Duties of Care and Skill and Fiduciary Duties
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1. Duties of Care and Skill
The directors duties of care and skill have been formulated in a series of cases brought against directors in order to make them liable in negligence for the manner in which they conducted the companys affairs. The position of a director as considered by Kay J, in In re Faure Electric Accumulator Co.: in reference to the liabilities of directors the judge held that directors are not trustee, they have duties of care and skill as managing agents.
A director may 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.
This rule prescribes a duty which is partly objective (the standard of the reasonable man) and partly subjective (the reasonably man is deemed to have the knowledge and experience of the particular director). Executive director Andrew is liable, since he did not act in good faith considering his prescribed level of competence. He was clearly aware that the figure of claim damage provided for in the years financial statement was not true and fair representation. He consulted with the company value and the value assessors position was absolutely in conflict to his position knowledge, however, negligently he adopts the advice, and this lays a platform of gross negligence.
The years profit is regarded as small and Andrew being an executive director and chief Finance officer finds himself directly poorly credited by the poor Company results, hence, this is a deliberate action of misfeasors liability and negligence. The objective standard of a reasonable man of his experience and knowledge, under other similar conditions such as that exposed to Andrew, could not have taken same course of action, besides with other hidden prejudicial motives that are absolutely not bona fide and against the basic interest of equity shareholders and other essential users of financial reports, Therefore shareholders have a clear course of action against Andrew for breach of duty and care. It may also be expressed by saying that, if a foolish director makes foolish decisions resulting in loss to the company, he cannot be liable for negligence. It would be unreasonable to expect a foolish director to make wise decisions, given Andrews level of competence this is not the case. However, if the director made very foolish decisions resulting in loss to the company, he will be liable in negligence since it is not reasonable to expect a foolish director to make very foolish decisions. On the other hand, a wise director will be liable if he makes unwise decisions, since it is unreasonable to expect him, a wise man, to make unwise or foolish decisions. Reference may also be made to Regal ltd v Gulliver and others. A director should act in good faith, where there is conflict of interest, and their act is skewed not in favour of the shareholder, the act is in breach of duty of care and skills.
A directorship is not a professional job with a legally prescribed qualification. While, assuming the office of executive directorship, it is important to note that his professional in finance was the actual threshold qualification. We cannot assume the expectations of the shareholders in his duties per se, therefore his professional competence in finance cannot be ruled out in his legal responsibilities inter alia, since there is a clear relationship established. In the circumstances, anybody, even minor can become a director. All that the law can expect him to do is to serve the company honestly and to the best of his ability.
Exigencies of business
In respect to all duties that, 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. It is absolute responsibility of an executive director of finance to ensure that the financial reports of every end of year are prepared according to all general accounting policy. Andrew purposely, deliberately and knowingly understated the damage claim. His experience and competence give him no excuse to deny personal liability to the effect of presenting decorated financial reports, with basic intention to present inflationary profits.
If a director is to be made liable, it can only be on the basis of his personal negligence, and it is not negligence to delegate some responsibilities to officials or employees of the company whose previous conduct has given no grounds for distrust or suspicion. He consulted and the context shows that he was aware that his provisions were not true and fair representation per the directors Audit committee.
In DOVEY v CORY, a director was held not liable for negligence merely because he had failed to verify false information regarding the companys accounts which he had been given by the companys manager and managing director. The court stated:
Business cannot be carried on upon principles of distrust. Men in responsible positions must be trusted by those above them, as well as by those below them, until there is reason to distrust them. We agree that care and prudence do not involve distrust.. Andrew is not honest, he misrepresented financial report of a listed corporation for obvious reasons that an underperforming finance director would have with unquenched desire to report high annual inflated returns after rough year of business.
Oppressive or unfairly prejudicial
Section 320(2) of the Companies (New South Wales) Code provided: If the Court is of the opinion (a) that the affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(b) that an act or omission was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole, the Court may make such order or orders as it thinks fit
This is not a case of oppression of minority, it is covered by sec320, paragraph 2, b. as cited above. The clause includes members as a whole. In relation to directors action or omission that is oppressive and unfairly prejudicial reference to this case. The jury requires the plaintiff to establish that the action or omission of the director or directors is unfairly prejudicial. The office of finance under the leadership of Director Andrew, were well capacited, competent and skilled to realise the eventual fair claim of damages. For the record, with clarity of mind, they were crystal clear and wide aware that the primary users of the financial reports are owners and they with intended prejudice inflated the profit, by understating damage claims. The greatest beneficiary of the understated claim are the directors and Andrew in particular. Therefore he has personal liability.
The Audit committee mandate have been neglected, since there is expressions that tight hold the committee with misfeasances and breach of duty and skill potential allegations. The sole responsibility of the audit committee is to check and balance, they raised eye brows, and however through their hands they let Andrew without logical reasons present unfair and prejudicially inflated financial reports. The directors seating in the audit committee are liable of fraud, negligence and breach of duty and care. The plaintiff can establish that the directors audit committee were negligent and intentionally allowed Andrew to publish false statements, it is obvious for audit committee to sanction the reports before publishing.
2. Fiduciary duties;
The fiduciary duties of directors arising from their fiduciary relation to the company have been the subject of consideration in an enormous body of case laws. Directors are deemed to act bona fide when they act in best interest of the company and not members, In Percival v Wright: it was held that the directors owe their fiduciary duties to the company alone and not to the members. The decision raises the infamous problem that has become known as insider dealing.
Judgment of Lord Greene M.R adopts this rule by providing that nothing in Section 200(5) shall be taken to prejudice the operation of any rule of law restricting directors of a company from having any interest in contracts with the Company. Section 200 requires a director who is in any way interested in a contract with the company to declare the nature of his interest at a board meeting. He must disclose the interest at the first board meeting at which the contract is to be discussed or, if he did not have an interest at that time, at the first board meeting after his interest arose. This provision is supplemented by Article 84 of Table A. Andrew interest have been established to be mala fide hence he breached his fiduciary responsibilities as a director given the finance responsibilities he has, therefore Andrew may be restricted direct liability if he may establish before the jury that he has an extraneous purpose.
Equity regards directors as holding their powers on trust for the company. They can only exercise those powers for the benefit of the company; otherwise the purported exercise will be regarded as ultra vires and invalid. In such cases, the court would regard the transaction as having been entered into for an extraneous purpose
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