134:, requires that directors have to consider the impact of their actions on a much wider range of stakeholders. The Act requires a director "to promote the success of the company for the benefit of its members as a whole", but sets out six factors to which a director must have regards in fulfilling the duty to promote success. These are:
282:
For example, section 309 of the United
Kingdom Companies Act 1985 requires the directors to "have regard to" the interests of the company's employees. The section is not expressed to be imperative, and critics of it suggest that it lacks bite. To date, no claim has ever been reported as having been
120:
There were also concerns that running companies ruthlessly for the financial benefit of the shareholders had a countervailing cost, making directors unwilling to participate in programmes that were beneficial to the community generally, or to the environment. It also meant that companies became much
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and there are fears of widespread litigation, and increase in director's insurance premiums. However, because the new duties are expressed in non-imperative terms, and there is no sanction, the likelihood is that although they will empower the board of directors to take decisions that do not appear
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The key distinctions are for whose benefit the rule is intended (the shareholders on the one hand, and the creditors on the other) and the result (a transaction that fails for want of corporate benefit returns the property to the company generally, and, if the company is insolvent, would be subject
72:
held that the paying of a gratuity to employees prior to their dismissal was an improper exercise of the powers of the company, because the company was no longer a going concern, and thus stood to obtain no benefit (and no furtherance of its objects) through the payment of the gratuity; as
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The proposed new duties have been subject to some criticism, both from those who argue that the new duties do not have sufficient bite, and also from those who fear that it diverts directors' focus from what it is that they are meant to be doing (viz., generating
94:
199:: Although most examples of failure for want of corporate benefit involve transactions which were either a gift, or were made at a substantial undervalue, the concept is different in purpose and effect from provisions of insolvency law which prohibit
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merely by acting with what others might regard as common human decency. Where the company's property could not be recovered from the third party, the directors would be personally liable to recompense the company.
314:. Transactions that fail for want of corporate benefit fail entirely, but transactions at an undervalue usually only require the enriched party to disgorge the extent of the undervalue
130:
However, in some jurisdictions there are proposals to make the power to act otherwise than for the financial benefit of the company even wider. For example, in the United
Kingdom, the
124:
Some legal systems have now abrogated by statute the rule that as against third parties the transaction may be void if it has insufficient commercial benefit to the company.
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less willing to make donations to political parties, which may have had more impetus in bringing about legislative change than concern for communities or the environment.
77:
memorably remarked: "there are to be no cakes and ale except such as are required for the benefit of the company." (The decision itself is reversed by statute).
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Conceptually, it is important to distinguish failure of a transaction for want of corporate benefit from other related legal concepts. These include:
127:
In some countries, statutes now expressly provide for the directors to consider interests other than the pure financial interests of the shareholders.
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would still have failed for want of corporate benefit if, for example, the company had allowed employees to purchase company property at a discount.
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348:
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The rule is generally seen to be particularly harsh towards both third parties and against directors, who could be regarded as being in
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in corporations are in most legal systems required to use their powers for the commercial benefit of the company and its members. At
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in the normal way. But in many jurisdictions, sums recovered relating to a transaction at an undervalue are ring-fenced for the
186:
107:
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189:(i.e. something of value). However, the consideration does not need to be equal, and the gratuity given in
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There is no penalty suggested for failure to consider those six items, and no provision for civil liability
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200:
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the desirability of the company maintaining a reputation for high standards of business conduct, and
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271:
131:
113:
43:
303:
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to directly financially benefit the company, they are unlikely to ever be required to do so.
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the need to foster the company's business relationships with suppliers, customers and others
50:, transactions which were not ostensibly beneficial to the company were set aside as being
307:
95:
Multinational Gas and
Petrochemical Co v Multinational Gas and Petrochemical Services Ltd
159:
213:
261:(although they may have a claim against the directors for false warranty of authority)
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of the company, and will thereby be binding upon the company, see for example under
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84:(and thus outside the scope of their authority) may nonetheless be ratified by the
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85:
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the impact of the company's operations on the community and the environment
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For these purposes, it is important to remember the distinction between
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Who have no recourse against the company, as the transaction is
244:(how the company may achieve those objects), see generally
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An early illustration of this principle is to be found in
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made against a company or a director under that section.
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the likely consequences of any decision in the long term
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Any transaction which the directors enter into which is
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the need to act fairly as between members of a company
270:In the United Kingdom, see section 35B of the
240:(what the company is incorporated to do) and
8:
185:a contract requires both parties to provide
203:at a time when the company is insolvent.
181:in most common law legal systems, to be
141:the interests of the company's employees
229:
27:Legal obligation for company directors
166:Distinction from other legal concepts
7:
25:
82:outside the powers of the company
108:Corporate social responsibility
68:(1883) 23 Ch D 654, where the
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197:Transactions at an undervalue
191:Hutton v West Cork Railway Co
65:Hutton v West Cork Railway Co
365:
349:United Kingdom company law
105:
175:Failure of consideration
54:as against the company.
42:) is a concept that the
201:undervalue transactions
70:English Court of Appeal
32:interest of the company
114:breach of their duty
312:unsecured creditors
102:Modern developments
272:Companies Act 1985
132:Companies Act 2006
44:board of directors
40:commercial benefit
304:security interest
246:Cotman v Brougham
18:Corporate benefit
16:(Redirected from
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219:US corporate law
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308:floating charge
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36:company benefit
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344:Corporate law
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248:AC 514 at 522
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187:consideration
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339:Business law
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179:contract law
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86:shareholders
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39:
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183:enforceable
90:English law
34:(sometimes
333:Categories
321:References
306:such as a
106:See also:
58:Background
48:common law
177:: Under
158:profits),
208:See also
98:Ch 258.
75:Bowen LJ
302:to any
238:objects
242:powers
225:Notes
259:void
52:void
30:The
38:or
335::
92:,
20:)
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