Directors’ Duties and Liabilities – A Summary Provided By Adams and Adams The duties and liabilities of a director is prescribed by law and is derived from a number of legal sources, including the Companies Act 2008 (‘the Act”), the common law and case precedent. The board of directors is the most important organ in a company as it is trusted with the management of the business and affairs of the company. The Act prescribes a minimum number of directors – private and personal liability companies must, at a minimum, have one director, whereas a public company must have at least three. The Act increased the powers of directors but, at the same time, there has been a concomitant increase in the number of duties with which directors are saddled. At common law, directors have the following duties which are, to a certain extent, confirmed by the Act: Fiduciary duties – A director must always act in good faith and in the company’s best interests. This means that the director’s interests are subsidiary to that of the company, in whose best interests any action must be taken. Duty of care and skill – The standard at which the director’s will be judged. The first category of duties may be broken down into the following duties: A director has a duty not to exceed his powers; A director’s power must be exercised for a proper purpose, i.e. for the purposes for which the power was given to him; A director must always act in the best interests of the company; A director should have an unfettered discretion – this means that a director, particularly one appointed by a shareholder of the company, must not be constrained by external forces; There must be no conflict of interests – where any such interest does exist in respect of a particular deal, the director must disclose this to the company; A director may not use his position or information obtained whilst acting as director to gain an advantage or to knowingly cause harm to the company; A director must acquire any corporate opportunity for the company and may not take it for himself where the opportunity falls within the business sphere of the company; A director may not act in that capacity for two competing companies; A director has a duty to protect any confidential information. The test to determine whether a director has met the duty of care and skill is set out in section 76(3)(c) of the Act and provides that a director must exercise the powers with the degree of care, skill and diligence that may reasonably be expected of a person.
Posted on: Thu, 22 Aug 2013 06:59:49 +0000
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