Director is a person who supervises the company in leading the major projects and programs. Majority of companies are using this term at every different department to define roles. For e.g. director of human resources undertake the decisions related to human resource development and appraisal. According to Part 10 Directors and Company Secretaries Division 1 section 2(1) describes a director as a person who holds a position as a director or whatever name it is called as. Section 453 states that a public company or a company limited by guarantee must have at least 2 directors whereas section 454 states that a private company must have at least 1 director (Rogers, 2008) (New Company Ordinance, 2014).
As per the given situation Downing Ltd is an IT company with Sam as a director. Simultaneously Sam was asked to work in Twilight Ltd which has similar business. Sam accepted the offer and remained the director of both companies. A director is found to be in a breach if he simultaneously operates two companies operating in similar business. It is mentioned clearly in the act that a person cannot be a director for two or more competing business at a same time. It is a part of an unfair method of competition under the Hong Kong Company Ordinance (Hong Kong CFA Decides on Directors' Duties and Conflict Of Interest, 2016).
Director has a duty to avoid interest until and unless authorized. It is the duty of the director to disclose interest which is attached with the third party. Director has a duty to disclose any profit caused which is of material interest. In the given situation it is visible that the director has secretly joined another company without seeking permission from the other board member which is an ultra vires act. In Saloman V Saloman (Wan, 2012) it was decided that company and the individual are two separate entities. As per the case law the company and the individual should not be considered as one body. Company is a separate legal entity and it has all rights like a living entity. Director holds a fiduciary duty in the interest of the organization so he has to work in utmost faith in the goodwill (Guidelines for Directors, 2009).In the given case law of Extrasure Travel Insurance Ltd v. Scattergood the duty of a director is related with honesty and loyalty instead of competency.
Duties of a director:
A director has to work in utmost faith for the company. He is assigned with duty to act in good faith so that the goals of an organization could be attained. In case if his activities are against the goodwill of the company it will be considered as ultra vires (Paolini, 2014).
He holds a fiduciary position in a company. The company conferred right to implement duties effectively in order to retrieve maximum result. In the given situation a director joined a similar company that may affect the interest of the company. Both are IT Company which deals in similar business. There are excess possibilities that the director might leak information to some outsider that might affect the interest of the company
In Furs Ltd V Tomkies (Cassidy, 2006) the director has a duty to avoid secret profits. Director has no right to obtain a profitable situation on behalf of the company without disclosing material facts to the shareholders.
In the decided case of Aberdeen Railway Co. v. Balikie Brothers the court stated that no question can be raised related to the fairness and unfairness of the contract to be entered. Directors are at breach if they enter into a contract with their own company.
As per the given situation the director is found guilty of committing act without seeking permission as was directly mentioned in the memorandum that the director has no right to join a company with similar interest. It will affect the interest of the company. A company can take legal action against the director who is found guilty of the act. A director has a duty to disclose every kind of profit it is making outside the company. According art 16, Schedule 2 director who is in conflict of interest has no right to vote while passing a board resolution.
Section 465 of the ordinance describes the duty of a director to exercise rights in a significant manner to avoid conflict of interest (Directors and Company Secretaries, 2014). In the case law of CMS Dolphin Ltd v Simonet (Virgo, 2015) it was stated that if a director holds a fiduciary place in the previous company then has no authority by law to utilize his contacts to create business.
Similarly in Foster Bryant Surveying Ltd v Bryant (Barnett & Scrope, 2008) it was stated that it is the fiduciary duty of the director to avoid conflict of interest.
It is the duty of the director to avoid any possible condition related to conflict of interest which can even exists after a director ceases to be in employment. So it is not permissible under law to resign at one place and seek similar opportunity in present or after maturing even though he doesn’t hold a position of director.
In case if the director leaves the previous company and joins the other company which is dealing in similar goods. The director has to follow the letter of employment while dealing with such situation if it restricts him to join another organization of same business that may affect the previous organization. The company may restrict the director from joining a similar company as he might reveal the secrets of the company. In the given situation the director firstly joined another company without telling Downing Ltd. It is against the policies of the company. A director cannot hold two positions simultaneously. He has to disclose it in general meeting before the shareholders (Guidelines for Directors, 2009).
Secondly as per the corporate governance the director has no right to provide similar interest to other companies. The company may disallow this act directly by putting restrictions on joining another competitive company. Both the companies are dealing in similar business and there are chances that the director might disclose the trade secrets to the new company as he has already signed deals with the clients of previous company.
The director has committed an ultra vires act. The law does not allow him to seek an undue advantage by utilizing the clients of the previous business. This condition depicts the intention of the director behind joining the new business with similar interest.
When a company gets to know that the director has breached any of the duty, the company has an authority under section 473(2) to ratify the deed(New Company Ordinance, 2014).The company has an authority to hold the voting power for which the ratification was done or to hold any share in the company.
A liable director has to pay for the monetary damages he has caused to the company through his act. In this situation Mr. Sam is liable to pay for the damages as he has committed an act which was against the memorandum of the company.
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Guidelines for Directors, (2009). (Online).Available at: (Accessed on: 17/11/16)
Hong Kong CFA Decides On Directors' Duties And Conflict Of Interest,(2016). (Online).Available at: (Accessed on: 17/11/16)
New Company Ordinanace, (2014). Online Available at: (Accessed on: 16/11/16)
Paolini,A.(2014). Research Handbook on Directors Duties. Edward Elgar Publishing
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Virgo,G.(2015). The Principles of the Law of Restitution. OUP Oxford
Wan,M.(2012). Reading the Legal Case: Cross Currents Between Law and the Humanities. Routledge