Company Law
AC208 Company Law Assignment
Name : Wong Kai Jun
Tutorial Group : T14
Tutor : Assoc/P Gan Lay Hong, Pauline
Company Law Assignment The law requires that directors not take corporate opportunities without the permission of the company. The first part of the essay will touch on the ambit of this duty, and then I will go on to discuss whether the law imposes too harsh a burden on directors in this regard.
First of all, "corporate opportunity" refers to a business opportunity which the company is considering or one which the company might be reasonably expected to be interested, given its current line of business. An example of a director breaching her duty by taking a corporate opportunity is given in the Compaq case. Compaq had arranged to engage Personal Automation Mart for its "GEMS" project. However, an internal dispute arose between Tan - Compaq's managing director - and the majority shareholder. This dispute prompted Tan to resign, and she brought along some of the Compaq's employees who assisted in the GEMS project to set up another company Newstead. Personal Automation Mart later transferred the project to Newstead. The court held that Tan breached her fiduciary duties by setting up a competing firm to take advantage of a contract that should have gone to the company. The above case also leads one to ponder, since directors are not allowed to take corporate opportunities without the permission of the company, can the director resign from the company to take up a corporate opportunity? Will his liability be absolved then?
The courts have held that when directors resign from a company to take up a corporate opportunity, he will breach his duty by taking up the opportunity without the permission of the company where:
1. The resignation was prompted or influenced by a desire to acquire the opportunity sought by the company or
2. it was the director's position with the company rather than a new initiative
Name : Wong Kai Jun
Tutorial Group : T14
Tutor : Assoc/P Gan Lay Hong, Pauline
Company Law Assignment The law requires that directors not take corporate opportunities without the permission of the company. The first part of the essay will touch on the ambit of this duty, and then I will go on to discuss whether the law imposes too harsh a burden on directors in this regard.
First of all, "corporate opportunity" refers to a business opportunity which the company is considering or one which the company might be reasonably expected to be interested, given its current line of business. An example of a director breaching her duty by taking a corporate opportunity is given in the Compaq case. Compaq had arranged to engage Personal Automation Mart for its "GEMS" project. However, an internal dispute arose between Tan - Compaq's managing director - and the majority shareholder. This dispute prompted Tan to resign, and she brought along some of the Compaq's employees who assisted in the GEMS project to set up another company Newstead. Personal Automation Mart later transferred the project to Newstead. The court held that Tan breached her fiduciary duties by setting up a competing firm to take advantage of a contract that should have gone to the company. The above case also leads one to ponder, since directors are not allowed to take corporate opportunities without the permission of the company, can the director resign from the company to take up a corporate opportunity? Will his liability be absolved then?
The courts have held that when directors resign from a company to take up a corporate opportunity, he will breach his duty by taking up the opportunity without the permission of the company where:
1. The resignation was prompted or influenced by a desire to acquire the opportunity sought by the company or
2. it was the director's position with the company rather than a new initiative