So You've been made a Director, now what?
Being invited to sit on a company's Board of directors is often greeted with equal amounts of excitement and trepidation. This is due to the fact that directors are often the beneficiaries of the commendations that come with a company's success and are usually chagrinned by the company's failure.
Directors are largely considered to be the directing mind and will of the company, are generally responsible for the strategic direction of the company and have powers related to management, though these functions may delegated as necessary or desired.
Directors have all residual powers to act on behalf of the company except where such powers are reserved to the shareholders to be exercised in general meeting by the Articles of Incorporation (the "Articles"), a shareholders' resolution, a shareholders' agreement or otherwise. However, as the saying goes, to whom much is given, much is expected. In addition to the powers given to a director, there are several duties that Directors are obliged to fulfill. Some of these duties are set out below.
Fiduciary duties of Directors
The Companies Act, 2004 (the "Act") imposes a duty on directors to act honestly and in good faith having regard to the best interest of the company, and, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, taking account of the general knowledge, skill and experience of the particular director or officer.
While the Act states that the duty to act honestly and in good faith is owed to the company and the company alone, it requires directors to have regard to the interests of the company's shareholders, its employees and the community in which the company operates when determining what the best interests of the company are.
In determining whether this duty has been properly discharged, regard must be had to, among other things, whether the director acted reasonably. In doing so, a Court will take account of whether the director in question relied on documents relating to the company's affairs, including financial statements, reports of experts or on information presented by other directors, officers of the company and professionals engaged by the company, in the discharge of his duty.
Directors, as fiduciaries, unless otherwise expressly permitted, are precluded from making a profit as a result of opportunities presented to them by reason of their position as directors. The situations in which a director will be expressly allowed to profit from his position as a director include where the director is compensated by the company for the work carried out in his capacity as a director (such as attendance at board meetings) or where the director is also an employee of the company.
Duty to avoid conflicts of interest
The Companies (Amendment) Act, 2017 enunciates the common law position by imposing a duty on directors "to avoid circumstances which, whether directly or indirectly, constitute a conflict of interest or may result in a conflict of interest with the interests of the company."
Where a director is directly or indirectly interested in a matter which may constitute a conflict of interest or may result in a conflict of interest with the interests of the company, that director has a duty to disclose the nature of his interest at a meeting of the directors and should be excluded from all deliberations at the meeting relating to that matter.
As a practical consideration, the relevant director should ensure that the Minutes of the meeting in which he discloses his interest reflect such disclosure.
Directors, along with the other officers of the company applicable legislation including, are generally responsible for ensuring that all filings and maintenance of registers pursuant to the Companies Act, the Income Tax Act and any other enactment are done in accordance with their provisions. These functions may be delegated to other persons but the ultimate responsibility for compliance rests with the officers of the company.
Accordingly, where the Companies Act requires the filing of a document with the Registrar of Companies (the "Registrar") (for example, notice of change of director or secretary or filing of annual returns) or requires any action to be taken by a company, a penalty may be imposed on any director who knowingly and wilfully allows these notices not to be filed or these actions are not taken the company's behalf.
The directors and the company secretary are also responsible for convening an Annual General Meeting (AGM) in every calendar year and laying the financial statements of the company before the shareholders at that meeting. If requested by the shareholders, the directors are also required to convene additional meetings, known as extraordinary general meetings.
Directors owe duties under securities, employment, environmental, tax and other laws and regulations in force in Jamaica. A person accepting an appointment as a director should therefore ensure that he is aware of these obligations. As being a director also involves attendance at board meetings, it is imperative that directors are in a position to dedicate the necessary time for the attendance of these meetings and to otherwise discharge their obligations.
The foregoing illustrates that the acceptance of an appointment as a director is not one that should be treated lightly as, in addition to the powers granted to directors, there are several duties, which if not properly discharged, may result in such director incurring unwanted liabilities.
Chantal Simpson is an Associate at Myers, Fletcher & Gordon, and is a member of the firm’s Commercial Department. Chantal may be contacted via email@example.com or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.