CORPORATE NOTES
Introduction
The statutory framework governing the general duties of directors is outlined in the
Companies Act of Guyana which codifies the essential obligations of directors.
Directors of a company under Section 59 of the Companies Act, are generally tasked
with exercising the powers of the company directly or indirectly through the employees
and agents of the company and to direct the management of the business and affairs of
the company.
PRINCIPAL LEGAL DUTIES
Duty to Manage & Power to Delegate
Under Section 94 of the Companies Act, Directors of a company are empowered to
appoint officers of the company and delegate to them powers to manage the business
and affairs of the company.
Duty to Act Honestly and in Good Faith to the Best Interest of the Company
Section 96(1)(a) of the Companies Act places a obligation on directors to act in good
faith and always prioritize the best interest of the company. In determining what is in
the best interest of a company, directors must have regard to the interest of the
company’s employees in general as well as to the interests of shareholders. This duty is
a fiduciary one and is distinguished from other obligations by the fact that it espouses a
duty of loyalty and requires directors to put the company’s interest above their own and
not use their position to derive profits (Regal Hastings v Gulliver), either for their own
benefit or for the benefit of others (Boardman v Phipps). This duty according to
Section 96 is owed by the directors to the company alone and is enforceable in the
same was as any other fiduciary duty owed to a company by its directors.
Regal Hastings v Gulliver
“The rule of equity which insists on those, who by use of a fiduciary position make a profit,
being liable to account for that profit, in no way depends on fraud, or absence of bona
fide… the liability arise from the mere fact of a profit having, in the stated
circumstances, been made. The profiteer, however honest and well-intentioned,
cannot escape the risk of being called upon to account.”
The directors standing in a fiduciary relationship to Regal in regard to the exercise
of their powers as directors and having obtained these shares by reason and only by
reason of the fact that they were directors of Regal and in the course of the
execution of that office, are accountable for the profits which they have made out of
them.
Four directors who purchased the shares were held liable to account. One director
who did not himself purchase shares but sourced an individual and two
companies to purchase shares was not considered liable to account for profits
because he derived no profit. The Legal advisor who bought shares at the request
of other directors was also not held liable to account for any profit.
Boardman v Phipps
This case involved two appellants: Mr. Boardman, a solicitor to the trustees, and Mr. Tom
Phipps, a beneficiary under a will, who sought to improve the value of a trust's minority
shareholding in a private company. Being dissatisfied with the company's management,
they attended its annual general meeting as proxies for the trustees and later decided to
personally acquire a controlling interest in the company, as the trustees lacked the
authority and funds to do so. Acting with the trustees' informal approval but without full
disclosure to all beneficiaries, the appellants obtained extensive information about the
company while purporting to act on behalf of the trust. Using this information, they
purchased shares, reorganized the company, and made substantial profits. The
respondent, a beneficiary, claimed the appellants held the shares as constructive
trustees and were accountable for the profits. The courts held that the appellants,
despite acting honestly, were in a fiduciary position and liable to account for profits
made using trust-related information and opportunities.
Duty of Skill, Care and Diligence
Section 96(1)(b) of the Companies Act mandates directors to exercise care, diligence,
and skill in exercising their powers and discharing their duties. This section further sets
the standard for such exercise to be that which a reasonably prudent person would
exercise in comparable circumstances.
Dorchester Finance v Stebbing
Two directors were chartered accountants. Two other non-executive directors who left
the management of the company’s affairs to the two with account experience and would
often sign blank cheques to be later signed by one of the directors with the accounts
experience at a later date.
Court held that, directors are required to act with such a degree of skill as may
reasonably be expected from a person with his knowledge and experience. In the
performance of his duties, he had to take such care as an ordinary man might be
expected to take on his own behalf and must exercise any powers vested in him in good
faith and in the interest of the company.
Duty to Disclose
Section 90 of the Companies Act mandates directors or officers of a company who is a
party to a material contract or proposed material contract with the company or who is a
director or an officer of any body, or has a material interest in any body, that is a party to
material contract or proposed material contract with the company. In North-West
Transportation Co Ltd. v Beatty (1887) 12 App Cas 589, the court articulated that directors
are prohibited from acting on a company’s behalf in transactions where they have a personal
interest that conflicts or may conflict with their fiduciary duty to act in the company’s best
interest.
- Voidability of Contract
