Case Law Analysis

Based on the facts provided, the key legal issues involved are as follows:

(1) whether Mickey, as a director of Donaldson, is in breach of his director’s duties in obtaining the $5 million loan without complying with the requirement of the articles of Donaldson and whether the loan agreement is still valid;

(2) whether Mickey is in breach of fiduciary duties in engaging Minnie, who was also one of his girlfriends, to advise on the fung shui of office layout of Donaldson;

(3) whether Mickey is in breach of fiduciary duties in using Donald’s cash to subsidize the new partnership with Ronald;

(4) remedies available to Don in light of Mickey’s wrongful act;

(5) whether the general meeting on 24th October 2015 was duly convened;

(6) what are the next steps for Don or Jayden as Ronald and Mickey refused to approve the transfer of shares; and

(7) whether there is any ground for Donaldson to claim on the insurance policy.

In relation to issue (1):

Directors are fiduciaries and the duties of a director are based upon showing the utmost good faith towards the company.  The fiduciary duties of a director are described as a duty (i) to act bona fide for the benefit of the company; (ii) to exercise their power for proper purposes; and (iii) not to allow any conflict between their duties as directors and their personal interests.  

In the case Akai Holdings Ltd v Kasikorn Bank Ltd (2010), the case turned, in part, on the question of whether the director in question (Mr. Ting) had acted in breach of his duties.  The Court of Appeal, in determining the test to be applied to ascertain breach, considering the Australian case of Equiticorp Finance Ltd v Bank of New Zealand (1993) AUS, where Clarke and Cripps JJA explained that “…directors are bound to exercise their powers bona fide in what they consider is in the interests of the company and not for any collateral purpose”.  

While it is arguable that Mickey genuinely believed that the deterioration of business of seafood restaurant was only a temporary problem, so he obtained a loan on behalf of Donaldson to keep the business going and hence he was acting in good faith for the benefit of the company and not in breach of the aforesaid fiduciary duty, a director of a company also has the duty to observe the company’s articles. As such, Mickey, in obtaining a loan of $5 million from the Lamma Bank on behalf of Donaldson without any ordinary resolution, notwithstanding that the articles of Donaldson provide that any loan to the company exceeding $1 million has to be approved by an ordinary resolution, is a breach of director’s duty.