Company Directors:  Regulating Conflicts of
Interests and Formulating a Statement of Duties

A Joint Consultation Paper 

Law Commission
Consultation Paper No 153

Scottish Law Commission
Discussion Paper No 105

The Law Commission and the Scottish Law Commission were set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law.

The Law Commissioners are:

The Honourable Mrs Justice Arden DBE, Chairman
Professor Andrew Burrows
Miss Diana Faber
Mr Charles Harpum
Mr Stephen Silber, QC

The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ.

The Scottish Law Commissioners are:

The Honourable Lord Gill, Chairman
Dr E M Clive
Mr P S Hodge, QC
Professor K G C Reid
Mr N R Whitty

The Secretary of the Scottish Law Commission is Mr J G S Maclean and its offices are at 140 Causewayside, Edinburgh EH9 1PR.

This joint consultation paper, completed on 24 August 1998, is circulated for comment and criticism only.  It does not represent the final views of the two Law Commissions.

Executive Summary
1.	This project falls into two parts.  The first part is a review of Part X of the Companies Act 1985.  This regulates self-dealing by directors and contains provisions as to what information concerning transactions in which directors are interested should be disclosed, and to whom, what the role of shareholders should be, and when such transactions are prohibited.
2.	There are many transactions entered by a company in which directors (or persons connected with them) have an interest.  The provisions in Part X are diverse and complex, and they lack overall coherence and consistency.  Moreover, since they were enacted, there have been important developments in corporate governance.  What this consultation paper aims to do is to obtain a wide range of views on the ways in which these complex and important statutory rules can be modernised and rationalised.
3.	The second half of the project considers the case for having a statutory statement of the duties of directors to their company.  This would include fiduciary duties and the duty of care.  This issue has been considered before but it is time to look at it again.  There have been many calls to make the law in this area more accessible and transparent.  This consultation paper puts forward a range of possibilities for making directors' duties under the general law more widely understood.
4.	Appendix A contains a draft statement of the duties of directors under the general law.  It also contains a draft clause setting out a possible new statutory duty of care in line with recent developments in the general law.
5.	This project aims to contribute to the DTI's recently announced review of company law.
6.	This project contains an economic analysis of the law and proposes empirical research in the consultation period.
7.	A summary of questions for consultees is set out in Part 18.  The consultation period will end on 24 November 1998.

Acknowledgements
J E Parkinson, Corporate Power and Responsibility (1993) by permission of Oxford University Press.
The Kind Report on Corporate Governance (29 November 1994) reproduced with permission of the Institute of Directors in South Africa.
Principles of Corporate Governance 1994 by The American Law Institute.  Reprinted with permission.  All rights reserved.
Edward S Herman, Corporate Control, Corporate Power (1981) by permission of Cambridge University Press.
The Companies Act 1993, New Zealand The Crown.  Reproduced with permission of the Crown.
Review of the Hong Kong Companies Ordinance - Consultancy Report (March 1997) reproduced with permission of The Government of the Hong Kong Special Administrative Region.
The Listing Rules, London Stock Exchange Limited 1998.  Reproduced with permission.
The Combined Code (1998).  Reproduced with permission of the Publishers of the Combined Code, Gee Publishing Ltd, 100 Avenue Road, Swiss Cottage, London NW3 3PG.
Directors' Remuneration, Report of a Study Group chaired by Sir Richard Greenbury ("the Greenbury Report") (17 July 1995).  Reproduced with permission of the Publishers of the Greenbury Report, Gee Publishing Ltd, 100 Avenue Road, Swiss Cottage, London NW3 3PG.
The Committee on Corporate Governance ("the Hampel Committee"), Final Report (January 1998).  Reproduced with permission of the Publishers of the Final Report of the Hampel Committee, Gee Publishing Ltd, 100 Avenue Road, Swiss Cottage, London NW3 3PG.
Financial Reporting Standard and Financial Reporting Standards for Smaller Entities reproduced with permission of the Accounting Standards Board.
True and Fair Joint Options reproduced with permission of Mrs Justice Arden and the CCAB.
The Australian Corporations Law and the Corporate Law Economic Reform Bill 1998 (and Explanatory Memorandum) Commonwealth of Australia.  Reproduced with permission.
The Canada Business Corporation Act 1974-75-76, reproduced with permission of the Canadian Government.

THE LAW COMMISSION
THE SCOTTISH LAW COMMISSION
Company Directors:  Regulating Conflicts of Interests and Formulating a Statement of Duties
CONTENTS

	Paragraph	
GLOSSARY OF ABBREVIATIONS		

PART 1:  INTRODUCTION

The DTI's review of company law	1.1	
Terms of reference	1.2	
Contents of this part	1.5	
Reasons for this project	1.7	
Legislative history of Part X	1.9	
Methodology adopted in reviewing Part X	1.11	
Central general questions	1.13	
Approach to company law reform	1.14	
Departmental review of company law 1991-98	1.16	
x(a)  DTI's consultative documents on the Companies Act 1985, Schedule 6 (October 1991)	
1.17	
x(b)xDTI Working Party 1993-95 on directors' duties	1.18	
x(c)xThe Law Commission's feasibility study on private companies (November 1994)	
1.19	
x(d)xDTI's consultative document on disclosure of directors' shareholdings (August 1996)	
1.20	
Role of self-regulation in modern company law	1.21	
The Stock Exchange's Listing Rules	1.24	
xThe Stock Exchange's Model Code for transactions in securities by directors, certain employees and connected persons	
1.26	
xThe Rules of the Alternative Investment Market (AIM)	1.28	
xCadbury Report	1.30	
xGreenbury Report	1.31	
xHampel Report	1.32	
xThe Stock Exchange's Combined Code of Corporate Governance	1.34	
xThe City Code on Takeovers and Mergers	1.36	
xLegal consequences of a breach of the self-regulatory rules	1.38	
Accounting Standards	1.45	
Typology of companies	1.46	
Regulation of directors	1.49	
xDuties of directors	1.49	
xEnforcement of directors' duties	1.50	
xDisqualification of company directors for unfitness	1.51	
Part X and the law relating to directors' duties and its application to England, Wales and Scotland	
1.52	
Northern Ireland	1.53	
European Community law	1.54	
Matters outside this project	1.55	
Structure of this consultation paper	1.56	
Acknowledgements	1.58	

PART 2:  GUIDING PRINCIPLES FOR REFORM
		
Introduction	2.1	
Aims of company law reform	2.3	
xDTI's company law review	2.3	
xThe Australian Corporations Law and Economic Reform Programme (CLERP)	
2.6	
xRecent company law reform initiatives in Canada, New Zealand and Hong Kong	
2.7	
xxCanada	2.8	
xxNew Zealand	2.9	
xxHong Kong	2.11	
Role of shareholders and directors in companies	2.12	
Function of Part X and directors' duties	2.13	
What are the general principles that should guide reform of the law in the area of Part X and directors' duties?	
2.14	
xLaw Commission Report on Shareholder Remedies	2.14	
xGuiding principles for directors' dealings and duties?	2.17	

PART 3:  ECONOMIC CONSIDERATIONS		

Introduction	
3.1	
The contribution of economic analysis	3.3	
Company law and economic efficiency	3.10	
xCompany law and agency costs	3.10	
xA typology of rules within company law	3.15	
The fiduciary relationship	3.19	
xEfficient default rules:  Some general considerations	3.32	
xThe fiduciary principle should in general operate as a penalty default rule	
3.41	
xHow onerous should the disclosure and/or ratification requirements be?	
3.47	
Analysis of the disclosure and ratification requirements under Part X of the Companies Act	
3.51	
Table	3.52	
xRules governing disclosure and consent through approval, release and ratification under Part X of the Companies Act 1985	
3.52	
xAbsolute prohibitions:  Sections 323, 330	3.54	
xGeneral principles governing disclosure	3.57	
xDisclosure to the board:  Sections 317 and 322B	3.58	
xDisclosure to shareholders:  Sections 314, 318, 324, 325 and 328	3.64	
xApproval and ratification by shareholders:  Sections 312, 315, 316, 319, 320, 322, 322A, and 337	
3.66	
xGeneral conclusions on Part X	3.71	
Civil remedies for breach of fiduciary duty	3.73	
The efficiency of criminal sanctions for breach of fiduciary duty	3.79	
The duty of care	3.85	
Conclusions	3.92	

SECTION A:  PART X OF THE COMPANIES ACT 1985		

PART 4:  SUBSTATIVE IMPROVEMENTS 1:  SECTIONS 312-323 OF THE COMPANIES ACT 1985		

Introduction	
4.1	
xImpact of the economic considerations discussed in Part 3	4.9	
xImpact of the general principles provisionally identified in Part 2	4.10	
Sections 312-316:  Payment to director for loss of office, etc	4.11	
xGeneral	4.11	
xThe Jenkins Committee	4.13	
xThe distinction between covenanted and uncovenanted payments and the Privy Council's decision in Taupo Totara Timber v Rowe	
4.14	
xLater authorities	4.23	
xIs section 316(3) properly applied?	4.25	
xRole of self-regulation	4.28	
xx(i)   Hampel Committee:  Pre-determined compensation clauses encouraged	
4.28	
xx(ii)xThe Combined Code:  Role of remuneration committees explained	
4.30	
xx(iii)xThe City Code	4.33	
xOverlap with section 320	4.35	
xTakeover offers and sections 314-315	4.36	
xConflicting claims	4.39	
xCivil remedies	4.40	
xOptions for reform and issues reviewed	4.42	
xxOption 1:xNo Change	4.43	
xxOption 2:xReverse the effect of the decision in Taupo Totara Timber v Rowe	
4.44	
xxOption 3:xAmend sections 312-316 to make it clear that they do not apply to covenanted payments	
4.47	
xxOption 4:xExtend the provisions of sections 312-316 to former directors	
4.48	
xxOption 5:xExtend the provisions of sections 312-316 to cover payments to connected persons	
4.49	
xxOption 6:xRequire approvals by company in general meeting under sections 312 and 313 to be by special resolution and where disclosure under those sections or section 314 is required, stipulate that disclosure should cover payments made on the same occasion for which disclosure is not required by those sections	

4.50	
xxOption 7:xNon -contractual payments received for loss of other offices	
4.51	
xxOption 8:xDeem payments approved if notified and shareholders members raise no objection to the proposed payment within a stipulated period	

4.54	
xxOption 9:xAmend section 314 and 315 to cover acquisitions by way of a cancellation of shares under schemes of arrangement etc	

4.55	
xxOption 10:xAmend section 312-314 to provide civil remedies against the directors and section 315 so that a claim under this sections has priority where the amount paid to the director was taken into account in determining the price to offeree shareholders	

4.56	
xxOption 11:xReinforce section 316(3) by requiring companies to disclose in their annual accounts particulars of the calculation of compensation paid to a director	

4.60	
xxOption 12:xExtend section 312 to cover the situation where the payment is made by a company to a director of its holding company in connection with loss of office as such director	

4.61	
Section 317:  Disclosure by directors to their board	4.62	
xGeneral	4.62	
xEffect of section 317	4.71	
xStock Exchange requirements	4.81	
xRequirements of the codes	4.83	
xx(a)xThe corporate governance reports	4.83	
xx(b)xThe Combined Code	4.85	
xWhat must a director disclose?	4.87	
xDisclosure of interests already known to the board	4.88	
xDisclosure by a sole director	4.91	
xVoting by the interested director	4.93	
xOptions for reform	4.94	
xxOption 1:xNo change	4.95	
xxOption 2:xLimit the duty of disclosure to material interests only	
4.96	
xxOption 3:xExempt from the obligation of disclosure transactions or arrangements which either do not come before the board or a committee of the board, or do not require approval by the board or a committee of the board	

4.98	
xxOption 4:xExempt sole director companies	4.100	
xxOption 5:xExempt from the obligation of disclosure interests in director's own service agreement	
4.102	
xxOption 6:xExempt from the obligation of disclosure executive directors' interests in contracts or arrangements made for the benefit of all employees	

4.103	
xxOption 7:xExempt from the obligation of disclosure interests arising by reason only of a directorship of, or non-beneficial shareholding in, another group company	

4.104	
xxOption 8:xExempt from disclosure an interest of which a director has no knowledge and of which it is unreasonable to expect him to have knowledge 	

4.105	
xxOption 9:xMake any contract voidable where the requisite disclosure has not been made and provide a civil remedy for compensation or disgorgement, or alternatively provide that the section does not affect any resulting contract	

4.106	
xxOption 10:xDisqualify directors of public companies from voting on matters in which they have an interest or a material interest	

4.114	
xxOption 11:xRequire directors to disclose material interests of their connected persons of which they are aware	
4.115	
xxOption 12:xRequire that general notice under section 317(3) include details of the interest concerned	
4.116	
xxOption 13:xRequire a register of directors interests to be kept which would be open to inspection by members or require a report to be made to shareholders in the annual accounts of the nature of interests which directors had disclosed	

4.117	
Section 318:  Directors' service contracts (1)	4.119	
xGeneral	4.119	
xThe Stock Exchange Listing Rules	4.125	
xThe Combined Code	4.127	
xThe City Code	4.129	
xOptions for reform	4.131	
xxOption 1:xNo change	4.133	
xxOption 2:xThe Secretary of State should have power to disapply section 318 to the extent that, in the Secretary of State's opinion, a company is already bound by sufficient comparable disclosure obligations under the Listing Rules	

4.135	
xxOption 3:xExtend section 318 to contracts for services and non-executive directors' letters of appointment	
4.137	
xxOption 4:xRepeal of subsection (5) (Director to work abroad)	4.140	
xxOption 5:xRepeal of subsection (11) (Contract with less than 12 months to run)	
4.145	
xxOption 6:xAmend section 318 to require disclosure of particulars of terms collateral to the service contract	
4.148	
xxOption 7:xAllow public inspection of directors' service contracts	
4.151	
Section 319:   Directors service contracts (2)	4.153	
xGeneral	4.153	
xListed companies and self-regulation	4.157	
xx(a)xRecommendations of the Cadbury, Greenbury and Hampel Committees	
4.158	
xx(b)xThe Combined Code	4.159	
x"Rolling" contracts, fixed-term contracts and long notice periods	4.161	
xOptions for reform	4.163	
xxOption 1:  xNo change	4.164	
xxOption 2:  xReduce the statutory period in section 319(1) from
5 years to 1, 2 or 3 years	
4.165	
xxOption 3:xAmend section 319 to prohibit (without shareholder approval) the creation of "rolling contracts" having
a notice of contract period in excess of the period
permitted by section 319	

4.169	
xxOption 4:xDeem terms approved if notified and members raised
no objection to the proposed term within a stipulated
period	

4.170	
Section 320-322:  Substantial property transactions involving
      directors etc	
4.172	
xSection 320	4.173	
xSection 321	4.175	
xSection 322	4.177	
xThe Stock Exchange Listing Rules	4.182	
xAIM Rules	4.186	
xThe City Code	4.187	
xOverlap with section 316(3) and the effect of the definition of
x "non-cash asset" in section 739	
4.189	
xOptions for reform	4.190	
xxOption 1:xNo change	4.191	
xxOption 2:xAmend section 320 so that it does not prohibit a
 company from making a contract which is subject to
a condition that the company first obtains approval
under section 320	

4.192	
xxOption 3:xAmend section 320 to make it clear that it does not
apply to covenanted payments under service
agreements with directors or to payments to which
section 316(3) applies	

4.193	
xxOption 4:xA safe harbour for transactions with administrative
 receivers and court-appointed administrators	
4.194	
xxOption 5:xGive the Secretary of State power to exempt listed
companies from section 320	
4.195	
xxOption 6:xDispense with the requirement for shareholder
 approval where the independent non-executive
 directors approve the transaction	

4.197	
xxOption 7:xDeem payments approved if notified and members
raise no objection to the proposed payment within a
stipulated period	

4.200	
xxOption 8:xProvide that shareholder approval is not required if
an expert reports that in his opinion the transaction
was fair and reasonable	

4.201	
xxOption 9:xProvide that the statutory consequences of breach
apply only where the company suffers prejudice	
4.203	
Section 322A:   Transactions beyond the directors' powers	4.205	
Section 322B:  Contracts with sole member directors	4.210	
Section 323 and 327:  Prohibition on option dealing with directors and their near families	
4.214	
xGeneral	4.214	
xInsider dealing	4.217	
xThe Criminal Justice Act 1993	4.219	
xThe Stock Exchange Model Code	4.223	
xOptions for reform	4.225	
xxOption 1:xNo change	4.226	
xxOption 2:xMake off-market dealings in options with inside
information an offence	
4.227	
xxOption 3:xNo change, but exempt dealings in options under a
scheme for the benefit of employees	
4.229	

PART 5:  SUBSTANTIVE IMPROVEMENTS 2:  DISCLOSURE OF DIRECTORS' SHARE DEALINGS (SECTIONS 324-326, 328-329 AND SCHEDULE 13)		

Introduction	
5.1	
The obligation of disclosure:  Sections 324 and 328 - duty of director to notify own and attributed shareholdings in company	
5.6	
xGeneral	5.6	
xThe DTI's August 1996 proposals	5.8	
xConsultees' response and the DTI's conclusion	5.13	
xOption for reform:   Exempt from disclosure under section 324 directors' non-beneficial interests	
5.19	
The meaning of "interest" and the mechanics of disclosure:  Schedule 13, Parts I-III	
5.20	
xGeneral	5.20	
The company's register of directors' interests:  Sections 325 and 326 and Schedule 13, Part IV	
5.27	
xGeneral	5.27	
xThe DTI's August 1996 proposals	5.28	
xConsultees' response and the DTI's conclusion	5.29	
xRemaining issues for consideration	5.30	
Notification to the exchanges:  Section 329	5.31	
xGeneral	5.31	
xThe DTI's August 1996 proposals	5.33	
xConsultees' response and the DTI's conclusion	5.36	

PART 6:  SUBSTANTIVE IMPROVEMENTS 3:  LOANS AND SIMILAR TRANSACTIONS (SECTIONS 330-342)		

Introduction	
6.1	
Sections 330 and 331:  General restriction on loans etc to directors and persons connected with them and definitions for the purposes of section 330 and subsequent sections	

6.10	
xExplanation of the prohibitions	6.10	
xAre restrictions other than on making loans to directors
x necessary?	
6.12	
xTo which companies should the prohibitions extend?	6.13	
Sections 322-338:  Exemptions from prohibitions	6.15	
x(1)xShort-term quasi-loans (section 332)	6.15	
x(2)xIntra-group loans (section 333)	6.16	
x(3)xLoans of small amounts (section 334)	6.17	
x(4)xMinor transactions (section 335(1))	6.18	
x(5)xTransactions in the ordinary court of business 
xx(section 335(2))	
6.19	
x(6)xTransactions at the behest of the holding company 
xx(section 336)	
6.21	
x(7)xFunding of director's expenditure on duty to the company
xx(section 337)	
6.22	
x(8)xLoan or quasi-loan by a money-lending company 
xx(section 338)	
6.24	
Sections 339-340: "Relevant amounts" for purposes of section 334 and other sections and determining the "value" of transactions or arrangements	

6.26	
Section 341:  Civil remedies	6.29	
Section 342:  Criminal penalties for breach of section 330	6.31	
A possible additional exemption for loans made with the consent of shareholders	
6.33	
xSafeguards for shareholders	6.35	
xSafeguards for creditors	6.37	
xxOption (1):xThe company must have to provide for the whole of
 the value of the transaction out of its distributable
 profits	

6.37	
xxOption (2):xThe company's directors must make a statutory declaration as required by section 173 of the
 Companies Act 1985	

6.38	
xTo what types of transactions and companies should the new
x exemption refer?	
6.40	
xPublicity requirements	6.42	
xOptions by members or creditors	6.43	

PART 7:  SUBSTANTIVE IMPROVEMENTS 4:  DISCLOSURE OF TRANSACTIONS IN WHICH DIRECTORS AND THEIR CONNECTED PERSONS ARE INTERESTED IN THE ANNUAL ACCOUNTS (SCHEDULE 6, PART II) AND THE SPECIAL PROVISIONS FOR BANKS (SECTIONS 343 AND 344)		

Introduction	
7.1	
Schedule 6, Part II:  Disclosure in annual accounts of transactions in which directors are interested	
7.5	
xGeneral	7.5	
xMateriality	7.6	
Sections 343-344:  Special provisions for banks	7.12	

PART 8:  SUBSTANTIVE IMPROVEMENTS 5:  CONNECTED PERSONS (SECTION 346) AND REMAINING SECTIONS OF PART X OF THE COMPANIES ACT 1985		

Introduction	
8.1	
Section 346:  The meaning of connected person	8.2	
xGeneral	8.2	
xOption for reform (1):  Make specified additions to the list of 
xconnected persons	
8.14	
xOption for reform (2):  Give the Secretary of State power to vary 
xthe list by regulation	
8.18	
The remaining sections of Part X	8.19	

PART 9:  FURTHER OPTIONS:  (1) CAN SECTIONS IN PART X BE REPEALED?  (2) WOULD PART X BE IMPROVED IF IT WAS REWRITTEN?		

Introduction	
9.1	
Option 1:  Repealing sections in Part X	9.3	
xRepealing groups of sections and relying on the general law	9.3	
xxPractical consequences of relying on the general duties	9.8	
xxSubstantive differences between sections 312-316, 320-322 and
xx 330-342 and the general law	
9.16	
xxReasons for repealing sections 312-313, 320-322 and 330-342	9.22	
xxReasons for retaining these sections	9.25	
xRepeal of section 311 (Prohibition on tax-free payments to
x directors)	
9.30	
xRepeal of section 323 (Option dealing with directors)	9.33	
Option 2:  Can Part X be improved by rewriting	9.34	

PART 10:  SHOULD PART X OF THE COMPANIES ACT 1985 BE DECRIMINALISED		

Introduction	
10.1	
(1)  Description of the various offences in Part X	10.10	
xIntroduction - mens rea and the concept of "officer in default"	10.10	
xSummary of specific offences in Part X	10.13	
xxSection 314(3):  Director's duty of disclosure on takeover etc	10.13	
xxSection 317(7):  Directors to disclose interest in contracts	10.14	
xxSection 318(8):  Directors' service contracts to be open to
                                           inspection	
10.15	
xxSection 322B:   Contracts with sole members who are directors	10.16	
xxSection 323(1):  Prohibition on directors dealing in share options	10.17	
xxSection 324(7):  Duty of director to disclose shareholdings in own
                                            company	
10.18	
xxSection 326(2):  Sanctions for non-compliance with section 325
                                           etc	10.20	
xxSection 329(3):  Duty to notify stock exchange of matters notified
                                          under preceding section	
10.21	
xxSection 342(1)-(3):  Criminal penalties for breach of section 330
                                            in relation to prohibited loans	
10.23	
xxSection 343:  Record of transactions not disclosed in company
                                      accounts	
10.23	
(2)  Are there alternative sanctions for these breaches?	10.24	
x(i)  xCivil remedies for breach of those provisions of Part X
xx which also involve criminal sanctions	
10.25	
x(ii) xWinding up by the court	10.28	
x(iii)xCompany Directors Disqualification Act 1986	10.29	
x(iv)xSection 459 unfair prejudice remedy	10.31	
x(v)xSelf-regulatory rules	10.32	
x(vi)xInvestigation	10.33	
(3)xAre civil penalties appropriate?	10.34	
(4)xThe arguments for and against attaching criminal sanctions to breaches of Part X	
10.37	
(5)xShould a new offences  be created where payments are made in breach of sections 312-316 of the Companies Act 1985?	
10.40	

SECTION B:  THE CASE FOR A STATUTORY STATEMENT OF DIRECTORS' DUTIES UNDER THE GENERAL LAW

PART 11:  FIDUCIARY DUTIES:  THE CURRENT LAW		

Introduction	
11.1	
Directors as fiduciaries	11.2	
xThe classification of directors' fiduciary duties	11.4	
xLoyalty	11.5	
xProper purpose	11.6	
xNo fetters on discretion	11.11	
xNo conflict and no-profit rules	11.13	
xDuty to act in accordance with the company's constitution	11.18	
xDuty to deal fairly as between different shareholders	11.19	
To whom do the directors owe their fiduciary duties?	11.21	
Ratification by the company in general meeting	11.30	
xWhere no question of insolvency or illegality arises	11.30	
xWhere the company's solvency is prejudiced	11.39	
xWhere the act is illegal or outside the company's powers	11.40	
Capping directors' liabilities 1:  By order of the court under section 727 of the Companies Act 1985	
11.41	
Capping directors' liabilities 2:  Statutory prohibition of indemnities under section 310 of the Companies Act 1985 and the possibility of ad hoc releases	

11.46	
xHistory of section 310	11.48	
xRelationship between section 310 and articles which modify the
x no conflict rule	
11.49	
xRelease of claims arising against directors	11.52	
D&O insurance	11.53	

PART 12:  DUTY OF CARE:  THE CURRENT LAW		

The traditional view	
12.3	
The modern view	12.8	
xA stricter duty in negligence	12.8	
Reliance on co-directors, officers, auditors and professional advisers	
12.12	
xCo-directors and officers	12.13	
xAuditors, solicitors and other outside advisers	12.17	
Trustees' duty of skill and care	12.20	
Duty of directors under German law	12.26	
xIntroductory remarks:  Director's liability for due care	12.27	
xBurden of proof	12.31	
xRelease from liability	12.32	

PART 13:  PREVIOUS PROPOSALS FOR A STATUTORY STATEMENT OR DIRECTORS DUTIES		

The Davy Committee	
13.2	
The Greene Committee	13.6	
The Jenkins Committee	13.7	
Attempts to introduce statutory statements of the duties of directors	
13.11	
xCompanies Bill 1973	13.11	
xCompanies Bill 1978 clauses 44 and 45	13.13	

PART 14:  A STATEMENT OF DIRECTORS' DUTIES:  OPTIONS FOR REFORM		

Introduction	
14.1	
Criticisms of the inaccessibility of the present law	14.4	
Option 1:  A comprehensive codification	14.8	
xGeneral	14.8	
xArguments in favour of codification	14.9	
xArguments against codification	14.13	
xPrevious consideration of codification	14.22	
Option 2:  Partial codification of directors' fiduciary duties	14.23	
Option 3:  Statutory statement of directors' duties not replacing the general law	
14.25	
Option 4:  A non-binding statement of the main duties of directors to be used in prescribed forms etc	
14.32	
Option 5:  Authoritative pamphlets	14.41	

PART 15:  DUTY OF CARE:  OPTIONS FOR REFORM		

Introduction	
15.1	
Current position in respect of the standard of care	15.3	
Should there be a statutory statement of the duty of care?	15.6	
Content of a statutory statement of the duty of care	15.10	
xOption 1:  A subjective test	15.11	
xOption 2:  A dual objective/subjective test	15.20	
xOption 3:  An objective test only	15.29	
Matters of commercial judgment	15.30	
xThe business judgment rule in the United States	15.32	
xThe Australian approach	15.35	
xSouth Africa	15.40	
xIf there is to be a statutory statement of the director's duty of
x care, should there be a statutory business judgment rule?	
15.41	
Reliance and delegation	15.42	
Statutory statement of the duty of care without a statutory statement of fiduciary duties	
15.51	

SECTION C:  MISCELLANEOUS MATTERS		

PART 16:  EMPIRICAL SURVEY OF DIRECTORS		

Introduction	
16.1	
Empirical research	16.2	
Geographical considerations and acknowledgements	16.8	

PART 17:  HOW SHOULD THE LAW APPLY TO DIFFERENT CATEGORIES OF DIRECTOR?		

Introduction	
17.1	
The classification of directors	17.2	
xDe jure directors	17.4	
xDe facto directors	17.5	
xShadow directors	17.11	
xAlternate directors	17.17	
Executive and non-executive directors	17.21	
Nominee directors	17.29	

PART 18:  SUMMARY OF QUESTIONS FOR CONSULTATION	

APPENDIX A:  DRAFT CLAUSES RELATING TO DIRECTORS' DUTIES AND DRAFT STATEMENT OF DIRECTORS' DUTIES		

APPENDIX B:  DRAFT PROVISIONS ON LOANS TO DIRECTORS		

APPENDIX C:  TABLE OF DERIVATIONS		

APPENDIX D:  EXTRACTS FROM THE STOCK EXCHANGE'S COMBINED CODE		

APPENDIX E:  EXTRACTS FROM THE LISTING RULES OF THE STOCK EXCHANGE		

APPENDIX F:  CADBURY CODE OF BEST PRACTICE		

APPENDIX G:  CADBURY STATEMENT OF DIRECTORS' RESPONSIBILITIES		

APPENDIX H:  EXTRACTS FROM AUSTRALIAN CORPORATIONS LAW		

APPENDIX I:  EXTRACTS FROM NEW ZEALAND COMPANIES ACT 1993		

APPENDIX J:  EXTRACTS FROM THE CANADIAN BUSINESS CORPORATIONS ACT 1985		

APPENDIX K:  ARTICLE 93 OF THE GERMAN STOCK CORPORATION ACT		

APPENDIX L:  EXTRACTS FROM THE REVIEW OF THE HONG KONG COMPANIES ORDINANCE - CONSULTANCY REPORT (MARCH 1997)		

APPENDIX M:  EXTRACTS FROM THE CITY CODE ON TAKEOVERS AND MERGERS		

APPENDIX N:  FINANCIAL REPORTING, STANDARD 8 RELATED PARTY DISCLOSURES (FRS 8)		

APPENDIX O:  LIST OF INDIVIDUALS AND ORGANISATIONS WHO HAVE ASSISTED WITH THE PROJECT		

GLOSSARY OF ABBREVIATIONS
AGM - Annual general meeting
AIM - Alternative Investment Market
AktG - the German Stock Corporation Act
CBCA - Canada Business Corporations Act 1974-75-56
the Cadbury Committee - the Committee on the Financial Aspects of Corporate Governance, chaired by Sir Adrian Cadbury
the Cadbury Report - Report of the Committee on the Financial Aspects of Corporate Governance (December 1992)
the Cadbury Code of Best Practice - incorporated in the Report of the Committee on the Financial Aspects of Corporate Governance (December 1992)
CBI - Confederation of British Industry
CISCO - the City Group for Smaller Companies	
the City Code - the City Code on Takeovers and Mergers
CJA - Criminal Justice Act 1993
CLERP - the Australian Corporations Law and Economic Reform Programme
the Combined Code - the London Stock Exchange's Principles of Good Governance and Code of Best Practice
CSLRC - Companies and Securities Law Committee (Australia)
the Cohen Committee - the Committee on Company Law Amendment, chaired by Mr Justice Cohen
the Cohen Report - the Report of the Committee on Company Law Amendment, chaired by Mr Justice Cohen (1945) Cmd 6659
the Davey Committee - Report of the Departmental Committee to enquire what amendments are necessary in the acts relating to joint stock companies incorporated with limited liability under the Companies Acts, 1862-1890, chaired of Lord Davey (1895)
the Dickerson Report - Proposals for a New Business Corporations Law for Canada (1971)
D&O insurance - Directors and officers liability insurance
Draft Civil Proceedings Rules - Access to Justice, Draft Civil Proceedings Rules (July 1996)
DTI - the Department of Trade and Industry
the DTI's Consultative Paper - Modern Company Law for a Competitive Economy (March 1998)
the DTIs company law review - the DTI's review of company law launched in March 1998
EGM - extraordinary general meeting
ESRC Centre for Business Research - Economic and Social Research Council, Centre for Business Research at the University of Cambridge
FRS - Financial Reporting Standard
FTSE 100 & 350 - the FTSE International compiled indices of, respectively, the top 100 and 350 companies, by market capitalisation, quoted on the London Stock Exchange.  FTSE International is jointly owned by the Financial Times and the Stock Exchange.
Greene Committee - the Company Law Amendment Committee 1925/26, chaired by Sir Wilfred Greene
the Greenbury Committee - the study Group on Directors' Remuneration, chaired by Sir Richard Greenbury
the Greenbury Report  - Directors' Remuneration:  the Report of a study Group, chaired by Sir Richard Greenbury (July 1995)
the Hampel Committee - the Second Committee on the Financial Aspects of Corporate Governance, chair by Sir Ronald Hampel
the Hampel Report - Final Report of the Committee on Corporate Governance, chaired by Sir Ronald Hampel (January 1998)
the Hong Kong Consultancy Report - The Review of the Hong Kong Companies Ordinance - Consultancy Report (March 1997)
the Jenkins Committee - the Company Law Committee, chaired by Lord Jenkins
the Jenkins Report  - the Report of the Company Law Committee, chaired by Lord Jenkins (1962) Cmnd 1749
the King Committee - Committee set up by the Institute of Directors in Southern Africa under the chairmanship of Mervyn E King SC to consider various areas of corporate governance
the King Report - the King Report on Corporate Governance (29 November 1994)
the Listing Rules - the Listing rules for the official list of the London Stock Exchange
the Model Code - a code of dealing for transactions in securities by directors, certain employees and connected persons, which appears in an appendix to chapter 16 of the Listing Rules
OECD - the Organisation of Economic Co-operation and Development
PIRC - Pensions and Investment Research Consultants Ltd
plc - public limited company
the Registrar - the registrar performing the duty of registering companies under the Companies Act 1985 in England and Wales or Scotland
SAS - Statement of Accounting Standards
Table A - Companies Act 1985, Table A (SI 1985/805, Schedule)
Woolf Interim Report - Access to Justice, Interim Report to the Lord Chancellor on the Civil Justice System in England and Wales (June 1995)
Woolf Report - Access to Justice, The Final Report to the Lord Chancellor on the Civil Justice System in England and Wales (July 1996)