Part 5 of the Companies Act 2014 (the “Act”) consolidates the duties and responsibilities of directors in one unified code for clarity and transparency. Under the Companies Acts 1963 – 2013 there is no prescribed list of duties as the duties have been garnered from decisions of the courts on an ad-hoc basis.
Who Will The Regime Apply To?
The new regime will apply to all directors, including those that have been formally appointed, de facto directors (a common law concept now given legislative recognition under the Act), shadow directors and secretaries. Secretaries are not subject to the same duties as directors, reflecting the fact that their duties are those that have been delegated by the board of directors.
Main Fiduciary Duties Of A Director
When the Act is enacted it will have a significant impact on company law. For the first time, the Act lists the eight main fiduciary duties of directors in one place and these are listed below:
- To act in good faith, in what the director considers to be the best interests of the company;
- To act honestly and responsibly in relation to the company's affairs;
- To act in accordance with the company's constitution and to exercise powers only for lawful purposes;
- Not to use company property for their own or others' personal gain unless approved by the company's members or agreed to in the company's constitution;
- Not to fetter discretion unless permitted by the company's constitution or entered into in the company's interests;
- To avoid conflicts of interest;
- To exercise care, skill and diligence; and
- To have regard to the interests of the company's members.
The last point will be particularly relevant to directors who are shareholders themselves, or who may have been appointed to look after a shareholder, or a group of shareholders' interests, under the constitution of the company or a shareholders' agreement. They will have to act in the interests of the shareholder group as a whole and not simply their own or that of the shareholder who appointed them.
General Duties Of Directors
The Bill also includes a number of general duties for directors;
- Directors must ensure compliance with the Act and the various tax acts;
- Directors must ensure that the company secretary is suitably qualified;
- Directors must acknowledge the existence of their duties by signing a declaration to that effect;
- Directors must take into account the interests of the members of the company and have regard to the interests of the employees;
- Restrictions on loans, quasi loans, credit transactions and certain guarantees and security exist for directors, but will be subject to the new summary approval procedure;
- Directors must disclose any interests in contracts made by the company; and
- Directors must notify the company of any interests in shares in the company, its parent or subsidiary but no obligation arises if the shares held represent less than 1% of the share capital of the company or the shares do not have voting rights.
Directors who are found to be in breach of their duties will be liable to account for any gains accrued and must indemnify companies for losses resulting from any breaches of duties. A court may grant relief from liability where it is satisfied that a director acted honestly and reasonably at all times.
Benefits Of The Codification Of Directors’ Duties
The codification of directors' duties in one place will greatly assist directors in identifying what is required of them. Considering the increasingly onerous responsibilities of directors under the Act and the chance of directors being held personally liable for their actions it is imperative that directors are fully aware of their fiduciary and general duties and their implications. If you feel that you are unsure of these obligations please contact Pearse Trust for clarification and guidance on this matter.