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In: Accounting

so many directors are underpaying employees, is this a breach of directors fiduciary duties? What will...

so many directors are underpaying employees, is this a breach of directors fiduciary duties? What will be the consequences for these directors and will they have to pay back what is owed

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Answer

Fiduciary duties are based on the concept of good faith, and are owed to the company as a result of the control that directors exercise over the Company.It is the duty of directors to act in the best interest of the Company. Fiduciary duties are a Legal obligation and cannot be waived in any manner or form.

Your fiduciary duties as a director reflect a relationship of trust and loyalty between yourself, the company, its members, and stakeholders. The expectation is that you will act in good faith, and in the best interests of the company.

These duties overlap and inter-connect with your common law duties - operating with skill and care as a director - and also the statutory duties as laid down in the Companies Act, 2006.

Duty to promote the success of the company for the benefit of its members as a whole

  • When making decisions as a director, you must consider:
  • The potential long-term consequences for the company
  • The interests of your employees
  • Maintaining your company’s good business reputation
  • The need to promote good relationships with suppliers and customers
  • The company’s impact on the environment and local community
  • The need to act fairly between members, for example, treating those with few shares in the same manner as institutions with a large shareholding.

consequences of failing in these duties?

If loss or damage has been suffered by a shareholder, creditor, or the company, they can take action against you personally, but it is often the case that the company as an entity pursues directors who have failed in their fiduciary duty.

Removal as director
The director may be removed from office if more than 50% of shareholders vote in favour, but the director must be allowed to offer their own representations during the meeting.

Interim injunction
This would be issued by the court with the intention of halting any ongoing actions in breach of director duties. It serves to reduce the potential for further financial loss, and prevent irreversible damage to the company.

Shareholder proceedings
In limited situations, shareholders can take litigation action on their own behalf if they fear other directors might support an errant director, but this is known to be a complex process.

Recovery of financial losses
If a financial loss has been incurred by the company, the director can be pursued through the courts. There may be severe financial repercussions, including the loss of their home and potential personal bankruptcy.

Setting aside a transaction
Under the rules on transactional conflicts of interest, an affected transaction could be set aside or company property restored.

As a fiduciary of a corporation, a director owes the company duties of disclosure, honesty, loyalty, candour, and the duty to favour the company's interest over his/her own. A director must also disclose to the corporation facts that could impact the business of the company.


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