Responsibilities of Directors

June 12, 2012

The Companies Acts seek to regulate the activities of Directors so that they do not abuse their power of privilege and cause an action that may not be in the best interests of the Company.  The new Companies consolidation and reform bill has provided some clarity to the area of Director’s duties and has codified Director’s fiduciary duties into following:

  1. To act in good faith in what the Directors consider to be in the best interest of the Company.
  2. To act honestly and responsibly.
  3. To act in accordance with the Companies Constitution (memorandum and articles of association) and to exercise powers only for lawful purposes.
  4. Not to use Company property for their own or others use unless authorised by the members of the Company or the Constitution of the Company.
  5. To avoid conflicts of interest.
  6. To exercise care skill and diligence.
  7. To have regard to the interest of its members.
  8. To have regard to the interest of its employees.

There are over 300 offences in the Companies acts and approximately 140 of these are reportable indictable offences.  The most common offences reported to the Director of Corporate Enforcement are:

  1. Breaches of rules regarding loans to Directors and connected persons.
  2. Failure to keep proper books of account.
  3. Failure to hold an AGM.

One of the misconceptions about Directors is that they possess limited liability.  Only the shareholders in a limited liability Company have limited liability and the Directors may be found personally liable for some or all of the debts due to their actions.  The main ways a Directors may be found personally liable are:

  1. Reckless Trading.
  2. Fraudulent Trading.
  3. Failure to keep proper books and records.

If you are a Director of a Company that is facing trading difficulties the following points may assist you in complying with your duties as a Director:

  1. Hold frequent Board Meetings to assess the situation.
  2. Ensure up to date key financial and trading information is available.
  3. Take financial and legal advice.
  4. Keep creditors informed.
  5. Document all key decisions made and advice received.
  6. Don’t put off difficult decisions.