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Presentation on Directors’ Role, Responsibility and Liabilities By L V V Iyer

Presentation on Directors’ Role, Responsibility and Liabilities By L V V Iyer L V V Iyer & Associates Corporate Lawyers Hyderabad. What is a Director’s Role?

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Presentation on Directors’ Role, Responsibility and Liabilities By L V V Iyer

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  1. Presentation on Directors’ Role, Responsibility and LiabilitiesBy L V V Iyer L V V Iyer & Associates Corporate Lawyers Hyderabad

  2. What is a Director’s Role? A Director is part of a collective body of Directors called the Board responsible for the superintendence, control and direction of the affairs of the Company.

  3. Is an individual Director as a member of the Company Board equally responsible as the Company Board ? No, unless he, the individual director, is charged with a specific responsibility

  4. Is the Company Board responsible for management of the Company or for the supervisory oversight of the Company ? This depends on whether the Company has a CEO to manage the affairs of the Company on a day-to-day basis.

  5. What is a director’s duty of skill ? Directors are not required to bring any special qualifications into their office. Brazilian Rubber Plantations & Estates Ltd., Re, (1911)1 Ch.425 (CA) Major Law Reform required in this area

  6. What is the duty of care required for a Director ? The Supreme Court of India has held in Official Liquidator v P.A. Tendolkar (1973) 43 Comp Cases 382 as follows: “A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the Company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of the Company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to every one who examines the affairs of the Company even superficially”.

  7. What is the non-executive director’s duty of skill and care ? The English Court after reviewing many cases in Dorchester Finance Co. Ltd v Stebbing, 1989 BCLC498 (Ch D) held as follows: -A Director is to exhibit in the performance of his duties such degree of skill as may be reasonably expected from a person of his knowledge and experience A Director is to exhibit in the performance of his duties such care as an ordinary man might be expected to take on his own behalf A Director must act in good faith and in the best interests of the Company These standards of duty of care and skill apply equally to non-executive Directors.

  8. What is the fiduciary position of the Board ? The Board’s fiduciary duties are basically the same as that of Trustees. The Board is expected to display utmost good faith towards the Company whether their dealings are with the Company or on behalf of the Company. They should not use the Company’s money or other property or information in their position as Directors to gain any advantage to themselves at the expense of the Company.

  9. Board’s incompetence and fiduciary duty Board’s fiduciary duty to act in the best interests of the Company does not include any lapses on account of its incompetence - decided by the English Court in Re, Pantone 485 Ltd., (2002) 1 BCLC 266

  10. Self dealing by Directors with the Company and the fiduciary duty A personal contract of a Director with a Company can be set aside unless the shareholders have consented to it -Guinness plc v. Saunders, (1990) BCLC 402 The rule in India is different as evidenced in the Section 297 and 299 of the Companies Act, 1956.

  11. Use of confidential information by a Director? A Director who uses confidential information of the Company for his own purposes, misappropriates or misuses assets of the Company and is consequently accountable to it, - Boardman v Phipps, (1966) 3 All ER 721 (HL)

  12. Nominee Director and conflict of interest ? A Director cannot follow the interest of the nominator Company at the expense of the Company of which he is the director - Scottish Co-operative Wholesale Society Ltd v Meyer (1958) 3 All ER 66

  13. The Board’s liability – the Indian perspective in the context of Director’s responsibility statement b) Corporate Governance Code in Clause 49

  14. When is a Director personally liable ? A Director is personally liable when he acts beyond; • the memorandum of association of the Company • beyond the authorisation of a director

  15. Conclusion: Law and judicial pronouncements are yet to keep pace with the requirements of a competitive business environment and a strict governance code Law Reform and derivative action may be the answers in the future.

  16. Thank you

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