st not let their personal interest get in the way of their discharging of the duty.9
The fiduciary duty requires a director to make full disclosure of conflict of interest
and obtain shareholder approval whenever the company enters a director-related
transaction.10 Breach of this duty will make the conflict-of-interest transaction voidable
at the instance of the company; the breaching director will be accountable for any profit
he/she made and any loss the company suffered from the transaction.11 Furthermore,
under the provision of Companies Act 2006 (“CA2006”), if a third party has knowingly
benefited from the breach, the company will also be entitled to a recovery from such
5 Stephen M. Bainbridge, Corporation Law and Economics, Foundation Press, 2002, p513.
6 A board structure itself is seen as a check of opportunistic behavior by controlling shareholders. See
Kraakman, supra note 3, p12.
7 Paul L. Davies, Introduction to Company law, Oxford Univ. Press, 2002, p159.
8 Greenhalgh v. Arderne Cinemas Ltd., [1950] 2 All.E.R. 1120. Whether the company’s interest means
the interests of the shareholders is
https://www.51lunwen.org/ an issue strongly contended by the academics. The “stakeholderists”
disagree the proposition of “shareholder primacy” by contending that the interests should cover broader
constituencies. (See Leonard I. Rotman, Fiduciary Duty, Thomson ltd., 2005, pp421-23.) This paper
follows the approach adopted by the British case law. (CA2006 basically follows the same proposition,
see s.172(1).) Actually, while the two approaches seem to be radically in conflict with each other, their
applications in practice result in much less difference. See Bainbridge, supra note 5, pp413-14.
9 Robin Hollington Q.C., Shareholders’ Rights, Sweet & Maxwell, 2004, pp44-48.
10 Kraakman, supra note 3, p105. The British law allows a company to substitute shareholder approval
with board approval in its Articles of Association (unless the transaction is substantial, then shareholder
approval is mandatory by law.) See Davies, supra note 7, pp171-74.
11 John H. Farrar, et al., Farrar’s Company Law, Butterworths & Co (Publishers) Ltd., 1991, p403.
third party.12
Besides the fiduciary duty, directors also owe a common law duty of using reasonable
skill and care.13 This standard used to be purely subjective; after an objective element
was introduced into the standard in the late 1980s, it became a “twofold” standard
which regards to both the function and ability of the particular director and the
circumstances of the company.14 Notwithstanding this development, the duty of skill
and care has never been strongly enforced, and only played a limited role in director
regulation.15
Shadow Director
The notion of “shadow director” is purely a statutory creation.16 The definition of the
term, as given out in the Companies Act 1985 and later adopted by the Companies Act
2006,17 is “a person in accordance with whose directions or instructions the directors of
the company are accustomed to act.” As observed by Pennington, to extend the
obligations owed by de jure directors to those exercise “the same kind of influence over
the board as dominant directors” was the sole purpose for the creation of the concept of
shadow director.18
To suffice the definition of “shadow director”, the communications between a
putative shadow director and the de jure directo
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