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l Directors’ duty to consider the company’s employees
This matters to which the directors of a company are to have regard in the performance of their functions have been expanded by statue to include the interests of the company’s employees in general as well as the interests of its members.[17]Section 309 of the Companies Act 1985 requires directors to consider the employees and the shareholders. This duty is owed to the company and not the employees, the rule in Foss v Harbottle will come into play and enforcement of the duty will be at the discretion of the company. It is important to note that this duty does not enforce directors to act in a way that is of benefit to the employees. The duty is to consider the company’s employees.
l A duty to act honestly and in the best interests of the company
Directors have a duty to act honestly and with the utmost good faith for the benefit of the company as a whole. Directors should not act in a way that is of benefit for some other, parallel purpose. A judge will determine whether directors acted properly by applying a subjective test to the particular circumstances. For instance, if directors agree, on behalf of the company, to enter a contract that will give directors a substantial personal gain, a judge will be required to ask themselves whether directors thought they were acting properly in the circumstances.
However, directors can be deemed to be in breach of directors fiduciary duty if a judge decides directors actions were, objectively, an abuse of the powers allocated to them. To take the example one stage further, if directors were required to obtain the authority of one or more directors before entering the contract, directors may have acted beyond directors remit and could be in breach of directors duty to the company.
l A duty to exercise directors’ powers for a proper purpose
It will be recalled that the directors’ duty to act in what they consider to be best interests of the company is qualified by the proviso that they must not act for any collateral purpose.[18] It may be that directors find themselves with a conflict of interest. If directors are responsible for a conflict and authorise a transaction that causes a conflict, the business directors authorised may be set aside by the company in a general meeting, unless the Articles provide otherwise. This action can take place even if the conflict of interest is beneficial to the company. If directors are in breach of this duty, they will either be liable to compensate the company for the personal benefit directors gained or for the loss sustained by the company as a result of the transaction directors authorised. Another example is where it is decided to issue more shares in a company. If the reason for issuing the shares is to preserve directors’ control over the company or to forestall a take-over bid, directors will not have exercised directors’ powers properly. It must be remembered that the purpose of issuing more shares is to raise capital, not for any other reason.
l Personal interests should not conflict with directors’ duty to the company
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