity or competing with the company is prohibited. Improper use’ is to gain directly, a benefit for himself or any other person, or cause detriment to the company. It also provides that director should obtain the prior consent of the members at a general meeting before acting on the information. If the director fails to obtain the approval, he should attempt to obtain the members’ ratification at a general meeting. A director will not be enabling to take the corporate opportunity if the company is unable to take it. The fact that the company itself could not get the corporate opportunity is irrelevant.

    A director who does so will be liable for breach of duty as shown in the case of Regal (Hastings) LTD v Gulliver [1967] 2 AC 134. Yet, it is irrelevant that the company did not incur any losses due to the breach of duty of the director. Besides that, a director is considered as breach of duty even if he resigns to take up corporate opportunity if his resignation was prompted by a desire to acquire the opportunity sought by the company or it was the director’s position with the company rather than a new initiative that led the director to the opportunity.

    In the case of IDC v Cooley [1972] 1 WLR 443, Cooley was the director of Industrial Development Consultants (IDC). IDC tendered but did not get the project from the Gas Board. The Gas Board subsequently offered the contract to Cooley. Cooley resigned from IDC and accepted the offer. The court held that Cooley had put himself in a position where his duty to the company conflicted with his own interest. As he had breached his duty, he was accountable to IDC for the profit. If irector commits a breach of duty, he shall be liable to the company for any profit made by him or for any damage suffered by the company as a result of the breach under S. 132(3)(a) of CA 1965. However, there is an exception that a director may not be held liable. In Peso Silver Mines v Cropper [1966] 58 DLR (2d) 1, the court held that there is no breach of Fiduciary duty by taking up some mineral claims which were offered to him after the company had rejected them, after a bona fide consideration of the matter by the Board of Directors.

    The narrow of Regal has also been criticized with the suggestion that the better test would be the ‘line of business’ test proposed by Austin which states that a director may not take up an opportunity for profit if it is within the scope of the business which the company carries on or plans to carry on. For the case of Queensland Mines Ltd v Hudson (1978), the director was being held that he is not in breach of duty where he took up an opportunity which had been previously put to the company and rejected by it and where the company had assented to him to take up the venture.

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    Breach of Fiduciary Duty of Director. (2016, Nov 13). Retrieved from

    Frequently Asked Questions

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    What consequences if any do directors face for a breach of fiduciary duty?
    The most frequent penalties for breach of fiduciary duty include suspension or removal as trustee or executor and the payment of money damages, attorney fees, and court costs.
    What is a breach of fiduciary duty by board of directors?
    What Is Breach of Fiduciary Duty? Breach of fiduciary duty occurs when someone has a responsibility to act in the interests of another person and fails to do so.

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