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The office of directorship attracts certain statutory liability that attaches to a director in the performance of his delegated services. The overarching obligation of a director is to act in good faith and the best interests of the company at all times. This includes actively avoiding a conflict of interest.
A director is required to conduct himself with the degree of care, skill and diligence reasonably expected of a person having the general knowledge, skill and experience of that director. Additionally, a director is required to disclose any personal financial interests in any matter before the company as he/she may not use his/her board position to make a secret profit or gain an advantage for himself/herself which causes harm or is detrimental to the company. It is therefore of great importance that a company’s board of directors is made up of competent individuals.
While it is possible through the procurement of insurance policy/ies to indemnify an offending director in certain circumstances, a company may not indemnify a director for wilful misconduct, breach of trust, reckless or insolvent trading or for perpetuating a fraudulent act.
To adequately protect individuals holding the office of directorship, it is, imperative that the delegated authority of a board function to a board member is expressly known, documented and regulated internally. This will also serve at clarifying any disputes at law as to whether the director knew or reasonably ought to have had knowledge on the matter at issue.
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