The Cyprus Companies Act (Cap. 113) states that every private company must have at least one director and every public company must have at least two directors (s.170). In addition, every company must have a secretary and a sole director may not also be a secretary. However, in the case of a sole proprietorship private liability company, the sole director can also be the company secretary (art. 171).
In accordance with article 174 of Cap. 113, the acts of a director or manager are valid notwithstanding any defect that is later discovered in the appointment or qualification of him. Since directors are empowered to make important decisions, various duties are placed on them to ensure that the interests of companies are well protected.
Duties of directors:
has. fiduciary duty
b. Duty to exercise skill and care
against statutory duties
It should be noted that there is no difference in principle between executive, non-executive or proprietary directors. Please note that the duties of the Directors are owed to the company and not to the individual shareholders.
Fiduciary Duty:
Under the Act, 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 the ‘fiduciary duty’. In other words, the director is obliged to promote the profitability of the company and protect the interest 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 must act in good faith in what they deem appropriate for the corporate interest.
2. The directors must act in accordance with the constitution of the company, that is, the articles of incorporation, and will exercise their powers only for the purposes permitted by law.
3. Directors must not use company property, information or opportunity for their own interest or that of any other person, unless permitted by the company constitution or in particular cases where such use has been disclosed to the company in general assembly and the company has approved it.
4. The Directors will not agree to restrict their power to exercise independent judgment. However, if they believe in good faith that it is in the interests of the company to enter into 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 required to account to the company for any benefits they receive from the transaction. However, directors are not required to account for the benefit if they are permitted to have that interest by the company’s constitution, or if the interest has been disclosed and approved by the company at a general meeting.
6. The directors must act with equity among the members of the company.
7. In the course of winding up a company, it appears that the directors continue to allow a company to incur credit even though they knew or should have known that the company had no reasonable prospect of payment, following sections 307 and 312 of Chap. 113, may be held personally liable for that credit unless they can prove that they have taken all necessary steps to minimize and/or eliminate the possible loss.
Duty to exercise skill and care:
The modern approach to duty of care is defined in Re D’ Jan of London Limited [1993] BCC 646, a major English company law case relating to directors’ duty of care. ‘The conduct of: a reasonably diligent person means a person who has both (a) the general knowledge, skill, and experience that may reasonably be expected of a person performing the same functions as that director performs in connection with with the company, and (b) the general knowledge, skill and experience of said director’.
However, the absence of 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 statutory duties imposed by the Companies Act and other laws, namely Income Tax, VAT, Customs and Excise Legislation, Health and Safety, and Environmental legislation.
The statutory obligations imposed by the Corporations Law on directors with respect to the company, its shareholder or the public are:
· Registry of Directors and Secretary (art. 192);
· Register of Directors’ interests (art. 187);
Disclosure of payment for loss of office made in connection with the transfer of shares in the company (s.185);
Disclosure of interests in contracts (art. 191);
Loans to directors (arts. 188-189);
· Offer prospectus (s.31-.39);
· Pre-emptive subscription/share transfer rights (art. 71 – 82);
Fraudulent trade (art. 311);
profit and loss account and balance sheet (art. 142);
· Falsification of books or destruction of company documents (art. 308);
· Previous duties or in the course of liquidation (art. 207, art. 213);
Management report and annual declaration (art. 151);
· Financial Statement available for review and investigation (s 141);
Note that:
Pursuant to the Corporations Law, noncompliance with administrator duties is a crime with penalties ranging from a fine in absentia to two years in prison. In addition, the directors are required to personally indemnify the company in respect of any loss caused by the breach of their duties. As for tax-related offences, directors can be prosecuted by the Department of Inland Revenue or Customs and Excise.
