The Companies Act is fairly comprehensive in the duties it sets out for directors. It imposes stringent requirements for disclosure of interests in transactions, failing which that transaction may become voidable at the instance of the company. It largely codifies or replaces a number of the common law rules. Part VI of the BVI Business Companies Act, 2004 (as amended,1 the Companies Act) deals with directors including such matters as their appointment and removal, duties and proceedings of meetings.
- Position and function of director
The management, direction or supervision of the company’s business and affairs are entrusted to the directors under the Companies Act,2 for which they have all necessary powers,3 but in both cases subject to any modifications or limitations in the memorandum of association (memorandum) or articles of association (articles).4 The articles may fix the number of directors, and subject to that the minimum number of directors is one.5
A “director” is defined as including a person occupying or acting in the position of director by whatever name called.6 Therefore de facto directors (i.e. persons acting as directors and carrying out their functions but without formal appointment as directors) would be considered directors with all the rights and liabilities attaching to them. However, “shadow directors” (i.e. persons in accordance with whose directions or instructions the directors are accustomed to act7) are not within the definition of directors.
- Who may not be a director
Certain persons are disqualified from appointment as directors. They include:
- an individual under 18 years;8
- a disqualified person under section 260(4) of the Insolvency Act, 2003;9
- a restricted person under section 409 of the Insolvency Act;10 and
- an undischarged bankrupt.11
The memorandum or articles may also disqualify certain persons from being directors in relation to the company.12 A person who is disqualified but still acts as a director is nevertheless subject to the duties and obligations imposed on directors.13
- Appointment, resignation and removal
The registered agent must appoint the first director(s) within six months of incorporation.14 Subsequent directors can be appointed by resolution of members (unless the memorandum or articles provide otherwise),15 or by the directors if permitted by the memorandum or articles,16 for such term as may be specified in the resolution.17 The directors (subject to the memorandum or articles) can fix a director’s emoluments.18 The directors may also fill a vacancy on the board unless the memorandum or articles provide otherwise.19 However, a person cannot be appointed to act as a director unless he has consented in writing to be a director.20 A director’s acts remain valid notwithstanding that his appointment may be defective21 or he is disqualified.22
Subject to the memorandum or articles, a director may be removed by a resolution of members.23 However (subject to the memorandum or articles) such a resolution may only be passed either at a meeting of members specifically called for the purpose of removing a director or whose purposes include the removal of the director24 or by a written resolution passed by at least 75% of the members entitled to vote, regardless of the relative number of shares held by those members.25 The notice of a meeting called for the removal of a director must state that removal of a director is the purpose, or one of the purposes, of the meeting.26
A director may also be removed by the directors where expressly permitted by the memorandum or articles.27 Where the directors are given power to remove directors the default procedure under the Companies Act is essentially the same as for members removing directors.28 Subject to the memorandum or articles, a resolution of directors to remove a director may only be passed either at a meeting of members specifically called for the purpose of removing a director or whose purposes include the removal of a director by a written resolution passed by at least 75% of the directors.29
A director can resign from office by giving written notice of his resignation to the company and the resignation has effect from the date the notice is received or such later date specified in the notice.30 However, a director must resign office if he is or becomes disqualified for appointment.31
A director who resigns or is removed remains liable under the statutory provisions of the Companies Act for his acts, omissions or decisions whilst a director.32
- Reserve directors
Where an individual is the sole member and also the sole director of a company, then, notwithstanding anything contained in the memorandum or articles of the company, that sole member/director may by written instrument nominate a person not disqualified from being a director as a reserve director to act in place of the sole director upon his death.33 A person shall not be nominated a reserve director unless he has consented in writing to be nominated as a reserve director.34 The nomination of the reserve director ceases to have effect if the reserve director resigns,35 the sole member/director revokes the nomination in writing before his death36 or if he ceases to be the sole member/director other than by reason of death.37
- Duties and liabilities
The Companies Act gives statutory footing to the equitable and common law duties owed by a director. Thus, as regards the equitable duties, a director must act honestly and in good faith and in what he believes to be in the best interests of the company.38 He must also exercise his powers for a proper purpose and must not act, or agree to the company acting, in a manner that contravenes the Companies Act or the memorandum or articles.39
A director of a subsidiary company is permitted to act in the best interests of its holding company or some of its members in certain circumstances even though it may not be in the best interests of the subsidiary company itself.40 A director can act in what he considers to be the best interests of the company’s sole holding company.41 If the company of which he is a director is not a wholly owned subsidiary, he can act in what he considers to be the best interests of the holding company if he has the prior agreement of the other shareholders.42 Where a person is a director of a company carrying out a joint venture between shareholders, he may act in what he believes to be in the best interests of a shareholder or shareholders who appointed him, even if this is not in the best interests of the company as a whole.43 However, in each of these cases, the directors must be expressly permitted to so act by the memorandum or articles.
The common law duty of care and skill (as it has now developed) is enshrined in the Companies Act. Thus, a director must exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances taking into account the nature of the company, the nature of the decision, his position and the nature of the responsibilities undertaken by him.44 These factors are not exhaustive.
The Companies Act specifies the circumstances in which a director can rely upon the information (including books, records, financial information) and advice of others, but they are more restrictive than the position at common law. Thus, he can rely on an employee, a professional adviser or expert if, broadly speaking, he believes on reasonable grounds that they are competent in relation to the matter or it is within their competence.45 He can also rely on another director or a committee of directors on matters within the latter’s designated authority.46 However, he can only rely on any of these if he acts in good faith, makes proper inquiry as indicated by the circumstances; and has no knowledge that his reliance on the information or advice is not warranted.47
The duties specified in the Companies Act are not intended to be exhaustive and a director would also be subject to the equitable duty of not putting himself in a position where his duty and his interest may conflict, and he may be liable for any secret or unauthorised profit that he makes out of his office.48
The consequences of breaches of those duties are not specified in the Companies Act and therefore the position at common law must be considered. For breaches of the equitable duty, a director may be held accountable for profits, while for breaches of the common law duty he will be liable to compensate the company for any loss it suffers. The Companies Act is also silent on whether the breaches may be ratified, and once again the common law position will need to be considered, see for example Bamford v Bamford  Ch 212.
- Disclosure of interest
There are detailed provisions in the Companies Act dealing with the situation where a director is interested in a transaction that the company enters into. The director must disclose his interest to the board forthwith after becoming aware of the fact that he is interested (which could be after the transaction has been entered into).49 The disclosure is not a disclosure of all matters connected with his interest or with the transaction: it is sufficient for the director to disclose the general nature of his interest, for example, that he is a member, director, officer etc of the other party to the transaction, and so is to be regarded as interested in the transaction.50 The disclosure must be brought to the attention of each and every director on the board, otherwise there is no disclosure under the Companies Act.51 It appears that in the case of a sole director, this requires that the sole director formally disclose his interests to himself. However, the director is not required to make disclosure if the transaction is between himself and the company and it is in the ordinary course of the company’s business and on usual terms and conditions.52 Subject to the memorandum and articles, he can attend the meeting of directors relating to the transaction, be included for the purposes of a quorum, vote on the resolution, and sign documents or do anything in his capacity as a director.53 Failure to disclose has two consequences: (i) it renders the director liable for a fine of $10,000,54 and (ii) it renders the transaction voidable at the instance of the company.55 The transaction will not be voidable if
- the director disclosed his interest to the board prior to the company entering into the transaction;56
- he is not required to disclose his interest by virtue of section 124(3)(a) or (b);57
- the material facts of the interest were known by members and they approved or ratified it;58 or
- the company received fair value.59
Fair value is not defined in the legislation and must be a question of fact in the light of all the circumstances.60 However, third parties who acquired title or interest in property from someone other than the company for valuable consideration and without knowledge of the circumstances of the transaction between the company and the transferor are protected from the consequences of avoidance.61 Although not explicitly set out in the Companies Act, it appears that the right to avoid is lost by the usual bars at common law: delay, affirmation, intervening third party rights and where it is impossible to restore the parties to their original positions.
Although the Companies Act provides fairly comprehensive rules for dealing with conflicts of interest, at no stage does it repeal the common law rules, which in many areas are more restrictive. Accordingly, it appears that directors must be mindful to comply with both their statutory duties as well as their common law duties.
Subject to the memorandum and articles, directors may delegate their powers to committees consisting of one or more directors.62 Practically all the board’s powers may be delegated in this way including the power to affix the common seal except certain important powers (for example the power to amend the memorandum or articles; the power to delegate to committees (but not the power to appoint, and delegate to, sub-committees); the power to appoint and to remove directors and agents; the power to approve a plan of merger, consolidation or arrangement; the power to make a declaration of solvency or approve a liquidation plan or the power to make a determination that the company will immediately after a proposed distribution satisfy the solvency test63).
The directors as a whole still remain responsible for the exercise of the power by the committee unless they believed on reasonable grounds that the committee would exercise the power in conformity with the statutory duties imposed on the directors.64
Directors can also appoint agents for the company, and such an agent can be another director.65 Such an agent has, subject to the memorandum or articles, such powers as are set out in the articles or in the resolution of directors appointing him, but he has no power or authority in respect of the matters that directors cannot delegate to committees66 and no power to change the registered office or registered agent,67 to fix emoluments of directors68 or to authorise the company to continue as a company under the laws of a jurisdiction outside the British Virgin Islands.69 Directors have a statutory power to remove an agent and to vary or revoke a power conferred on him.70
- Proceedings of directors and directors’ meetings
Directors can, subject to the memorandum or articles, take action either at a meeting or by written consent.71 The written resolution may also be by fax or other written electronic communication (for example, email) and may consist of several documents in like form each signed or assented to by one or more directors.72 However, in contrast to the position regarding members,73 the Companies Act fails to define the requisite majority needed to pass a resolution of directors at a meeting or by written consent.74 Thus, the majorities will have to be dealt with in the memorandum or articles.
With respect to meetings of directors, subject to the memorandum or articles, these can take place anywhere, at any time and in such manner as the directors may determine to be necessary or desirable.75 Subject to the memorandum and articles, any one or more directors may convene a meeting of directors.76 A director is present at a meeting if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other.77 A director must be given reasonable notice of a meeting, but this is subject to the requirements as to notice in the memorandum or articles.78
If a meeting is held in contravention of the notice requirement, then subject to the memorandum or articles, the meeting is valid if all the directors (or such majority of them as is specified in the memorandum or articles and entitled to vote at the meeting) waive the notice of the meeting.79 The presence of a director at the meeting, in person or by telephone, is statutorily deemed to constitute waiver on his part.80 The inadvertent failure to give notice, or the fact that a director does not receive notice, does not invalidate the meeting.81
The quorum for a meeting can be fixed by the memorandum or articles, but failing which a meeting will be quorate if one half of all the directors are present in person or by alternate at the commencement of the meeting.82
Any director can, subject to the memorandum or articles, appoint an alternate by written instrument83 who is entitled to attend meetings in the absence of the director and vote in his place (but an alternate is not entitled to sign written resolutions).84
- Directors’ powers
The business and affairs of a company are managed by the directors,85 unless otherwise specified in the memorandum and articles,86 and the board has all necessary powers for these purposes, including the power to affix the common seal, or authorise others to do so.87 Directors are required to act collectively as a board,88 although individual directors will have ostensible authority to bind the company.89
A company which seeks to dispose of more than 50% of its assets otherwise than in the usual or regular course of its business by following the procedure set out in section 175. The scope of the provision is very wide and covers dispositions by way of sale, transfer, lease, exchange or any other disposition and is subject to the memorandum and articles of the company. However, a disposition by way of a mortgage, charge or other encumbrance, or by enforcement of these, is outside the ambit of the provision.90 However, the section would still apply to grant of security by way of outright title transfer.
The disposition must be approved by the directors91 who must submit details of it to members for authorisation by a resolution of members;92 an outline of the disposition must be given to each member whether or not he is entitled to vote or consent to the proposals.93 A company is free to limit or exclude the effect of section 175 in its memorandum and articles, although relatively few companies do so in practice.
- Directors’ indemnity
Subject to the memorandum and articles directors may be indemnified by the company against all expenses including legal fees and all judgments, fines or amounts paid in settlement and amounts reasonably incurred in connection with legal, administrative or investigative proceedings. These statutory provisions are for both a discretionary indemnity and a mandatory one.
A company may indemnify the director in circumstances where the director is or was or is threatened to be made a party to the proceedings because he is or was a director,94 or he was, at the request of the company, acting as a director of another body corporate or acting on behalf of another enterprise (for example, a partnership, trust etc).95 In those circumstances, the company can indemnify the director, but only if he acted honestly and in good faith and in what he believed to be in the best interests of the company and, in the case of criminal proceedings, he had no cause to believe his conduct was unlawful.96 A director acts in the best interests of the company if he acts in the best interests of the company’s holding company or a shareholder or shareholders of the company where this is expressly permitted by the memorandum or articles of the company.97 If the director did not act honestly and in good faith and in what he believed to be in the best interests of the company and, in the case of criminal proceedings, had reasonable cause to believe that his conduct was unlawful, the company must not indemnify him and any purported indemnity by the company is void.98 The termination of proceedings by judgment, order, settlement, conviction or entering of a nolle prosequi, does not by itself create any presumption that the person did not act honestly and in good faith.99
Expenses, including legal fees, incurred by a director or former director in defending proceedings may be advanced by the company before final disposition of the proceedings upon receipt of an undertaking from the director or former director to repay the company should it be determined that he is not entitled to be indemnified by the company.100
As regards the mandatory indemnity, this applies if the director is successful in defending the proceedings brought against him.101
The statutory indemnification and advancement of expenses are not exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under an agreement or resolution of members or directors.102
The company is authorised under the Companies Act to purchase insurance in relation to a director against any liability incurred by him or asserted against him, irrespective of whether or not the company had the power under the Companies Act to indemnify him.103
- Register of directors
The company must keep a register of directors containing the names and addresses of the directors and reserve directors,104 the dates on which they were appointed directors or nominated as reserve directors105 and when they ceased to be directors106 or when the nomination of a person as a reserve director ceased to have effect107 and such other information as may be prescribed.108 This register, or a copy of it, must be kept with the registered agent;109 if a copy is kept with the registered agent, the company must also provide the registered agent with a written record of the physical address of the place where the original register is kept110 and must notify the registered agent in writing of any changes in the register within 15 days.111 A director is entitled, on giving reasonable notice, to inspect the documents and records of the company in written form and without charge, and to take copies or extracts.112
- Annual return for unlimited company not authorised to issue shares
An unlimited company that is not authorised to issue shares must on or before 31 March of each year file with the Registrar of Corporate Affairs an annual return of its directors in the approved form made up to 31 December in the previous year.113 The return must be certified by a director or the registered agent of the company.114