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Q：
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What fiduciary duties are directors required to uphold in their role within a company?
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A：
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Directors are obligated to act with integrity and prioritise the company’s welfare, ensuring that decisions made contribute positively to its success as outlined under Section 213 of the Companies Act 2016 (CA 2016). They must also use their powers in a manner that aligns with their roles and responsibilities. In addition, Section 213(2) of the CA 2016 state that directors are required to carry out their responsibilities with a reasonable degree of care, skill, and attention.
Moreover, Section 221 of CA 2016 requires the situations that could lead to conflicts of interest be avoided by directors. If directors have any direct or indirect interests in the company’s transactions and contracts, they must immediately provide written notification to the Board of Directors (BOD) regarding these interests.
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What consequences arise if a director fails to fulfill their fiduciary duties?
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If a director fails to uphold the responsibilities outlined in Section 213 of CA 2016, they may be personally liable for any losses or damages that the company suffers due to their actions or decisions. Furthermore, Section 213(3) CA 2016 indicates that directors could face fines, imprisonment, or both, based on the seriousness of the violation.
In more serious cases, directors may be disqualified by the Court under Section 199 of CA 2016, which can bar them from holding directorships for up to five years from the date of the order if they are found guilty of serious misconduct. Additionally, criminal penalties may be imposed, especially in cases of fraudulent actions, such as making false or misleading reports or statements.
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Why is it mandatory for director to disclose conflict of interest?
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According to CA 2016, Section 221 specifies that a directors must disclose any conflict of interest related to ongoing or proposed transactions to the BOD as soon as the conflict is identified whether directly or indirectly, prior to any discussion or voting on the transaction.
They must also reveal connections with related parties, such as family members or business associates involved in company transactions. During BOD meetings, if the agenda item under discussion presents a conflict for a director, they are required to declare their nature of interest and abstain from participating in discussions or vote on such agenda item. A director who does not disclose a conflict of interest may become personally liable for losses suffered by the company and could also face disqualification from their directorship.
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Are directors allowed to delegate their duties, and if so, do they still hold liability for their delegates’ actions?
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Under Section 216 of the CA 2016, directors are allowed to assign their powers and duties to a committee, an employee, or another individual, which facilitates more effective management of the company. Nevertheless, directors remain responsible for the actions taken by those they delegate to and cannot evade liability merely by assigning tasks. They must ensure that their delegates are competent and that appropriate oversight is in place. Thus, delegation does not relieve directors of their obligation to act in the company's best interests.
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What is business judgement rule?
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The business judgment rule is a legal principle that protects company directors from personal liability when they make decisions in good faith, with reasonable care, and in the best interests of the company. It allows directors to take calculated risks without fear of being held liable for unfavorable outcome, so long as they act responsibly and fulfill their fiduciary duties.
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FAQ
