Directors Breaching Contracts: a Case Analysis

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As a Company is a artificial person and needs a natural person to act on its behalf, A Director is appointed and acts as the companies agent and is responsible for the day to day running of the company. Directors duties are stated in the Company Act 2006 (CA). The CA codified the general duties of a director and They are seven codified duties from ss171 to 177. All these duties are based upon a fiduciary relationship – based upon trust and loyalty towards the company as a Whole. As well as directors are under obligation to act in the best interests of the company as a whole.

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From The scenario, it is clear that Mig has breached his directors duties as he has broken the s176 which states that’s directors should NOT accept benefits from third parties. These can be financial or non-financial as Mig has clearly received £20,000 from Trade and the other directors were unaware of this activity Mig has therefore breached his Directors duties of s176. This was illustrated in Boston deep sea fishing V Ansell (1888) where by the director received a “back hander” of commission, who had also breached is director’s duties. However Had Mig openly declared his £20,000 commission to the board of directors, and they had approved it, he would have been entitled to keep it. However as he has told no one he may well have to account for this profit and online ltd are entitled for any secret profit which Mig has received, which was exactly the same remedy the director in Boston deep sea fishing V Ansell (1888) whereby the director had to pay back the commission he got. Therefore Liz, can take action and sue Mig for the breach of directors duties in relation to s176. In addition Liz can take rescission, rescission is whereby the company, could make the contract (between the company and the other company whereby the director had breached his contract) be ineffective and become void. As illustrated in the Aberdeen railway and co v Blaikie Bros 1854. Therefore the contract between Online Ltd and Trade ltd would become ineffective and be void.

It should be also noted that the third party can also be liable for damages. In this case Trade ltd can also be held liable in by knowing, accepting and receiving the contract and being aware that it was gotten through Migs position who has breached his directors duties. So therefore Online ltd could seek damages against Trade ltd as a third party who knew and assisted in the breach of martins Directors duties.

Also, Mig has committed further breaches in his director’s duties. He has breached s175 which states that directors are to avoid conflict of interests wherever it is indirect or direct towards their company. The £50,000 profit which Mig has made, is due to him exploiting and gaining information belonging to the company onlinte ltd, which he has then used to satisfy his own needs. A director simply can not allow a conflict to arise from between his company and personal interests. This was demonstrated in the IDC v Cooley 1972 case. Therefore Liz can rightfully seek from the court a breach of contract by Mig, in addition to this Liz may either seek that Mig should account for any secret profit made or claim damages, as if the product was extremely valuable, for Online limited, Mig should have to claim for any potential losses. Also Mig has breached his s172 duty, to promote the long term success of the company, as he has deprived online ltd of any profits, and has not taking into account the long term success of online ltd.

However, Liz as a shareholder is powerless, as the victim is the company, but only the company can claim against damages but for the company to claim damagers, as it is a artificial person, the majority of the shareholders, have to decide, whether to take action or not. If the director’s themselves are also the majority shareholders, Liz can make a dervritive claim or if there are other majority shareholders Liz has to get their approval to take action.

Furthermore, it seems that Mig is able to continue his wrong doing, as other directors are not taking charge, Liz, may be able to seek a joint breach of liability for duties, as other managers, are not taking action, and have approved and also mig to secure a special resolution in relations to his actions. This is extremely important, as this shows that other directors have also breached their duties and the liability may be joint. This was seen in the Cook v Deeks case, where by the minority shareholder managed to make all the other directors (majority shareholders) through the courts decision that the others were in breach of their duties and account for any ill gotten profits. Mig and the other directors could and should be disqualified under the company directors disqualification act 1986.

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