Part III. 4 Ch. 475. 6 Ch. 104. 36 C.D. 787 Powers, Authorities, and Duties of Directors. remain unpaid, and the onus of proving negligence rests on those who allege it: Liverpool Household Stores, 59 L.J. Ch. 616; nor if they do not sue for a debt: Forest of Dean &c. Co., 10 C.D. 450. A director of a company acting honestly himself will not be held liable for negligence in trusting the officers of the company under him not to conceal from him what they ought to report to him. A director who joined in reports which stated falsely that proper provision had been made for bad and doubtful debts. was held not liable, he believing the statement to be true and having taken reasonable care to ascertain the truth: Dovey v. Cory, 1901, A.C. 477. In that case Lord Davey said (at p. 489): "Before proceeding to discuss the evidence upon which it is sought to fix the respondent with responsibility, I will say a few words with regard to the law upon the subject with a view to ascertaining exactly what it is the appellant must establish. My Lords, I need only refer to three cases which seem to me to contain the whole law upon the subject. In Stringer's case the business of the company in question was of an extremely speculative and hazardous character, and the directors had paid a dividend on their estimated value of assets, which were afterwards totally lost. It was held that the estimate having been made bona fide, and without any intention to defraud anybody, a director could not be made liable when the company was wound-up to replace the money. In Rance's case Lord Romilly laid down the principle which he thought governed cases of this description thus: When an improper payment has been made, if it be a mere error in judgment, it cannot be recovered; if it be a fraudulent payment, then it can.' The learned Judge explained what he meant by a fraudulent payment: 'I mean one where the person who makes it, or is concerned in making it, is at the time aware of the impropriety of making it, but does so in order to obtain a benefit for himself'; and he adds: 'The director may be ignorant of this fact, but if his ignorance arises from his wilfully shutting his eyes to the facts which are before him he is equally guilty.' I think that this statement of the law is very nearly, but not quite, accurate. In my opinion it is not necessary that the motive of the improper payment should be to obtain a benefit for the director himself. I also understand Lord Romilly to include in the expression 'wilfully shutting his eyes' culpable negligence or reckless indifference by the director in the performance of his duties. Lord Romilly decided that case in favour of the director. The Court of Appeal took a different view of the facts from that taken by Lord Romilly, and held that the directors, in the preparation of the so-called balance sheet, had not followed the directions in their Articles of Association, and the balance sheet did not, in fact, purport to show a profit out of which a dividend could be paid. In such a case there can be no doubt of the liability of the director who took part in the payment of the dividend. The case of Leeds Estate Co. v. Shepherd, before Stirling, J., was a case of the same description. The Powers, Authorities, and Duties of Directors. directors had not followed the directions contained in the Article of Asso- Part III. ciation. The learned Judge, in the course of his judgment states the law Chap. 2. thus: 'It seems to me that the views expressed by the learned Judges who decided Rance's case are consistent with the proposition that directors who are proved to have, in fact, paid a dividend out of capital fail to excuse themselves if they have not taken reasonable care to secure the preparation of estimates and statements of account, such as it was their duty to prepare and submit to the shareholders, and have declared the dividends complained of without having exercised thereon their judgment as mercantile men on the estimates and statements submitted to them.' My Lords, I agree in this statement of the law, and I do not think it inconsistent with that of Lord Romilly properly understood and subject to the observation which I have already made upon it. It is by this standard that the conduct of the respondent must be judged in this case.” See also Lucas v. Lord Fitzgerald, L.J., December 26th, 1903. A director who signs cheques for the company is bound to inform himself of the purposes for which the cheques are being given. If he trusts to his co-directors, he does so at his own risk: Joint Stock Discount Co. v. Brown, 8 Eq. 381. It is not necessary for a director to attend every meeting, or to take part in every transaction which is considered at a board meeting: Forest of Dean Co., 10 C.D. 450. But directors absent for three months without leave cannot receive remuneration (Sec. 73 of 1903). "I agree with what has been said as to Mr. Marzetti being liable, and as to the difference between the positions of directors and trustees, though directors are often considered as trustees. Trustees are liable, whatever trouble they take, if the fund in their care goes not according to the trust. Opinions of Counsel, bona fides. or care do not protect them. Now directors are confidential agents, with the liabilities of trustees, but they have a large discretion, and if they act bona fide they are relieved, and are not liable for want of judgment or error if they make a payment which is in fact not for the purposes of the company. In this case we exonerate Mr. Marzetti from knowledge, but I agree that he must be held liable": Marzetti's case, 28 W.R. 541, per Cotton, L.J.; Cullerne v. London &c. Society, 25 Q.B.D. 485. See also Denham & Co., 25 C.D. 752; Marquis of Bute's case, 1892, 2 Ch. 100; Faure Accumulator Co., 40 C.D. 141; Sheffield v. Aizlewood, 44 C.D. 412; London Financial Association v. Kelk, 26 C.D. 107; Grimwade v. Mutual Society, 52 L.T. 409. benefit. 2. A director is not permitted to take any secret benefit Director liable from his position, whether in the shape of commission, quali- for secret fication shares, or gift of shares by vendors, and if he does he is liable to account therefor to the company: Eden v. Ridsdales and Co., 23 Q.B.D. 368; Boston &c. Co. v. Ansell, 39 C.D. 339; Parker v. Lewis, 8 Ch. 1035; Mayor of Salford v. Lever, 1891, 1 Q.B. Part III. Director's power of con Powers, Authorities, and Duties of Directors. 168; Whaley Bridge Co. v. Green, 5 Q.B.D. 109; Postage Stamp &c. Co., 1892, 3 Ch. 566; Englefield Co., 8 C.D. 388; Carriage Cooperative Association, 27 C.D. 322; Archer's case, 1892, 1 Ch. 322. 3. Unless the regulations make express provisions for a director entering into contracts with the company, his power to tracting with the company. do so is limited to taking up shares and debentures: Campbell's case, 4 C.D. 470; London and Colonial Finance Corporation, 77 L.T. 146; and any contract so entered into will be set aside without reference to its advantage or otherwise to the company: Aberdeen &c. Co. v. Blakie, 1 Macq. 461; Parker v. McKenna, 10 Ch. 96, 118; and a director cannot contract with the company through a third person: Cape Breton Co., 29 C.D. 795; Chesterfield and Boythorpe Colliery Co. v. Black, 26 W.R. 207. Misfeasance and breach of trust. But the shareholders may waive their rights and by ordinary resolution confirm a contract in which directors are interested: Grant v. The United Switchback Co., 40 C.D. 135; Kaye v. Croydon Tramway Co., 1898, 1 Ch. 358; Burland v. Earle, 1902, A.C. 83. Where the Articles contain a clause enabling directors to contract with the company, provision should be made for full disclosure (see per Lord Herschell in Bentinck v. Fenn, 12 A.C. 652) to the other directors who alone should vote on the matter; see also Imperial Association v. Coleman, L.R. 6 H.L. 190; Southall v. British Mutual &c., 6 Ch. 614; Costa Rica v. Forwood, 1900, 1 Ch. 756. Where the Articles of Association purport to give directors. very wide powers to enter into contracts with themselves on behalf of the company "having regard to the interests of the company," directors who seek to maintain a contract with themselves made under such a power must bring evidence that in making it they had regard to the interest of the company: Alexander's Timber Co., 70 L.J. Ch. 767. 4. Misfeasance, and breach of trust: (a) A person must not act as a director if he is not duly appointed or becomes disqualified, for, although his action may be valid by reason of Sec. 154 of the Act of 1903 and Art. 97 of Table A, he may be liable to an action at the suit of the company in case it has suffered loss: Coventry's case, 14 C.D. 660; and he is liable to the penalties imposed by Sec. 71 (3) of the Act of 1903. Powers, Authorities, and Duties of Directors. (b) Directors committing a breach of the company's regu- Part III. (c) As to directors not making calls on themselves, see (e) Directors are liable to refund remuneration paid to (f) Directors were ordered to repay money, paid actually for rigging the market, but nominally as preliminary expenses: Marzetti's case, 28 W.R. 541. (g) Directors were held liable for moneys expended by them otherwise than in the ordinary course of business pending a winding-up petition: Neath Harbour Works, 35 W.R. 827. Statutory Duties of Directors. The following are the principal statutory duties of direc- Duties im tors : 1. To cause to be kept in one or more books a register of its members containing the particulars required by Sec. 100 of 1903. Penalty-For knowing and wilful contravention of this provision, £5 per day during default (Sec. 100 of 1903). 2. To prepare and forward to the Registrar the annual list of members, directors, or managers, and summary of the company's position as to capital and mortgages (Sec. 101 of 1903). Penalty-For knowing and wilful default, £5 per day (Sec. 101 of 1903). 3. To permit inspection of the list of members. Penalty-£5 for each refusal, and £2 per day while refusal continues (Sec. 104 of 1903). 4. To embody every minute of reduction of capital when registered in every copy of the Memorandum thereafter issued. Penalty-For knowingly and wilfully permitting default, £1 for each copy (Sec. 49 of 1903, and see Sec. 50). posed by statute. Part III. Duties imposed by statute. Powers, Authorities, and Duties of Directors. 5. To have a registered office. Penalty-£5 per day during default, payable by company (Sec. 124 of 1903). 6. To paint or affix, and keep painted or affixed, the company's name outside every place of business of the company (Sec. 126 of 1903). Penalty-£5 for default, and £5 for every day while default continues (Sec. 127 of 1903). 7. To have the company's name engraven on its seal, and mentioned in all notices, advertisements, official publications, bills of exchange, promissory notes, endorsements, cheques, orders for money or goods, bills of parcels, invoices, receipts, and letters of credit of the company (Sec. 126 of 1903). Penalty-£50 and personal liability of directors on all documents (Sec. 127 of 1903). 8. To keep a register of all mortgages and charges specifically affecting the company's property. Penalty-For omitting to enter mortgage or charge on register, £50; for refusing inspection to creditor or member, £5, and £2 per day while refusal continues (Sec. 129 of 1903). 9. Not to carry on business with fewer than seven members in the case of public or quasi-private company, and in the case of a private company with fewer than two members, for a period of six months. Penalty-On every member cognisant of the fact, and in the case of a private company, on the member, liability for the debts of the company (Secs. 132 and 169 (2) of 1903). Not to carry on business, if a private company, with more than twenty-five members. Penalty-£5 per day (Sec. 169 (1) of 1903). 10. To convene the statutory meeting as required by Sec. 87 of 1903, and to hold a general meeting of the company once at least in every year (Sec. 88 of 1903). 11. To convene an extraordinary general meeting of shareholders on a requisition under Sec. 89 of 1903. 12. To forward to the Registrar, within fifteen days after confirmation, a copy of every special resolution of the company. Penalty-£2 for every day default continues (Sec. 93 of 1903). 13. To embody a copy of every special resolution in every copy of the Articles issued after the passing thereof. Penalty-£1 for each copy (Sec. 94 of 1903). |