For example, in the case of Ducat Sahara bin ARPA v UP followed Re Hydro which decided that, to establish that a defendant is a shadow erector, it is necessary to prove that the defendant directed those directors how to act in relation to the company and that those directors acted in accordance with such directions and that they were accustomed so to act. S. 132(1) CIA 965 states that a director of a company shall at all times exercise his power for a proper purpose and in good faith in the best interest of the company.
For example, in the case of Re Smith and Facet Ltd (1942), it is said that everything that a director does as a director must be done to promote or advance the interests of his company. However, directors would be liable for breach of duty f they fail to give proper consideration to the company’s interests or where they act in such a way that no reasonable person could consider is bona fide in the interest of the company. Also states that a director or officer of a company shall not, without the consent or ratification of a general meeting use his position as such director or officer to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company. There will be no breach of duty if the director obtains consent or ratification of the general meeting. S. 32(C)(a) states that a director, in exercising his duties as a director ay rely on information, professional or expert advice, opinions, reports or statements including financial statements and other financial data, prepared, presented or made by any officer of the company whom the director believes on reasonable grounds to be reliable and competent in relation to matters concerned. For instance, in the case of Re City Equitable Fire Insurance Co Ltd (1925), it is said that director can delegate certain duties to others subject to the AAA.
Director is allowed to trust that person in the absence of any suspicion. S. 132(1 D)(b) states that the director’s reliance made under subsection (1 C) is mimed to be made on reasonable grounds if it was made after making an independent assessment of the information or advice, opinions, reports or statements, including financial statements and other financial data, having regard to the director’s knowledge of the company and the complexity of the structure and operation of the company.
S. 1 31(1) states that subject to this section every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company shall, as soon as practicable after the relevant facts have come to his knowledge, Clare the nature of his interest at a meeting of the directors of the company. A director must disclose his interest at a meeting of the directors of the company.
The general rule of conflict of interest (CIO) is that a director must not place himself in a position where his duty and his interest conflict. If a director obtains a benefit while a director of the company in circumstances where there could have been a conflict of interest, he is accountable to the company for that benefit unless he has disclosed it and obtained the approval of the company. For example, in the case of Cooks v Deeds (1916), the director made use of a Mayans opportunity or information for himself.
The directors, who were also controlling shareholders, negotiated a contract in the name of the company, took the contract for themselves and passed a resolution that the company had no interest in the contract. A minority shareholder successfully sued the directors since the contract belonged to the company not the directors. Common law also states that the directors cannot accept bribe [Boston Deep Sea Fishing & Ice Co v Ansell (1888)]. In the case of fraudulent trading, S. 304(1) applies.
It states that if in course of the winding up of a company or in any proceedings against company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs. In the case of H.
Rosen Engineering v Show Yon Kong , MD dad payments to himself in priority of trade debts and was personally liable for the debts of the company as the Mad’s act constituted an intention to defraud or fraudulent preference. The ‘reasonable expectations of an honest businessman’ test. When a director breached his duty, he can bring action for damages or compensation, account of profits, rescission of contract, injunction, return of property and constructive trusts for remedies. If the directors whom breach their duty, they can seek for ratification. Ratification would only be effective if the directors make a full and frank disclosure to the GM, not a fraud on minority, many is not insolvent [Furs Ltd v Atomies (1936)]. S. 54(1) CA 1965 states that if in any proceeding for negligence, default, breach of duty or breach of trust against a person to whom this section applies it appears to the court before which the proceedings are taken that he is or may be liable in respect thereof but that he has acted honestly and reasonably and that, having regard to all the circumstances of the case including those connected with his appointment, he ought fairly to be excused for his liability on such terms as the court thinks fit. This section applies to officers, auditors, receivers, manages and liquidators. Apply: BBC Bad had decided to purchase the cooking oil produced by Sunglass Oil Sad Bad (snuggle), a new supplier which the cooking oil was tainted with carcinogen, a substance which causes cancer. According to the standard operating procedures on its manufacturing process, any change of suppliers for the raw materials of the company can only be made with the approval of the board of directors.
The directors relied on Damson’s (BBC Bed’s purchasing manager) recommendation and agreed to change the supplier for the cooking oil on the director’s meeting, which means this has given Dampen the consent r ratification of the general meeting to change the supplier for the cooking oil. Dampen did not breach his duty of director since he had obtained the ratification. The directors of BAD Bad too did not breach their duty as director is allowed to trust that person in the absence of any suspicion. However, Dampen had received bribes from Sunglass to induce him to persuade the BBC Bad to change its supplier. Dampen had breached his duty as director as he accepted bribe for personal profits.
He did not disclose his interest at the director meeting and place himself in a position where his duty and his interest conflict. Dampen also did not exercise his power for a proper purpose and in good faith in the best interest of the company. Dampen was involved in the fraudulent trading between BBC Bad and Sunglass Oil Sad Bad because he was knowingly a party to the carrying on of the business in that manner as he decided to purchase the cooking oil produced by Sunning while he know that Sunglass have a tarnished reputation and was carrying a forged safety certificate.