Directors Duties

Company directors' duties and obligations

As the majority of Irish companies are private companies there are a substantial number of companies of which the directors and shareholders are one and the same. Under such circumstances, the distinction between the company's property and the director/member's own property can be a matter of some confusion with the result that the directors treat company property as though it was their own.

A company director stands in a special relationship to the company of which they are an officer. This special position is known as a 'fiduciary position' and the director is known as a 'fiduciary'. A fiduciary is required to act in a manner which is legally becoming of their office and which places the interests of the company ahead of their own.

A director's duties are usually owed in the first instance to the company and not to the members, creditors or employees of the company. Where, however, a director expressly undertakes certain obligations to shareholders, he may stand in a fiduciary relationship to them and owe them fiduciary duties. This may particularly be the case in a small private company where shareholders often look to the directors for advice.

A director is also obliged to have regard to the interests of the company's employees, however, this duty may not be enforced by the employees themselves and is instead owed to the company.

Directors' common law duties

Directors' common law duties can be summarised into three principles:

• Directors must exercise their powers in good faith and in the interests of the company as a whole. Directors must not abuse their powers. They must exercise their powers in what they honestly believe to be the interests of the company as a whole or the members as a whole rather than in the interests of a particular member or members.
• Directors are not allowed to make an undisclosed profit from their position as directors and must account for any profit which they derive from their position as director. It is not automatically a breach of a director's duties to be involved in a business which competes with the company of which they are a director. However, where a director has a contract of employment or service contract with the company, it may be in breach of their duties of fidelity and loyalty to the company to do so.
• Directors are obliged to carry out their functions with due care, skill and diligence. However, a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience.

A director is, in general, justified in delegating duties to other officials of the company (e.g. the company's management) where such duties may properly be left to such officials, having regard to the articles of association of the company and the nature of its business. A director, while not bound to give continuous attention to the affairs of the company, should attend meetings in circumstances where he is reasonably able to do so.

Directors' statutory duties

A director, as an officer of a company, is under a duty to comply with his obligations under the Companies Acts 1963 to 2009 and to ensure that the requirements of the Companies Acts are complied with by the company. A director is in breach of this duty where he authorises or permits a default to take place.

A director is presumed to have permitted a default by the company unless the director can establish that he took all reasonable steps to prevent it or, due to circumstances beyond their control, was unable to do so.

Duty of disclosure

Directors are required to disclose the following:

• Certain personal information in the register of directors. The information required is first and surname, date of birth, residential address, nationality, occupation and details of any other directorships
• Interests in shares of the company or related companies in the register of directors' interests
• Payments to be made to them in connection with share transfers
• Directors' service contracts with the company must be made available for inspection by any member of the company
• Where a director has in any way an interest in a contract or proposed contract with the company, they are required to declare the nature of that interest at a meeting of the directors of the company. For the purposes of this requirement, a general notice given to the other directors is deemed to be a sufficient declaration of that interest

Duty to maintain registers

Every company has a legal obligation to maintain certain registers and other documents. Company directors are responsible for ensuring that companies comply with their obligations in this regard and, consequently, directors are responsible for ensuring that these records are maintained, updated as appropriate and made available to the appropriate parties.

Directors are responsible for ensuring that the following registers and other documentation are maintained by the company:

• Register of members
• Register of directors and secretaries
• Register of directors' and secretary's interests
• Register of debenture holders
• Minute books
• Directors' service contracts
• Contracts to purchase own shares
• Register of interests of persons in its shares (public limited companies only)

The criteria and procedures for audit exemption are set out in Part III of the Companies Amendment - No. 2 Act 1999.

Duty to file certain documents with the Registrar of Companies

Company directors are legally obliged to ensure that certain documents are filed with the Registrar of Companies. Some are required to be filed by every company e.g. the annual return while others are required to be filed only in certain circumstances e.g. on the death of a director. Accounts are required to be annexed to a companies 2nd and subsequent annual returns.

Below is a list of those documents more commonly required to by filed with the Registrar.

• Annual Return
• Change of registered office
• Notice of increase in nominal (authorised) capital
• Change of director and/or secretary or of their particulars
• Declaration that a person has ceased to be a director or secretary
• Notice that a person holding the office of director or secretary has died
• Nomination of a new annual return date
• Notification of the creation of a mortgage or charge
• Memorandum of satisfaction of charge
• Ordinary resolution
• Special resolution
• Return of allotments

Any transfer of shares is required to be submitted with the Revenue Commissioners. Such transfers should then be recorded in the next annual return.

Directors' duties regarding transactions

Directors have certain responsibilities and obligations where they enter into transactions with the company of which they are a director. Where a director of a company or its holding company (i.e. a company owning in excess of 50% of the shares of the company in question) or a person connected with a director acquires an asset from, or sells an asset to, the company and the value of that asset exceeds:

• €63,487
• 10% of the company's net assets as determined by reference to the accounts prepared and laid before the AGM in respect of the last preceding financial year in respect of which accounts were so laid - or the called up share capital where no accounts have been prepared and laid

The arrangement must first be approved by resolution of the company in a general meeting - this requirement does not apply where the amount in question does not exceed €1,270.