Proper purposes and directors’ duties - time to slay the chimera?

Abstract

ABSTRACT The statutory statement of directors' duties contained in the Companies Act 2006 imposes a duty on directors to ‘only exercise powers for the purposes for which they are conferred’. The duty has been equiparated with the equitable fraud on a power doctrine. This paper challenges the correctness of this approach, and argues that the unwarranted ‘merging’ of the duty and the doctrine has resulted in a legal chimera standing in the way of a proper understanding of the roles of each of the duty and the doctrine. It is submitted that this erroneous linking of two entirely different concepts is the result of a failure to (i) separate the different measures that have evolved to control directorial exercise of corporate powers, and (ii) pay due heed to the distinctive nature of the devolution of corporate power.