Question Tag: Fiduciary Duty

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  • 1 Marks

BL – May 2015 – L1 – SA – Q6 – Company Law

Identify which is NOT a remedy for breach of fiduciary duties by a director.

The remedies for breach of fiduciary duties by a company director include the following EXCEPT
A. Accounting to the company for any gain made
B. Injunction
C. Action for negligence
D. Imprisonment
E. Removal from office

Answer: D

Explanation:
The correct answer is “D. Imprisonment.” A director’s breach of fiduciary duties generally results in civil remedies like accounting for profits, injunctions, and removal from office. Imprisonment is not typically a direct remedy for breach of fiduciary duties, as it pertains to criminal actions rather than civil breaches.

  • 10 Marks

CSEG – May 2019 – L2 – Q2a – Corporate governance framework

Describe a director’s fiduciary duty in relation to conflict of interest and assess whether this duty was breached by Gyeabour.

Muntaka Property Investments Ltd (MPI) owns a variety of shopping centres and retail units throughout Ghana. Last year, it decided to build a new outlet shopping centre in Adenta, Accra City, in the belief that the opening of the new light-rail line in this area would facilitate customer access to this centre and could attract customers from all parts of the country. To finance this development, MPI decided to sell some of its other properties. One of these properties was a small retail park located within three kilometers off Weija (a large provincial town). Gyeabour, a director of MPI, was tasked with overseeing this sale. Within three weeks of the Weija property being advertised for sale, Gyeabour reported that he had received an offer on the property for the full asking price. Delighted with this, the Board of MPI authorized Gyeabour to effect the sale of this property.

However, two months after the sale was completed, it was announced that one of the largest pharmaceutical companies in the world was establishing its global head office on the site adjacent to the former Weija property, and as a consequence of this fact, the value of the property had already increased by an excess of 60%. Upon further investigation, MPI discovered that the Weija property was purchased by Gyasco Properties Ltd., a company wholly owned by Gyeabour’s two sons, and that the mother-in-law of one of these sons is a local politician in Weija. Consequently, she would have been aware of the impending purchase of the adjacent property by the pharmaceutical company.

Required:
Describe a director’s fiduciary duty regarding conflict of interest and determine whether this duty has been breached by Gyeabour in this situation.

Director’s Fiduciary Duty Regarding Conflicts of Interest

  • Directors must not put themselves in a position whereby their personal interests and those of the company are in conflict. This duty is judged objectively and therefore the motives of the directors are immaterial within the ambit of this duty.

(2 marks)

  • The following actions by directors are also considered a breach of this duty:
    • Failure to disclose their interests in company contracts or making a secret profit from company transactions.
    • Diverting business opportunities from the company.
    • Acting in competition with the company and using confidential information from one business to benefit another business.

(3 points @ 2 marks each = 6 marks)

Breach of Duty in Gyeabour’s Case

  • In this situation, the actions of Gyeabour are in breach, as he had a substantial conflict that he failed to disclose.
  • 4 Marks

BCL – May 2018 – L1 – Q3a – Agency

Explain the fiduciary duty of an agent in a scenario involving a secret profit.

a) Cho instructs his agent Duu to sell his car. Cho decided to pay GH¢5,000 as commission to Duu on completion of the sale. Duu sold the car and was accordingly paid the commission of GH¢5,000. Cho then immediately found that the purchaser of the car had also paid a bribe of GH¢2,500, which Duu did not disclose.

The law of agency provides for the rights and duties between the principal and agent. An agent owes various duties to his principal, and the foremost is fiduciary duty. This means that the agent must act in utmost good faith and be sincere and honest in his dealings with his principal. The agent does not have to make secret profit beyond the commission or other remuneration paid by his principal. Thus, the agent is accountable for every profit which he makes without the principal’s consent.

As the purchaser of the car had paid Duu a commission, Duu is in breach of his fiduciary duty that he owes to Cho. Cho stands to recover the GH¢5,000 he paid to Duu and the GH¢2,500 received as a bribe paid by the purchaser. (4 marks)

  • 10 Marks

BCL – Nov 2017 – L1 – Q3a – Tort, Contract Law

Discuss whether an investor can take action against an investment company for negligent advice leading to financial loss.

a) Bobo Company Limited puts up an advert in the ‘Daily Times’ newspaper inviting members of the public to purchase shares. Mr. Kobina Fosu, an investor, decided to purchase some of the shares. He consulted an investment firm to advise on whether or not he should purchase the shares of the company. The investment firm advised Mr. Kobina Fosu that the company was buoyant and that its capital base was strong and attractive. As a result, Mr. Kobina Fosu bought a substantial number of shares of the company. Two months after the purchase of the shares, however, the company went bankrupt.

Required:
What advice, if any, will you give to Mr. Kobina Fosu? (10 marks)

a) Bobo Company Limited puts up an advert in the ‘Daily Times’ newspaper inviting members of the public to purchase shares. Mr. Kobina Fosu, an investor, decided to purchase some of the shares. He consulted an investment firm to advise on whether or not he should purchase the shares of the company. The investment firm advised Mr. Kobina Fosu that the company was buoyant and that its capital base was strong and attractive. As a result, Mr. Kobina Fosu bought a substantial number of shares of the company. Two months after the purchase of the shares, however, the company went bankrupt.

Required:
What advice, if any, will you give to Mr. Kobina Fosu? (10 marks)

  • 10 Marks

BCL – Dec2022 – Q1b – Company directors and other officers

Analyze the conduct of a director and her friend in the context of insider dealing with shares of a company.

Adjo is a director of Boxo Company Ltd. She has insider information that the profits of the company when announced in ten (10) days’ time, could lead to a rise in the share value of the company. She, therefore, bought shares in the company herself and also advised her friend, Michael, to buy shares in Boxo Company Ltd, but did not tell him why.

Required:
In the context of the facts stated in the question, explain the conduct of Adjo and Michael with regard to the shares of Boxo Company Ltd. (10 marks)

Under section 177(14)(a) of the Companies Act, 2019 (Act 992) “insider dealing” means buying or selling securities in a company by persons who have access to non-public information about the company.

Section 177 of the Act restrains fraudulent persons from managing companies:

  1. Where, (a) a person is convicted, whether in the Republic or elsewhere, of
    (i) an offence involving fraud or dishonesty,
    (ii) an offence in connection with the promotion, formation or management of a body corporate,
    (iii) an offence involving insider dealing…

A person involved in insider dealing or insider information, under Section 177(14)(a), clearly qualifies as a fraudulent person to be restrained from managing a company.

In the present case, Adjo as the director of Boxo Company Ltd stands in a fiduciary relationship to the company and must be seen to be expressing utmost good faith in her dealings with the company.

Adjo, as a director of Boxo Company Ltd, commits insider dealing, which is a criminal conduct by the definition given under the Act. She is thus categorized under fraudulent persons restrained under managing companies. She also violates the inherent fiduciary rule as the director of the company. She further stands automatically disqualified as a director of the company.

Michael is not a senior executive of the company but a friend. Michael may be an accomplice to the criminal act of insider dealing.

  • 10 Marks

BMIS – Aug 2022 – L1 – Q1a – Professional ethics in accounting and business

Explains five duties expected of those charged with governance in an organization.

In 2017, some financial institutions in Ghana were placed under receivership. This was mainly due to poor corporate governance practices. Some of these practices were in clear violation of the duties and responsibilities of those charged with governance.

Required:

Explain FIVE (5) duties those charged with governance were expected to perform.

Duties of Those Charged with Governance:

  1. Fiduciary Duty:
    This duty required the directors to exhibit trustworthiness in acting in the best interest of those whom they represented. This duty required the directors to perform their mandated duties with high levels of integrity and competence.
  2. Duty of Loyalty:
    The duty of loyalty of a corporate director makes him/her commit allegiance to the companies they served as directors and acknowledge to work in the best interests of those companies.
  3. Duty of Fair Dealing:
    This duty required that all transactions conducted on behalf of the companies were handled in a transparent manner. The directors were expected to open up all their dealings to considerable scrutiny.
  4. Duty of Care:
    The duty of care required the directors to act with the highest level of cautiousness in carrying out their responsibilities. They were to apply their common sense when working on behalf of those whom they represented to avoid being accused of committing blunders.
  5. Duty of Supervision:
    This deals with the effectiveness with which the directors were to exercise their mandated duties. Further, the duty of supervision required the directors to have absolute control and knowledge about the activities of management to prevent all fraudulent practices on the part of management.

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