THE ROLE OF DIRECTORS – PART 1

In a two part series, we look at matters which need to be considered when taking on the role of director. This first article looks at the appointment and removal of directors and the duties they take on in the role.

Who can act as a Director?

There are few restrictions on who can act as a director. There is no particular requirement in terms of experience or qualifications, though you must be over 18 years of age. There are restrictions on certain people acting in the role. For example, an undischarged bankrupt, the statutory auditor of the company or a person disqualified by the courts may not act as a director for a company. Further, each company is required to have at least one director who is resident in the EEA or show that they have a sufficient economic link with Ireland.

How are Directors appointed?

All companies must have directors. Private limited companies are permitted to appoint only one director, provided there is another individual or corporate entity appointed as secretary of the company. All other types of company must have at least two directors. A person cannot be a director of more than 25 private companies limited by shares, with certain exceptions.

For a new company, directors are appointed at the time of registration. Thereafter, the Companies Act 2014 (the “Act”) sets out provisions governing the appointment of directors, which may be disapplied, amended or supplemented by the company’s Constitution. The standard provisions provide for the appointment of directors by the members at a general meeting. If someone other than an existing director is being nominated for the role, certain procedures will need to be followed. In addition to the power of appointment by the members at a general meeting, directors will typically have the power to appoint a director by way of board resolution, either to fill a vacancy or as an additional director. A new director appointed by the Board will stand appointed until the next AGM, where he or she will be eligible for re-election by the members. When considering the procedure for appointment of a director, it is important to check the company’s Constitution, as any of these standard provisions may be altered in the case of the particular company.

It is important to note the director being appointed must consent to their appointment. The company must keep a register of directors and secretaries and must notify the CRO of all changes.

What duties do Directors take on?

Under the Act, the business of a company is managed by its directors, who may exercise all powers of the company which are not reserved for the members under the Act or the Constitution (e.g. the power to appoint auditors is reserved to the members). The powers and obligations of the directors may in certain circumstances be delegated by directors to the appropriate individual.

However, directors are, and remain after any delegation of responsibility, subject to certain statutory and fiduciary duties under the Act. For example, the Directors may delegate the duty for maintaining proper books and records to a competent and reliable person but must have reasonable methods properly used to monitor the discharge of that duty by the person.

According to the Act, directors primarily owe their duties to the company to which they are appointed. However, directors must also have regard to the interest of shareholders, employees and creditors.

The key statutory duties of directors are as follows:

• To comply with the Act;
• To keep or cause to be kept adequate accounting records and failure to do so is also a criminal offence;
• To prepare financial statements of the company;
• To ensure that companies comply with their obligations to keep certain registers and they are responsible for ensuring that the records are maintained and made available to the appropriate parties;
• The duty to file documents with the CRO is a duty of the company and directors. Some documents, like the annual return, should be filed annually and other documents are required in order to notify the CRO and the public of an event or change in circumstances, such as appointment and removal of directors; and
• Directors are required to disclose certain things, like personal details to be filed with the CRO and their interests in shares in the company but the most important disclosure required of directors is any interest, whether directly or indirectly in any proposed contract with the company, the nature of that interest must be declared at a director’s meeting. This is to avoid a director taking advantage of any conflicts of interest.

The fiduciary duties of a director are enumerated in the Act. A fiduciary duty is a legal obligation to act in the best interest of another party, in this case the company.

Directors have a duty to:

• Act in good faith in what the director considers to be the interest of the company;
• Act honestly and responsibly in relation to the conduct of the affairs of the company;
• Act in accordance with the company’s constitution and exercise their power only for the purposes allowed by law;
• Not use company property, information or opportunities for their own benefit unless the company’s constitution permits it or a resolution is passed in a general meeting;
• Not to agree to restrict the exercise of a directors power of independent judgment unless this is expressly permitted by the company’s constitution;
• To avoid any conflict in directors duties to the company and the directors other interests unless the director is released from his or her duty to the company in relation to the matter concerned;
• To exercise the skill care and diligence that may be reasonably expected of a person having both the knowledge and experience that may be reasonably expected of a person in the same position as the director; and
• To have regard to the interests of the company’s members.

Ceasing to be a Director

A director can resign by presenting a resignation letter to the board of directors and the company filing notice of this change with the CRO. Alternatively, under the Act directors may be removed from office by an ordinary resolution of the members of the company in a general meeting.

A director may also be deemed to have vacated their office under certain circumstances, subject to the terms of the company’s Constitution, such as for health reasons or being absent from board meetings for more than six months from meetings of directors without permission of other directors. The Act also provides for mandatory vacation of office in circumstances where, for example, the director is disqualified or becomes bankrupt.

In the next article in this series we will examine in more detail the restrictions and disclosure requirements in relation to transactions between a company and its directors or connected persons.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail, please feel free to contact Joe McVeigh, in the Corporate Department of BHSM on 01 440 8300 or jmcveigh@bhsm.ie for further information.

This article is for general information purposes. Legal advice must be obtained for individual circumstances. Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.