Duties and responsibilities of directors of a Jersey company

• Statutory and customary law duties that a director of a Jersey company is required to fulfil

• The duties of a director to act in good faith and with due care and the duty to disclose interests

• Other duties under the Companies Law imposed upon the company itself 

General obligations

The duty to act in good faith and with due care

Article 74(1) of the Companies (Jersey) Law 1991 (as amended) (the "Companies Law") enshrines in statute the general duties of a director to act honestly and in good faith and with due care, diligence and skill. The text is as follows:

"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."

Article 74(2) provides statutory relief for a breach of the duties under Article 74(1) as follows:

"Without prejudice to the operation of any rule of law empowering the members, or any of them, to authorise or ratify a breach of this Article, no act or omission of a director shall be treated as a breach of paragraph (1) if:

• all of the members of the company authorise or ratify the act or omission; and

• after the act or omission the company is able to discharge its liabilities as they fall due."

Article 74(3) provides similar relief to Article 74(2) except that not all of the members of the company need to authorise or ratify the act or omission. Instead an ordinary (or special if required by its articles of association) resolution is sufficient provided that the relevant director and any shareholders connected with them are not entitled to vote.

The common law position is still relevant as a manifestation of the provisions of Article 74(1). In particular, the directors of a Jersey company are under the following duties:

• Duty to act in good faith:

• A director has a duty to act in what they bona fide considers to be the best interests of the company. This duty is restated in the Companies Law, as referred to above. He must never act for any collateral purpose. In keeping with such a position of trust, the courts give the individual director absolute and ultimate discretion to determine this, and only infer that they were not acting in good faith if no reasonable director could have believed that the course of action was in the best interests of the company.

• At common law, a director who is acting honestly but not in the best interests of the company will usually be in breach of their duty to act in good faith. However, under Article 212 of the Companies Law, if it appears to the court that an officer of a company has acted honestly and that having regard to all the circumstances of the case they ought fairly to be excused, the court may relieve them, either wholly or partly, from their liability on such terms as it thinks fit.

• Generally, as with other fiduciary duties, the duty of good faith is owed by every director individually and not collectively as a board and is owed only to the company and not to any other person, be it another company or an individual.

• Duty to exercise powers for a proper purpose:

• Even if directors are acting in good faith and in the interests of the company and its members as a whole, they must nevertheless use their powers for the purposes for which they were conferred. For example, the articles of association may confer the power to issue additional shares. However, if shares were issued with the sole intention of ensuring that the directors maintain personal control of the company in their capacity as shareholders this would clearly be in derogation of their duty to exercise their powers for a proper purpose.

• Conflict of duty and interest:

• The common law position in relation to transactions with a company involving the interest of a director is qualified in a number of ways by the Companies Law and, to a large extent, is now overtaken by the specific statutory provisions, particularly of Article 75 (see below).

• Duty to account for profits:

• A director's fiduciary position precludes them from taking a personal profit from any opportunities arising from their directorship, even if they are acting honestly and for the good of the company. Any profit which results from circumstances such as these must always be paid over to the company whether the profit results from a contract with the company or a third party. Even if the director's profit would not have accrued to the company, they must still account for it if the opportunity to make it arose through their directorship. Directors are only entitled to receive remuneration and payment of expenses if the articles of association expressly permit.

The duty to disclose

Article 75 imposes upon a director a statutory duty to disclose to the company the nature and extent of their interest, whether direct or indirect, in any transaction entered into or proposed to be entered into by the company or by a subsidiary of the company which, to a material extent, conflicts with the interests of the company. This disclosure must be made as soon as practicable after the director becomes aware of the circumstances that give rise to their duty to make such disclosure.

Article 75(4) states that nothing in Article 75 shall prejudice the operation of any rule of law restricting directors from having interests (in other words, due regard must continue to be had to the common law position).

If the director fails in their duty to disclose, Article 76 will apply:

"(1)  Subject to paragraphs (2) and (3), where a director fails to disclose an interest of the director under Article 75 the company or a member of the company may apply to the court for an order setting aside the transaction concerned and directing that the director account to the company for any profit or gain realised, and the court may so order or make such other order as it thinks fit."

Articles 76(2) and 76(3) read:

"(2)  A transaction is not voidable, and a director is not accountable, under paragraph (1) where, notwithstanding a failure to comply with Article 75-

• the transaction is confirmed by special resolution; and

• the nature and extent of the director's interest in the transaction were disclosed in reasonable detail in the notice calling the meeting at which the resolution is passed.

(3) Without prejudice to its power to order that a director account for any profit or gain realised, the court shall not set aside a transaction unless it is satisfied that-

• the interests of third parties who have acted in good faith thereunder would not thereby be unfairly prejudiced; and

• the transaction was not reasonable and fair in the interests of the company at the time it was entered into."

The articles of association may also provide further obligations upon directors to disclose relevant interests. It is also important to note that articles of association may, or may not, specifically permit interested directors to vote on matters in which they have an interest and to have certain types of interests.

Other duties under the Companies Law

The duty to engage a suitable company secretary

Article 82 imposes a duty on the directors of a public company to take all reasonable steps to secure that the secretary is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company and who is:

• a member of any of the professional bodies set out in Article 82(2);

• an advocate or solicitor of the Royal Court; or

• a person who, by virtue of holding or having held any other position or being a member of any other body, appears to the directors to be capable of discharging those functions.

Statutory books

Register of members

Every company shall keep a register of its members and enter in it, inter alia, the names and addresses of its members and a statement of the shares held (Article 41(1)). If a company fails to comply with Article 41, the company and every officer of it who knowingly and wilfully authorises or permits the default is guilty of an offence punishable by a fine not exceeding £10,000 and a daily default fine not exceeding £1,000 (Article 41(3)).

A company shall give notice to the Registrar of Companies of the place where the register of members is kept and of any change to that place unless it has always been and continues to be at its registered office. Failure to do so for 14 days is an offence punishable by a fine not exceeding £10,000 and a daily default fine not exceeding £1,000 (Article 44).

The register of members shall be open during business hours to the inspection of a member of the company without charge and of any other person on payment of such sum (if any), not exceeding the published maximum, as the company may require (Article 45(1)). A person may require delivery of a copy of the register of members subject to, in the case of a private company, the payment of such sum (if any), not exceeding the published maximum, as the company may require (Article 45(2)) and, in the case of a public company, a sworn declaration under Article 46. If a company fails to comply with Articles 45(1) or 45(2), it is guilty of an offence punishable by a fine not exceeding £10,000 (Article 45(3)).

Register of directors and secretary

Every company shall keep at its registered office a register of its directors and secretary containing, inter alia, each of their names and addresses (Article 83(1)). If there is a failure to comply with Article 83(1), the company and every officer of it who knowingly and wilfully authorises or permits the default is guilty of an offence punishable by a fine not exceeding £10,000 and a daily default fine not exceeding £1,000 (Article 83(4)).

The register shall be open during business hours to the inspection of the Jersey Registrar of Companies and of a member or director of the company without charge and, in the case of a public company or a company which is subsidiary of a public company, of any other person on payment of such sum (if any), not exceeding the published maximum, as the company may require (Article 83(2)). If an inspection required under Article 83 is refused (or the required information is not included in the registers), the company and every officer of it who knowingly and wilfully authorises or permits the default is guilty of an offence punishable by a fine not exceeding £10,000 and a daily default fine not exceeding £1,000 (Article 83(4)).

Minutes

Every company shall cause minutes of all proceedings at general meetings, meetings of the holders of any class of its shares, meetings of its directors and of committees of directors to be entered in books kept for that purpose, and the names of the directors present at each such meeting shall be recorded in the minutes (Article 98(1)). If there is a failure to comply with Article 98(1), the company and every officer of it who knowingly and wilfully authorises or permits the default is guilty of an offence punishable by a fine not exceeding £10,000 and a daily default fine not exceeding £1,000 (Article 98(4)). Members are entitled to inspect the minute books (for shareholder meetings) (Article 99).

General meetings

Every public company and every 'relevant private company' shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year and shall specify the meeting as such in the notice calling it (Article 87(2)). In the case of a public company, not more than 18 months and in the case of a relevant private company not more than 22 months shall elapse between the date of one annual general meeting and the date of the next (Article 87(3)). A public company or a relevant private company may, with the consent of all the shareholders, dispense with the requirement to hold an annual general meeting.

• which is required to hold annual general meetings by provision made in its articles of association after the coming into force of the Companies (Amendment No. 11) (Jersey) Law 2014 (which occurred on 1 August 2014); or

• in whose case a requirement for the holding of annual general meetings was imposed by provision made in its articles of association before the coming into force of that Law and confirmed by a special resolution passed after the coming into force of that Law and remaining in effect.

Article 87(2B) goes on to state that any requirement for the holding of annual general meetings imposed by provision made in the articles of association of a private company before the coming into force of the Companies (Amendment No. 11) (Jersey) Law 2014 is of no effect unless confirmed by special resolution passed after the coming into force of that Law and remaining in effect.

If a public company fails to comply with Articles 87(2) or 87(3), it and every director of it who knowingly and wilfully authorises or permits the default or is in default is guilty of an offence punishable by a fine not exceeding £10,000 (Article 87(8)).

In every notice calling a general meeting, there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy or, where that is allowed, one or more proxies to attend and vote instead of them, and that a proxy need not also be a member. In the event of failure to comply, every officer of the company who knowingly and wilfully authorises or permits the default is guilty of an offence (Article 96(3)).

Accounts

Every company must keep accounting records that are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy, at any time, the financial position of the company (Article 103).

A company's accounting records shall be kept at such place as the directors think fit and shall at all times be open to inspection by the company's officers and the secretary (Article 104). If accounting records of a public company are kept at a place outside Jersey, returns with respect to the business dealt with in such accounting records shall be sent to, and kept in, Jersey and shall be such as to disclose with reasonable accuracy the financial position of such business at intervals of not more than six months and to enable the directors to ensure that any accounts prepared by the company comply with the requirements of the Companies Law (Article 104).

Accounting records that a company is required by Article 103 to keep are to be preserved by it for 10 years from the date on which they are made (Article 104(4)).

Except where consolidated accounts are produced in respect of a Jersey incorporated holding company (Article 105(11)), the directors of a company must prepare accounts for a period of not more than 18 months beginning on the date of its incorporation or, if the company has previously prepared a profit and loss account, beginning at the end of the period covered by the most recent accounts (Article 105(1)).

Accounts must be prepared in accordance with generally accepted accounting principles (and, in the case of a market traded company, generally accepted accounting principles prescribed by Jersey law) and show a true and fair view of or be presented fairly in all respects so as to show the profit or loss and the state of affairs of the company for the period. The accounts must be approved by the directors and signed on their behalf by one of them (Articles 105(2) to (5)).

Except where the shareholders have dispensed with the requirement to hold an annual general meeting, in the case of a public company within seven months and, in the case of a relevant private company, within 10 months after the end of each financial period, the accounts for that period shall be (Articles 105(6) to (8)):

• in the case of a private company, prepared and, where it is required under the Companies Law, examined and reported upon by an auditor and laid before a general meeting together with a copy of the auditor's report (if any); and

• in the case of a public company, examined and reported upon by an auditor and laid before a general meeting together with a copy of the auditor's report.

Appointment of auditors

Where:

• a company is a public company;

• the articles of association of the company so require; or

• a resolution of the company in general meeting so requires,

the company shall appoint an auditor to examine and report in accordance with the Companies Law upon the accounts prepared pursuant to Article 103 (Article 113(1)).

Except as provided by Articles 113(5) and (6) (in other words, if it has dispensed with holding annual general meetings), a company that is required by Article 113 to appoint an auditor shall at each annual general meeting appoint an auditor to hold office from the conclusion of that meeting to the conclusion of the next annual general meeting (Article 113(3)).

If a company fails to comply with Article 113(1), the company and every officer of it who knowingly and wilfully authorises or permits the default is guilty of an offence punishable by a fine (Article 113(10)).

When an auditor ceases to hold office, the auditor shall deliver to the company a statement of the circumstances connected with their ceasing to hold office which the auditor considers should be brought to the notice of the members or creditors of the company or, if no such circumstances exist, a statement to that effect. A copy of the statement of such circumstances (if any) shall be sent by the company within 14 days to every member of the company and to every person entitled to receive notice of a general meeting. If a company fails to do so, it and every officer of it who knowingly and wilfully authorises or permits the default is guilty of an offence punishable by a fine (Article 113B).

Where Article 113 requires a company to appoint an auditor, a 'relevant person' (as defined in Article 113B(4A)) is guilty of an offence punishable by imprisonment for a term not exceeding five years and/or a fine if they knowingly or recklessly makes to the auditor a statement which:

• conveys or purports to convey any information or explanation which the auditor requires, or is entitled to require, as auditor of the company; and

• is false or misleading in a material particular (Article 113C).

Annual confirmation statement

Every company (not in a creditors' winding up or which is the subject of a declaration under the Bankruptcy (Désastre) (Jersey) Law 1990) shall before the end of February in every year after the year in which it is incorporated deliver to the Registrar of Companies an annual confirmation statement (together with a filing fee) stating certain particulars with respect to the registered office, associated parties, beneficial owners and controller, significant persons (eg directors and secretary) and members of the Company (Article 5 of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the "Disclosure Law")).

If an annual confirmation statement is not delivered to the Registrar of Companies (or payment of the filing fee and any late filing penalties are not made), the company is guilty of an offence and subject to a fine not exceeding £10,000 and a daily default fine not exceeding £1,000 (Article 16 of the Disclosure Law).

Share redemptions, buy-backs, reductions of capital and distributions

Directors authorising share redemptions (Article 55), buy-backs (Article 57), capital reductions not subject to Jersey Royal Court sanction (Articles 61 and 61A) and distributions (Articles 114 and 115) are subject to the authorising directors first making a current and 12 month forward looking solvency statement. Failure to do so could result in the action being voidable and directors making statements without having reasonable grounds for doing so can be guilty of an offence under the Companies Law, typically two years imprisonment or a fine or both.

The information contained in this guide is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.