Are you a Director, Trustee or member of a Board of Governors?October 19, 2015
As society becomes ever more regulated it is easy to forget the burgeoning amount of legal obligations impacting on organisations in the private and third sectors. It is important for all company directors, charity trustees and members of boards of governors to be aware of these legal obligations and the standards they are required to meet.
The conduct of directors is strictly regulated by the Companies Act 2006 (“the Act”). All directors must display a general level of knowledge, skill and experience that is reasonably expected of a person carrying out the functions of a director. However, if the director has any specialist knowledge then a higher subjective standard must be met. The Act also sets out seven duties that are owed by a director to the company including:
To act in accordance with the company’s constitution and promote the success of the company;
− To exercise independent judgment, reasonable care, skill and diligence;
− To avoid conflicts of interest and not to accept benefits from third parties; and
The potential consequences for breaching these duties are wide ranging and include a variety of litigation options against both the company and the individual director.
There are certain circumstances where directors can even be held liable for the company’s debts. The Insolvency (NI) Order 1989 makes provision for directors to restore or to contribute to company assets if found to have traded fraudulently or wrongfully and they may also be subject to criminal proceedings, with sanctions of up to 10 years in prison.
Under the Company Directors Disqualification (NI) Order 2002, a director can be disqualified on grounds such as the conviction of an offence or general unfitness to manage the company. A recent example of the application of these provisions was the proceedings initiated against the directors of the Presbyterian Mutual Society after its collapse.
The provisions outlined above also apply to the directors of charities that have been incorporated. However, all charity trustees are also subject to the substantial powers of the Charity Commission for Northern Ireland. The Commission can investigate, monitor and sanction charities, whether incorporated or not, as long as they are registered with the Commission or with HMRC. In certain situations the Commission will use its most stringent statutory powers under the 2008 Charities Act (Northern Ireland), especially if there is serious risk to the assets or beneficiaries of a charity. Statutory inquiries can result in the Commission removing a charity trustee or appointing an interim manager to oversee the work of a charity.
The members of school Board of Governors must also comply with the provisions outlined above where the school is a company and/or a registered charity. In addition, all school governors should also bear in mind the specific duties given to them by legislation.
The role of the Board is to manage the school with a view to providing the best possible education for all the pupils. Aside from setting the school’s strategic direction the Board is also charged with managing the school finances, dealing with employment matters and controlling the use of the premises. As a corporate body, the Board is legally liable for all decisions and actions taken in its name by a governor or committees to which it has delegated functions.
The Education Reform Order (NI) 1989 specifies a number of statutory duties for school governors including the duty of the Board to ensure that the curriculum of the school satisfies the requirements of the Order, drafting admissions criteria and preparing an annual report.
All directors and school governors should ensure that they exhibit good corporate governance. Essentially this involves ensuring that the needs and interests of all of an organisation’s stakeholders are taken into account in a balanced and transparent manner. Good corporate governance requires an organisation to embrace principles such as accountability, transparency, responsibility, equitable treatment of stakeholders and ethics.
Courts and regulators are increasingly highlighting the need for appropriate legal compliance training on these topics for directors, trustees and governors. The repercussions for failing to comply with the above legal and governance duties can be severe, both on an individual and corporate basis.
Cleaver Fulton Rankin
Please note that the content of this article is for information purposes only and further advice should be sought from a professional legal adviser before any action is taken.