Codified Directors duties under the new Companies Act 2014
By Simon o’ Connor, 27th of August 2015
The Companies Act 2014 which was commenced on the 1st of June 2015 has introduced a general guideline for directors of Irish companies. Prior to the introduction of the new Act, Irish company directors had to ensure to abide by the duties imposed on them by both common law and statutory requirements. The new legislation has introduced codified duties which enforce the concept that all directors, including de facto and shadow Directors, owe a duty to the company and not its shareholders.
Fiduciary Duties of Directors
The definition of fiduciary is a person who holds a legal or ethical relationship of trust with another person or in this case, the company and its members. The eight principal fiduciary duties of directors which are set out in section 228 of the Companies Act 2014 are:
- To act in good faith and best interests of the company.
- To act in accordance with company constitution and exercise powers only for lawful purposes. This was a ready-existing common law duty and is especially relevant to Designated Activity Companies.
- Not to misuse the company’s property, information or opportunities – unless expressly provided for in constitution approved by special resolution. This duty reflects the common law position that a Director is similar to a trustee in that he is controlling the property owned by someone else. This duty also refers to the unauthorised disclosure of confidential information to third parties.
- Not to fetter independent judgment – unless provided for in constitution or conveyed by way of special resolution
- To avoid conflicts of interests – this duty precludes the company entering into a contract with a Director and can be excluded via express statement in constitution
- To exercise care, skill and diligence – the courts will test on the basis of the “reasonable person (who is a Director)”.
- Have regard to members’ interests – manifestation to act in best interests of the company because the company includes its members as a whole.
- To act honestly & responsibly – this duty was strongly recommended in the Report on the General Scheme of the Companies Consolidation & Reform bill in 2007.
Also introduced in the new Companies Act 2014 is the categorisation of offences which have been simplified and ranked on a scale from 1 to 4. Depending on the offence, directors who are found guilty of breaching company law can be liable to fines ranging from €5,000 – €500,000 and jail sentences ranging from 6 moths to 10 years.
Category 1: If you are found guilty of breaching company law which falls under category 1, you are punishable by fines of up to €500,000 and/or a maximum 10 years imprisonment. Such offences include false accounting and fraudulent trading.
Category 2: If you are found guilty of breaching company law which falls under category 2, you are punishable by fines up to €50,000 and/or a term of imprisonment of up to 5 years. Such offences range from financial assistance to failure to keep adequate accounting records.
Categories 3: If you are found guilty of breaching company law which falls under category 3, you are punishable by Class A fine* and/or a term of imprisonment of up to 6 months. Such offences include non-filing of annual returns, trading under a misleading name or without a trading certificate and failure to hold an AGM.
Category 4: If you are found guilty of breaching company law which falls under category 3, you are punishable by a Class A fine*. Such offences include failure to make routine filings.
*A Class A fine falls under the Fines Act 2010 which is a sum of up to €5,000.
If you would like more information on company law in Ireland or would like to register a company in Ireland, please do not hesitate to contact us on +3531 6874519 or alternatively you can fill out a contact form on our website and a representative will be in contact with you shortly.