The Duties Of Directors Under Jersey Law

Background

The text of this briefing is limited in its application to Jersey companies. This is a complex area of law not easily summarised into short form. It follows that this briefing should in no way be regarded as exhaustive.

In accepting any directorship, a director will automatically assume a host of duties and personal obligations arising from specific legislation, common law and generally accepted standards of corporate governance. Drawing these duties and obligations together is not always an easy task, but notwithstanding this, the consequences of failure on individual directors can be severe. Recent high profile cases against individual directors (for example, the claims commenced by Equitable Life in 2005 against fifteen former directors in the sum of £3.7 billion) evidence that the stakes for individual directors have never been higher. It is therefore of paramount importance that individual directors fully appreciate and identify the risks associated with being a director and consider how these risks can best be mitigated.

Duties under Jersey law

No single piece of legislation exhaustively details or defines the duties of directors of a Jersey company. Articles 74 to 84 inclusive of the Companies (Jersey) Law 1991, as amended (the "Companies Law") collectively state some general provisions about appointment, removal, qualifications, duties and responsibilities of directors. Other more specific requirements are imposed on directors elsewhere in the Companies Law and in other legislation, notably the Bankruptcy (Désastre) (Jersey) Law 1990, as amended (the "Désastre Law"). Many of the most important features of directors' duties are, however, based on case law. To this extent, the Royal Court of Jersey will look to developed Jersey case law on the general question of directors' duties and, in the absence of such, will probably look for guidance to English common law.

Outside of the specific statutory duties, the main directors' duties are helpfully set out in Article 74 of the Companies Law, which provides that directors shall, in exercising their powers and discharging their duties:

"(a) act honestly and in good faith with a view to the best interests of the company; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances."

The general duties: honesty, diligence and others

The general statutory duties set out in Article 74 of the Companies Law reflect (though do not replace) the fiduciary and common law duties that had evolved prior to the Companies Law. The most important of these can be summarised as follows:

Honesty: Directors must not use their powers for an improper purpose, take personal advantage of the company's opportunities, misapply the company's assets, nor allow their personal interests to conflict with those of the company or, if they do, they must disclose the nature and extent of any actual or potential conflict of interest. A director holds a fiduciary position and the court will apply very stringent tests as to what constitutes impropriety, personal advantage or misapplication.

Proper purpose: Directors must use their powers under the company's articles of association for the purposes for which they were intended. An example of an improper purpose is directors...