Companies Act 2014 - How has it impacted on Director's duties?Thursday, 30 April 2015
What is the current position?
Determining the scope of the duties and responsibilities of directors is not always clear-cut under current law. There is no one central statement of directors' duties which primarily flow from four main sources - current companies legislation, a company's memorandum and articles of association, other relevant legislation (e.g., tax or environmental legislation) and common law (decisions made by Irish courts on company law related matters).
How does the Companies Act, 2014 (the Act) change the current position?
The Act, for the first time, gives statutory recognition under Irish law to the current common law and equitable principles regarding directors’ duties by including a comprehensive centralised statutory statement of directors’ duties with a view to making this area of law more transparent and accessible for directors, focusing the minds of directors on corporate compliance and consequently increasing compliance levels.
To what categories of director do the statutory obligations/duties under the Act apply?
The obligation to comply with directors' statutory duties and obligations applies to all categories of directors without exception, including executive and non-executive directors and shadow and de-facto directors as well as formally appointed directors. While the Irish courts accept that directors have different levels of experience and areas of expertise, a basic threshold of knowledge and participation is expected from all directors and pleading ignorance of either directors’ duties or the affairs of the company is unlikely to be a good defence.
What are the codified Directors’ Duties under the Act?
The Act sets out a list of eight fiduciary duties with which all directors of Irish companies are bound to comply:
- Act in good faith and in best interests of company
- Act honestly and responsibly
- Act in accordance with the company’s constitution and exercise powers only for lawful purposes
- Not to use company property, information or opportunities unless approved by constitution or members
- Not to fetter discretion unless approved or believe in good faith that its in the company’s interests
- Avoid unauthorised conflicts of interest
- Exercise care, skill and diligence in performance of duties
- Have regard to the interests of employees and members
What other obligations are imposed on Directors under the Act?
Each new director of an Irish company must acknowledge his duties and obligations as a director in writing when consenting to act which will make it more difficult for a director to plead ignorance of those duties. An explicit responsibility is imposed on directors to ensure that the company secretary has the appropriate skills and resources to discharge his or her statutory duties.
There is also a new requirement for the Directors' Report forming part of the audited financial statements to include a Relevant Audit Information statement confirming that the directors of that company have disclosed all relevant information to the auditors and have made themselves aware of relevant audit information.
The directors of all PLCs and private limited companies/guarantee companies which meet certain financial thresholds are required to include a Directors’ Compliance Statement in the Directors’ Report on a comply or explain basis confirming responsibility for compliance with certain statutory obligations under the Act and tax law and related matters. Our next bulletin will have more information on Directors' Compliance Statements.
What remedies has a company for breach of Directors' Duties under the Act?
A director may be held liable to account to the company for an unlawful gain resulting from a breach or may be required to indemnify the company for loss caused by a breach. However, directors are not expected to be infallible and generally it is a defence where the director is shown to have acted honestly and reasonably. There are protections for third parties who innocently contract with a director who is acting in breach of his duties.
If you, as a director or a board of directors, require further advice or guidance on the implications for you of the changes in relation to directors' duties or other corporate governance matters post-commencement of the Act or would like advice in relation to any other aspect of the Act, please contact one of our Corporate Partners:
Gillian O'Shaughnessy + 353 (0)1 691 5272 firstname.lastname@example.org
Dennis Agnew + 353 (0)1 691 5293 email@example.com
Feargal Brennan + 353 (0)1 691 5276 firstname.lastname@example.org
Darren Daly + 353 (0)1 691 5274 email@example.com
Gerry Beausang + 353 (0)1 691 5866 firstname.lastname@example.org
Colin Sainsbury + 353 (0)1 691 5277 email@example.com
For further information on the Companies Act, 2014, please read our related publications below:
- Companies Act, 2014 – Preparing for a Smooth Transition – Pre-Commencement Checklist
- Companies Act, 2014 - FAQs
- Companies Act, 2014 – Q&A#1 - What is an LTD and when is conversion to LTD appropriate?
- Companies Act, 2014 – Q&A#2 – What is a DAC and when is conversion to DAC appropriate?
We will be continuing to post our series of topical e-bulletins on the ByrneWallace website and LinkedIn page during the lead-in period to commencement of the Act, as well as post-commencement, which will assist companies and directors in navigating the new company law regime and assessing its practical impact.