ACCA LW · Chapter 10 · Question 4 of 13
Directors allotted shares to a friendly company in order to destroy an existing majority shareholder's ability to block a takeover bid, even though they honestly believed this was in the company's interests. Following Howard Smith v Ampol Petroleum, which duty did they breach?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The duty to act within powers and exercise them only for the purposes for which they are conferred (s171)
Explanation
Directors must exercise their powers for a proper purpose, a duty now in s171(b) Companies Act 2006. In Howard Smith v Ampol Petroleum the power to allot shares was used primarily to manipulate control rather than to raise capital, so it was used for an improper purpose, regardless of the directors' honesty. A similar result was reached in Hogg v Cramphorn.
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