FLK1 · Multiple-choice practice

FLK1 Business Law — Question 11

Question

Salma is a director of Yeah Ltd, a private limited company. She receives a lucrative job offer from a competing company and decides to resign from Yeah Ltd. However, she fails to inform the board of directors and secretly starts working for the competitor while still acting as a director of Yeah Ltd. Which of the following statements is correct regarding Salma’s actions?

Salma’s actions are not a breach of her duties as a director since she has already resigned.
Salma’s actions are a breach of her duty to act in good faith and in the best interests of Yeah Ltd.
Salma’s actions are permissible as long as she doesn’t disclose any confidential information of Yeah Ltd to the competitor.
Salma’s actions are acceptable as long as she compensates Yeah Ltd for any losses suffered due to her competing activities.
Salma’s actions are only a breach of her duty if Yeah Ltd can prove that it suffered financial harm as a result.

Answer and explanation

Correct answer: B. Salma’s actions are a breach of her duty to act in good faith and in the best interests of Yeah Ltd.

As a director, she has an obligation to avoid conflicts of interest and act in the company’s best interests. By secretly working for a competitor while still acting as a director, Salma is likely to compromise Yeah Ltd’s interests and violate her fiduciary duties. Under s.172 Companies Act 2006, directors have a duty to promote the success of the company. Salma has breached that duty by secretly working for a competitor.

Original newsletter explanation ↗

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