Directors Duties in the Pacific

Fiji
Overview
In 2016, the Companies Act 2015 came in force in Fiji, majorly overhauling and modernising Fijian
company law, bringing it more in line with other Pacific jurisdictions. Specifically, the new Act clarifies
directors’ duties and the powers they may use in executing their obligations.
Fiji’s Companies Act closely resembles that of Australia, basing the obligations of directors on the
following, three fundamental statutory duties:
Who is a director?
The term “director” is used broadly in the Companies Act 2015. It includes appointed directors
regardless of the name that is given to the position. In addition, a person is a director for the purpose
of the Act if the person acts in the position of a director or appointed directors act in accordance with
the person’s instructions.
What are the Key Duties?
Statutory duties
The Companies Act 2015 sets the following directors duties:
A duty to act in accordance with the Articles of Association of the Company and for the purposes
for which they are conferred.
A duty to act in good faith and in a way that would most likely promote the success of the
company.
A duty to exercise independent judgement
A duty to exercise the care, diligence, and skill that a reasonable director would exercise when
performing their duties.
A duty to avoid conflicts of interest
A duty not to accept benefits from third parties
A duty to declare interests in proposed transaction or arrangement
What is good faith?
Fijian Courts have not defined ‘good faith’ since the introduction of the Companies Act 2015. Case
law prior to the introduction of the Act does provide some guidance: directors must seriously consider
the matter.
1
1
Re Mosbi Glass and Aluminium [2012] PGNC 238; N4925 (7 September 2012), at 14.
Given that Fiji’s Companies Act 2015 is in line with New Zealand’s Companies Act 1993, New
Zealand case law may shed light on directors’ duty of good faith. In New Zealand, to meet their duty
of good faith, directors have an obligation to turn their minds to those things that directors could be
reasonably expected to turn their minds to.
2
The test to determine whether a director has been acting
in good faith involves objectively what society expects from a director and subjectively what the
director honestly believed to be in good faith.
3
Mistaken belief may not be a defence where it was not
‘a wholly inappropriate appreciation of the interests of the company.
4
What degree of care, skill and diligence do I need to exercise?
According to the Companies Act 2015, the required degree of care, skill and diligence is satisfied
where the director:
Makes a business judgement in good faith for a proper purpose;
Does not have a material interest in the subject matter of the business judgment;
Informs himself/herself about the subject matter of the business judgment to the extent that
the director believes to be appropriate; and
Rationally believes that the business judgment is in the best interest of the Company. A
business judgment is rational unless the belief that it is in the best interest of the Company is
one that no reasonable person in their position would hold, The director’s particular
circumstances should be considered.
A business judgment is a decision to take or not take action in in respect of a matter relevant to the
business operations of the Company,
S106 Reaomnsable diligent person
Common Law and Equitable Duties
Directors have three common law duties:
A duty to act within in their power in the best interest of the company and to exercise power
for the purpose for which they are intended;
A duty to exercise a proper degree of skill and care in the performance of their duties; and
A fiduciary duty to act in good faith. // 1984 Companies act
Duties to prevent insolvent trading
All directors have a duty to ensure that the company does not incur debts at times where the
company does not satisfy the solvency test, or there are reasonable grounds to believe that the
company does not satisfy the solvency test. A court may order that debts be recovered from directors’
personal accounts where the director did not fulfil their duty to ensure the company only incurred debt
while solvent.
What are the liabilities should a director fail to comply with their
obligations?
Liabilities
2
Sojourner v Robb [2006] 3 NZLR 808 at [15].
3
Ibid at [102].
4
Ibid at [105].
Given that Fiji’s Companies Act 2015 is in line with New Zealand’s Companies Act 1993, New
Zealand case law may shed light on directors’ duty of good faith. In New Zealand, to meet their duty
of good faith, directors have an obligation to turn their minds to those things that directors could be
reasonably expected to turn their minds to.
2
The test to determine whether a director has been acting
in good faith involves objectively what society expects from a director and subjectively what the
director honestly believed to be in good faith.
3
Mistaken belief may not be a defence where it was not
‘a wholly inappropriate appreciation of the interests of the company.
4
What degree of care, skill and diligence do I need to exercise?
According to the Companies Act 2015, the required degree of care, skill and diligence is satisfied
where the director:
Makes a business judgement in good faith for a proper purpose;
Does not have a material interest in the subject matter of the business judgment;
Informs himself/herself about the subject matter of the business judgment to the extent that
the director believes to be appropriate; and
Rationally believes that the business judgment is in the best interest of the Company. A
business judgment is rational unless the belief that it is in the best interest of the Company is
one that no reasonable person in their position would hold, The director’s particular
circumstances should be considered.
A business judgment is a decision to take or not take action in in respect of a matter relevant to the
business operations of the Company,
S106 Reaomnsable diligent person
Common Law and Equitable Duties
Directors have three common law duties:
A duty to act within in their power in the best interest of the company and to exercise power
for the purpose for which they are intended;
A duty to exercise a proper degree of skill and care in the performance of their duties; and
A fiduciary duty to act in good faith. // 1984 Companies act
Duties to prevent insolvent trading
All directors have a duty to ensure that the company does not incur debts at times where the
company does not satisfy the solvency test, or there are reasonable grounds to believe that the
company does not satisfy the solvency test. A court may order that debts be recovered from directors’
personal accounts where the director did not fulfil their duty to ensure the company only incurred debt
while solvent.
What are the liabilities should a director fail to comply with their
obligations?
Liabilities
2
Sojourner v Robb [2006] 3 NZLR 808 at [15].
3
Ibid at [102].
4
Ibid at [105].
A director may be held personally liable for breaching the Act, with each breach corresponding to a
fine between $300 and $270,000. The highest amounts correspond to offences in relation to the
market, for instance, where a director creates a misleading appearance of active trading. Where a
maximum penalty is not provided for, a person’s may be liable for up to $500.
A director may also be liable for up to 5 years of imprisonment for breach of director duties and for up
to 3 years for offences in relation to winding up.
What about if I am not technically a director?
A person who is not a director may nonetheless be liable. In addition to a person who is validly
appointed as director, a person may be considered a director if he/she acts in the position of a
director and if validly appointed directors are accustomed to act in accordance to the person’s
instructions.
Do I have a defence?
Directors have a defence against breaches of their duty of care, skill and diligence called the business
judgment defence. Its underlying purpose is to prevent the Court from substituting its own opinion for
the director’ opinion who originally made the decision. The defence only applies to positive business
judgments, at the exclusion of omissions or failures in oversight. The defence operates if the director
fulfils the four requirements to meet the prescribed degree of care, skill and diligence that are outlined
above.
Directors also have a defence for failing to call a general meeting requested by members that hold 5%
of votes within 21 days of members’ request. They must prove that they took all reasonable steps to
cause the other Directors to comply with this obligation.
For other duties, the common law defences apply. As such, fully informed consent of the shareholders
is required to waive liability prior to the breach. Good faith and honesty will not allow a director to
escape liability, even in cases where the breach showed to also benefit the shareholders.
It is no defence to plead ignorance of the law. Nor is it a defence that the director relied on incorrect
advice, unless the director was entitled to rely on that advice.
What other procedural matters do I need to understand as a
director?
Appointment of Directors
Directors are to be appointed at the time a company is registered. Subsequently, an ordinary
resolution at a general meeting of the shareholders is required for the appointment of a director. For
public companies, each appointment requires its own separate resolution.
Indemnity
If expressly authorised by its articles of association, accompany may indemnify a director for acts and
omissions in their capacity as director, for any costs incurred during any proceeding and liabilities to
persons other than the company. A company cannot indemnify a director for any criminal liability
arising from their acts and omissions in their capacity as director.
Qualifications
A director must be a natural person who is at least 18 years of age. An individual will be disqualified
from being a director of a company if they have been disqualified previously or are an undischarged
bankrupt. There is no exclusion against directors being of unsound mind or similar mental or physical
infirmities as is common in other jurisdictions.
Annual Reports
Annual reports must be provided to members and the Registrar of companies for every financial year.
The annual report must include all financial statements, the directors’ report and an auditor’s report on
the financial statements.
Meetings
The meeting of a board of directors may be called and held in the manner and with the technology
agreed upon by the board of directors. The Act does not set out minimum requirements for quorum, or
notice requirements;, rather, it is the articles of association set out directors’ meetings protocols.
Remuneration
Remuneration of directors is to be determined by a meeting of the shareholders, however, in a private
company the articles of association may allow for other methods of determining directors’
remuneration. A member with 5% of voting rights, or members acting in concert with 5% of the voting
rights may requisition the disclosure of directors’ remuneration.
Market responsabilites?
What other duties do I have?
Duties under Consumer Law
Consumer protections originate in the Commerce Commission Decree 2010. The Decree sets out
offences for misleading and deceptive conduct, unconscionable conduct, false or misleading
representations and advertisement, false information and advertisement and bait advertisement. A
person who is a director at the time of offences will be held liable for the offence unless it was
committed without his/her knowledge or he used all due diligence to prevent the commission of the
offence.
eaning directors who knew of or ought to know of an infringement and allowed consumer protections
to be broken will be prosecuted and punished separately as individuals.
Duties under environmental law
A director who has directed, authorised or participated in the commission of an offence under the
Environmental Management Act 2005 is deemed to have also committed the offence and may be
personally liable for the same penalty as the corporation regardless of whether the corporation is
being prosecuted. Directors are prohibited from directing, authorising or participating in:
A development activity which is subject to the EIA process but does not have an approved
EIA report;
Wilfully or deliberately providing false or misleading information;
Wilfully or deliberately hindering or failing to give all reasonable assistance to a person
carrying out duties under the Environmental Management Act 2005; and
Contravenes a condition for the approval of a development activity subject to an EIA report.
Work health and safety duties
A director may be liable for a corporation’s offence under the Health and Safety at Work Act 1996 if
either the offence is committed with the consent or connivance of the director, or the offence is
attributable to the wilful neglect of the director.
A corporation will be liable if the corporation’s intention can be established. It is sufficient to show that
the servant or the agent of the company had the intention. Director may be personally liable for
offences including:
A breach of the employer’s duty to ensure the health and safety of workers at work;
Intentionally or recklessly interfering with anything provided in the interests of health and
safety;
A failure to establish a health and safety committee when twenty or more employees are
employed
Discrimination against workers who made a reasonable complaint or provided information to a
health and safety Inspector
A failure to give notification of accidents.
It is a defence that it was not practicable for the director to comply with the provision that constituted
the offence.
Foreign corrupt practices, bribery, money laundering offences
Fiji’s Crimes Decree of 2009 and Prevention of Bribery Promulgation (POBP) 2007 legislate against
bribery. A director may be liable for bribery offences as a person but not specifically as a member of
the corporate body. In addition, a person may be liable for conspiracy in a bribery offence; although
not specified in the legislation, this may include directing or permitting a bribe by a person within the
scope of the director’s authority.
Although no current anti-bribery legislation directly applies to directors, there have been recent
international and regional developments which may impact Fijian anti-bribery legislation in the near
future.
Tax duties
Administration Tax
In circumstances where the company is in financial difficulty and the company entered into an
arrangement with the intention or effect of rendering a company unable to pay its tax liability, persons
who were directors at the time of the arrangement may be held personally liable. Directors will not be
held liable if they did not derive any financial benefit from the arrangement and either the director
could not have had knowledge of the arrangement or the director formally recorded his or dissent and
notified the Commissioner of Inland Revenue of the arrangement.
A director in fulfilling their duty must not participate in any transaction or company dealing where they
have an interest. Alternatively, in a private company, so long as the Articles of Association do not
disallow it, the board may authorise an interested director taking part in a transaction, while in a public
company, the Articles of Association must specifically allow the board to pass such authorisation.
Generally, all directors must disclose their interests in any dealings especially share dealing.
However, in a listed company, a director must not use information they receive in their capacity as
director to advantage themselves, or similarly disclose information to another person who they ought
to know would likely use the information to trade securities.
Liabilities
Individuals who are not validly appointed as directors will hold the same liabilities as a director if they
act in the position of a director, or if the company or board of directors are accustomed to act in
accordance with the person’s instructions or wishes.
If the directors delegate a power, a director shall be responsible for the exercise of the power by the
delegate as if the power had been exercised by the Director herself or himself. However, a director
will not be liable for the actions of a delegate where the director believed on reasonable grounds that
the delegate would exercise the power in conformity with the duties imposed on directors of the
company by the Act and the articles of association, and the director believed on reasonable grounds
and in good faith that the delegate was reliable and competent with regards to the power delegated.
A company’s articles of association may exclude the delegation of all or some director’s powers.
Qualifications
Fiduciary Duties
The Companies Act clarifies that all directors’ duties are enforceable as though they were fiduciary
duties owed under the Common Law and equity. However, there is an exception for the duty to
exercise reasonable care, skill and diligence which is purely a statutory duty.
As such, the codification of the fiduciary duties to
act within powers
promote the success of the company
act independently
avoid conflict
not to accept benefits from third parties eventuating from the use of their position as director
, directors are now set to a higher standard in Fiji.
Duties on Insolvency