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9.3.3 Duty not to Fetter Discretion
In exercising their duty, directors should not allow others to influence their decisions
but they must weigh their decisions to ensure that the company will benefit from
their action. 62 As mentioned above, the directors‟ duty is to the company, and if
directors limit their discretion in accordance with the wishes of certain persons or
groups, there is the possibility that they may not be able to act in the best interests of
the company. 63 Creditors may be affected if, as a result of directors limiting their
discretion, their right to be paid is jeopardized. Likewise, if the directors‟ action does
not benefit the company, creditors will also be affected because their interests are
intertwined with the company‟s interests especially when they affect the company‟s
chance to trade as going concern.
9.3.4 Duty to Avoid Actual and Potential Conflict of Interest
This duty is imposed with the aim of preventing directors from putting their interests
above the company because as fiduciaries, they are involved in dealing with a third
party‟s money and property, and may be tempted to act in ways that may prejudice
interests of those in the company. 64 Hence, directors should be very careful to ensure
not only that their action will not result in conflict of interest, but also not to put
themselves in a position where there may be a possibility of conflict. The common
62 See section 173 of the UK Companies Act 2006 and section 134 of the New Zealand Companies
Act 1993. There is no equivalent section in the Australian Corporations Act 2001 and the Malaysian
Companies Act 1965.
63 See Thorby v Goldberg (1964) 112 CLR where the court allowed directors to enter into an
agreement to act in certain ways provided that at the time the agreement was signed they considered
it to be in the interests of the company.
64 See Bray v Ford [1896] AC 44 at 51. Lord Herschell held that “It is an inflexible rule of a court of
equity that a person in a fiduciary position such as respondent‟s, is not, unless otherwise expressly
provided entitled to make a profit; he is not allowed to put himself in a position where his interest
and duty conflict. It does not appear to me that this rule is, as has been said, founded on principles
of morality. I regard it rather as based on the consideration that human nature being what it is, there
is danger in such circumstances, of the person holding a fiduciary position being swayed by interest
rather than by duty, and thus prejudicing those he was bound to protect.”
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