This article is about the obligations of aktiengesetz / §§ 23-40 PDF directors. For the official duties of directors, see Board of directors.
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Directors‘ duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Among different jurisdictions, a number of similarities between the framework for directors‘ duties exist. Directors have Fiduciary Duties under general law in Australia. Section 181: Mirrors the general law duty to act in good faith, in the best interests of the company and for proper purpose. Section 184: Directors breach section 181, 182 and 183 for gain and where the conduct is reckless or intentionally dishonest.
Criminal penalty will be applied to against director who breach 184. If a director is acting dishonestly or recklessly then there will be criminal liability imported under statute. At general law where a director breaches their duties the likely remedy will be equitable damages or statutory compensation or recission. But within context of statute it is not possible. If it is a statutory duty, ASIC will enforce statute.
In Canada, a debate exists on the precise nature of directors‘ duties following the controversial landmark judgment in BCE Inc. This Supreme Court of Canada decision has raised questions as to the nature and extent to which directors owe a duty to non-shareholders. Directors are also strictly charged to exercise their powers only for a proper purpose. For instance, were a director to issue a large number of new shares, not for the purposes of raising capital but to defeat a potential takeover bid, that would be an improper purpose. However, in many jurisdictions the members of the company are permitted to ratify transactions that would otherwise fall foul of this principle. It is also largely accepted in most jurisdictions that this principle should be capable of being abrogated in the company’s constitution.
Directors must exercise their powers for a proper purpose. While in many instances an improper purpose is readily evident, such as a director looking to feather his or her own nest or divert an investment opportunity to a relative, such breaches usually involve a breach of the director’s duty to act in good faith. Greater difficulties arise where the director, while acting in good faith, is serving a purpose that is not regarded by the law as proper. The seminal authority in relation to what amounts to a proper purpose is the Privy Council decision of Howard Smith Ltd v. Not all jurisdictions recognised the „proper purpose“ duty as separate from the „good faith“ duty however. 172 Companies Act 2006, „to promote the success of the company for the benefit of its members as a whole“.