In a series of articles, Director Alex Spencer summarises the duties and responsibilities of the directors of a company incorporated in the Isle of Man. This is not an exhaustive list of all the considerations which may arise and the Company’s financial, legal and other advisers should be consulted where there is any doubt.
The overriding duty of the directors of the Company in all circumstances is to the Company and its shareholders. The directors must also look to the interests of the Company’s creditors if the Company is or is approaching insolvency.
The directors are entitled to rely on, and may have a duty to take account of, advice from financial and other advisers.
The directors must not act for an improper purpose or in their own interests. It follows that they may not adopt a course of action designed to maintain their own management control of the company.
Directors’ Duties
Traditionally, Isle of Man company legislation has been based on English company statutes and the English Companies Act 1929 was the foundation for the Isle of Man Companies Acts 1931-2004 which remain in force today (the “1931 Act” or “CA31” where the context requires).
In 2006, the Isle of Man Companies Act 2006 was enacted (the “IOM Act”, the “2006 Act” or the “CA06” where the context requires). The Isle of Man Companies Act 2006 introduced a simplified corporate vehicle into Isle of Man law with similarities to similar corporate vehicles found in the British Virgin Islands.
The Isle of Man provides a parallel regime for the incorporation and registration of 1931 Act and 2006 Act companies.
Note that the Isle of Man Act called the “Companies Act 2006” bears no relation to the United Kingdom Companies Act 2006 (the “UK Act”) except (co-incidentally) the same name. Accordingly, the codification of Directors’ duties in the UK Act does not apply to the Company. However, the relevant Isle of Man law largely reflects the same common law principles that have now been codified in UK Act.
Directors are subject to certain minimum standards of care, skill and diligence in discharging their duties. Set out below is a summary of the main duties of a director to his company. It is not an exhaustive and complete statement of a director’s duties and the law is subject to change.
We consider that Isle of Man law in relation to duties of directors of 2006 Act companies is no different to that in relation to 1931 Act companies (subject to specific statutory provisions: for example there may be differences in relation to preparation of financial statements, however we do not consider these would be relevant in this context).
Although the IOM Act does not use the actual term “shadow director”, various provisions refer to persons in accordance with whose directions or instructions the
2 director(s) are accustomed to acting. A “shadow director” must comply with the same standards as a properly appointed director. Directors should not allow a person who has not been formally appointed to act as a director, nor should they allow their discretion to be fettered by such a person. Similarly, a person who has not been appointed as a director should not seek to direct or instruct the directors.
Similarly, there is no such entity in law as a “nominee” director. Every director has exactly the same responsibility to the company as a whole and if he neglects that responsibility, he will be guilty of a breach of duty. Directors must not simply “rubber stamp” decisions made by others, whether other directors, shareholders, beneficial owners or other third parties.
GO TO