A Guernsey Director
According to Section 131 of the Companies (Guernsey) Law, 2008 (as amended), a director isn’t just someone with the title. It includes alternate directors and anyone acting in the role of a director, no matter what they’re called. This means that courts look at what a person actually does, not just their title, to decide if they’re a director.
So, if you’re an alternate director (someone stepping in for a director when they’re not around) or a non-executive director, you still have the same duties and responsibilities as any other director. Even if you haven’t been officially appointed but act like a director (de facto director) or if the directors usually follow your instructions (shadow director), you might still be considered a director under certain circumstances.
There are also some rules about who can be a director. For example, minors and people who have been disqualified as directors anywhere in the world can’t be appointed as directors of a Guernsey company.
Regulation of directors
If you’re acting as a director of a company in or from within the Bailiwick of Guernsey, it’s considered a regulated activity. This means you need a license unless you’re not doing it ‘by way of business’ or you fall under an exemption.
This licensing rule applies to directors of any company, not just those in the Bailiwick. So, even if the company is incorporated elsewhere, if you’re acting as a director from within the Bailiwick, you need to be licensed.
Where are the duties and responsibilities of directors set out?
The duties and responsibilities of company directors under Guernsey law come from three main sources:
- English common law duties and obligations imposed by codes of practice
- Companies Law
- The company’s memorandum and articles of incorporation, which outline the scope of a director’s powers and duties.
Additionally, under the Guernsey Companies Law, a shadow director (someone whose instructions the directors usually follow) is treated as a director when it comes to ratifying acts of directors and transactions involving self-interest
Common law duties and liabilities of directors
Under common law, directors have two main types of duties to the company they serve: fiduciary duties and duties of skill and care:
Fiduciary duties are all about honesty and loyalty to the company. Unlike duties of skill and care, there’s no test of competence to see if these duties are met. It’s all about being trustworthy and putting the company’s interests first.
Duties of skill and care refer to the responsibilities directors have to act with a certain level of competence and diligence when managing a company. This means they need to:
- Act with the care that a reasonably diligent person would take in similar circumstances.
- Use their skills and knowledge effectively to benefit the company.
- Stay informed about the company’s activities and make decisions based on adequate information.
In essence, directors are expected to be both careful and competent in their roles, ensuring they make well-informed and thoughtful decisions for the company.
The duty of good faith
A director must act honestly and in good faith, always considering what’s best for the company as a whole. This duty is subjective, meaning a director won’t be held liable for breaching it if the court believes they acted honestly and thought about the company’s interests, even if their actions were incompetent or seemed unreasonable.
However, a director can’t just rely on their own sense of honesty. They could still be found liable if they didn’t consider the company’s interests at all or if their decision was clearly not in the company’s best interests.
The duty to promote the success of the company
A director’s main job is to act in the best interests of the company as a whole. This means thinking about the company’s long-term success, not just short-term gains. If the company is part of a larger group, the director needs to focus on the company’s interests, which might not always match the group’s interests.
Directors don’t have specific duties to individual shareholders or even to shareholders as a group. However, when the company is doing well financially, the company’s interests usually align with those of the shareholders. If the company is facing financial trouble or is nearly insolvent, directors might need to prioritize the interests of creditors, as they then have the main economic stake in the company.
Duty to exercise powers for a proper purpose
This duty means that a director must not only follow the company’s constitution but also use their powers for the reasons they were given. In other words, directors should adhere to both the spirit and the letter of the company’s rules.
No conflicts duty
In the past, directors had to avoid any actual or potential conflicts between their own interests and the company’s interests. They could be in breach of this duty even if the company didn’t suffer any loss. However, the Companies Law has made this duty less strict by emphasizing disclosure. Now, if a conflict arises, a director can avoid liability by making sure the conflict is disclosed to and approved by the company. The specific requirements for disclosing directors’ interests are outlined below
The duty to exercise reasonable care, skill and diligence
Directors owe the company a duty to act with reasonable care, skill, and diligence. This standard is both subjective and objective. It means that directors should act as a reasonably diligent person with both:
- The general knowledge, skill, and experience that the director actually has.
- The general knowledge, skill, and experience that could reasonably be expected from someone in their position.
So, while the duties of independent non-executive directors might differ from those of executive directors with specific responsibilities and service contracts, they still need to apply reasonable care, skill, and diligence in their roles.
Statutory duties and liabilities of directors
Besides common law duties, the Companies Law sets specific duties for directors. For example, directors must disclose any potential or actual conflicts of interest. The law also requires the company to maintain a register of directors and members, which directors, as officers of the company, are responsible for.
Insurance and indemnity
The Companies Law prevents a company from exempting or indemnifying a director for liabilities related to negligence, default, breach of duty, or breach of trust concerning the company or an associated company. This applies whether the liability arises from their own actions or those of others.
The law does allow the company to provide indemnity against third-party claims (liabilities incurred by a director to someone other than the company or an associated company), as long as this indemnity doesn’t cover fines from criminal proceedings or regulators.
