Commercial Aspects of Trusts and Fiduciary Obligations

By Ewan McKendrick | Go to book overview

4
DIRECTORS, CREDITORS, AND SHAREHOLDERS

D. D. Prentice


1. Introduction

It is a generally accepted principle of company law that directors owe their duties to the company and not to the company's creditors or to its shareholders: 'no fiduciary duty is owed by a director to individual members of his company, but only to the company itself, and a fortiori. . . none is owed to a person who is not a member'.1 It is important to appreciate what this means and what it does not mean. It does not mean that the interests of shareholders or creditors can be ignored -- what it entails is that there is no 'free-standing' duty owed by directors because of their status to creditors or to shareholders entitling the latter to sue the directors directly without some involvement on the part of the company. Neither does it entail that the duties which directors owe to the company may not embrace the interests of either the shareholders or the creditors for, as will be seen, in certain circumstances the 'interests of the company' (that most protean of concepts) can embrace the interests of the creditors or the shareholders. There is of course no impediment to a director of his own volition assuming obligations towards shareholders or creditors, for example by agreeing to act as an agent for the shareholders in selling their shares or guaranteeing the debts of the company, but in such situations the duty of the director arises from the assumption of liability and not because of his status.2 The focus of this chapter is statusbased obligations. Lastly, statute can impose on the directors an obligation to consider the interests of any constituency affected by the affairs of the company as is the case in the United Kingdom with respect to employees.3


2. Justification for the Principle of No Free-Standing Duty

As a preliminary matter, it might be useful to determine what, if any, are the justifications for the general principle that a director's duties run to the

____________________
1
Jenkins Committee Report, Cmnd.. 1749 ( 1962) at para. 89.
2
See e.g. Allen v. Hyatt( 1914) 30 TLR 444(directors acting as agents for the shareholders in the sale of their shares); Coleman v. Myers [ 1977] 2 NZLR 225 (on the special facts directors held to have assumed fiduciary obligations towards shareholders).
3
Companies Act 1989, s. 309. It is interesting to note that even in this case the duty is mediated through the company: see's. 309(2); D. D. Prentice, "A Company and Its Employees: The Companies Act 1980" ( 1981) 10 ILJ 1.

-73-

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