The duties of a director for a resident’s management company are the same as for any company. They must:
- To act within the powers of the company – a director must act in accordance with the company’s constitution (i.e. the Articles of Association). The articles are a set of rules for the company and the board. As a director, it is important to be familiar with the articles of association as they may constrain your decision-making powers in certain ways. If you exceed your powers, then related decisions could be reversed and you might even have to compensate the company for any resulting financial losses.
- To promote the success of company – a director must act in good faith in the way they consider and promote the success of the company for the benefit of its shareholders or members. Board decisions can only be justified by the best interests of the company, not based on what works best for anyone else, such as particular members or shareholders. Directors should be broad minded in the way that they evaluate those interests – paying regard to other stakeholders rather than adopting a narrow financial perspective.
- To exercise independent judgment, reasonable care, skill and diligence – Directors should not be delegates who simply implement the commands of other parties e.g. members or shareholders. Nor should they avoid their responsibility to make independent decisions by relying on the knowledge or judgement of other directors or experts. A director needs to form their own view, and this may require some effort – especially if they are not already familiar with key aspects of the company’s activities. The benchmark is that of a reasonably diligent person with the general knowledge, skill and experience that could reasonably be expected from a person carrying out the director’s functions. Also, directors with specific professional training or skills (such as a lawyer or accountant) are held to a higher standard in related issues than less qualified colleagues.
- To avoid conflicts of interest – a director must avoid situations which they have a direct or indirect interest that conflicts with or may conflict with the company’s interests. For example, a director would not be allowed to appoint a contractor or company they have a financial interest in unless that interest is declared.If situations arise which impose multiple claims on a director’s attention or loyalty, it is essential that they disclose them to fellow board members. It will then be up to the other non-conflicted board members (or the shareholders/members, in some cases) to decide how to manage or approve the conflict and maintain the integrity of the board’s decision-making process.
- Keep records – How can a director prove they have fulfilled these legal duties? One of the important purposes of the minutes of board meetings is to provide a record of the board’s decision-making process. By law, these minutes must be kept for 10 years. Years from now, it may be difficult for you to remember if you fulfilled your directors’ duties in respect of some key decision. The minutes can provide vital evidence that you did – something that you may well have cause to be grateful for.
In addition to the corporate responsibilities there are legal responsibilities for things like fire safety, ensuring appropriate property insurance etc. It may be wise to ask your managing agent to obtain quotes for Directors and Officers Insurance to protect you against genuine mistakes that could be made whilst fulfilling your duties.