Lecture 7 - Duties and Responsibilities of Directors

DUTIES AND
RESPONSIBILITIES OF
DIRECTORS
Farzana Yeasmin Mehanaz

Faculty of Law
Eastern University
Directors of a Company
 The welfare of a company depends on the shoulders and the directors;
they are also responsible for the interests of the company as well as
shareholders.
 Directors are basically fiduciary agents and they owe duties to the
company.
 Directors’ are appointed by the company’s shareholders to run the

company’s affairs for the benefits of the shareholders.
 Company’s success can only be achieved, if the directors of the company

fulfil their duties and complete enforcement of the director’s duties.
Directors of a Company
The directors of a company are responsible for its day-
to-day management.
They may exercise certain powers on behalf of the
company. They owe certain duties to the company as
well.
They may also be exposed to certain liabilities in their
capacity as directors.
Who can be a Director?
 Sec.90 - Directors obligatory –
(1) Every public company and private company which is a
subsidiary of a public company shall have at least three directors.
(2) Every private company other than a private company
mentioned in sub-section (1) shall have at least two directors;
(3) Only a natural person may be appointed as a director.
Qualifications of Directors
S.97 - Qualification of Director:
(1) Without prejudice to the restrictions imposed by section 92, it shall be
the duty of every director to hold qualification share to be specified
in the articles and, if he is not already qualified, he shall obtain his
qualification within sixty days after his appointment, or such shorter
time as may be fixed by the articles.
(2) If, after the expiration of the period mentioned in sub-section (1) any
unqualified person acts as a director of the company, he shall be
liable to a fine not exceeding two hundred taka for every day between
the expiration of the said period and the last day on which it is proved
that he acted as a director (both days inclusive).
Disqualifications of Directors
Section 94 –
(1) A person shall not be capable of being appointed director of a company, if –
(a) he has been found to be of unsound mind by a competent court and the finding is in force;
or
(b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his application is pending; or
(d) he has not paid any call in respect of shares of the company held by him, whether alone or
jointly with others, and six months have elapsed from the last day fixed for the payment of
the call; or
(e) he is a minor.
(2) A company may in its articles provide additional grounds for disqualification of a director.
Appointment of Director
 S.91 - Appointment of Directors:
(1) Notwithstanding anything contained in the articles of a company–
(a) the subscribers of the memorandum shall be deemed to be the directors of the company until the
first director are appointed.
(b) the directors of the company shall be elected by the members from among their number in
general meeting; and
(c) any casual vacancy occurring among the directors may be filled in by the other directors but the
person appointed shall be a person qualified to be elected a director under clause (b) and shall
be subject to retirement at the same time as if he had become a director on the day on which the
director in whose place he is appointed was last appointed a director.
(2) Notwithstanding anything contained in the articles of a company other than a private company not less
than one third of the whole number of directors shall be persons whose period of office is liable to
determination at any time by retirement of directors rotation.
Consent of Candidate for Directorship
Section 93 –
(1) Every person, proposed as a candidate for the office of a
director shall sign, and file with the company, his consent in
writing to act as a director, if appointed.
(2) A person shall not act as a director of the company unless he
has, within thirty days of his appointment, signed and filed
with the Registrar his consent in writing to act as such director.
Board Meeting
 Section 95 –
Notice of meetings:
Notice of every meeting of the Board of Directors of a company shall be given in
writing to every director for the time being in Bangladesh and at his address in
Bangladesh.
 Section 96 –
Meeting of Board:
In the case of every company a meeting of its Board of Directors shall be held at least
once in every three and at least four such meetings shall be held in every year.
Removal of Directors
 Section 106 –
(1) The company may by extraordinary resolution remove any share-
holder director before the expiration of his period of office and may by
ordinary resolution appoint another person in his stead and the person
so appointed shall be subject to retirement at the same time as if he had
become a director on the day on which the director in whose place he is
appointed was last elected director.
(2) A director so removed shall not be re-appointed a director by the Board
of Directors.
Vacation of Office of Director
 Section 108 –
(1) The office of a director shall be vacant, if–
(a) he fails to obtain within the time specified in section 97 (1) or at any time thereafter ceases to hold, the qualifications--shares, if any,
necessary for his appointment; or
(b) he is found to be of unsound mind by a competent court; or
(c) he is adjudged an insolvent; or
(d) he fails to pay calls made on him in respect of shares held by him within six months from the date of such calls being made; or
(e) he or any firm of which he is a partner or any private company of which he is a director, without the sanction of the company in general
meeting accepts or holds any office of profit under the company other than that of a managing director or manager or a legal or technical
adviser or a banker; or
(f) he absents himself from three consecutive meeting of the directors or from all meetings of the directors for a continuous period of three
months, whichever is the longer, without leave of absent from the Board of Directors; or
(g) he or any firm of which he is a partner or any private company of which he is a director accepts a loan or guarantee from the company in
contravention of section 103; or
(h) he acts in contravention of section 105.
(2) A company may provide by its articles that the office of director shall be vacated on grounds additional to those specified in sub-section
(1).
Restriction on Managing Director
 Section 109 –
(1) No public company and no private company which is a subsidiary of public
company shall, after the commencement of this Act, appoint any person as
managing director, if he is a managing director or manager of an other
company.
Provided that no appointment under this section shall be made without the
consent of the company in a general meeting.
(2) Notwithstanding anything contained in sub-section (1) the government may,
by order, permit any person to be appointed as a managing director of more
than two companies if the government is satisfied that it is necessary that the
companies should, for their proper working, function as a single unit and have a
common managing director.
Time Limitation for Managing Director
 Section 110 –
(1) No company shall, after the commencement of this Act, appoint or employ any
individual as its managing director for a term exceeding five years at a time.
(2) Any individual holding, at the commencement of this Act, the office of the managing
director in a company shall, unless his term expires earlier, be deemed to have
vacated his office immediately on the expiry of five years from the commencement
of this Act.
(3) Nothing contained in sub-section (1) shall be deemed to prohibit the re-employment
or the extension of the term of office of any person as managing director for a further
period not exceeding five years on each occasion.
Provided that no such re-appointment, re-employment or extension of term of office shall
be made without the consent of the company in general meeting.
Directors' Powers
Directors are empowered to act on a company's
behalf by:
 the company's articles of association;
 the Companies Act 1994;
 common law/Judge made law; and
 certain resolutions of its members.
Directors' powers
The directors' powers and their ability to delegate their
powers to others will be subject to:
 any provisions in the company's articles of association (AOA) limiting
those powers;
 Companies Act, including in particular, the directors' general duties as set

out in the Act and any matters reserved to the members by the Act;
 common law; and
 certain resolutions of its members.

Restrictions on Power of Directors
 Section 107 –
The directors of a company or of a subsidiary company of a
public company shall not, except with the consent of the
company concerned in general meeting–
(a)sell or dispose of the undertaking of the company; and
(b)remit any debt due by a director.
Directors' Duties
The directors of a company owe a number of duties to
the company.
Many of those duties have been developed by the courts
over hundreds of years forming the common law rules
and equitable principles applicable today.
Several have been codified into statute. The main duties
include:
Cont…
 a duty to act in good faith and to use powers for a proper purpose
for the benefit of the company as a whole;
 a duty to exercise independent judgment and not to delegate
powers except with proper authorization;
 a duty to exercise reasonable care, skill and diligence (codified
in Act);
 a duty to avoid a situation in which the director has, or could
have, a direct or indirect interest that conflicts, or possibly may
conflict, with the interests of the company.
Cont…
■ a duty not to enter into transactions in which the directors have an interest
except in compliance with the requirements of the law (as provided in the
Act);
■ a duty not to gain any advantage from use of position as a director;
■ a duty not to make any unauthorized use of the company’s property or

information;
■ a duty not to accept any personal benefit from third parties conferred
because of the director’s position as a director; and
■ a duty to keep proper accounting records;

Fiduciary Duties of Directors
 Fiduciary duty means that, as shareholder’s guardians, directors
must be trustworthy, acting in the best interest of shareholders
and investors in turn have confidence in the directors’ actions.
 Mandated by law & specified in companies MoA/AoA.
 Regal (Hastings) Ltd. v Gulliver [1967] 2 AC 134 (HL) –
Directors … are not trustees, but they occupy a fiduciary
position towards the company whose board they form…’ (Lord
Porter).
Cont…
 Under the fiduciary duties, it includes:
1. Duty of due care;
2. Duty of loyalty;
3. Duty of Good Faith;
4. Duty to promote Success;
5. Duty to exercise diligence;
6. Independent judgment & skill;
7. Duty to avoid conflict of interests;
8. Fiduciary duties & business judgment rules.
Cont…
1. Duty of due care: It determines the manner in which directors should carry out their
responsibilities. Failure to uphold the set stipulations may constitute a breach of the
fiduciary duty of care of expected directors.
2. Duty of loyalty: It requires directors to refrain from pursuing their own interests over
the interests of the company. Breach of loyalty can occur even in the absence of
conflicts of interest if directors consciously disregard their duties to the company & its
shareowners.
3. Duty of Good Faith: Its important for directors fiduciary obligations and any
irresponsible, reckless, irrational or disingenuous behaviours or conduct can breach
that fiduciary duty.
4. Duty to promote Success: Directors should promote the success of the company to
benefit of its shareholders & other stakeholders; includes – approving the
establishment of strategic goals, objectives and policies that promote enduring
shareholders value as well as protect existing value.
Cont…
5. Duty to exercise due diligence, independent judgment & skill: Directors should be
knowledgeable about the companies business & affairs, continuously update their
understanding of the company activities & performance and use reasonable diligence &
independent judgment in making decisions.
6. Duty to avoid conflict of interests: Potential conflict of interest may occur when
director receives a gift from a third party he is doing business with, either directly or
indirectly enters into a transaction or arrangement with that company, obtains substantial
loans from the company or engages in backdated stock options.
7. Fiduciary duties & business judgment rules: Directors operate under a legal
doctrine called “business judgment rules”. Under that law, directors that make decisions
in good faith, based on rational reasoning and an informed manner can be protected from
liability to the company’s shareholders in the ground that they appropriately fulfilled
their fiduciary duty of care.
Failure by a Director to Comply with the Duties
■ A failure by a director to comply with any of the duties has potentially
serious consequences for that director;
■ Although it may be possible for a director to have a breach of duty ratified

in order to protect himself or herself from the consequences of a breach of
duty or to obtain relief from a breach of duty, depending on the
circumstances; and
■ The directors' annual report of a company must contain sufficient disclosure

for shareholders to understand the state of the company’s affairs;
■ Such disclosure would include any breaches of the duties listed above which
had a material effect on the company.
Declaration of an Interest
One of the statutory duties of a director is that if the
director is in any way, directly or indirectly, interested in
an actual or proposed transaction or arrangement with
the company, -
the director must declare the nature and extent of that
interest to the other directors before the transaction
occurs or otherwise as soon as reasonably practicable.
Cont…
The articles of association of the relevant company
should also be reviewed because:
– they may contain provisions that apply when a director has
an interest in such a transaction or arrangement; and
– they will determine whether a director who has an interest in
such a transaction or arrangement may participate in
decisions of the board when it is the matter in hand.
Director’s Liability
A director may be exposed to certain liabilities in their capacity as a
director.
A. Civil Liabilities; and
1. Liability to outsiders; and
2. Liability to the Company
a. Liability for ultra vires acts
b. Liability for negligence
B. Criminal Liabilities
S.99(1) - If any person being an undischarged insolvent acts as director
or managing agent or manager of any company, he shall be liable to
imprisonment for a term not exceeding two years or to a fine not
exceeding five thousand taka or to both.
Protecting a Director from Liability
A company may acquire and maintain insurance for its
directors, or those of an associated company, against
such liability; and
A company may provide an indemnity for its directors,
and those of an associated company, against certain
liabilities, provided that such indemnity meets specific
conditions and does not cover criminal proceedings
where the director is found guilty.

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DUTIES AND

Farzana Yeasmin Mehanaz

 Directors’ are appointed by the company’s shareholders to run the

 Company’s success can only be achieved, if the directors of the company

(1) Notwithstanding anything contained in the articles of a company–

 Companies Act, including in particular, the directors' general duties as set

 common law; and

 certain resolutions of its members.

■ a duty not to gain any advantage from use of position as a director;

■ a duty not to make any unauthorized use of the company’s property or

■ a duty to keep proper accounting records;

■ Although it may be possible for a director to have a breach of duty ratified

■ The directors' annual report of a company must contain sufficient disclosure

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