NO-PROFIT, NO-CONFLICT RULES

The “No-Profit and No-Conflict Rule” and Role of Directors

The “No-Profit and No-Conflict Rule” and Role of Directors

Introduction

The focus of this essay is on the application of “no-conflict rule” and the “no-profit rule”. The role of the director is of much importance, but due to abundant reason, the role is sometimes ambiguous. Before discussing the application of laws to directors, first, briefly, discus the laws.

The “No-conflict” Rule

The “no-conflict rule” is defined as “…which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained, or received by the fiduciary in circumstances where there existed a conflict of personal interest, and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest” (Blackstone 1979, pp.1765).

According to this rule, a fiduciary may not contract with anyone, in which he has/she has a contradictory personal interest.

The “No-Profit” Rule

The “no profit” has been defined as, “…which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from misusing his position for his personal advantage” (Michael 2010, pp.77).

The “no profit” rule is applicable to disallowed benefits even when the fiduciary has performed with altruistic intentions.

A key distinction between the “no conflict” and the “no profit” rule is that the “no profit” rule still applicable even after a director has quitted, been debarred from the management of the corporation, or an administrative receiver has been selected.

The Applicability of the No-Profit Rule

Regardless of whether A had, in fact, been injured or had profited from B's actions and although D's intentions were good, they could not escape being entitled to explanation (Regal Hastings v Gulliver [1967] 2 AC 134).

Understanding the Role of Directors

Obligations and Liability of Directors

The Companies Act codifies for the first time a large number of so-called fiduciary duties, far left in the care of the common law. The new rules supersede the provisions and the existing common law when they have the same object. However, the principles of equity will continue to apply in interpreting the new rules. The government's recommendations will be published shortly and may specify the manner in which the courts will interpret the new body of rules.

The Companies Act provides in respect of officers, the following duties: to act in accordance with the objects and in the interest of society to promote the success of the company and perform an independent assessment; be reasonably careful and competent diligent, avoid conflicts of interest; accept any advantage of others and declare their interests in transactions or proposed contracts. These conventional bonds are similar to those imposed on French leaders. Only the practice courts will give them precise amplitude (Brennan & McDermott 2004, pp. 325).

Before any decision, officers should consider the consequences that it may have on shareholders and ...