The Cyprus Companies Law (Cap. 113) states that each private company must have at least one director and each public company must have at least two directors (art. 170). Furthermore, every company must have a secretary and a single director will not also be a secretary. However, in the case of a single-member private liability company, the sole director may also be the secretary of the company (art. 171).
According to article 174 of chapter 113, the acts of a director or manager are valid without prejudice to any defect that is later discovered in his appointment or qualification. Since directors have powers to make important decisions, various duties are imposed on them to ensure that the interests of companies are well protected.
Directors’ duties:
to. Fiduciary duty
B. Duty to exercise skill and care
vs. Statutory duties
It should be clarified that there is no difference in principle between executive, non-executive or nominated directors. Please note that the duties of the Directors are owed to the company and not to individual shareholders.
Fiduciary duty:
According to the Law, a Director has a duty to the company to act in good faith in the best interest of the company. This duty is known as “fiduciary duty.” In other words, the director is obligated to promote the profitability of the company and protect the interests of the company.
The principal duty of the director is to act in the best interest of the company as a whole, and that is generally taken to denote the interest of shareholders, both present and future.
In practice, fiduciary duty can be explained as follows:
1. The Directors will act in good faith in what they consider to be the interests of the company.
2. The Directors must act in accordance with the constitution of the company, that is, the statute and the articles of incorporation, and will exercise their powers only for the purposes permitted by law.
3. Directors must not use the property, information or opportunity of the company for their own interest or that of any other person, unless so permitted by the company constitution or in particular cases where such use has been disclosed to the company at the general meeting and the company has approved it.
4. The directors will not agree to restrict their powers to exercise independent judgment. However, if they consider in good faith that it is in the company’s best interest to carry out a transaction, they may restrict their powers to exercise independent judgment by agreeing to act precisely to achieve it.
5. In the event of a conflict between the interests or duties of the directors and the interests of the company, the directors are obligated to render accounts to the company for any benefits they receive from the transaction. However, the directors are not required to account for the benefit if they are allowed to have that interest by the incorporation of the company, or if the interest has been disclosed and approved by the company at the general meeting.
6. Directors must act fairly among members of the company.
7. In the course of liquidating a business, it appears that directors continue to allow a business to incur credit even though they knew or should have known that the business had no reasonable prospect of payment, following sections 307 and 312. of Cap. 113, they may be personally liable for that credit unless they can prove that they have taken all steps to minimize and / or eliminate the possible loss.
Duty to exercise skill and care:
The modern approach to duty of care is defined at Re D ‘Jan of London Limited [1993] BCC 646, A Leading English Company Law Case Related to Directors’ Duty of Care. “ The conduct of: a reasonably diligent person means a person who has as much (a) general knowledge, skill, and experience that can reasonably be expected of a person who performs the same duties as that director in relation to the company, and (b) the general knowledge, skill, and experience that director has’.
However, the absence of a clear authority makes it difficult to define exactly what the above definition implies. The first part of the definition indicates an ‘objective’ or ‘benchmark’ test of what a ‘reasonable person’ might expect from a director in specific circumstances. The second part of the test requires that in case that particular director has a particular skill or level of experience, he is required to exercise that particular skill in addition to the benchmark test.
Statutory duties:
Directors have various legal obligations imposed by the Corporations Law and other laws, namely income tax, VAT, customs and excise legislation, health and safety and environmental legislation.
The statutory responsibilities imposed by the Corporations Law on directors with respect to the company, its shareholder or the public are:
· Register of Directors and Secretary (art. 192);
· Register of interests of Directors (art. 187);
Disclosure of the payment for loss of office made in connection with the transfer of shares in the company (article 185);
Disclosure of interests in contracts (article 191);
· Loans to directors (articles 188-189);
· Offer brochure (articles 31 to .39);
· Preferential subscription rights / Transfer of shares (articles 71 to 82);
· Fraudulent trade (article 311);
Profit and loss account and balance sheet (article 142);
Forgery of books or destruction of company documents (Article 308);
· Previous duties or in the course of liquidation (article 207, article 213);
· Management report and annual statement (art. 151);
· Financial statement available for review and investigation (article 141);
Note that:
According to the Corporations Law, failure to fulfill the duties of a director is a crime with penalties ranging from a fine for non-compliance to two years in prison. In addition, the directors are responsible for personally compensating the company for any losses caused by the failure to perform their duties. With respect to tax-related crimes, directors can be prosecuted by the Treasury or the Customs and Excise Department.