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ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital

Delmar Ltd's articles require member approval before the directors borrow above $1 million. The directors exceed this limit without approval. Which statement best describes the directors' position towards the company?

The directors have breached their duty to act within their powers under the constitution, and may be liable to the company, even though the loan may still bind the company against a good faith lender. Disqualification is not automatic.

  1. AThey have breached their duty to act within their powers and may be liable to the companyCorrect
  2. BThey commit no breach, because the lender is bound by the loan
  3. CThey are automatically disqualified from acting as directors

Explanation

Even if the loan binds the company vis-à-vis a good faith lender, directors owe a duty to act within the constitution. Exceeding the limit is a breach, and the members may seek remedies or ratify. Automatic disqualification does not follow.

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