Company Law Essay Example | Topics and Well Written Essays - 2000 words - 4

Company Law - Essay Example Act 1985 codified this criteria by dictating that directors owe a duty of care to act in the best interests of both the members and the employees of the company.3 In the context of the problem company, Backup was persuaded to advance a loan to EL by Connie and Darshani, two of EL’s directors who also happen to be on the board of directors of the parent company ISL. There is clearly a question of a conflict of interest in that Connie and Darshani have the interests of the parent company and two subsidiaries, which may be competing interests. Moreover, in assessing the duty of care owed by Connie and Darshani and the remaining directors of Backup, the standard of care is relevant. That standard is the measured by reference to the reasonable skill and care that is generally expected of a business man possessing the relevant skills and training.4 The directors of Backup appeared to have reservations about the utility of the loan after hearing of EL’s impending financial problems from Connie and Darshani. Even so, they went against their own business instincts and acted for what appeared to be the best interest of the parent company and each of its subsidiaries. Although Connie and Darshani may have been confronting a conflict of interest, their position as directors of the parent company, a shareholder in EL, a subsidiary provides a means by which they may escape liability. In Re Southard &Co Ltd T where Templeton LJ said that: â€Å"A parent company may spawn a number of subsidiary companies, all controlled directly or indirectly by shareholders of the parent company. If one of the subsidiary companies, to change the metaphor, turns out to be the runt of the litter and declines into insolvency to the dismay of its creditors, the parent company and other subsidiary companies prosper to the joy of the shareholders without any liability for the debts of the insolvent subsidiary.†5 Drawing on the reasoning by Templeton, LJ in Re Southard &Co Ltd T Connie and