The mammoth Companies Bill 2012 consolidates the duties and responsibilities of directors in one place. Ruairí Mulrean and William Darmody highlight some of the provisions relating to directors contained in this landmark legislation.
- Eight fiduciary duties of directors
- Directors’ compliance statements
A company director holds a position of power and responsibility in the affairs of the company. Failure to take this office seriously and to adhere to the duties and obligations established by law may result in the director being found personally liable and subject to either civil or criminal sanctions.
The Companies Bill 2012 consolidates the main duties and responsibilities of directors in one place. These duties will apply to all directors, including formally-appointed directors, shadow directors (a person on whose instructions the directors act) and now also to de facto directors (a person who sits on the board but has not been formally appointed). The Bill is currently passing through the Dáil and, having passed committee stage in early November, is expected to be passed into law in early 2015. Once passed, it will have a profound effect on company law in the state. Importantly, the Bill lists, for the first time, eight fiduciary duties of directors that are enforceable by the company and which oblige directors:
- to act in good faith and in the best interests of the company;
- to act honestly and responsibly in relation to the company’s affairs;
- to act in accordance with the law and the company’s constitution;
- not to use company property for personal gain;
- not to agree to fetter his/her discretion;
- 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 is of particular relevance to individuals who are appointed to the board and who are themselves shareholders or have been appointed by a particular shareholder (or group of shareholders). Such directors will have to have regard to the interests of the shareholder group as a whole and not simply their own or that of the shareholders who appointed them. In addition, the Bill also contains a number of general duties of directors, including:
- to ensure the company’s compliance with the Bill;
- to ensure that the company secretary is suitably qualified;
- to disclose interests in contracts made by the company (this duty will not apply if the interest cannot be regarded as likely to give rise to a conflict of interest);
- subject to their overriding responsibility to the company, to have regard to the interests of employees;
- to notify the company of an interest in shares in the company, its parent or its subsidiary, save that no such obligation will arise where the shares held amount to less than 1% of the share capital of the company or where the shares do not carry a right to vote at general meetings; and
- to acknowledge existence of their duties by signing a declaration to that effect on their appointment.
As with the current regime, a director who is found to be in breach of his duties may be liable to the company for gains made by the individual as a result of a breach. Furthermore, he may have to indemnify the company for losses or damages arising from the breach. A director may be able to get relief in any proceedings for negligence, default, breach of duty or breach of trust where he can show that he acted honestly and reasonably at all times.
Directors of companies that meet certain financial thresholds will be required to include a directors’ compliance statement in the directors’ report. This is a ‘watered-down’ version of the controversial provision that was contained (but never enacted) in the Companies (Auditing and Accounting) Act 2003. Unlimited companies will not be subject to this requirement.
Director's Compliance Statements
Directors of companies that meet the financial thresholds will be required to acknowledge their responsibility for securing the company’s compliance with its relevant obligations and confirming that certain things have been done (or explaining why they have not). Failure to include a compliance statement where required is a criminal offence. We will continue to monitor the progress of the Bill and any amendments made.