“With reference to statute and case law, critically appraise and evaluate whether the duties directors are subjected to, are adequate to prevent directors abusing their powers and privileges.”
At face value, company directors appear to enjoy a rather privileged position. Providing they have necessary authority, they may exercise potentially wide ranging powers in managing their company’s business. Unlike owner/operators of sole traderships or partnerships, they are not personally liable for the debts of their company (subject to certain exceptions). Directors are subject to various (fiduciary) duties, which until codification in the Companies Act 2006, were scattered across centuries of case law precedent.
This Independent Research Essay requires students to critically appraise and evaluate whether the key duties imposed on directors by statute, and the way in which they have evolved as interpreted by the judiciary, are adequate to prevent directors from “abusing” their powers and privileges.
The candidate’s introduction should set out the structure and contain a thesis statement as to whether s/he considers if directors’ duties are sufficient to prevent potential abuse. This question requires students to research and consider the relevant law, reflect upon it and come to a view, taking into account policy factors such as how best to regulate the conduct of directors given that companies are fundamental to wealth creation in a free market
Please note that there is potentially a lot of relevant information on this topic. One skill a lawyer must develop is to assimilate quantities of information and select that most relevant to support their argument.
Students should begin by briefly explaining the core powers of directors and their “privileges”. Candidates should then survey and assess the main directors’ duties as enshrined in the Companies Act 2006 and interpreted by the case law.
The statutory duties enshrined in the Companies Act 2006 are interpreted according to case law. Please note that the vast majority of directors’ duties cases were decided before the 2006 Act came into force, yet still retain relevance and application. Statutory duties must be considered in the round because directors are subject to a wide range of other regulation and legislation including the Insolvency Act 1986 and the Company Directors’ Disqualification Act 1986.
Directors may incur personal liability, both civil and criminal, for their acts or omissions in directing the company. The scope of the IRE only requires students to focus on the main instances where a director may incur civil liability.
Having surveyed the relevant duties and case law, candidates are required to critically appraise and evaluate whether directors’ duties, as they stand, are adequate. Students may include some recent topical examples where directors may have “abused” their powers and privileges.
Students are encouraged to think critically and independently about the issues arising and to consider questions such as: Do directors abuse their powers and privileges? Is this a problem? Throughout the analysis, students should always consider the justification for directors’ duties. From one view, the privilege of limited liability is justified because it is the reward for taking commercial risk. Conversely, there is a concern that directors’ conduct is not sufficiently regulated and more may need to be done.
Your conclusion needs to contain your argument, supported by justification as to whether directors’ duties are adequate to prevent abuse of their powers and privileges