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Directors

Illustration 2 – Duties

Duty to act within powers

HOGG v CRAMPHORN (1967)

Facts:

The directors issued further shares and gave financial assistance for their
purchase in an attempt to fight off a takeover bid, believing it to be in the best
interests of the company.

Held:

The directors were in breach of the duty to act within their powers; however it
was open to the members to ratify their actions, which they did.

Illustration 3 – Duties

Duty to exercise reasonable care and diligence

DORCHESTER FINANCE CO.LTD v STEBBING (1989)

Facts:

The company was a money-lending company and had three directors, Parsons,
Hamilton and Stebbing. All three had considerable accountancy and business
experience (Parsons and Hamilton were chartered accountants). No board
meetings were ever held and Parsons and Hamilton left all the affairs of the
company to Stebbing. Parsons and Hamilton did, however, turn up from time to
time and signed blank cheques on the company’s account which they left
Stebbing to deal with. Stebbing loaned the company’s money without complying
with statutory regulations applying to money lending, such that the loans were
unenforceable.

Held:

All three were liable in negligence. If a director has a special skill (e.g. as an
accountant) he is expected to use it for the benefit of the company.

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