ACC 3024 | Business | Liabilities Of The Directors Of The Company
"With the UK leaving the EU, it is a crucial time to discuss enlightened decision-making on boards (of directors), considering that, arguably, one of the key benefits of joining the EU with regard to UK company law, was that the UK was prompted to consider incorporating provisions affording a certain level of protection to the interests of certain constituencies ...."Georgina Tsagas, University of Bristol
Discuss the duties of directors and in particular S.172 of the UK Companies Act 2006, and with reference to relevant case law, critically analyse what is being done to acknowledge stakeholders interests.
Answer:
Introduction
The United Kingdom Companies Act of 2006 lays down the fundamental laws with regard to a company. It puts emphasis upon the duties, which every director of a company should possess. Section 172 of the above act, states that the director should target to bring success in the business he has undertaken to do with good faith. The current assignment deals with the responsibilities and the liabilities of the directors of the company and acknowledges the interest of the stakeholders. With UK diverting from the European Union under BREXIT, there has been certain alterations in the existing procedures and rules.
Duties of Directors
A company can function smoothly through two categories of persons. The first ones are the directors and the second one are the stakeholders. The directors form the management of the company to manage all the affairs of the company. They participate in the decision making procedure of the company and have to see that the targets of the company are fulfilled(Lafferty, Schmidt and Wolfe, 2011). Section 172 of the UK Companies Act of 2006 states that a director should undertake his responsibilities with utmost good faith.
The duties of a director are stated below in details:
It is the fundamental duty of the directors to do all the tasks and undertake all the decisions in accordance with the rules of the company. He should not exercise his own powers all exceed the powers given to him. He should do what is beneficial to the company and what would be beneficial for his personal interests. The director also possesses the duty to do what is legal within the framework of the companies act and the directions of the company.
The director should focus upon the profits of the company. Section 172 of the above act, aims at the projection of success of the company. It should create advantage for both the company as well as the people working in it. It is up to the mentality of each director, to decide what would be apt for the success of the success of the company.
A director should be speculative, far sighted and able to take decisions correctly. Considering section 172 of the companies act, for the appreciation of the company, the director must reasonable knowledge about the expected results of the decision taken by him, the rights and interests of the employees of the company and the requirement to develop the relationships of the company and the business with the suppliers, customers and the rest. Apart from these, the effect of the operations of the company upon the society and the environment and maintaining a just relationship amongst employees and the employers is desired by the directors to follow (Andrew, 2016).
Furthermore, the director possesses the responsibility to undertake decision devoid of third party’s interference unless required. A director knows his company functioning rules, data, drawbacks. So, he is the best judge to decide upon the matters of the company that come before him. He should take the decisions independently keeping the framework of his company in his mind (Aier, Chen and Pevzner, 2014).
It is expected that the director should do all the works with reasonable care and diligence. He should possess the appropriate skill for the smooth functioning of his company. The director should be dynamic and outgoing. He must possess sound knowledge upon the current affairs and company related law. A minimum experience is desired from the director.
It is the duty of the director that he should abstain from every kind of dispute and should be quick in resolving the disputes that have already arisen. He should be impartial in judging the situations and must see that the rights and interests of the company are not violated (Marshall and Ramsay, 2012).
The director should be honest. He must not demand any right or interest in the recommended or current transactions of the company. He should not possess any personal benefit from the profits or the interests of the company. Moreover, he should not receive allowances and benefits from outsiders. It is the fundamental duty of every director to follow the basic tenets of the rules and regulations of the company.
Acknowledging Stakeholder’s Interest
Section 172 of the Companies Act of 2006 has been given lot of importance to while the taking place of the discussions in the parliament upon stating the duties of a director and realizing the interests of the stakeholders. Under the decision of BREXIT whereby united Kingdom withdrawing from the European Union, it becomes essential to have a discussion upon the interests of the Stakeholders with regard to the BREXIT. There were many advantages when UK was an organ of EU. The interests were secured and security was given upon the safe transmission and the working environment of the stakeholders. But, after BREXIT, the giving to importance to the interests of the stakeholders over different rights of different organizations has been reduced (Counsel, 2015).
It cannot be disagreed that the acknowledgement of the stakeholders interest is essential in the company. These interests include the right of voting in their personal economic concern. However, the court has impose a restriction upon such rights. Being a participant of the company, they can utilize their rights to the maximum possible extent. This extent depends upon the proportion of shares which the stakeholder possesses. The ‘stakeholder primacy’ phenomena was established under the case of Hutton v West Cork Railway Co Ltd (1883) 23 Ch D at 673 per Bowen LJ. The case was related to the fundamental rights of the stakeholders under a company. It has been stated under Section 172(1) of the companies act 2006 from above case law that for the efficient running of the business it is needed the interest of the stakeholders are acknowledged well (Haddaway et al., 2017).
The ultimate challenge in the reality is to understand what is meant by the acknowledgement and the protection of the rights. The situation becomes further complicated when the proportion of the economic shares are less and the stakeholder possesses minority proportion in the shares. In such a scenario section of 172 (1) (f) of the UK companies act 2006 comes to rescue. This section imposes the duty upon the directors that they should act in a justified manner amongst the members of the company. The stakeholders thus form a very important part of the company (Miller, 2016).
The primary conditions of the stakeholders security program measure, is to avoid unjust ad unfair terms of contract while they are a part and parcel of the company. The Part 11 of the United Kingdom Companies Act of 2006 contains these provisions. The unjust detriments has gained importance since the territorial extent of the 1980 act getting revised. Citing another case law would provide more data. Under O’Neil v Phillips [1999] 1 WLR 1092the provisions under part 11 of the UK companies act 2006 were introduced. The scenario under the common law was reversed. In the contemporary era, after UK exiting from the EU under BREXIT the legislation is derived from the companies act of 2006. The previous acts apply to the European Union and not to United Kingdom. Upon the standard of the European Union, the directive on shareholders rights (2007/36) it was later revised as per the standards and rules under 2017. Certain irregularities were spotted under Foss v Harbottle. To avoid failure it is always ensured that the court asks the companies to follow the regulations mentioned under section 172 so that the interests and the rights of the stakeholders are given the due importance and they are acknowledged. The legislative actions are in favor of the stakeholder’s interest. After the BREXIT, United Kingdom has their personal set of rules different from the European Union, which were earlier similar (Van Buren and Greenwood, 2011).
Conclusion
After a close perusal of the above information in the assignment the director must be vigilant and should target at the success of the company. He should do all the work in good faith, take the desired care and skill towards the targets and towards his employees. With its relation with BREXIT certain alterations had been went through with regard to the rights of the stakeholders and the directors. The conflicts should be mediated as soon as possible for the smooth functioning of the business.
References
Aier, J.K., Chen, L. and Pevzner, M., 2014. Debtholders’ demand for conservatism: Evidence from changes in directors’ fiduciary duties. Journal of Accounting Research, 52(5), pp.993-1027.
Andrew, K., L.L.B., 2016. Directors' duties. 6th ed. Jordan: JORDAN PUBLISHING Limited.
Counsel, G., 2015. Brexit: the impact on the UK and the EU. [online] Available at: https://www.global-counsel.co.uk/sites/default/files/special-reports/downloads/Global%20Counsel_Impact_of_Brexit.pdf [26 November 2018]
Haddaway, N.R., Kohl, C., da Silva, N.R., Schiemann, J., Spök, A., Stewart, R., Sweet, J.B. and Wilhelm, R., 2017. A framework for stakeholder engagement during systematic reviews and maps in environmental management. Environmental Evidence, 6(1), p.11.
Lafferty, W.M., Schmidt, L.A. and Wolfe Jr, D.J., 2011. A Brief Introduction to the Fiduciary Duties of Directors Under Delaware Law. Penn St. L. Rev., 116, p.837.
Marshall, S. and Ramsay, I., 2012. Stakeholders and directors' duties: Law, theory and evidence. UNSWLJ, 35(7), p.291.
Miller, V., 2016. Brexit: impact across policy areas. 5th ed. London: Routledge
Van Buren III, H.J. and Greenwood, M., 2011. Bringing stakeholder theory to industrial relations. Employee Relations, 33(1), pp.5-21.
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