"Section 391 of the Companies Act should not be applied to a director who has been in breach of his fiduciary duties because by definition such a director cannot be said to have acted "honestly and reasonably." Discuss. (2000 words).
I. Introduction.
A corporate body can only act by agents, and it is of course the duty of those agents to act to the best of their abilities to promote the interests of the corporation for whom they are working. Such agents have duties to discharge of a fiduciary nature towards their principal. Fiduciary duties arise due to the nature of trust and confidence between the parties.
These duties are designed to make sure that directors do not deviate from their task. Whatever the direc-tor ought to be doing, he has to stick loyally to his duty.
Whether the application of s. 391 to a director who has been in breach of his fiduciary duties is ex-cluded by definition, depends on how the terms of "having acted honestly and reasonably" have to be understood in context of the fiduciary duties as well as in context of s .391.
II. Fiduciary duties - the general principle.
157 (1) implies that "a director shall at all times act honestly and use reasonable diligence in the dis-charge of the duties of his office". It is settled law that this duty to act honestly includes the duty to act in the best interest of the company. A director must not place himself in a position where his duty and interest conflict; nor must he use the powers and assets entrusted to him for improper purposes . .
To be able to examine if the application of s. 391 is excluded concerning a breach of fiduciary duties, the scope of these duties, as well as the interpretation of the terms within the principles, must be laid down.
(1) Duty to act in the company's interests.
"To "act honestly" refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director.
