Chapter 22 Multiple Choice Questions

. Which one of the following is NOT a general duty?

To act to promote the success of the company for the benefit of its members.

To obtain shareholder approval for substantial property transactions.

To avoid conflicts of interest.

To act in accordance with the company's constitution.

To exercise reasonable care, skill and diligence.

To exercise independent judgment.

To not accept bribes from third parties.

To declare interest in proposed transactions or arrangements.

. The general duties of a director are only ever owed to the company. True or False?

True

False

. Which one of the following is not a possible effect of a director breaching the duty to act in accordance with the constitution?

If the transaction outside the constitution is entered into with a third party, then the company can set aside the transaction.

If the transaction outside the constitution is entered into with the company, then the company can set aside the transaction.

The director will be required to account for any gains made.

The director will be required to indemnify the company for any losses sustained as a result of the transaction.

. If the directors exercise their powers for several purposes, how will the courts determine if the proper purpose duty has been breached?

If any of the purposes are improper, the duty will be breached.

If the majority of purposes are improper, the duty will be breached.

If the directors were aware that their exercise of the power was improper, the duty will be breached.

If the dominant purpose was improper, the duty will be breached.

. Regarding the duty to promote the success of the company, which one of the following statements is true?

The directors are required to give equal weight to the interests of the company, its shareholders, its employees and any other relevant interests.

Where the interests of the company and its shareholders conflict, preference should be given to the interests of the company.

The interests of the company are always the same as the interests of its shareholders.

The duty to promote the success of the company is objective, meaning that what the directors actually believed is irrelevant.

. The duty to promote the success of the company for the benefit of its members requires the directors to have regard to a list of other factors. Which one of the following is NOT present on this list found in s 172(1)?

The company's employees.

The likely consequences of any decision in the long-term.

The need to foster the company's business relationships with suppliers, customers and others.

The company's creditors.

The impact of the company's operation on the community and the environment.

The need to act fairly as between members of the company.

. Directors can never fetter their own discretion. True or False?

True

False

. Which one of the following most accurately describes the duty to exercise reasonable care, skill and diligence?

The duty is entirely objective.

The subjective element of the duty applies to all directors.

The objective element applies to all directors, whereas the subjective element only applies to directors who have some special skill or ability.

The duty is entirely subjective.

The subjective element of the duty serves to lower the standard expected of the director.

. Scott is a director of Hazell plc. While acting for the company, he becomes aware of a business opportunity that the company is unable to exploit. He takes advantage of this opportunity himself and makes a considerable profit. Can Scott keep the profit made?

Yes, providing that the articles allow the directors to authorize the transaction, and they do so prior to Scott entering into it.

No. Directors are never allowed to keep profits made from such transactions.

Yes, providing that the other directors gave prior authorization to Scott entering into the transaction.

Yes, providing that Scott obtains the consent of the company in general meeting.

. Which one of the following is NOT a possible consequence of a director accepting an unauthorized third-party benefit?

The director commits an either-way offence.

The company can summarily terminate the director's service contract and dismiss him without notice.

The company can rescind the contract and recover the benefit obtained by the director.

The company can claim damages in fraud from the director.

The company can claim damages in fraud from the third party.

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