Essential Duties and Responsibilities of a Director

Introduction

As many of you are aware, com­pa­nies are formed and found­ed by share­hold­ers, how­ev­er, this does not mean that the com­pa­ny is man­aged and admin­is­tered by its share­hold­ers.

On the con­trary, each com­pa­ny has its offi­cers, each hav­ing dif­fer­ent roles, respon­si­bil­i­ties and pow­ers for the man­age­ment and admin­is­tra­tion of the com­pa­ny.

The first direc­tors of a com­pa­ny are appoint­ed by the sub­scribers to the mem­o­ran­dum of asso­ci­a­tion (MaAs).

The sub­se­quent direc­tors are then appoint­ed as per the claus­es in the arti­cles of asso­ci­a­tion, or, where there are no arti­cles of asso­ci­a­tion or such arti­cles of asso­ci­a­tion are silent on the mat­ter, they shall be appoint­ed through an ordi­nary res­o­lu­tion of the com­pa­ny in a gen­er­al meet­ing.

In the major­i­ty of cas­es, com­pa­nies have indi­vid­u­als as Direc­tors, how­ev­er, the Com­pa­nies Act pro­vides for the pos­si­bil­i­ty of a “cor­po­rate direc­tor”.

Who can be appointed Director?

You might ask “what are the require­ments for one to be appoint­ed a Direc­tor?”, Legal­ly speak­ing, there are no spe­cif­ic require­ments for one to be appoint­ed a Direc­tor of a Com­pa­ny. How­ev­er, one must keep in mind that the sce­nario is dif­fer­ent when it comes to list­ed com­pa­nies.

In the case of list­ed com­pa­nies, a direc­tor must be knowl­edge­able in the indus­try through qual­i­fi­ca­tions or pre­vi­ous expe­ri­ence.

The Com­pa­nies Act does not pro­vide a def­i­n­i­tion of the term ‘direc­tor’, how­ev­er, it does state what the term includes, and it also pro­vides under Arti­cle 136A what the gen­er­al duties of direc­tors are.

Fur­ther­more, the law does not pro­vide an exhaus­tive list of duties and indi­rect­ly states that the mem­o­ran­dum or arti­cles of asso­ci­a­tion as well as the Act itself and any oth­er law may assign oth­er duties to direc­tors.

Powers of Directors

Some might argue that the wide-rang­ing dis­cre­tionary pow­ers afford­ed to Direc­tors are advan­ta­geous to a Com­pa­ny since such pow­ers pro­vide effi­cien­cy and effort­less man­age­ment. How­ev­er, some might look at the pow­ers of Direc­tors from a dif­fer­ent per­spec­tive, that is, such wide-rang­ing dis­cre­tionary pow­ers may give rise to abuse of pow­er.

Apart from being the ones admin­is­ter­ing the run­ning of the com­pa­ny, direc­tors also have the pow­er to appoint a man­ag­ing direc­tor or com­mit­tees con­sist­ing of one or more of the exist­ing direc­tors to admin­is­ter cer­tain trans­ac­tions.

Let’s break down the duties and responsibilities of a director in a few points:

  • One of the pri­ma­ry duties of direc­tors is to act in bona fide in the best inter­est of the com­pa­ny, this duty is of utmost impor­tance since direc­tors owe no duties to the share­hold­ers, but to the com­pa­ny itself, they are bound to their com­pa­nies by fidu­cia­ry duties. This duty to act in bona fide can nev­er be stressed enough. Their per­son­al inter­ests must nev­er be includ­ed in the admin­is­tra­tion and man­age­ment of the com­pa­ny.
    • The only excep­tion to this rule is when a com­pa­ny is in a state of insol­ven­cy where the direc­tors would owe their duties to the cred­i­tors and not the com­pa­ny.
  • The respon­si­bil­i­ty of the direc­tors lies main­ly with the man­age­ment and prop­er admin­is­tra­tion and gen­er­al super­vi­sion of the com­pa­ny. Direc­tors are empow­ered, through the Com­pa­nies Act itself, to man­age all the affairs of the com­pa­ny, save any­thing that requires a share­hold­ers’ res­o­lu­tion at a gen­er­al meet­ing, through the Com­pa­nies Act or through any pro­vi­sions in the mem­o­ran­dum and arti­cles of asso­ci­a­tion.
  • A Direc­tor shall not make a prof­it from his/her posi­tion and must always place their per­son­al inter­ests aside so not to con­flict with those of the com­pa­ny.
  • Direc­tors are held account­able for any act or omis­sion that results from their actions or actions of any of their del­e­gates and are liable, joint­ly and sev­er­al­ly, for any inap­pro­pri­ate per­for­mance or any breach of a duty assigned to them.
  • The Com­pa­nies Act impos­es an oblig­a­tion on Direc­tors to per­form their duties with a degree of care, dili­gence and skill.
  • Cer­tain spe­cif­ic duties of Direc­tors include, but are not lim­it­ed to:
    • Call­ing Board Meet­ings and Gen­er­al Meet­ings;
    • Fil­ing returns and oth­er doc­u­ments;
    • Record keep­ing

Fraudulent vs Wrongful Trading

Well, we have estab­lished that direc­tors are held liable for any act or omis­sion car­ried out by them or their del­e­gates, but how does one deter­mine if direc­tors are essen­tial­ly in the wrong or not?

For this mat­ter, The Com­pa­nies Act dis­tin­guish­es between fraud­u­lent and wrong­ful trad­ing. Wrong­ful trad­ing comes about through neg­li­gence and lack of expe­ri­ence and skills; how­ev­er, fraud­u­lent trad­ing comes about through intent to defraud the cred­i­tors of the com­pa­ny or any oth­er cred­i­tors.

If one had to look at Mal­tese Case Law to under­stand bet­ter the respon­si­bil­i­ty and lia­bil­i­ty of the direc­tors, the per­fect exam­ple would be the Price Club Case which was the first time the Courts of Mal­ta resort­ed to the pro­vi­sions of fraud­u­lent trad­ing, even though the direc­tors tried to plead lack of expe­ri­ence.

Conclusion

Even though it might seem that all the busi­ness of the com­pa­ny is main­ly admin­is­tered and man­aged by the direc­tors, there are still lim­i­ta­tions as to the pow­ers of direc­tors.

The direc­tors must make sure they always keep with­in their pow­ers whether such pow­ers emanate from the Com­pa­nies Act or from the mem­o­ran­dum and arti­cles of asso­ci­a­tion, or from any oth­er law.

Dis­claimer*

The above-men­tioned arti­cle is sim­ply based on inde­pen­dent research car­ried out by Dr. Wern­er and Part­ner and can­not con­sti­tute any form of legal advice. If you would like to meet with up with any of our rep­re­sen­ta­tives to seek fur­ther infor­ma­tion, please con­tact us for an appoint­ment.

 

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