The responsibilities and duties of a director of a Guernsey company are similar to those of a director under English law. However, Guernsey has its own companies legislation - the Companies (Guernsey) Law, 2008 (as amended) under which additional responsibilities arise that you should be aware of if you are acting as a director of a Guernsey company. This Red Line provides a high level summary of the role of a Guernsey director.
Who is a Director?
Any person occupying the position of director, by whatever name he or she is called, is a director for the purposes of the Companies Law. Obviously this includes the appointed directors, but it also includes others. The Companies Law definition of a director also includes alternate directors and, in some circumstances, shadow directors. Shadow directors are persons in accordance with whose instructions the board is accustomed to act.
Appointment of Directors
A Guernsey company must have at least one director. A director can be a natural person or another company. Under section 129 of the Companies Law, in order to be properly appointed as a named director of a company you must either be named as a director in the application for incorporation or, subsequent to incorporation, you must be appointed by ordinary resolution of the shareholders (or in any other manner set out in the company’s memorandum or articles of incorporation).
In terms of eligibility, anyone can be a director provided that you are not restricted under section 137 (which prohibits certain people such as minors and disqualified persons from being directors), and you have declared that you are not ineligible and have consented to act. Directors must also be pre-registered with the Guernsey Companies Registry. For companies regulated or authorised by the Guernsey Financial Services Commission (“GFSC”), additional consents may be required before you can be formally appointed as a director.
The directors of a Guernsey company generally have full powers to pursue the company’s business objects. Under the Companies Law, the objects of a company can be unrestricted by default, but it is worth checking whether a company’s memorandum or articles of incorporation contain any restrictions on your powers as a director (eg restricting the power to borrow money).
Section 134 provides that the business and affairs of a company must be managed by, or under the direction or supervision of, the board of the company. Further to this, the board of the company has all the powers necessary for managing, and for directing and supervising the management of, the business and affairs of the company.
There is a general requirement under Guernsey law that, as a director of a Guernsey company, you must exercise your powers for a proper purpose and for the purpose for which they are conferred (see below).
Exercising Skill and Care
There is a legal requirement on directors to exercise their powers with reasonable skill and care. This means both (a) with the skill and care of a reasonable person acting as a director in the same situation as you, and (b) with the skill and care reasonably expected from a person with your knowledge and experience. For example:
- If you are appointed as (say) a finance director, you will be judged by the standards of a reasonable finance director (whether you possess the relevant skills and experience to hold this position or not).
- If you are an accountant, you will be judged by the standards of a reasonable person with your accounting experience.
As a director of a Guernsey company, you hold a position of trust and are therefore subject to a number of fiduciary duties in the eyes of the law. These are often referred to collectively as the duty of good faith and include the following duties:
- You must act honestly and in the best interests of the company. Remember that, as the company is a separate legal entity from its shareholders, its best interests may not be the same as some of the shareholders;
- You must not place yourself in a position where your personal interests and those of the company conflict;
- You must exercise your powers properly and only for the purpose for which they are conferred; and
- You must not make a secret profit out of your position as a director.
Duties under the Companies Law
As a director you are personally responsible for ensuring that the company complies with the requirements of the Companies Law. While these requirements are in practice often delegated to the company secretary or administrator, it is important to remember that, if a company commits an offence under the Companies Law, by virtue of section 515 you as a director of the company can also be held personally liable for that offence.
The statutory duties under the Companies Law include:
- Filing the company’s annual validation with the Registrar;
- Preparing annual accounts and a directors’ report;
- Disclosing any interest that you as a director may have in the company’s business;
- Ensuring that the company meets the solvency test when any distributions are made or dividends are paid (breach of which can result in the directors being personally liable for the amount of any unrecoverable unauthorised distributions or dividends);
- Ensuring the company receives fair consideration (cash or non-cash) for all share issues; and
- Unless the shareholders have waived the requirement to do so by waiver resolution, convening and holding an annual general meeting of shareholders.
Other Duties under the Law
As a director you need to be aware of the regulatory and legal environment in which your company operates. For example, for many companies, health and safety regulations and employment laws are applicable to their business. For companies regulated by the GFSC there are additional regulations and codes which the directors must follow. For cellular companies there are additional duties and responsibilities on directors to keep cellular assets segregated and to notify creditors of certain facts.
As well as the potential to be personally liable under the Companies Law, as a director you can also be liable for damages under a civil action brought by those who suffer loss as a result of your actions. Other remedies that may be exercised against you if you breach your duties include injunctions, removal from office and being made to account for profits you have made at the expense of others.
Under the Companies Law there are specific liabilities for directors who engage in fraudulent or wrongful trading. Wrongful trading arises where the directors fail to acknowledge that the financial position of a company means it has no reasonable prospect of avoiding insolvent liquidation. If you are a director of a company in financial difficulties you need to be particularly careful and get specialist advice in these situations.
Directors who fail to meet their duties can also be subject to disqualification orders under the Companies Law, which can apply for periods of up to 15 years.
The role of company director is a testing one and should not be taken on lightly. A full appreciation and understanding of the company’s business and the environment in which it operates are essential, as is having the time properly to devote to the role.
This Red Line does not constitute legal advice and should not be relied upon as doing so. Specific advice should be sought in any particular case. If you have any questions arising out of this Red Line or generally in relation to a corporate issue, please contact our corporate team on +44 (0)1481 723723, or by email at email@example.com. Members of our corporate team, together with their contact details, are listed on our website www.aohall.com.
© AO Hall 2010