Directors Fiduciary Duties A New Analytical Framework
Directors’ Fiduciary Duties: A New Analytical Framework
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Ernest Lim*
INTRODUCTION
Prior to the enactment of the Companies Act 2006, the equitable principles on directors’ fiduciary duties of loyalty comprising the no-conflict and no-profit rules have been characterised in the form of either a strict or flexible approach.1 Simply put, under the strict approach2, absent the company’s informed consent, liability is automatically triggered if a director enters into engagements which he has, or can have, a personal interest conflicting or which may possibly conflict with that of the company.3 And if he makes a profit, he has to account for that.4 The rules
1
* Faculty of Law, University of Hong Kong. I am very grateful to Professor Sarah Worthington for reading and citing this article, and to Professor Lusina Ho and Peter Chau for very helpful comments on earlier versions. Email: elimwk@hku.hk J. Lowry and R. Edmunds, “The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duty and its
Remedies” (1998) 61 M.L.R. 515; R. Edmunds and J. Lowry, “The No-Conflict-No Profit Rules and the Corporate
Fiduciary: Challenging the Orthodoxy of Absolutism” [2000] J.B.L. 122; S. Scott, “The Corporate Opportunity
Doctrine and Impossibility Arguments” (2003) 66 M.L.R. 852; D.D. Prentice and J. Payne, “The Corporate
Opportunity Doctrine” (2004) 120 L.Q.R. 198; M. Conaglen, “The Nature and Function of Fiduciary Loyalty”
(2005) 121 L.Q.R., 452; D. Kershaw, “Lost in Translation: Corporate Opportunities in Comparative Perspective”
(2005) 25 O.J.L.S. 603; D. Kershaw, “Does it Matter How the Law Thinks About Corporate Opportunities” (2005)
25 L.S. 533; H. C. Hirt, “The Law on Corporate Opportunities in the Court of Appeal: Re Bhullar Bros Ltd” [2005]
J.B.L. 669; T. Singla, “The Fiduciary Duties of Resigning Directors” (2007) 28 Company Lawyer 275; J. Lowry and
R. Edmunds, “Judicial Pragmatism: Directors’ Duties and Post-Resignation Conflicts of
___________________________________
Ernest Lim*
INTRODUCTION
Prior to the enactment of the Companies Act 2006, the equitable principles on directors’ fiduciary duties of loyalty comprising the no-conflict and no-profit rules have been characterised in the form of either a strict or flexible approach.1 Simply put, under the strict approach2, absent the company’s informed consent, liability is automatically triggered if a director enters into engagements which he has, or can have, a personal interest conflicting or which may possibly conflict with that of the company.3 And if he makes a profit, he has to account for that.4 The rules
1
* Faculty of Law, University of Hong Kong. I am very grateful to Professor Sarah Worthington for reading and citing this article, and to Professor Lusina Ho and Peter Chau for very helpful comments on earlier versions. Email: elimwk@hku.hk J. Lowry and R. Edmunds, “The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duty and its
Remedies” (1998) 61 M.L.R. 515; R. Edmunds and J. Lowry, “The No-Conflict-No Profit Rules and the Corporate
Fiduciary: Challenging the Orthodoxy of Absolutism” [2000] J.B.L. 122; S. Scott, “The Corporate Opportunity
Doctrine and Impossibility Arguments” (2003) 66 M.L.R. 852; D.D. Prentice and J. Payne, “The Corporate
Opportunity Doctrine” (2004) 120 L.Q.R. 198; M. Conaglen, “The Nature and Function of Fiduciary Loyalty”
(2005) 121 L.Q.R., 452; D. Kershaw, “Lost in Translation: Corporate Opportunities in Comparative Perspective”
(2005) 25 O.J.L.S. 603; D. Kershaw, “Does it Matter How the Law Thinks About Corporate Opportunities” (2005)
25 L.S. 533; H. C. Hirt, “The Law on Corporate Opportunities in the Court of Appeal: Re Bhullar Bros Ltd” [2005]
J.B.L. 669; T. Singla, “The Fiduciary Duties of Resigning Directors” (2007) 28 Company Lawyer 275; J. Lowry and
R. Edmunds, “Judicial Pragmatism: Directors’ Duties and Post-Resignation Conflicts of