What Are A Director’s Fiduciary Duties?

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It goes without saying that becoming the director of a company comes with a lot of responsibility. As a director, it is your responsibility to act fairly, and in the best interests of your company and employees. The fiduciary duties of directors that must be followed are listed and explained below:

Acting Within The Powers Of The Company’s Constitution

The first of a director’s fiduciary duties is to act within their powers, as specified in the company’s constitution, specifically the rules set out in the articles of association. As a director, it’s important to familiarise yourself with the articles of association to ensure that you’re always making decisions that are within the boundaries set out in the constitution.

Promoting The Success Of The Company

All decisions made by directors must be justified as having been made in the best interests of the company. This is probably one of the most recognisable of the director’s fiduciary duties. This means that when making decisions, directors must consider the potential consequences for the company, including the impact on employees and shareholders. They should also consider the impact on the environment and reputation of the business, as well as ensuring the decision is fair to all stakeholders.

Exercising Independent Judgement

It’s essential for directors to form independent views and exercise their decision-making based upon this. It’s important that they’re not simply relaying decisions and knowledge determined by shareholders or other stakeholders, but are using their initiative. It’s also important that the decision is beneficial to all stakeholders and not favoured towards one particular party.

Exercising Reasonable Care, Skill & Diligence

It’s not enough for a director to rely upon their reputation. As part of their director’s fiduciary duties, they must be able to demonstrate reasonable skill and diligence in their role and decision making. Depending on the industry, some directors may also have specific training skills that they are required to uphold, such as lawyers and accountants.

Avoiding Conflicts Of Interest & Personal Benefits

A director also has a duty to manage and disclose conflicts within the business. If a conflict is disclosed, it is up to the non-conflicted board members to manage or approve it in the proper manner. Examples of conflict may include situations where a director is considering taking advantage of business assets on a personal basis or any situations that are a threat to a director’s objectivity.

Declaring Interest In Proposed Transactions Or Arrangements

Director’s interests must be declared before the company enters into a transaction or agreement. The articles of association should set out the process for how this is done. It’s also part of director’s fiduciary duties to state any direct or indirect interest held in an existing transaction or agreement.

What Are The Consequences Of Failing These Duties?

The consequences of failing to uphold a director’s fiduciary duties can be very serious. This can involve proceedings being taken against the director, financial repercussions or being removed as a director. If a company becomes insolvent, it’s essential that the director continues to act in the interest of creditors and shareholders. Failure to uphold duties during this period could result in claims of misfeasance, wrongful trading, or in the most severe cases, legal action being taken. 

If you are the director of a company that is facing insolvency and would like further guidance on your duties, or on liquidation or business rescue options, please don’t hesitate to get in touch with the team at My Liquidation. 

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