Codified Directors’ Duties
The Companies Act 2014 consolidated and restated the law in relation to directors’ duties. It sets out certain directors’ duties in statutory form, for the first time. This follows the approach of the Companies Act, 2006 in the United Kingdom. The duties are confirmed as being owed to the company and the company alone.
The Companies Act provides that the duties are based on certain common law rules and equitable principles as they apply in relation to the directors of companies and that they have effect in place of those rules and principles, as regards the duties owed by a director to a company.
The legislation provides that the statutory formulation of the duty shall be interpreted and applied in the same way as the earlier common law rules or equitable principles. The courts must have regard to the corresponding common law rules and equitable principles in interpreting the duties and applying the provisions.
Some of the duties correspond to the grounds on which a director may be restricted in an insolvent liquidation. To some extent, the duties re-state these obligations in positive terms.
To Whom Duties Apply I
The statutory duties apply both to directors appointed as such, and to persons who are directors in effect, (“de facto” directors) and shadow directors. The latter are persons in accordance with whose directions or instructions, the directors of the company are accustomed to act. It is confirmed, for the removal of doubt, that this does not include holding companies.
The Companies Act 2014 introduces the concept of “de facto” directors. This is a different concept to that of shadow director. A de facto director means primarily, a person who occupies the position of director of a company, who has not been formally appointed as such. De facto directors are treated as directors.
To Whom Duties Apply II
A person is not a “de facto” director by reason only of giving professional advice to a company as an advisor. A person may be a de facto director by giving advice, but the rendering of professional by itself is not sufficient.
The concept of persons “connected” with a director, is of relevance in various contexts, including in particular in relation to the prohibitions in relation to loans, quasi-loans and security for or for the benefit of directors and connected persons. Connected persons include the director’s spouse, civil partner, siblings, parent or children.
Connected persons include those acting as trustees of a trust, the principal beneficiaries of which, are the director, family members or a corporate body which the director controls. It includes persons in partnership with the director. It includes bodies corporate (i.e. companies or their equivalent under the law of other jurisdictions) and other bodies that are controlled by that director.
Offences and Officers in Default
The Companies Act 2014 defines an “officer in default.” The concept arises in numerous instances in companies and other legislation. Under the Companies Act itself, each of the company and its officers in default may be prosecuted for prohibited conduct.
An officer in default is defined as an officer who authorises, or who in breach of his duty as such, permits a default. A default includes any refusal to do a thing or a contravention of a legal provision.
Where it is proved that the defendant was aware of the basic facts concerning the default, it is presumed that the defendant permitted the default, unless he shows that he took all reasonable steps to prevent it or that by reason of circumstances beyond his control, he was unable to do so.
The basic facts concerning the default are such facts relating to one or more acts or omissions that constituted the default, as can reasonably be regarded as indicating at the relevant time the general characters of those acts or omissions.
Shadow and De Facto Directors
The statutory duties apply both to persons who have been formally appointed as directors, to de facto directors (those occupying the office of director without being appointed) and shadow directors (persons in accordance with whose instructions, the company is accustomed to act).
A shadow director is defined as a person in accordance with whose directions or instructions, the directors of a company are accustomed to act. A shadow director is treated for the purposes of the principal directors’ duties, as a director. Where a person is accustomed to act by reason only that they do so on advice given by him or her in a professional capacity, that advisor is not a shadow director. A body corporate is not to be regarded as a shadow director of any of its subsidiaries.
A person who occupies the position of director of a company, but who has not been formally appointed as such is deemed a director of the company. Such a person is referred to as a de facto director. The person is not a de facto director by reason only of giving advice in any professional capacity to the company. A de facto director person is obliged to disclose potential conflicts in the same manner as above.
Declaring Conflicts of Interest
The duty to declare a potential conflict of interests applies to a director, shadow director and a “de facto” director. They must declare their conflict by notice in writing to the directors. It must be declared at or before the relevant meeting. In the case of a shadow director, it may be a specific notice given before the date of the meeting at which if he or she had been a director, the declaration would be required.
Alternatively, a director, shadow director or de facto director may give a general notice to the directors of a company to the effect that
- he or she is a member of a specified company or firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that company or firm, or
- he or she is to be regarded as interested in any contract which may, after the date of the notice, be made with a specified person who is connected with him or her, shall be deemed to be a sufficient declaration of interest in relation to any such contract.
A credit transaction, quasi-credit transaction, etc., made by a company for a director or a person connected with the director shall if it would not otherwise be so treated (and whether or not prohibited), be treated as a transaction or arrangement in which that director is interested.
Acknowledgement of Duties
It is the duty of each director of a company to ensure that the provisions of the Companies Act are complied with by the company. The breach by the director of this duty, does not of itself, invalidate any contract or transaction or impair its enforceability, by any person other than the director in breach of duty. This does not affect the liability of a third party where he has been an accessory to the breach or has knowingly received a benefit from it.
The director’s consent to act as a director and notification of his appointment as a director to the CRO shall include a statement by the director in the following terms.
“I acknowledge that as a director I have legal duties and obligations imposed by the Companies Act, other statutes and at common law.”
Directors are to have regard, in the performance of their functions, to the interests of the company’s employees in general as well as the interests of its members. The duty imposed on the directors is enforceable in the same way as any other fiduciary duty owed to the company by its directors. Accordingly, it is owed to the company only.
Statutory Duties of Directors
The statutory duties of directors are set out in the Companies Act, 2014. This statement of their obligations is without prejudice to any legislation, including the Companies Act. The statutory duties may be enforced in the same way as any other fiduciary duty owed to a company by its directors.
The statutory duties are specifically stated to be based on common law and equitable principles as they apply in relation to the directors of companies and shall have effect in place of those rules and principles, as regards the duties owed to a company by a director.
They are to be interpreted and applied in the same way as common law rules or equitable principles. Regard shall be had to the corresponding common law rules and equitable principles in interpreting those duties and applying those provisions.
The Statutory Duties
The statutory duties of directors are as follows:
- act in good faith in what the director considers to be the interests 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 his or her powers only for the purposes allowed by law;
- not use the company’s property, information or opportunities for his or her own or anyone else’s benefit, unless this is expressly permitted by the company’s constitution, or the use has been approved by a resolution of the company in general meeting;
- not agree to restrict the director’s power to exercise an independent judgment unless this is expressly permitted by the company’s constitution or the director agreeing to such has been approved by a resolution of the company in general meeting;
- avoid any conflict between the director’s duties to the company and the director’s other (including personal) interests, unless the director is released from his or her duty to the company in relation to the matter concerned, whether in accordance with provisions of the company’s constitution in that behalf or by a resolution of it in general meeting;
- exercise the care, skill, and diligence which would be exercised in the same circumstances by a reasonable person having both the knowledge and experience that may reasonably be expected of a person in the same position as the director; and the knowledge and experience which the director has;
- to have regard to the interests of its employees; and
- to have regard to the interests of its members.
Without prejudice to the board’s duties, the directors are to act in good faith in what the director considers to be the interest of the company.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.16 Courtney
Keane on Company Law 5th Ed. (2016) Ch.27 Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Palmer’s Company Law