The duties, responsibilities and liabilities of directors of a Guernsey Company

• Directors of a Guernsey company owe a number of statutory and customary law duties to the companies that they are appointed to

• These duties are not codified.  They are often imported from English common law, or arise from the Companies (Guernsey) Law, 2008 itself

• This guide provides a brief summary of the general obligations of directors in Guernsey, and the personal liability that may arise if those obligations are breached
  
   

Guernsey statute does not codify the duties of directors of Guernsey companies. Guernsey law imports the English common law duties of directors and the Companies (Guernsey) Law, 2008 (as amended) (the "Companies Law") imposes various statutory obligations upon directors.

The Royal Court's guidance on the application of the customary law principles in Guernsey can be found in Carlyle Capital Corp Limited (in Liquidation) and Others v Conway and Others (Guernsey Judgment 38/2017).

Who is a director?

A "director" is defined in the Companies Law as including "an alternate director and any person occupying the position of director, by whatever name called". A person who has not formally appointed as a director may therefore be treated by the Royal Court of Guernsey as a director (including, potentially, a de facto director or a shadow director), and will be subject to directors' duties as if formally appointed.

General obligations under common law

Under common law, the core fiduciary duty is one of loyalty and further that a director should:

• act honestly and in good faith;

• act in what the director bona fide considers to be the best interests of the company as a whole, with regard to the company as a continuing entity, balancing the company's long-term interests against its short-term interests;

• exercise care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances;

• use their powers for a proper purpose (ie, the purpose for which the powers were conferred); and

• avoid/disclose a conflict between their duty to the company and personal duties or interests (pursuant to section 162 of the Companies Law, if an actual or potential conflict arises, the director must ensure that it is disclosed to, and approved by, the company).

The duty to act in the best interests of the company means that the directors of a Guernsey company owe duties to the company as opposed to its shareholders. While shareholders may bring a claim for breach of duty on behalf of a company (a "derivative action"), any remedy would be awarded in favour of the company, not the shareholder bringing the action.

However, once a company's director knows, or ought to know, that the company is insolvent, or that insolvency is imminent or probable, there is a change of interest - a director is then required to have regard to the interests of creditors who will be repaid from the company's assets. Guernsey's leading case is Carlyle Capital Corporation (in Liquidation) v Conway, JCPC/2019/0083, in which the Privy Council determined that the trigger point for this change of interest was "upon the brink of insolvency".

Obligations under the Companies Law

Under the Companies Law, a director has the following obligations:

• Every director of a Guernsey company must provide information for entry in the company's register of directors which is kept by the company at its registered office. Each director of a Guernsey company is also required to sign a form of consent and a confirmation of eligibility to be appointed as a director.¹

• Before making a distribution or authorising the payment of a dividend, the board of directors must approve a certificate stating that in their opinion the company will, immediately after the distribution or payment of the dividend, satisfy the solvency test. The certificate must also state the directors' grounds for that opinion. In the case that a distribution has been in a procedurally incorrect matter or a distribution made where the solvency test has not been satisfied, it is possible that a director may be held to be personally liable to the company to repay to the company so much of the relevant distribution as is not able to be recovered from members.

• Where a company does not have a secretary, or the company's secretary's obligations do not fall into the obligations listed in section 171 of the Companies Law, the directors have a duty to carry out the following:

• all registers and indices must be maintained;

• all notices and documents required to be filed or served must be duly filed or served;

• all resolutions, records, and minutes of the company must be properly kept; and

• the company's Memorandum & Articles must be kept up to date.

• A director, including a shadow director, may be guilty of "wrongful trading" pursuant to section 434 of the Companies Law if the company becomes insolvent and the director:

• knew (or ought to have concluded, based both on the director's actual skill, knowledge and experience and the skill, knowledge and experience which a director in the same position ought to have) that there was no reasonable prospect of the company avoiding an insolvent liquidation; and

• failed to take every step a director ought reasonably to have taken to minimise the loss to creditors.

• If, in the course of a creditors' winding-up it appears that any business of the company has been carried on with intent to defraud creditors, or for any fraudulent purpose, the court may, on the application of the liquidator, administrator, or any creditor or member of the company, declare that a director who was knowingly a party to the carrying on of the business in that manner may be liable to make such contributions to the company's assets as the court thinks proper (section 433 of the Companies Law). The director may also be criminally liable.

• Where in the course of the winding-up of a company it appears that a director has appropriated or otherwise misapplied any of the company's assets, has become personally liable for any of the company's debts or liabilities, or has otherwise been guilty of any misfeasance or breach of fiduciary duty in relation to the company, the liquidator or any creditor or member of the company may apply to the court to examine the conduct of the person concerned (section 422 of the Companies Law). The court may order the director to:

• repay, restore or account for such money or such property;

• contribute such sum to the company's assets; and/or

• pay interest upon such amount, at such rate and from such date.

Liability

A director may be found personally liable for breaches if they inter alia:

• wilfully misrepresent the position of the company at a general meeting to induce the shareholders to declare a higher dividend than is justified;

• execute or issue any promises to pay on which the name of the company is not mentioned;

• misapply the assets of the company;

• are negligent; or

• make a fraudulent misrepresentation.

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.

Footnote:

1. The registration details, which will be a matter of public record, are a director's name, address, nationality, occupation, and date of birth. For a corporate director, the registration details are its name, registered office, legal form and law by which it is governed, and registered number.