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 law relating to the standards to be observed by directors in discharging their duties applies no distinction between executive and non-executive directors.
The following duties are relevant:
Loyalty – A director must act in good faith in what he considers to be the interests of the company.
Obedience – A director must act in accordance with the company’s memorandum and articles of association) and must exercise his powers only for the purposes allowed by law.
Independence – A director must not agree to restrict his power to exercise an independent judgement. But if he considers in good faith that it is in the interests of the company for a transaction to be entered into and carried into effect, he may restrict his power to exercise an independent judgement by agreeing to act in a particular way to achieve this.
No secret profits – A director must not use the company’s property, information or opportunities for his own or anyone else’s benefit unless he is allowed to by the company’s constitution or the use has been disclosed to the company in general meeting and the company has consented to it (although this may not be sufficient in some circumstances: the directors are not agents of the members, and cannot be instructed by the members in general meeting as to how they should exercise their powers).
Conflict of Interest – Directors must not put themselves in a position where there is a conflict (actual or potential) between their personal interests and their duties to the company or between their duty to the company and a duty owed to another person. If there is a conflict between an interest or duty of a director and an interest of the company in any transaction, the director must account to the company for any benefit he receives from the transaction. This applies whether or not the company sets aside the transaction. But the director does not have to account for the benefit if he is allowed to have the conflicting interest or duty by the company’s constitution (and he has complied strictly with the requirements and terms of the company’s Articles in that regard) or the interest or duty has been fully and properly disclosed to and approved by the company in general meeting. Chapter 3 of the IOM Act contains express statutory provisions which provide that (subject to any provision to the contrary in the company’s Articles) a director of an IOM Act company may in certain circumstances have a conflicting interest with the company and still retain any benefit which he derives by reason of such interest provided that the director has disclosed his interest in accordance with, and strictly complied with, the requirements of the relevant provisions of the IOM Act. Directors must also remember their duty to disclose any interest to the board of directors of the company.
Care, skill and diligence – A director owes the company a duty to exercise the care, skill and diligence which would be exercised in the same circumstances by a reasonable person having both (a) the general knowledge, skill and experience that may reasonably be expected from a person carrying out the same functions as are carried out by that director in relation to the company, and (b) the actual knowledge, skill and experience which the director has.
Disqualification
Isle of Man law includes provisions which enable the court to make orders disqualifying individuals from acting as directors. In particular, the Company Officers (Disqualification) Act 2009 permits the court to make disqualification orders of between 2 and 15 years where the court is satisfied that a person’s conduct renders them unfit to be an officer of a company.
The directors are responsible for the company’s administration, including maintenance of proper accounting records, minutes of meetings, statutory books and filing of information at the Companies Registry. It is usual for these duties to be delegated to the Registered Agent but this does not relieve the directors of the ultimate responsibility.
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