Comparative Law Review

Comparative Law Review

Comparative study of Competition of the Director of a Company with the Company through Conducting Transactions Similar to the Company's Transactions in English, United States and Iranian law

Document Type : Research Paper

Author
Issa Moghaddam
Assistant Professor of Private Law, Department of law, University of guilan, Guilan Rasht, Iran.
10.22059/jcl.2021.310679.634078
Abstract
The company is managed by its directors. The issue that arises is that is the director allowed to conduct a Transaction similar to the subject of the company's or not? In this regard, there are similarities and differences between the laws of the English and the United States and Iran. In English law, one of the things that contradicts the director’s duty of loyalty to the company and its duty to avoid conflicts of interest with the company, is the competition of the director with the company  through Conducting transactions Similar to the Company's Transactions. According to the absolute view accepted in this country, such a thing is forbidden. In US law, the director also has a loyalty duty to the company, but has a relative approach in this regard. Under U.S. law, the director is permitted to engage in activities similar to that of the company; unless done with bad faith. According to the law of this country, reliance on this duty should be done only to the extent necessary to protect the interests of the company. The advantage of this view is that it considers the interests of the company and the director and economic interests, but it is not suitable for preventing   director from abuse. In Iranian law, the relationship between the director and the company is agency and the director must consider the interests of the company. Under Iranian law, it is not prohibited for a company to engage in any activity similar to the subject of company, unless it is detrimental to the company. Ofcourse, a loss is not a condition for the competition to be realized, but as soon as this is typically detrimental to the company.
Another issue that is raised in this regard is the sanction of the competition of the director   with the company. In this regard, the most important concern is that the sanction   is designed in such a way In addition to the aspect of compensation from the company, it also has a suitable deterrent aspect. Because one of the main approaches in the law of companies in the issue of sanction is the deterrent aspect. In English and American law, it’s  sanction  is: first, the director's duty to return all the benefits of the competition to the company, because from the point of view of these two countries, these interests belong to the company. The second sanction is the director's responsibility to compensate the company. In Iranian law, the main sanction is the director's responsibility to compensate the company. In some exceptional cases, there is also criminal sanction for it. These are cases in which the director has used the company's property and credit to compete with the company or has exercised its authority to compete.
Keywords
Company
Director
Competition
Fiduciary relationship
Absolute prohibition
Relative prohibition
Sanction

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Comparative Law Review
Volume 12, Issue 1
Spring & Summer
April 2021
Pages 351-368