To whom the duties are owed? company Originally only the company can demand total

1. To whom the duties are owed? • company Originally only the company can demand total and absolute loyalty by the company. This gives rise to the rule in Foss v Harbottle • Shareholders Paramount duty to the company. Generally, not oblige to act on the instructions of all shareholders in the general meeting. Only in special circumstances owes duty to shareholders.

2. Percival v Wright A director of a company bought shares from a member at £12 5s which less than that for which the director knew that a third party had proposed to buy the company’s entire undertaking. The latter proposal was aborted. The selling members sued the director for breach of fiduciary duty to the member in not disclosing the interest expressed by the third party. It was argued that the directors owed the members fiduciary duty when negotiating for the sale of the undertaking to the third party.

3. Held- holding that the purchasing director was under no obligation to disclose to the vendor shareholders the negotiations which ultimately proved abortive. If it is required of the directors to make the disclosure it would put them in a most invidious position as they cannot sell and buy shares w/out disclosing the negotiation. Premature disclosure of the negotiation might well be against the company’s interests.

4. Contrast with Allen & others v. Hyatt & others The directors were negotiating an amalgamation of their company with another company and induced shareholders to give the directors options to purchase their shares by representing that this was necessary to effect the amalgamation. The directors then exercised the options to purchase the shareholder's shares and the directors made a handsome profit as a result. It was argued that the directors should be regarded as being trustees for the shareholders of the profit which they had made.

5. Held - “... the directors must here be taken to have held themselves out to the individual s/holders as acting for them on the same footing as they were acting for the company itself, that was, as agents.” Brunninghausen v Glavanics Held - although a director’s fiduciary duties are owed to the company and not to the s/holders, where a particular transaction does not concern the company but only another s/holder, this should not preclude the recognition of a fiduciary duty to the s/holders in circumstances where this duty would not compete with the fiduciary duty to the company.

6. Coleman v Myers A father & were the only directors of a NZ family company. They devised a plan to acquire the company through another company owned by the son. They planned to pay for the takeover by selling off assets of the family company. As directors of the family company, the father and son recommended to the other s/holders that they should accept the takeover offer, stating that the offer price for their shares represented their real value. This was not so. After the sale of the assets and the repayment of the debt, the directors made a profit of several million dollars

7. They failed to disclose to the s/holders the likely extent of the profit and the son had stated that the assets of the company would not be sold after the bid. Having succeeded in obtaining acceptances from the necessary number of s/holders the directors, through the son's company, then compulsorily acquired the remaining minority shares. The minority s/holders challenged the actions of the directors claiming that there had been a breach of fiduciary duty in failing to disclose the inside information to the s/holders when recommending acceptance of the offer.

8. Court of Appeal decided that although Percival v. Wright was correctly decided on its facts, a fiduciary duty was owed by the directors to the shareholders and therefore they should account to the shareholders. 3 – Creditors General rule – in solvent state court not ready to impose fiduciary duty upon directors to creditors. h/ever, if the company is nearly insolvent or is insolvent, creditors have direct interests in the Company.

9. So when directors considering the interest of the company it includes interest of creditors. West Mercia Safetyware Ltd (in Liq) v Dodd & Dodd. WM was wholly owned by AJ Dodd & co. Mr D was director of M and AJD. Both companies were in financial difficulties. Mr D transferred £4,000 from WM to AJD to reduce overdraft of the company for wh Mr D stood as guarantor. Both companies went into liquidation.

10. Liquidator of WM applied for a declaration that Mr D had breached his duty and to recover the sum transferred to AJD. Held- in a solvent company the director must have regard to the interests of its creditors. In case of breach of duties towards the creditors – the company must sue on their behalf.

11. Now s 303(3) of the CA – imposed statutory duty on directors to take into account the creditors’ Interest in contracting a debt. He may be personally liable for the debt if at the time of entering into the contract he has no reasonable or probable ground of expecting that the company is able to pay the debt after considering other liabilities of the companies.

12. 4 - Employees The CA does not have provision requiring the directors to consider the interest of the employees in discharging their responsibilities as directors. Self-regulations via Code of Ethics E.  CODE OF ETHICSIn the performance of his duties, a director should at all times observe the following codes: 2 Relationship with Shareholders, Employees, Creditors and Customers • Should be conscious of the interest of shareholders, employees, creditors and customers of the company;