The 2014 Act has made some very important changes to the law in relation to directors’ duties and it is vital that companies and directors are aware of these changes. Directors’ common law fiduciary duties have now been codified, and placed on a statutory footing for the first time. These statutory duties will apply to all directors, including those that have been formally appointed, de facto directors (which are now expressly defined under the 2014 Act) and shadow directors.
Statutory Fiduciary Duties:
- To act in good faith in the interests of the company
- To act honestly and responsibly
- To act in accordance with the company’s constitution and to exercise powers only for lawful purposes
- Not to use company property, information or opportunities for one’s own benefit or anyone else’s benefit
- Not to fetter discretion unless permitted by the constitution or unless it is in the interest of the company
- To avoid conflicts of interest between directors’ duties to the company and other personal interests
- To exercise reasonable care, skill and diligence and
- To have regard for the interests of members as well as employees
Other General Statutory Duties
Directors have a duty to ensure compliance with the company’s relevant obligations under company law, tax law and certain other laws, such as market abuse and prospectus law. Directors of all public limited companies and certain larger private companies (those with a balance sheet exceeding €12.5 million and turnover exceeding €25 million) will be required to produce a compliance statement to be included in the director’s report and must demonstrate that the company has structures and arrangements in place to ensure compliance.
Directors have a duty to disclose any interest in contracts entered into by the company. Directors must also disclose any interest in shares. However under the Act de minimis interests of less than 1% share capital may be disregarded, but options over this threshold must be disclosed.
The law relating to directors’ loans has also been amended to encourage proper documentation of loans. Under the new Act, if a loan to a director is not in writing, it is presumed that the loan is repayable on demand and bears interest at 5%. If a loan by a director to a company is not in writing it is presumed to be interest free, unsecured and to the extent that it is found to be secured, it is subordinate to all other indebtedness of the company.
Directors have a duty to appoint a qualified secretary who has the skills necessary and resources to enable him or her to carry out his or her functions under the Act.
Breaches of Directors’ Duties
The 2014 Act now expressly states that a breach of directors’ duties can result in a director having to personally account for any direct or indirect gains accrued by the director and to indemnify the company for any loss or damage arising from the breach. A court may grant relief from liability where it is satisfied that the director acted honestly and reasonably at all times.
Contact Mark Roberts for more information.
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Leman Solicitors for any action taken or not taken in reliance on the information set out in this publication. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. Any and all information is subject to change.