What are Director duties and why is compliance critical to your business?

Director’s duties are derived from both common law and by virtue of various types of contracts that are entered into between a director and a company. A Director’s responsibilities and liabilities may also extend beyond their term of engagement.

It is common for Directors to continue to be bound by their statutory and fiduciary responsibilities after resignation or termination.

It is paramount and wise to become familiar with these duties, some of which include:

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• To act in good faith

As obvious as this point may be, it is equally as important! Every Director has a basic fiduciary duty to act in good faith and the best interest of the company throughout their appointment term. This principal is a heavily regulated and litigated area in company law. Any provision or practice to exclude responsibility of this principal obligation on a Director is automatically void. As a result, it is critical for Directors to be on top of the legal obligations and policies that touch upon this director obligation; and directors are encouraged to explore options for indemnity insurance to protect them against events that may give rise to liability.

• To act within powers

A Director must be vigilant to act in consonance with the company’s constitutional documents such as the Company’s Memorandum or the Articles of Association. This includes not acting outside the scope of powers granted (also known as acting ‘Ultra vires’) and working to achieve the best interests of the company or organisation.

• To promote the success of the company

When thinking about “success” it is common to assume this relates to maximising profits. However, under the Companies Act 2006, Parliament have ensured that Directors have regard to the interest of employees, business relationships with other stakeholders, the long-term effects of their decisions, the company’s reputation, and the impact the company has on the community as well as environment.

• Duty to exercise reasonable care, skill and diligence

Each director will be held liable by whichever standard is applicable to them. This means that a director with more knowledge and a higher level of skill will be held subjectively to their expertise, whereas a director who has less will be held under the objective test.

• Duty to exercise independent judgement

This duty does not prohibit a Director from seeking independent advice from relevant experts such as lawyers and financial experts, but it does require a Director to use their judgement and make their decisions in good faith as well as in the best interests of the company.

• Duty to avoid conflicts of interest

A Director must take absolute care that to avoid all situations where a potential conflict of interest may occur, and a Director is prohibited from making any secret profits from the company. This includes any exploitation of the company property information or any opportunity that stems from the company’s activities.

It must be noted that a Director is not in breach of the ‘conflict of interest’ principle in relation to any transactions where the Board of Directors and the company are aware that the Director has an interest in the transaction and/or where those interests have been authorised by the Board of Directors of the company.

A director is also prohibited from accepting any benefits from a third party if the benefit is given on condition of their role as a Director of the company. Anti-bribery legislations also apply to Directors.

How can Hillary Cooper Law help with directors’ duties & compliance matters?

Our team of legal experts can advise and assist with all the relevant preparations and statutory compliance matters salient to carrying out your directors’ duties.

Our legal team is incisive in its knowledge of these matters and is au-fait with the breadth and depth of responsibility that comes with being a Director. We are on call to protect you from any potential liabilities you may face in this all-important, all-encompassing position. Our team are also on hand to guide you with any compliance protocols required for important events e.g., passing valid Resolutions that can withstand legal scrutiny through to accurately recording the Minutes of a Board meeting- the list is not exhaustive.