Company Law: Directors Duties

Towers v Premier Waste Management Limited [2011] EWCA Civ 923:

The Court of Appeal has given an interesting decision in the case of Towers v Premier Waste Management Limited (2011). Mr. Towers had been a Director of Premier Waste Management Limited a waste disposal and treatment company.

The case involved Directors Duties. Mr. Towers left the company on bad terms in December 2007. It then became apparent at the company that Mr. Towers had in 2003 accepted from a Mr. Colin  Ford, a customer of the company, a personal loan of plant and equipment without charge. Towers had not told the board of the loan. He returned the plant and equipment in 2008 after Mr. Ford had invoiced the company for the cost of its hire.

The company had made a claim against Mr. Ford for a declaration that it was not liable for the hire charges and claimed against Mr. Towers for account of profits received by him. Ford counterclaimed for the cost of hire of the equipment.

Towers had been ordered by the High Court to pay the company £5,200 with interest, totalling £7,997.31.  The company had claimed the sum of £48,525, Towers was ordered to pay the cost of the action.

The duties of a Director were at the time this action arose equitable principles and duties. Those have now been codified under the Companies Act 2006.

The relevant sections are as follows:

  • 172 “A Director of a company must act in a way he considers, in good faith, will be most likely to promote the success of the company for the benefit of its members as a whole.”
  • 175 “ A Director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with interests of the company.”
  • 176 “A Director of a company must not accept a benefit from a third party conferred by reason of—
  • (a)his being a director, or
  • (b)his doing (or not doing) anything as director.”

The Court of Appeal upheld the Trial judge decision that by failing to disclose the loan of the equipment Mr. Towers had breached his duties to the company and failed to observe the no conflict principle which includes a duty not to make a secret profit.

The Court of Appeal also refused to excuse Mr. Towers under section 1157 Companies Act 2006 which allows the court discretion to relieve an officer as a consequence of the breach if that person honestly and reasonably in the circumstances ought to fairly be excused. The Court of Appeal found that by his concealment of the loan Mr. Towers had not acted honestly and reasonably.

This case is a reminder to Directors of how strictly the court views their obligations towards the company and duties owed.

It important to consider that if you have a personal opportunity whether it has come to you in your position as a Director or not , if so, disclose it to the board.

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