File(s) under permanent embargo
Directors’ duty to act in the best interests of the corporation: 'hard cases make bad law'
Directors’ statutory duty to exercise their powers ‘in the best interests of the
corporation (company)’ can be found in s 181(1)(a) of the Corporations Act
2001 (Cth). On numerous occasions the courts, both in the United Kingdom
and Australia, have held that there it is also a common law duty for directors
to exercise their powers ‘in the best interests of the corporation as a whole’
and that ‘the corporation’ means ‘the corporators (shareholders) as a
general body’. In this article, the focus will be on these phrases and the aim
is to establish whether these phrases create potentially competing duties for
directors. The various interpretations of these duties have resulted in
considerable complexity and legal uncertainty as far as directors’ duties are
concerned. The UK case of Greenhalgh v Arderne Cinemas Ltd and the
Australian High Court case of Ngurli Ltd v McCann will be analysed and
their impact on many other cases will be dealt with in some detail.
Throughout this article the significance of the corporation as a separate legal
entity will be emphasised and it will be argued that directors owe their duties
towards the corporation as a separate legal entity. It follows that directors
can no longer prioritise shareholder interests unless these interests align with the best interests of the corporation as a separate legal entity. Several
other third party interests are represented in the corporation as a separate
legal entity and it will depend on the particular circumstances to what extent
these interests need to be considered when directors fulfil their duties
towards the corporation.
corporation (company)’ can be found in s 181(1)(a) of the Corporations Act
2001 (Cth). On numerous occasions the courts, both in the United Kingdom
and Australia, have held that there it is also a common law duty for directors
to exercise their powers ‘in the best interests of the corporation as a whole’
and that ‘the corporation’ means ‘the corporators (shareholders) as a
general body’. In this article, the focus will be on these phrases and the aim
is to establish whether these phrases create potentially competing duties for
directors. The various interpretations of these duties have resulted in
considerable complexity and legal uncertainty as far as directors’ duties are
concerned. The UK case of Greenhalgh v Arderne Cinemas Ltd and the
Australian High Court case of Ngurli Ltd v McCann will be analysed and
their impact on many other cases will be dealt with in some detail.
Throughout this article the significance of the corporation as a separate legal
entity will be emphasised and it will be argued that directors owe their duties
towards the corporation as a separate legal entity. It follows that directors
can no longer prioritise shareholder interests unless these interests align with the best interests of the corporation as a separate legal entity. Several
other third party interests are represented in the corporation as a separate
legal entity and it will depend on the particular circumstances to what extent
these interests need to be considered when directors fulfil their duties
towards the corporation.
