POWERS AND DUTIES

POWERS OF THE BOARD OF DIRECTOR

Functions and powers of the board: 131B(1): the business and affairs of a company

must be managed by, or under the direction of, the board of directors.

(2): the board of directors has all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company subject to any modification, exception or limitation contained in this Act, memo or articles of the company

Table A, the directors’ power of management is provided in Art 73.

PROCEEDING OF THE BOARDProceedings of the board: 131BMEETINGS: The procedural rules is provided

in the articles. NOTICE OF MEETINGS: The period notice is

required will depends on the articles. The proper period required to notify of board meetings depends also on the reasonableness of the notice and the practice of the company

QUORUM: The articles will specify the number of directors who will be present in order for there to be a quorum. Art 83

POWERS OF THE BOARD OF DIRECTOR

Art 86: the directors may delegate their (management) powers to committees consisting of such member/members of their body as they think fit.

Apart from delegating certain functions to committees, the board of directors can also delegate certain functions to a CEO (managing director) under Art 93

131B(1F) responsibility for actions of delegateeIssue of shares 132DCalls-art 13, 28, 31Transfer of shares; cheques & receipts; convene

meeting of members; declare dividends.

Division of powers (members & board)

The decision of members are embodied in a resolution. The general meeting of members is an organ of the co co-

ordinate with the board. If the management of co is vested with the board, the members may not give direction to the directors or override their decisions.

John shaw [1935] Greer LJ: the only way is to alter the articles.Automatic self-cleansing[1906] articles vested management &

control in the board. Directors had express power to sell the co’s property. The members passed resolution instructing the directors to sell the co’s business to another co. the directors disapproved the sale and refused to give effect to the resolution. Members sought a declaration that the directors were bound to carry into effect the resolution passed.

The court declined to grant the declaration.

Division of powersGenerally-art 73 spell the managerial power1)the business of the co shall be managed by the directors;2)The directors may pay all expenses incurred in promoting &

registering the co;3)The directors may exercise all such powers of the co as required

by the Act or the articles4)The directors’ powers are subject to the Act, the articles and the

“regulations” as may be prescribed by the co in general meeting; and

5)The “regulations” prescribed by the co in general meeting shall not be inconsistent with the Act or the articles.6) No “regulation” made by the co shall invalidate any prior act of

the directors.

DIRECTORS DUTIESTHE MAIN FUNCTION of directors duties is to

ensure the loyalty of directors to their company. Directors and other corporate offices are said to be

in a fiduciary relationship with the company that they serve

To whom are the duties owed? Percival v Wright (1902) : to the company

the directors acquired shares from the shareholders without disclosing to them that the directors were negotiating to sell the shares to a third party at a higher price. Swinfen-Eady J held that the directors were under no obligation to disclose to the shareholders the existence of the negotiations. The only duty which was imposed upon the directors was to the company.

THE DIRECTORS FIDUCIARY DUTY the test: Chatterbridge Corp Ltd v Llyods

Bank Ltd [1970] Ch 62, 74-whether an honest and intelligent man in the position of the director of the company concerned, could, in the whole of the existing circumstances have reasonably believed that the transactions were for the benefit of the company.

132(1) “a director of a company shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company”.

WHAT DUTIES ARE OWED TO THE COMPANY

The duties of directors can be examined under the following categories. Directors owe duty to :

Act bona fide in the interests of the company as a whole;

Use powers for their proper purposes;Avoid conflict of interests; andExercise care, skill and diligence

Duty to act bona fide in the interest of the company

What is bona fide? what are the company’s interests?In Re Smith and Fawcett Ltd (1942) Ch

304: where a director is required to act bona fide in the interest of a company, he must act according to what he considers, not what a court may consider, is in the interest of the company.

* the directors are the ones to determine what is best for the company.

Duty to act bona fide in the interest of the company

In Intraco Ltd v Multi-Pak Singapore Pte Ltd [1955] 1 SLR 313, the court held that the proper test in determining whether the directors have acted bona fide was whether an honest and intelligent man in the position of the director in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company.

the court held that the word “honestly” does not mean that a director would only be in breach of duty if he had acted fraudulently. It means to act bona fide in the interest of the company. (the directors should only act to promote or advance the interests of the company).

THE DIRECTORS FIDUCIARY DUTYduty to act in the best interest of the

company- means directors have to act in the best interest of :

Members/ shareholdersCreditorsOther companies within the group of

companiesEmployees s 19(1)(c), customers, suppliersThe community?

THE DIRECTORS FIDUCIARY DUTY Fawziah Holdings Sdn Bhd v Metramac Corp Sdn Bhd

[2006] 1 CLJ 996, 1010“the sooner directors realize that the companies

Act applies to private companies whether family or not, the better it is. A company is not a mere puppet of the directors, and the people interested in the proper and lawful conduct of the company are not just the directors and the shareholders. All sorts of people have a legitimate and proper interest in the well being and preservation of the assets and properties of a company, like creditors and persons having dealings with the company”

Business judgment

Companies (Amendment) Act 2007It originated in the US judge made law

and the doctrine developed over the years.

In Australia-it was legislated in oct 1999.The definition: “business judgment”

means any decision on whether or not to take action in respect of a matter relevant to the business of the company.

Business judgmentS 132(1),(1B): a director who makes a business

judgment is deemed to meet the requirements of the duty under subsec (1A)

makes the business judgment in good faith for a proper purpose;

does not have a material personal interest in the subject matter of the business judgment;

is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and

reasonably believes that the business judgment is in the best interest of the company.