Company Law 2 Assignment Essay Example | Topics and Well Written Essays - 4000 words

Company Law 2 Assignment - Essay Example In other words, the general duties of the directors do not differentiae duties between them.5 These duties are imposed by law as the shareholders have limited control over them at the general meetings and they cannot participate in the day to day management of their companies.6 Foremost is the fiduciary duty under which duty of care and skill, duty to act bona-fide in the interest of the company and the rule of proper purpose have developed as a common law from judicial decisions. Duty to act bona fide (Section 171) When the directors act within the powers conferred by the constitution of their company, they are expected to act for the benefit of the company. They must act bona fide always what in their opinion is in the best interests of the company. 7 Directors are permitted to exercise their discretion in their decision making provided they act bona fide as held in Re Smith & Fawcett Ltd 8 This case involved directors’ absolute discretion in registration of share transfers. Court refused to interfere with the refusal to transfer of shares saying that it cannot draw an inference that directors refused to transfer shares with mala fide intention. By virtue of articles of association, the directors had enjoyed unlimited discretion to decide on the registration of transfer of shares. The directors acted within the powers conferred by the constitution and there was no way a court could interfere. This was despite the fact that directors insisted that the transferor who sought to transfer the shares in his name on the death of his father should sell 2001 shares out of 4001 shares to one of the directors. 9 In Rolled Steel Products (Holdings) Ltd v British Steel Corporation10, one of the two directors of Rolled Steel Products had borrowed from British Steel Corporation through his own company. But he did not disclose the fact when Rolled Steel Products made an agreement of guarantee with the British Steel Corporation for any debt owned by the directors of th e former. Since the director concerned did not disclose of the fact at the board meeting at which the guarantee was made, it was held that guarantee was invalid. The British Steel Corporation also did not disclose of the money owed. The director concerned had not acted bona fide. The British Steel Corporation as a third party might have had actual notice or constructive notice of the Rolled Steel’s director who was agent of the company. Therefore, the company was not bound when the third party knew that its representative either had no authority or exceeded it.11 Browne-Wilkinson LJ observed A third party who has notice- actual or constructive- that a transaction, although intra vires the company, cannot enforce such transaction against the company and will be accountable as constructive as constructive trustee for any money or property of the