Directors’ duties: what are they and to whom are they owed?

The Companies (Jersey) Law 1991 sets out the duties owed by a director of a company in these terms: 

“A director, in exercising the director’s powers and discharging the director’s duties, shall:

  • act honestly and in good faith with a view to the best interests of the company; and 
  • exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”

The law seems to be clear but questions about what duties are owed by a director and to whom they are owed can be some of the most troubling for a director in his or her day-to-day business of running the company. The answers affect not only what a director must do but also how it must be done and for whom.

Acting honestly and in good faith are basic requirements for how any director, or any person, must act but the law is specific that a director must act “with a view to the best interests of the company”. Identifying what this means is more difficult. One of the fundamental characteristics of a company is that it has a legal personality of its own. From this it is easy to say what a company is not: a company is not the same as the board of directors or the shareholders or the employees or the creditors or any member of those groups (even if there is only one director or one person who owns all of the shares) and the interests of a company may overlap with but may not be the same as the interests of its directors or of its shareholders, individually or collectively, or, where it is solvent, of its creditors or employees. The problem of identifying what the company is for these purposes is usually resolved, at least for so long as it is solvent, by describing it as the collective interests of the present and future shareholders…

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