Top ten practical risk management tips to avoid the pitfalls of being a company director

11/10/2014 — James Campbell

Read James Campbell’s summary of issues to consider when you are a company director, presented at our seminar on 7th October.

Core knowledge and understanding – key activities and finances

Every director needs to have a core knowledge and understanding of the company’s key activities and the company’s finances – so keep informed on a regular basis.

Don’t be bamboozled by another director

Whilst you can rely on the expertise of other directors don’t allow any one director to dominate. Don’t be swayed by someone’s charisma. Apply your own independent judgement.

Join in! Don’t sit back!

You should join in the management of the company. Don’t passively allow others to run the company around you.  Join in to ensure board decisions are properly considered and justified.

Don’t go off on a limb – hold board meetings

Do not act alone. Board has collective responsibility for taking key decisions. Make sure the board authorises your actions in advance before binding the company. You could be held personally liable if you breach your warranty of authority owed to the company. If you have bound the company without authority make sure the company ratifies your actions after the event.

Evidence your decisions –  board minutes

Board minutes are evidence of the proceedings to which they relate.  They should summarise rationale for board proceeding in a particular way.  Ultimately board minutes should assist in evidencing that decisions were properly considered and that each director fulfilled his fiduciary duty owed to the company.

Knowledge of fellow director dishonesty  / breach – act on it

When on notice of concerns regarding fellow directors and their honesty or probity act on it by bringing your concerns to the attention of the board (in the first instance).  You could be personally liable for the company’s losses along with the director in breach if you do nothing.

Act on insolvency concerns – red flag

An insolvency scenario presents a material risk to all directors.  Directors can be personally liable for loss to the company if guilty of wrongful or fraudulent trading. Ignorance of the financial position of the company is unlikely to be a defence to wrongful trading.  You should be notified of the financial situation of the company on a regular basis. Many of the successful claims against directors personally arise from an insolvency scenario.

Act honestly

Directors must act honestly and in good faith in what they believe to be in the best interests of the company. The Royal Court will expect a very high standard of honesty from all directors and will apply stringent tests as to what constitutes impropriety, personal advantage or misapplication.

Beware distributions and conflicts of interest

Be careful when making a distribution from your company (which would include a dividend and other gratuitous transfers of assets to shareholders).  Under the Companies (Jersey) Law 1991, as amended every distribution requires a solvency statement in the prescribed form.

Also, take great care to disclose all conflicts of interest which do or may conflict with the interests of the company.  Check articles to ensure you are entitled to vote and count in the quorum of the company if you are interested.

Take professional advice!

If in doubt take professional advice, your lawyer and accountant are there to help!

James Campbell

Advocate, Bedell Cristin Jersey Partnership 20 October 2014 Bedell Cristin is a leading provider of legal services across key jurisdictions: Jersey, Guernsey, London, Geneva, Mauritius, BVI and Singapore. We offer a broad range of Channel Islands, Mauritian and BVI legal advice. Our expertise and client focused approach have earned us a strong client base of world class institutions, corporates, high net worth individuals and intermediaries. © 2014 Bedell Cristin The information contained in this note is intended to provide contacts with a brief update in relation to the topics covered. The information and opinions expressed in this note do not purport to be definitive or comprehensive and are not intended to provide professional advice. Bedell, Bedell Cristin (and their associates and subsidiaries) are not responsible for, and do not accept any responsibility or liability in connection with, the content of any websites to which you may gain access from this note.

Newsletter sign up
Subscribe to our monthly newsletter for exclusive insights and inspiration direct to your inbox.
Sign up today