Directors & Officers Responsibilities

Directors & Officers Responsibilities:

	When individuals take on the role of a director of a residential management company they can be held personally liable for their actions in that role
	Directors, or their company, may not be able to afford the legal costs of defending an action against individuals holding office - which is where D&O insurance comes in
	D&O insurance relates specifically to breaches of duty by directors and officers in managing and directing their company's affairs
	There is increasing awareness of this exposure due to the publicity of large lawsuits where the costs of litigation are high
	Although D&O is in its relative infancy in the UK the wide spectrum of legislation has imposed very onerous duties on all company directors

Directors Duties

1 Statutory

These duties are mainly outlined in:

2 Common Law

Directors owe the company a duty to act with reasonable care, skill and diligence. This was further defined in the case of Dorchester Finance Company v Stebbing (1989), that the law could be accurately stated as:

3 Fiduciary

These are normally specifically stated in the company's incorporating document, i.e. Memorandum and Article of Association. These are not exhaustive but the characteristics and principal duties can be outlined as follows:

	Directors must act in good faith and in the interest of the company

	Directors' personal interests must not conflict with the company's
	Directors must not act for a collateral or improper purpose
	Directors must account to the company for 'secret profits'
	Directors must exercise their powers for the purpose for which those powers have been conferred
	Directors must act in accordance with the company's constitution

These duties are owed to the company, present and future shareholders, creditors and employees.

The Law Commission produced a consultative document on the duties of
directors in September 1998, concerning the possible codification of their fiduciary duties onto the statute books. The law has already begun to change and is imposing higher standards on directors. In addition to the two acts mentioned above there is a whole range of legislation impacting on the duties of directors.

Although many of the duties and legislation are not necessarily relevant to an organisation such as a management company or residents' association, the fundamental principles of running a company still apply. There is identifiably lower exposure than a larger profit-making entity and this is reflected in the level of cover and premiums. Even if innocent of any wrongful act, a claim can still be pursued and if nothing else a D&O policy can offer the protection of legal costs of defence.

The above are summaries of our understanding of the responsibilities of Directors and Officers of a Limited Company. Detailed information of legal matters should be referred to a solicitor.

Further information on Directors & Officers Responsibilities can be found on the Royal & SunAlliance web site.