Monday 27 November 2023
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
Hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
Question:
Acacia Ltd, a company engaged in manufacturing computer parts, has been found guilty of violating environmental regulations by discharging hazardous waste into the Thames close to Henley, in the vicinity of London. As a result, the company faces substantial fines from governmental authorities and potential legal action from affected parties in nearby towns. Which of the following statements is correct regarding the liability of the directors of Acacia Ltd?
- The directors cannot be held personally liable for the company’s environmental violations.
- The directors can only be held liable if they directly participated in the act of discharging hazardous waste.
- The directors are automatically liable for the company’s environmental violations, regardless of their involvement.
- The directors can avoid personal liability by demonstrating that they were unaware of the company’s environmental violations.
- The directors can be held personally liable if they failed to take reasonable steps to prevent the company’s environmental violations.
Relevant Reading: Watch the video linked here for a presentation of the duties of directors. For relevant sections in a text see ReviseSQE Business Law and Practice, Chapter 4. You can obtain the text by following this link.
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Answer and feedback to last week’s question: The previous question was as follows: Salma is a director of Yeah Ltd, a private limited company. She receives a lucrative job offer from a competing company and decides to resign from Yeah Ltd. However, she fails to inform the board of directors and secretly starts working for the competitor while still acting as a director of Yeah Ltd. Which of the following statements is correct regarding Salma’s actions?
- Salma’s actions are not a breach of her duties as a director since she has already resigned.
- Salma’s actions are a breach of her duty to act in good faith and in the best interests of Yeah Ltd.
- Salma’s actions are permissible as long as she doesn’t disclose any confidential information of Yeah Ltd to the competitor.
- Salma’s actions are acceptable as long as she compensates Yeah Ltd for any losses suffered due to her competing activities.
- Salma’s actions are only a breach of her duty if Yeah Ltd can prove that it suffered financial harm as a result.
The correct answer is 2: “Salma’s actions are a breach of her duty to act in good faith and in the best interests of Yeah Ltd”. As a director, she has an obligation to avoid conflicts of interest and act in the company’s best interests. By secretly working for a competitor while still acting as a director, Salma is likely to compromise Yeah Ltd’s interests and violate her fiduciary duties. Under s.172 Companies Act 2006, directors have a duty to promote the success of the company. Salma has breached that duty by secretly working for a competitor.
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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