Director's Duties A Legal and Lego Perspective 24 July 2015 AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA Personal Civil Liability • Fine up to $200,000 • A compensation award • An injunction stopping the breach of duty • Disqualification from managing companies for up to 10 years 2 Personal Criminal Liability • Fine up to $340,000 • Imprisoned for up to five years 3 Directors' duties – statutory/general law Care and diligence Duty to prevent insolvent trading Good faith / best interests/prop er purpose Use of position Use of information Duty to avoid conflict of interest / conflict of duty Duty to exercise powers and discharge duties with degree of care and diligence (s180) Ensure company is able to pay all debts as and when due and payable. (Personal liability of directors) Must not improperly use position to gain advantage for themselves or someone else or cause detriment to corporation (s182) Must not improperly use information to gain advantage for themselves or someone else or cause detriment to corporation (s183) Duty to avoid positions of conflict of interest or conflict of duties This extends to the preparation of the company's financial statements Duty to exercise powers and discharge duties in good faith in best interests of corporation and for proper purpose (s181) (Also criminal offence) (Also criminal offence) (Also criminal offence) Supplemented by s191 – requirement to disclose "material personal interests" Other duties include duty of confidentiality 4 Duty of care and diligence 5 Duty to prevent insolvent trading 6 Essential role of directors – financial statements • Directors must read, understand and focus upon the contents of financial statements before approving them in order to ensure (as far as reasonably possible) that the information included in them is accurate. • This duty cannot be delegated. Everyone must be Batman Centro case (2011) • Financial statements failed to disclose that US$2.1 billion of debt was due in the next 12 months • Directors signed off on accounts but did not know they were wrong • ASIC sued 8 directors • Court found: – Directors should have been aware of the liabilities – Directors should have asked questions Ignorance is no excuse Good faith and proper purpose Directors must act in good faith in the best interests of the company and for a proper purpose 9 Loyalty: Misuse of information or position • Directors/officers/employees must not misuse information or position to advantage themselves or someone else or to harm company • Directors/officers must not divert corporate opportunities to themselves or other entities in which they are interested • Misuse of corporate information may also contravene prohibition on insider trading No joy riding in the company car! …or helicopter Loyalty: Conflicts of interest Directors must avoid situations where there is a conflict between company's interests and: - their personal interests; or - their duty to another person/company The Smithers Memorial Trust will switch to using nuclear power it's…. excellent Common Mistakes on NFP Boards 1. Conflicts aren't managed 2. Deferring to CEO / Chair 3. Relying on experts exclusively 4. Not understanding finances 5. Treating property as own 6. Disengaged directors 7. Not focusing on mission 8. Micro vs strategic focus 9. Not seeking professional advice 10.Assuming your questions are silly Everything is NOT awesome if… Because we've • ' always done it this way Jane makes all the decisions about insurance My cousin would make a great CEO – no need to recruit Numbers? yuck! Whatever you say The company forklift made moving house a breeze Vaccinate your board • Honest & respectful Culture – Disagreement is good! • Systems and Policies – Don’t wing it – get advice! • Training for your board – Early and often • Diversity on the board – – – – – Of Of Of Of Of skills ages genders professions closeness to the issue 14 Actively Manage Risk How to tell if you are doing a good job? Do you turn up to every meeting on time? Do you know if you need more information before you can make a decision? Do you go to meetings prepared to make a decision? Do you read the agenda and papers supplied before the meeting? Do you keep all board information confidential (eg. documents in a safe place; not sharing information)? How to tell if you are doing a good job? Do you read the minutes after each meeting to make sure they are accurate and reflect the things aid and decisions made? Do you ask the management questions about the work they are doing and the information they are giving you? If the minutes are not correct, do you discuss that with the Secretary and board at the next meeting to have them amended? Do you do some of the talking and also listen carefully to the views of others during meetings? Do you understand the key information about what the organisation does and how it is run? Do you understand the answers? Are you happy with the answers? Do you have a clear idea about how you want the organisation to grow in the next 2, 5 and 10 years? Are you happy that everyone is doing everything they can to make the company successful? Do you promote the organisation? And above all… have fun! 18 This presentation material is intended to provide a summary of the subject matter covered for training purposes only. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this presentation without first obtaining specific professional advice. AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA 235784570