Director’s Duties and Responsibilities – Dillon Eustace

Table of Contents Page

1. Introduction 1

2. Summary of Director’s Duties 1

3. Categories of Directors 2

4. Tenure and Re-appointment Issues 3

5. Restrictions and Disqualifications of Directors 3

6. How to Safeguard against Risks Involved 3

DISCLAIMER: This article is for general information purposes only and does not purport to represent legal advice. If you have any
queries or would like further information relating to any of the matters addressed in this article, please refer to the contacts below or your
usual contact in Dillon Eustace.

Copyright Notice
© 2008 Dillon Eustace. All rights reserved.
 Director’s Duties and Responsibilities

1. Introduction

The duties owed by Directors to their company are many and diverse. The overriding principle of Company
Law is that a Director’s duties are owed in the first instance to the company and not to the individual
shareholders or employees. These duties are derived from various sources including common law, case law,
legislation and the articles of association of the company concerned. A brief summary is set out below.

It should be noted that no distinction is made in the Companies Acts 1963- 2006 (the “Companies Acts”)
between Executive and Non Executive Directors, in terms of appointment, removal or duties and
responsibilities. This is examined in more detail under the heading Categories of Directors.

It is important that all directors understand the scope of their role and responsibilities including their specific
duties, length of tenure (how long they can hold the appointment), and restriction/disqualification provisions
relating to Directors.

Finally, Directors should consider how to minimise the risks involved during their tenure for example by having
a letter of appointment and ensuring the company provides Directors and Officers insurance.

2. Summary of Director’s Duties

Common law duties can be summarized into three principles:

• Directors must exercise their powers in good faith and in the interests of the Company as a whole.
• Directors are not allowed to make an undisclosed profit from their position as Directors and must
account for any profit which they secretly derive from their position as a Director.
• Directors are obliged to carry out their functions with due care, skill and diligence.

Director’s statutory duties are as follows:

• Duties as a Company officer under the Companies Acts;

• Duty to maintain proper books of account;
• Duty to prepare annual accounts;
• Duty to have an annual audit performed;
• Duty to maintain certain registers and other documents;
• Duty to file certain documents with the Registrar of Companies;
• Duty of disclosure of certain personal information;
• Duty to convene general meetings of the Company;
• Duties regarding transactions with the Company;
• Duties of Directors of companies in liquidation and Directors of insolvent companies.

In addition to the statutory duties imposed under the Companies Acts, Directors should also be aware of the
provisions of the Irish Market Abuse (Directive 2003/6/EC) Regulations, 2005 which contain new insider
dealing provisions and the Irish Transparency (Directive 2004/109/EC) Regulations 2007 which contain
provisions regarding (i) reporting to the issuer and the Irish Stock Exchange any change in specified % levels
of ownership and (ii) increased reporting obligations on issuers in terms of frequency and content of reports to
be prepared by them.

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3. Categories of Directors

1. Executive.
2. Non-Executive.
3. Nominee.
4. Alternate.
5. Shadow.
6. De Facto.

Executive Director

No reference is made in the Companies Acts to “Executive” or “Non Executive” Directors and, in fact, this
distinction is one which has arisen under corporate governance norms. Essentially, Executive Directors are
Directors who have an executive responsibility within the Company. Such persons participate in the day-to-
day management of the Company and are usually employed by the Company on a full time basis under a
contract of employment and are in receipt of a salary.

Non Executive Director

On the other hand, Non Executive Directors are those who are not involved in the day-to-day running of the
Company. Such persons are not employed in the business and do not report to the CEO/Managing Director.
Essentially, their role is one which is confined to the Boardroom. Notwithstanding this, their input into the
Board decision-making process is invaluable, given their expected impartiality, objectivity and independence.

There is no legal requirement to appoint Non Executive/Independent Directors but it is now common practice
and deemed to be good corporate governance to do so, given the experience and independence they bring
with them to the role. Quoted companies are frequently required by the rules of the relevant stock exchange
to have a certain number of independent Directors appointed to the board. Once appointed Non Executive
Directors have the same powers and are subject to the same obligations as Executive Directors.

Nominee Director

A nominee Director is a person who is appointed to the Board by a shareholder or a particular group of
shareholders with a view to representing and safeguarding their interests within the Company.
Notwithstanding their brief, such nominee Directors must, nonetheless, act in the best interest of the
Company. Nominee Directors have the same duties and responsibilities as other categories of Directors.

Alternate Director

An alternate Director is a person who is appointed to act in place of a Director when that person is unable to
act. An alternate Director has the same responsibilities and duties as the Director appointing him/her.

Shadow Director

A shadow Director is a person other than a professional advisor who is not formally appointed as Director but
who, nonetheless, is deemed to be a Director because of the influence he exerts over the Company’s
Directors who are accustomed to acting in accordance with that persons instructions. The significance of
being a shadow Director is certain sanctions and regulations normally reserved for Directors, can be
applicable.

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De Facto Director

A de facto Director is a person who has not been formally appointed whether on incorporation or
subsequently, but who in effect occupies the position of, and acts as if he were a Director. Such persons,
although they have not been formally appointed, may nonetheless be deemed to be a Director and may be
subject to the provisions of the Companies Acts as if formally appointed.

4. Tenure and Re-appointment Issues

As there is no distinction in law between Executive and Non-Executive Directors, the tenure and re-
appointment issues pertaining to both categories of Director are the same from a legal perspective. These
issues are usually dealt with in the Articles of Association of a company.

One general point to note in relation to the removal of both Executive and Non-Executive Directors is that
where a company seeks to remove a Director before the expiration of his term of office by ordinary resolution,
or appoint another person in his stead at the same meeting, extended notice of the intended resolution within
the meaning of Section 142 of the Companies Act 1963 (i.e. notice of not less than 28 days) must be given,
and on receipt of notice of the intended resolution the company must send a copy thereof to the Director
concerned, and the Director (whether or not he is a member of the company) is entitled to be heard on the
resolution at the meeting.

A Director may resign from office at any time by serving notice in writing on the Company Secretary. The
Company Secretary is obliged to notify the Companies Registration Office of the resignation in the prescribed
form. Section 47 of the Companies (Amendment) (No. 2) Act, 1999 amends Section 195 of the 1963 Act
requiring notice of any such resignation to be filed in the Companies Registration Office.

5. Restrictions and Disqualifications of Directors

The powers conferred on the Directors by the Articles of Association may only be used for the purposes for
which they are conferred.

Any person may be disqualified from acting as Director or participating in the management of a Company for
a period of five years or for such further period as the court sees fit if he has been convicted of an offence
involving fraud or dishonesty or an offence involving a company. Such application may be made by a
prosecutor in criminal proceedings (Section 160 of the 1990 Act).

Recent court decisions have indicated that the failure to make annual returns is to be regarded as more than
a just a technical breach of Directors’ obligations under Company Law, and the courts have proceeded to
disqualify Directors accordingly. The practical implication for Directors is that the claims of creditors must be
addressed and companies must be terminated and disposed of properly. Otherwise, Directors face the
possibility of being disqualified.

6. How to Safeguard against Risks Involved

Both Executive and Non Executive Directors share the same duty of care and fiduciary responsibilities
towards the company and are exposed to the same types and levels of liability if these duties are not fulfilled.
Both can be made personally liable for the losses of the company and both are subject to the restriction and
disqualification provisions in the Companies Acts.

Letter of Appointment

It would be prudent for a Director to seek a letter of appointment which sets out the terms and conditions of
the role such as length of appointment and expected time commitment. This is particularly important for Non
Executive Directors, who may hold a number of directorships. Furthermore, the board should be supplied in a

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timely manner with information in a form and of a quality appropriate to enable it to discharge its duties; this is
the Chairman’s responsibility.

Directors and Officers insurance

One way of reducing Executive and Non-Executive Directors exposure to liability is to ensure that the
company for which they act has sufficient directors and officers’ insurance cover. The Companies Act 1963
prohibited a company from indemnifying an officer of the company against liability, however, this prohibition
was removed by Section 56 of the Companies (Auditing and Accounting Act) 2003, which provides that a
company may purchase and maintain for any of its officers or auditors insurance in respect of liability for a
wide range of offences to include negligence, default, breach of duty or breach of trust of which he/she may
be guilty in relation to the company, subject to standard exclusions including where there has been a finding
of dishonest or fraudulent conduct.

Training

Dillon Eustace regularly provides training on Director’s duties and responsibilities. The above article is
intended to be a brief summary of these duties and requirements. If you have any questions on the above
article or you would like further information on (i) the importance of appointment and terms of reference, (ii)
how to efficiently discharge duties and responsibilities or (iii) how to safeguard against liability and sanctions
please contact the persons listed below.

Date: March, 2008

Author: Paula Kelleher

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 Contact Us

If you have any queries or would like further information relating to the matters addressed in this article,
please contact the persons listed below:

Paula Kelleher
Regulatory and Compliance
paula.kelleher@dilloneustace.ie
Tel : +353 1 6670022

or any of your usual Dillon Eustace contacts at the following locations:-

Dublin Cork

33 Sir John Rogerson’s Quay, 8 Webworks Cork,

Dublin 2, Eglinton Street,
Ireland. Cork, Ireland.

Tel: +353-1-6670022 Tel: +353-21-425-0630

Fax.: +353-1-6670042 Fax: +353-21-425-1532

Boston Tokyo

225 Franklin Street, 11th Floor,

26th Floor, Yurakucho Building,
Boston, MA 02110, 1-10-1 Yurakucho, Chiyoda-ku,
United States of America. Tokyo 100-0006, Japan.

Tel: +1-617-217-2866 Tel: +813-5219-2042

Fax: +1-617-217-2566 Fax: +813-5219-2021

e-mail: info@dilloneustace.ie
website: www.dilloneustace.ie

DISCLAIMER:

This article is for general information purposes only and does not purport to represent legal advice. If you have any queries or would like
further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.

Copyright Notice:
© 2008 Dillon Eustace. All rights reserved.

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