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Case Study Of The Re Fawcett Case

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The present case raises two major issues that may be taken into consideration:
1) Whether the directors of Problematic have breached their duty.

2) Whether the shareholders of AV have a cause for derivative action against AV’s directors.
For consideration of the first issue, the history and the position in both English and Indian law may be looked into.
The common law position was that a director had two types of duties; one a fiduciary duty and the other a duty of care, skill and diligence. The fiduciary duty contains within it the duty to act bona fide in what the director believes is in the best interests of the company . The duty of care, skill and diligence is an overarching arm of the fiduciary duty itself. The Re Fawcett case highlights …show more content…

Harbottle . The Foss v. Harbottle principle allows individual shareholders to sue the directors on behalf of the company and has increasingly become more relevant in cases of breach of duty . For derivative claim to succeed as a litigation, another test that the claim must pass is the negative test – whether the proposed litigation will fail to promote the interests of the company. In the present case, where the shareholders are pressing for a claim against a competing business set up by the directors of AV themselves, the question is whether an injunction against that competing business will benefit AV. The importance of the duty to promote the success of the company (even in group companies as in the present case) has been highlighted in the case of Charterbridge Corporation Ltd. V. Lloyds Bank Ltd . The test is whether an honest and intelligent man in the position of the director could, in the whole of the existing circumstances, have reasonably believed that the transaction was for the benefit of the company. The directors of AV by setting up the directors of the former shareholder of Problematic, with another company that could potentially compete with it has acted against its interest; for it can be reasonably assumed that a potential competing business could weaken one’s own business. The shareholders of problematic, thus, by initiating litigation against the board of AV are not acting against the interest of AV. After, applying the negative test of the Charterbridge case, the shareholders have sufficient cause for

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