Uuniversity first year BUSINESS LAW - introduction to company law Chapter 15 – i
ID: 460178 • Letter: U
Question
Uuniversity first year BUSINESS LAW - introduction to company law
Chapter 15 – introduction to company law
Short Answer Questions (end of chapter – p 482): 1, 2, 4 and 5
Why is a director considered to be a fiduciary?
Explain what is meant by the duty to act with due care, skill and diligence.
4. Briefly explain what a related party transaction is, why disclosure is required at board level and why
member approval of the transaction is required.
5. Why does an insolvent company or a company nearing insolvency have to consider the interests of
creditors when making decisions concerning the allocation of company resources?
Explanation / Answer
Fiduciary duties in company law are based on the concept that directors are trustees of the company and its property. Th e idea arose from the fact that before 1844 most joint stock companies were not incorporated and to validate their existence they vested the property of the company in the trustees. Th e directors were deemed to be trustees as long as they dealt with the entrusted property. Today, however, the description of directors as trustees seems not to be precise enough, because courts when administering equity tend to apply the term “trustee” to anyone in a fi duciary position – liquidator and the company,6 lawyer and the client,7 agent and the principal. The directors are rather agents of the company and when it comes to the duties of care and skill, the analogy with a trustee breaks down – it is expected from the director that he will do the job with reasonable care and skill, which does not necessarily mean to the best of one’s ability.
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