duties of directors in Corporate Law

Duties and liabilities under common law

Statutory duties Remedies for breach of duties

Law of Assoc II/ Z.Elias

• Board of directors powers almost unlimited - given by AOA of a co.

• To prevent abuse of powers. - need corporate governance

• Company directors must be free to drive their companies forward, but they have to exercise that freedom within a framework of effective accountability… need for balance between the freedom of the directors to manage the co and to ensure that they do not exercise their powers with unsupervised, unfettered and absolute discretion.

• As such certain duties are imposed on directors. They are:A. Fiduciary duties of loyalty and good faith;B. Common law duties of care and skill; andC. Statutory duties.



In relation to the co - powers exercised by directors are on behalf of the co. Therefore, must act bona fide in the interest of the co.

As fiduciaries - position of trust to act with good faith - duties of loyalty, good faith and avoid conflict of interest owed to co .

Fiduciary duty is owed to the co and not to any individual member of the co. : Percival v Wright [1902] 2 Ch. 421;

Duty to ensure that any act dir. undertakes is with a view to enhance the interest of the co. either by enhancing profits, reducing costs or even positive publicity of the co.


• Under the Common Law, a director’s fiduciary, duties are:

I. To act bona fide in the company’s interest and not some other person’s interest;

II. To exercise his powers for a proper purpose; and

III.To avoid any conflict of interest between the company and his personal interests.


The common law position

and


Act bona fide in the interest of

the Company

Exercise powers for

proper purpose

• Where a director is required to act bona fide in the interest of a company, he must act according to what he considers, not what a court may consider, is in the interest of the company : Re Smith and Fawcett Ltd (1942) Ch 304

• As Fiduciaries, directors have a DUTY OF DISCLOSURE.• The directors are the ones to determine what is best for the

company.

New S132(1):-A director of a company shall at all times exercise his powers:

AND

The director will be liable under S132(1) if a director exercises his power: -

BUT


I. ACTING BONA FIDE IN THE COMPANY’S INTEREST Directors should only consider the interest of the co when

making a decision : Re Smith & Fawcett Ltd. [1942] Ch. 304, Lord Greene MR stated; “They must exercise their discretion bona fide in what they consider – not what the court may consider – to be in the interest of the co, and not for any collateral purpose.”

In Intraco Ltd v Multi-Pak Singapore Pte Ltd [1995] 1 SLR 313, the Court held that the proper test in determining whether the directors have acted bona fide was whether an honest and intelligent man in the position of a director in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the co.

Directors’ priority - advance the co’s interest. If anyone else’s interest is given consideration before that of the company, the directors are in breach of their duty. Re W & M Roith Ltd. [1967] 1 All E R:


• The interest of the co. that the directors have to consider has traditionally meant:

i. The interest of the Members of the co as a collective grp, not the interest of an individual member as in Percival v Wright (supra). Directors have to treat all shareholders equally.

ii. The interest of the Employees. (Old law). Parke v Daily News Ltd. [1962] Ch 927 M’sian Co Act has no general provision, but refer to Para. 7 of the 3rd Schedule - powers may be applied under s. 19(1)(c). The interest of the members and the employees are considered as the interest of the company while the company is solvent and a going concern.

iii. When the co threatened or goes into a state of insolvency, Creditor’s interest will be co’s interest.


Winkworth v Edward Baron Development Co. Ltd. [1987] 1 A11ER 114; Lord Templeman , “A duty is owed by the directors to the co and to the creditors of the co to ensure that the affairs of the co are properly administered and that its property is not dissipated or exploited for the benefit of the directors themselves to the prejudice of the creditors.”

Walker v Wimborne [1976] 50 ALJR 446; Co’s directors in breach of their duties to the co and its creditors in guaranteeing loans of another co in the group at a time when the co was itself in serious financial difficulties.

• Where a director is director of a co within a group of co.s, he is not allowed to consider the interest of the group ahead of the interest of the co of which he is director. Each co within the group is an independent and separate legal entity. Any movement of funds between the cos within the group may prejudice the interest of the creditors should the co become insolvent.


II. TO EXERCISE POWER FOR A PROPER PURPOSE


• Directors are required to exercise powers given to them for the proper purpose of the company for the benefit of the co.

• The purposes may be set out in the articles of association of the company.

• Therefore, directors are prohibited from exercising powers for any collateral purposes or any act done for an impermissible purpose or for the benefit of a person other than the co, nor for director’s own benefit.

• Breach of director’s duty if they exercise their power for a purpose other than the purpose for which the power was conferred on them, even where he acts honestly in what he considers to be the co’s interest. Re Duomatic Ltd. [1969] 2 Ch. 365.

Two factors that court will consider whether the director’s powers have been exercised for a proper purpose or not:

The objective for which the power was granted; and The main purpose for which the power was exercised.


New S132(1):- The word ‘honestly’ is replaced with the statement ‘exercise

his powers for a proper purpose’ and in the ‘best interest of the company’,

Where the Directors had acted in the best interest of the company BUT the transaction was motivated by some improper purpose, he is in breach of fiduciary duty:

Re Duomatic Ltd. [1969] 2 Ch. 365;Although the directors had acted honestly due to their ignorance of the law, the directors were liable for misapplication of the co’s fund when they made payment to a former director as compensation for loss of office without notifying the shareholders.


The power to issue shares may be exercised for reasons other than raising capital provided those reasons relate to a purpose benefiting the company as a whole.

This principle has been subject to argument inHoward Smith Ltd v Ampol Petroleum Ltd [1974] AC 821However, the directors had improperly exercised their powers, as the effect of the share issue was to reduce the majority holding of two other shareholders who made a rival bid.


Even where there is an absence of self-interest the issue will not be valid.

Punt v Symons [1903] 2 Ch. 506. where directors issue shares to themselves to maintain control over a co, the court set aside such issue even though full value has been paid on the shares.

In other words, although the directors may act honestly for the benefit of the company, the directors may still be held liable if they have exercise their power for collateral purpose.


III. TO AVOID CONFLICT OF INTEREST• Director should not put himself in a position where his personal

interests conflict with those of the co.They have a duty to act for the benefit of the co.

• They are not allowed to improperly obtain profit out of their position as directors. Aberdeen Railway Co. v Blaikie Bros. [1854] 1 Macq 461; House of Lords held that the co could avoid the contract where one of the partners of the firm the co had contracted with, was a director of the co at the time of the contract even if it was made on fair terms.

• Guinness plc v Saunders [1990] 2 AC 663; where a committee of the co, without authority, awarded a director of the co remuneration of £5.2m in return for his services in a successful takeover bid, the court rejected the claim by the director that he had a right to the money. A fiduciary must not place himself in a position of conflict, and may not profit from his position except to the extent allowed by the articles.


• Common Law Conflict of interests could arise in the following situations where the directors :

a)compete with the company;

b)contract with the company; and

c) use corporate property, information or opportunity.


a) Compete with the company• A director would be in breach of his duty if he obtains for

himself any property or benefit that properly belongs to the co, or for which the co has been negotiating for.

• Where a director makes any profit as a result of opportunities that arose out of his position, he cannot keep them unless the profits have been disclosed to and approved by the co.

Regal (Hastings) Ltd. v Gulliver [1942] 1 A11ER 378;The court held that although the transactions where the directors obtained a profit over the sale of the shares which they had bought at par were made in good faith, the directors were however liable to account to the co for the profits. The reason for this decision was that: (1) there was an acquisition of property by reason of the office held; and (2) the acquisition was in the course of the execution of that office.


• A director is in breach of his duty even though there is no bad faith.

A director may not enter into transactions in which he has or can have a personal interest conflicting with the interest of the co that he is suppose to look after. Any profits made by competing for an opportunity which was his duty to acquire for the co, he has to surrender the profits to the co.

Cook v Deeks [1916] 1 AC 554

Dir. liable to account to the co where he made profit by using information which has come to him whilst he is a director or which he has acquired in the course of his duties.


• Even after he has resigned a director is still liable for breach, especially if the resignation is due to the fact that he wants to take the opportunity for himself. Canadian Aero Service Ltd. v O’Malley [1973] 40 DLR (3d) 371; the court held the president and the vice-president of the company liable where, after having negotiated a contract on behalf of the company, they resigned, formed a new company, and acquired it for the new company.

• Even where the director secures a contract that his company has no chance of obtaining, he is liable for breach because the opportunity came to him by virtue of their position in the company.Industrial Development Consultants Ltd. v Cooley [1972] 2 A11ER 162;The court held that although IDC would have not obtained the contract, the defendant was in breach of his duty to IDC because he did not fully disclose to IDC all information he obtained in the course of his dealings with EGB. As such he was liable to account all profits he had made to IDC.


• Directors are not liable if they use any information that they obtain through their position as a director for their own benefit where co has bona fide rejected the opportunity. Peso Silver Mines Ltd. v Cropper [1966] 58 DLRThe court held, although the directors were in fiduciary relationship, they were not liable as the reason to reject the opportunity offered to the co had been taken bona fide. The opportunity of the directors to acquire the contract was considered not acquired by reason, or in the course of the execution of the director’s office.

This decision has been subjected to criticism as it will be

difficult to know whether the board’s decision to reject was made bona fide or not. The directors may be tempted to reject the opportunity so that they may benefit personally


• A director’s duty continues to bind him even after he no longer holds office. This will be so where the director has during his term of office committed acts amounting to breach of duty and either;

(i) resigns or secure his release in order to reap the benefit of his breach of duty (as in Industrial Development Consultant’s case), or

(ii) after his resignation or release, commits similar acts which, if he were still a director, would amount to a breach of duty on his part.


• Although a director is not allowed to compete with his co, he is not prevented from acting as a director of competing companies: Bell v Lever Bros. Ltd. [1932] AC 161. He may not, however, use the confidential information he gains on one co to its detriment, for the benefit of himself or another company.

In Riteway Express Pty. Ltd. v Clayton [1987] 10 NWSLR 238; it was held that although directors may sit on boards of rival cos, they cannot use or disclose the confidential information of co where this involves them closing down the co’s business and operating it for themselves.


b) Contract with the company As a director’s personal interest may conflict with

the co’s interest, a director cannot enter into a contract with the co. A director should try to get the best deal possible for the co, and if he were to contract with the co, he may try to obtain the best deal for himself.

S. 131(1) requires a director to disclose the fact that he has an interest in a contract, whether it is direct or indirect. Direct interest is where the director contracts personally, and an indirect interest arises when the contract includes family interest, or where the director is a director or shareholder of another company which contracts with the company.


Transvaal Lands Co. v New Belgium (Transvaal) Land & Development Co. [1914] 2 Ch. 288;

Two directors of Transvaal Lands Co. (TLC) were also shareholders of New Belgium (NB) and one of them, Samuel was also a director of NB. At Samuel’s recommendation, TLC’s board agreed to purchase certain shares of NB. After the purchase TLC discovered the two director’s interest in NB and sought to have the contract rescinded.

The court held that there was conflict of interest in Samuel’s case as both director and shareholder of NB has the duty to act in TLC’s best interest.


• In order for a director to be in breach of his duty, he must have material interest in a contract with the co. - S.131(2).

• Director will not be liable:a. S.131(1) where he makes a full and frank disclosure of his

interest to the board of directors’ meeting.

b. S.132E where director who enters into substantial property transaction with his co, & have such transaction approved by the members in a general meeting.

c. S.131(4), disclosure made by giving general notice to the BOD’s meeting specifying the nature and interest of the director’s interest. Ensure that the notice is given at the director’s meeting, or that makes sure that it is brought up and read at the next director’s meeting.

d. S.131(7) - Failure to declare interest - liable for not more than 7 years imprisonment or RM150,000 fine, or both.


At common law, a contract made by a co with one of their directors, or with co or firm in which he has interests is voidable at the instance of the company: Aberdeen Railway Co. v Blaikie Bros. (supra).

A contract is voidable because a director’s interest may be ratified by the company in a GM. Although a director may not vote in his own interest at a board of directors’ meeting, he may do so as a shareholder of the company at the general meeting as in North-West Transportation Co. Ltd. v Beatty [1887] 12 App Cas 589; the court allowed Beatty to vote for a resolution in which he had interest in the transaction, as he was acting within his right.


Duties to avoid Conflict of Interests

under S.132(2)


The old S132(1) CA 1965 provides that:

‘A director shall at all times act honestly and use reasonable diligence in the discharge of his duties of his office’

Comment: The old law does not expressly refer to the common law situations of conflict.


The New S132(2) provides that:‘A director or officer of a company shall not, without the

consent or ratification of a general meeting-(a) use the property of the company;(b) use any information acquired by virtue of his position as a

director or officer of the company;(c) use his position as such director or officer;(d) use any opportunity of the company which he became

aware of, in the performance of his functions as the director or officer of the company; or

(e) engage in business which is in competition with the company to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company’.


Comment: This new provision amounts to a restatement of the

common law conflict of interest situation.

It assists directors in appreciating situations of conflict which may cause them to act in breach of their duty to the company.


Common Law Duties of Care, Skill and

Diligence and

2007 amendmentSection 132(1A)


Old law The duty to act with care and skill is derived from common law. The old S.132(1) is silent as to the standard of care, and skill

required of a director. It merely prescribes that a director has a duty to act honestly and use reasonable diligence.

The Common Law PositionThe leading decision is Re City Equitable Fire Insurance Co Ltd (1925) CH407, where it was held that ‘In discharging the duties of his position...a Director must act honestly; but he must also exercise some degree of both skill and diligence.. so long as a Director acts honestly he cannot be made responsible in damages unless guilty of gross or inculpable negligence in a business sense.” Overend & Gurney v Gibb (1872) LR 56 HL480: standard breached only if dir entered into agreement where the circumstances was obvious to deter a reasonable person from entering into the agreement.


• Very minimal standard of duty of care and skill on directors in their management of co.s. Reason? Historical! -----directors were not chosen for their knowledge and experience but more because of their position in society. Thus, unreasonable to impose high standards of care and skill.

• As a result of Re City Equitable Fire Insurance

Co. Ltd. [1925] Ch. 407;, Romer J. came to a conclusion that a director must act honestly and exercise care and diligence. Romer J. made three propositions which is still applied today and form the core of the law on duties of care and skill:


1. “A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.”- No minimum standard of skill set for a director. A director has to act with care as can be expected from them basing on their knowledge and experience. Re Brazilian Rubber Plantations and Estate Ltd. [1911] 1 Ch.425


A director should take as much care in the affairs of his company as he would reasonably take in his own affairs. This means that if a director takes care of the company’s affairs the same way he takes care of his own affairs, he will not be liable. Co can only take action against him where he runs the co in a way that a reasonable man would not do in his own affairs.


As a reasonable person, a director would make reasonable inquiries when asked to enter into certain transactions on behalf of the company, such as the signing of cheques. In Re Railway & General Light Improvement Co.; Marzetti’s Case [1880] 42 LT 206;

Re Kie Hock Shipping Pte Ltd. [1985]1 MLJ 411Director found grossly negligent when he failed to collect co’s debts, & allowed his uncle to dispose of debtor’s assets, & then gave further credit to debtor who in the end owed the co S$11m.


As business people today are normally sufficiently qualified, Romer J.’s proposition have been qualified in the light of today’s circumstances. Several cases have suggested that the proposition would be applicable to non-executive directors. As for executive director, minimum objective standards must apply. Dorchester Finance Co. Ltd. v Stebbings [1989] BCLC 498;The court held it was unacceptable for directors not to attend board meetings or to take any active interest in the company’s affairs & so were made liable for losses incurred when unsecured loans made turned out to be irrecoverable.


The standard of care depend on the nature of their duties : Norman v Theodore Goddard (1992)10 ACLC 3016, a director was not made liable as it may be that in considering what a director ought reasonably to have known or inferred, one should also take into account the knowledge, skill and experience which he actually had in addition to that which a person carrying out his functions should be expected to have.”


2. “A director is not bound to give continuous attention to the affairs of the company. His duties are of an intermittent nature to be performed at periodic board meetings…”.

An extreme example is Re Cardiff Savings Bank: the Marquis of Bute’s case[1892]2 Ch 100; The Marquis was only 6 months old when he was appointed President of the bank. The Marquis attended only one meeting in 38 years, but was held not liable for losses resulting in irregularities in the bank’s operation.

However, in Re Denham & Co. [1883] 25 Ch. D 752; although a director who had not attended a board meeting for 5 years escaped liability for the fraud of his co-directors who issued to the shareholders false reports and balance sheets, the judge found him guilty of negligence in not attending the meetings, and so refused to pay him his costs.


• This proposition that a director is not bound to give continuous attention to the affairs of the company is not of general application to all directors.

• Issue of liability are differently decided according to whether the director was executive or non-executive.

• Executive directors are usually appointed under service

agreements which require them to give their exclusive attention to the affairs of the company. Daniels v Anderson (1995) 16 ACSR 607Where the court found the CEO liable for negligence for not having made the proper inquiries based on the auditor’s report. The non-executive directors, however, had been found not negligent. In the absence of information to the contrary, they were entitled to assume that the auditors had detected any irregularities.


3. “In respect of all duties which having regard to the exigencies of business and the articles of association, may properly be left to some other official, a director is in the absence of grounds for suspicion, justified in trusting that official to perform such duties honestly”.

A director is allowed to delegate his powers for practical commercial reasons. Non-executive directors may safely delegate their power to the executive directors. In the absence of any reasonable grounds for suspicion, directors may trust the officials of the co. to carry out their duties as entrusted by the directors. Huckerby v Elliott [1970]1 A11ER 189; a director of a gaming club was held not negligent in failing to check whether the club had the appropriate license when the task of obtaining it had been delegated to someone else.


Similarly in Dovey v Cory [1901] AC 477; the director of a banking co. was held not negligent in relying on the assertions of the chairman and GM of the co, whose integrity, skill and competence he had no reason to doubt. They had in fact improperly paid dividends out of capital and gave advances on improper security.

Directors, however, cannot blindly accept all that is placed before them. In Dorchester Finance Co. Ltd. v Stebbings [1989] (supra) the court would not allow the non-executive directors with accounting experience to rely on the auditors’ report without doing anything themselves.


The task of managing a co may sometimes need the directors to delegate their power to experts in particular areas, such as obtaining the legal opinion of a lawyer pertaining to some documents. Where the directors need to delegate but they do not do so, they may be held negligent.

AWA Ltd. v Daniels (supra), the judge said that in complex situations which need specialist knowledge, a director may be required to seek and rely on expert or professional advice.


The Common Law Position In the UK, the law has moved towards an objective assessment of

the standard of care required of directors, as reflected in s.174 of the UK Companies Act 2006.

Despite these developments, the position in Malaysia remained bound by Re City Equitable Fire Insurance, as the applicable authority for directors’ duty of care and skill as in Abdul Mohammad Khalid v Dato Haji Mustapha Kamal [2003]5 CLJ 85


Problems with the subjective test: There is no minimum objective standard required of a director.

Since the subjective standard of care varies according to the skill a director has, a director with no specific skill or expertise need not be accountable.

The position today:

S.132(1A)provides that a director of a company shall exercise reasonable care, skill and diligence with(a) the knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities; and(b) any additional knowledge, skill and experience which the director in fact has.


Comments:

Where a director has additional knowledge, skill and experience, that director will be assessed against a reasonable person who has that additional knowledge, skill and experience.

The actual knowledge and experience of a director is to be considered in addition to the minimum standard.


The main statutory duties of a director are provided under the OLD s.132. This provision gives the common law duties that have been discussed above statutory authority. Where a director breaches his duty at common law, these statutory provisions impose criminal liabilities.

The following provisions are affected by the 2007 amendment to

the CA that has put into effect the BUSINESS JUDGEMENT RULE.

1. S.132(2). It is an offence under this provision if the directors make improper use of information gained by virtue of their position as officers to use for their own or another’s gain or to cause detriment to the co. In P.P v Choudhry [1981]1 MLJ 76; the knowledge that the co was facing financial crisis was considered as specific confidential knowledge which the director had used to his own advantage.Law of Assoc II/ Z.Elias

2. S.132(3) imposed liability on any officer who commits breach of his fiduciary duty by making improper use of his position to directly or indirectly gain a benefit for themselves or for any other person, or to cause detriment to the co. He is not only liable to the co, but if found guilty can be imprisoned for 5 years or fined RM30,000.

3. S.131, discussed earlier, also imposes a duty upon directors to disclose their interest (whether directly or indirectly) in contracts with the co.


4. S.135 impose duty on directors to disclose particulars of interest in shares, debentures, participatory rights, options and contracts. They also have to disclose changes in those interest mentioned; and particulars necessary for maintaining the register of directors, secretaries, managers and auditors.

5. S.133 except for exempt private co, a co is prohibited from giving loans to their directors. Exceptions :

i. where it is given to pay for expenses in carrying out the director’s duty,

ii. to purchase a home for a full-time director, and iii. where the co has a scheme of loan for its employees, and the

director is a full-time director. S.133A prevents a co from making a loan to any person connected with a director of a co.(see S.122A) Where directors allow such loans to be made without the co’s approval they are jointly and severally liable to the co to indemnify the co against any loss arising from the loan.


6. S.132C, directors are prohibited from the acquisition of an undertaking or property of substantial value, or dispose of a substantial portion of the co’s undertaking or property without the approval of the co in GM. The acquisition is prohibited where it materially and adversely affected the performance or financial position of the co. Any director who contravenes s.132C shall be guilty of an offence and liable to imprisonment for 5 yrs or a fine of RM30,000 or both.

7. S.132E, prohibits a co to enter into any arrangement or transaction with a director/director of co’s holding co/persons connected with such director(s.122A) to acquire from or dispose to such persons any “non-cash assets” of requisite value, unless it has been approved in a GM.


S.132(1B)

Business Judgment Rule


Old law

i) Sections 131, 132C, 132D, 132E, 133, 133A, provide for sanctions that follow if a director breaches his duties.

ii) Where a Director has made a genuine business judgment in good faith, he will be protected from liability for negligence even if these judgments turned out badly.


New law (2007 amendment)S132(1B) provides that:-

A director who makes a business judgment is deemed to meet the requirements of the duty under subsection (1A) and the equivalent duties under the common law and in equity if the director-

(a) makes the business judgment in good faith for proper purpose;

(b) does not have a material personal interest in the subject matter of the business judgment;

(c) is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and

(d) reasonably believes that the business judgment is in the best interest of the company


Comments :

The overriding requirement is that the Directors must make a conscious decision or exercise a conscious judgment.

If the Directors failed to make a conscious decision or exercise a conscious judgment, the Business Judgment Rule will not extend its protection.


Section 132(1B)

S.132(6) defines business judgment to mean:

‘any decision on whether or not to take action in respect of a matter relevant to the business of the company’


S.132(1B) What is ‘Business Judgment’?

S132(1C): a director may rely on expert advice but that reliance would only be considered reasonable if the director has made an independent assessment of the reports, advice, opinions and data received from the experts and consultants employed to provide them.


Vita Health Laboratories Pte Ltd and Ors v Pang Seng Meng [2004] 4 SLR 162; [2004]SGHC 158

The court should be slow to interfere with commercial decisions taken by directors and should not substitute its own decisions in place of those made by honest directors.

‘..it is not the function of the court to punish and censure director, who have, in good faith made incorrect commercial decisions..’


1. Sue For Damages or CompensationThe co may sue for damages or for compensation where it suffers a loss due to a breach of fiduciary duty. The co can take a common law action for tort of deceit and may recover damages where the director is fraudulent. Damages or compensation is meant to put the co in a position it would have enjoyed had the director not breached his duty.


2. Return of PropertyThe co may seek a declaration that a director holds property on trust for the co where the director acquires property as a consequence a breach of duty. The property concerned will be returned to the co. Where the director has misapplied the co’s assets or property, the co has a right to sue for the return of the co’s property. He is liable to replace them. Normally the order for the return of specific assets will be made if the assets are still under the director’s control.

Third parties who are involved in a director’s breach of duty may also be sued as constructive trustees. They are considered to hold the co’s assets as constructive trustees, either because they received the co’s property knowing of the breach of duty, or have knowingly assisted the director in some dishonest or fraudulent breach of his duty.


3. Recover Secret ProfitThe co may claim any secret profit made by the director. According to S. 132(3)(a) where there has been a breach of a director’s duty to act honestly, the director is liable to the co for any profit he has made or for any damage suffered by the co due to the breach. The co may choose either to sue the director for damages or recover the secret profit. If the co’s loss is greater than the director’s profit, the co may choose to sue for damages. Where the co did not suffer any loss, it may claim the director’s secret profit.


4. Rescission of ContractA contract entered into by a director in breach of his duty can be rescinded at the co’s option. Normally this would be done where the contract is to the co’s detriment. The co may declare the power exercised by the director in breach of duty as null and void. This will mean that the transaction entered into by the director will have no effect. Any money paid will be returned.A co’s right to rescind may be lost under certain circumstances. Rescission is not allowed:

where it is no longer possible to restore the parties to their original position;

where third parties have in good faith acquired rights in the subject matter of the contract, and

if the company fails to rescind within a reasonable time.



That’s all for Directors at

this juncture, Folks!

That’s all for Directors at

this juncture, Folks!

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duties of directors in Corporate Law