Clearly, while the intention of the new Act is to clarify and simplify the legislation, and is likely to have a number of benefits, particularly in the longer term, other areas of the rules remain potentially contentious and could lead to uncertainty.
For example, it may be difficult for directors to be certain whether particular benefits may be regarded as likely to give rise to a conflict of interest. Similarly, it may not always be easy for directors to reconcile the various – potentially conflicting – factors which must be taken into account when reaching any major decisions, particularly in relation to the duty to promote the success of the company.
It is nevertheless essential for a director to show that they are aware of and have taken into account the relevant factors, and have exercised due care and diligence in giving them all fair consideration.
In order to comply with the legislation, all directors must take into account the company’s constitution and any other relevant factors, such as shareholder decisions, in order that they can show that they are acting in the company’s best interests when making a decision. In theory, such considerations should already form part of a responsible company’s decision making processes.
Directors must also ensure that they are diligent and well informed regarding the company’s affairs, and take care to avoid any situations where potential conflicts of interests could arise.
Adopting the following suggestions may help to protect directors from the risks of derivative claims and other legal action:
This information is intended for guidance purposes only, and you should always seek professional advice before taking any action. Please contact us for further information relating specifically to your business.