DUTIES OF DIRECTORS AND OTHER ASPECTS OF DIRECTORSHIPS Introduction An Irish incorporated company must have a minimum of two directors. There is no single code of conduct for directors in Ireland as the duties of directors are derived from various sources, including case law, legislation and the articles of association of the company concerned.1 However, it should be noted that the directors of a regulated entity may be subject to an industry specific Corporate Governance Code.2 Under the Companies Act, 1963, the Companies Act, 1990, the Companies (Amendment) (No. 2) Act, 1999, the Company Law Enforcement Act, 2001, the Companies (Auditing and Accounting) Act, 2003, the Investment Funds, Companies and Miscellaneous Provisions Act, 2006, and the Companies (Amendment) Act 2009 (each an "Act", together the "Acts") duties of directors can be classified under four headings:- Those arising at common law, which can be further classified as: fiduciary duties; and duties of care, skill and diligence. Those arising under statute; Those arising under contract; and Those arising by regulation, whether under the Purple Book (Model Code3) or otherwise. A. Common law duties4 (i) The fiduciary duty of a director These duties are principally owed to the company, but as discussed later, a director may owe parallel duties to the company's creditors and/or to individual shareholders. A director must act in good faith and in what they consider to be the best interests of the company as a whole rather than in the interests of a particular shareholder or shareholders. A director is prohibited from entering into transactions with the company in the absence of full disclosure or unless permitted by the articles of association of the company. Furthermore, a director may not make a secret profit or take a bribe, or personally avail of business opportunities properly belonging to the company; A director is under a fiduciary duty not to act ultra vires, i.e. outside, the powers of the company or in an illegal manner. In essence, directors must not act in breach of the law or in breach of the limitations set out in the memorandum and articles of association. If directors act in breach of company law or the memorandum and articles of association, they may be personally liable for such acts. Section 8 (i) of the 1963 Act provides that although an ultra vires transaction may be enforced against the company by outsiders who are unaware that it was beyond the company's capacity, any director or officer of the company who was responsible for the doing by the company of such act or thing shall be liable to the company for any loss or damage suffered by the company in consequence thereof. It is also established law that ultra vires acts are incapable of ratification by the company in general meeting. Under the Companies Bill 2012, private companies will not have an objects clause and therefore, will not be subject to the ultra vires doctrine which will make the law more transparent. It removes concern around a company's capacity to take certain actions and gives the private company "full and unlimited capacity to carry on and undertake any business or activity, do any act or enter into any transaction". In effect, the private limited company will have legal capacity equivalent to that of a natural person. Directors must not exceed their powers as directors even if their actions are intra vires the powers of the company. An example of this situation is where the articles of association put a limitation on the amount directors may borrow without a shareholders resolution. Acts which are intra vires the powers of the company but are ultra vires the powers of directors under the articles of association are capable of ratification by the company in general meeting; and Directors must avoid putting themselves in a position where their personal interests conflict with those of the company. In dealing with the company, a director must disclose any interests which he has in a contract being entered into by the company. If he does not, the contract may be avoided at the instance of the company. If rescission is no longer possible, the company may still be able to recover from the director any profit he made from the transaction. The effect of this rule is modified in most cases by the articles of association which usually provide that the director may enter into a wide range of contracts; and In accordance with his duty to avoid a conflict of interest, a director must not divert to himself a business opportunity which the company would otherwise have obtained. If he does, he will be accountable to the company for the profits. (ii) The duty of care, skill and diligence There is a duty on...
Duties Of Directors Under Irish Law - Insurance Sector
|Author:||Ms Mary Canning, Breeda Cunningham, Michele Barker and Matthew Ryan|
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