ACCA LW ^Eng Syllabus F. Management, Administration And The Regulation Of Companies - Duty of Directors - Past Papers ^{4 / 5}

Kut Ltd is a small private company. Although there are three members of its board of directors, the actual day-to-day running of the business is left to Leo, who simply reports back to the board on the business he has carried out. Leo refers to himself as the chief executive officer of Kut Ltd, although he has never been officially appointed as such.

In October 2014, Leo entered into a normal business contract on Kut Ltd’s behalf with Max. However, the other members of the board have subsequently lost confidence in Leo and have refused to pay Max, claiming that Leo did not have the necessary authority to enter into the contract with him.

Required:

Cy is a member of the board of directors of Dix plc, a construction company.

He also has a significant shareholding in Fox Ltd, a company specialising in supplying building material. Last year Dix plc entered into a contract to buy a large consignment of concrete from Fox Ltd. Cy attended the board meeting which approved the contract and voted in favour of it, without revealing any link with Fox Ltd. The contract price was substantially above the market price and Fox Ltd made a considerable profit on the contract.

Required:

In the context of directors’ duties, advise Dix plc whether Cy has breached any of his directors’ duties, and as to any action which might be taken against him.

In the context of company law, explain the meaning of the following duties owed by directors to their companies:

(a) the duty to promote the success of the company;

(b) the duty to exercise reasonable skill, care and diligence;

(c) the duty to avoid conflicts of interest.