ABSTRACT

It is important to appreciate that, whatever duties the directors are subjected to, they owe those duties to the company and not to shareholders as individuals. This is because, in recent times the company has been viewed as the ‘corporators as a general body’.48 This is readily understood if the directors are viewed simply as agents for the company, since the company as a separate entity with its own rights and liabilities is the principal, but, even in 1902, in the case of Percival v Wright,49 it was being argued that the directors were trustees both for the company and for the shareholders, who were the real beneficiaries, and, therefore, the directors owed duties to shareholders. This was easily rejected by Swinfen Eady J, who stated that directors were not under any fiduciary duty to individual shareholders. Here, shareholders sought to have share transfers to the directors set aside on the ground that, at the time they were entered into, the directors had not disclosed to them the existence of negotiations with a third party for the purchase of the company’s shares, thus increasing their value. The directors were obliged to act bona fide in the interest of the company and they had no obligations to disclose the existence of the negotiations. It was pointed out though that the directors in this case were approached by the shareholders in the first place and that they had paid the shareholders’ asking price. The scope of the decision has been subsequently narrowed and the broad proposition in the headnote, to the effect that directors may always purchase shares from individual shareholders without disclosing pending negotiations which would affect the share price, has been doubted, especially where there are special circumstances.50