Question

If the directors of a company make a decision, which later on proves not to be a good decision and causes the company to lose money, will the directors be liable for failure to exercise their duty of care and diligence?

Answer 1

Answer: Directors are the key person of the company, they have high authorities and responsibilities. They are responsible for controlling, directing and managing the company's affairs. They take key decisions in the company. They are in the panel of board of directors in the company. They have many rights in an organization.

Duty of care and diligence- A director must perform his duty with proper care. He makes the business judgement, he will usually not breach his duty of care and diligence.

A director, if breaches his duty of care and diligence can face these consequences depending upon the nature and seriousness of act-

• Civil penalties
• Can be disqualified as director

If the directors take decision that later proves wrong and causes loss for company then directors will not be liable for failure to exercise their duty of care and diligence if their intention is fair because nobody is perfect, they are directors, they also may commit mistake but the wrongful acts that are not being done delibrately but causing company's loss some how then it is not directors' fault, some other reasons may be behind it. If they had made the judgement honestly and keeping in mind that company will benefit from so their intention is fair.