Companies Act 2014 - Directors Duties

One of the main objectives of the new Companies Act is the consolidation of existing company law 1963 to 2013. In relation to the duties of company directors, the Act codifies the existing duties as have been developed in the courts under common law and equity principles. In this regard, the Act gives greater clarity for directors and puts on a statutory footing their respective duties.
The Act provides for all persons who act as directors for the company and includes shadow directors and de facto directors who are bound by the same legislative framework. These provisions which have also existed in case law are now clearly delineated in the new Act.
The duties of company directors can be broadly be categorised as the main fiduciary duties (which derive from the nature of the office or guardianship of the company) and general duties (in adhering to prescribed legislation).
Fiduciary Duties
The Act codifies the eight main fiduciary duties of directors, in section 228, as detailed below:
- to act in good faith, in what the director considers to be the best interests of the company.
- to act honestly and responsibly in relation to the company's affairs.
- to act within powers in accordance with the company's constitution.
- not to use company property for their own or others' personal gain unless approved by the company's members or agreed to in the company's constitution.
- not to fetter discretion unless permitted by the company's constitution or entered into in the company's interests.
- to avoid conflicts of interest.
- to exercise care, skill and diligence.
- to have regard to the interests of the company's members (shareholders)
General Duties
The Act also includes a number of general duties for directors
- Directors must ensure compliance with the Companies Act and the various tax acts.
- Directors must ensure that the company secretary is suitably qualified.
- Directors must acknowledge the existence of their duties by signing a declarationto that effect.
- Directors must take into account the interests of the members (shareholders) of the company and have regard to the interests of the employees.
- Directors must disclose any interests in contracts made by the company.
- Directors must notify the company of any interests in shares in the company or related companies.
- Restrictions on loans, quasi loans, credit transactions and certain guarantees and security exist for directors, but will be subject to the new summary approval procedure.
Breach of Duties
Directors who are found to be in breach of the above duties may find themselves personally liable for any loss or detriment to the company. However, the principles of equity as developed by case law will still apply and a director will look to demonstrate that they have acted honestly and responsibly as a defence in respect of charges of dereliction of duties and resultant personal liability.
As detailed in previous newsletter, the Act is expected to come into force on 1 June 2015. For the SME company perspective, the Act will to a large extent give greater clarity by putting on a statutory footing and clearly stating the prescribed legal duties for all of those who act in the role of a company director.
Please note, the above article is of a general nature and does not constitute specific advice. To discuss the above matters and aspects pertaining to your company, please call Ultan McCarthy on 01-444 5260