Directors’ Duties

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Responsibilities

Company directors have a range of general and specific obligations. Many of the core duties, which were formerly found in common law cases in various formulations, are now set out in the Companies Act.

Directors must sign a statement by which they acknowledge that they have duties and obligations under the Companies Act, other legislation and at common law.

The directors may be (and should be) independent of the shareholders, particularly where the company is larger in scale and the shareholders are not involved on a day-to-day basis. In the case of small enterprises, the directors and shareholders may overlap or may be the same persons.

A company director, because of his position of influence. is a fiduciary in relation to the company. This means that he or she is required to act in the best interests of the company and not have interests which conflict.

The company is a separate legal entity and its assets are not those of the directors. Moreover, because the directors are fiduciaries, their interest must effectively yield to the interests of the company when dealing with company property. This includes business opportunities, connections and relationships.

General Duties

The basic duties of directors to the company are critical and are not always appreciated and understood. The law treats the company as a separate entity and the director as a person who is potentially in a position of influence and control who could abuse his position of trust and misuse the company’s assets. It, therefore, applies duties to mitigate against the risk of abuse of the directors’ position of control.

Directors have duties of care which are owed to the company. In the same way as the recent UK legislation, the basic duties of directors have been restated in statutory form in almost identical terms in Ireland

The directors’ basic fiduciary duties to the company are to

  • act in good faith in what the director considers to be in the interests of the company
  • act honestly and responsibly in relation to the conduct of the affairs of the company
  • act in accordance with the company’s constitution and exercise powers only for the purposes thereby allowed and by law
  • not benefit from the company’s property, information opportunities for himself or anyone else behalf unless the company’s constitution permits it a resolution is passed as independent the general meeting.
  • not to restrict the directors’ power to exercise independent judgement unless permitted by the company’s constitution
  • avoid any conflict between the directors’ duties to the company and its other interests unless released from his duty by the company
  • exercise care skill and diligence that would reasonably be expected of a person in the same position similar knowledge and experience as a director.

The Companies Act 2014 allows a director of a company who was appointed by a member who has an entitlement to do so under a specific provision in the company’s constitution or shareholders agreement, to have regard to the interests of that particular member.

Nature of Duties

A director who breaches his duties may be liable to the company in damages to compensate it for loss thereby incurred. A director who breaches his fiduciary duties and benefits or profits from the company’s assets, information or opportunities for his own personal benefit or that of another,, is liable to account to the company for the gain or indemnify it for any loss thereby caused.

The directors’ duties are owed to the company. In certain cases, the shareholders or a minority of shareholders can cause the company to take action against a director or former director for breach of duties.

The issue of directors duties can arise in liquidation or other formal insolvencies in which the liquidator or other insolvency officers may cause the company to take proceedings against the director for breach of duty. The court has the power to give relief to directors for breach of duty where they have acted honestly and reasonably.The breach of duty to not generally invalidate contracts with outsiders,  unless they are aware of the breach concerned.

A director cannot absolve himself of his responsibilities by delegation or non-involvement. A director’s duties are active and undertaking the role of the director requires positive attendance to duties.

In some circumstances, particularly in larger scale organisations, the director may be justified in delegating some duties and responsibilities to others within the company. A non-executive director’s role as director differs from that of an executive director. However, each retains their basic duties and responsibilities, which are shaped by particular relationships and circumstances.

Directors are collectively responsible for many of the company’s legal obligations. There are numerous obligations under the Companies Act and other legislation whereby a director or officer who is at fault can be made responsible or may be criminally liable for breach of duties.