   
- The Companies Act
of 2006 and the international best practices for the Board of
Directors
Welcome to the April 2010 edition of the
International Association of Potential, New and
Sitting Members of the Board of Directors (IAMBD)
newsletter
Companies Act 2006
CHAPTER
2
GENERAL DUTIES OF DIRECTORS
170
Scope and nature of general duties
(1) The general duties
specified in sections 171 to 177 are owed by a director of a
company to the company.
(2)
A person who ceases to be a director continues to be subject—
(a)
to the duty in section 175 (duty to avoid conflicts of interest)
as regards the exploitation of any property, information or
opportunity of which he became aware at a time when he was a
director, and
(b)
to the duty in section 176 (duty not to accept benefits from
third parties) as regards things done or omitted by him before
he ceased to be a director.
To
that extent those duties apply to a former director as to a
director, subject to any necessary adaptations.
(3)
The general duties are based on certain common law rules and
equitable principles as they apply in relation to directors and
have effect in place of those rules and principles as regards
the duties owed to a company by a director.
(4)
The general duties shall be interpreted and applied in the same
way as common law rules or equitable principles, and regard
shall be had to the corresponding common law rules and equitable
principles in interpreting and
applying the general duties.
(5) The general duties apply to shadow directors where, and
to the extent that, the corresponding common law rules or
equitable principles so apply.
The
general duties
171
Duty to act within powers
A
director of a company must—
(a)
act in accordance with the company’s constitution, and
(b)
only exercise powers for the purposes for which they are
conferred.
172
Duty to promote the success of the company
(1)
A director of a company must act in the way he considers, in
good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to—
(a)
the likely consequences of any decision in the long term,
(b)
the interests of the company’s employees,
(c)
the need to foster the company’s business relationships with
suppliers, customers and others,
(d)
the impact of the company’s operations on the community and the
environment,
(e)
the desirability of the company maintaining a reputation for
high standards of business conduct, and
(f)
the need to act fairly as between members of the company.
(2)
Where or to the extent that the purposes of the company consist
of or include purposes other than the benefit of its members,
subsection (1) has effect as if the reference to promoting the
success of the company for the benefit of its
members were to
achieving those purposes.
(3)
The duty imposed by this section has effect subject to any
enactment or rule of law requiring directors, in certain
circumstances, to consider or act in the interests of creditors
of the company.
173
Duty to exercise independent judgment
(1)
A director of a company must exercise independent judgment.
(2)
This duty is not infringed by his acting—
(a)
in accordance with an agreement duly entered into by the company
that restricts the future exercise of discretion by its
directors, or
(b)
in a way authorised by the company’s constitution.
174
Duty to exercise reasonable care, skill and diligence
(1)
A director of a company must exercise reasonable care, skill and
diligence.
(2)
This means the care, skill and diligence that would be exercised
by a reasonably diligent person with—
(a)
the general knowledge, skill and experience that may reasonably
be expected of a person carrying out the functions carried out
by the director in relation to the company, and
(b) the
general knowledge, skill and experience that the director has.
175
Duty to avoid conflicts of interest
(1)
A director of a company must avoid a situation in which he has,
or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the interests of the company.
(2)
This applies in particular to the exploitation of any property,
information or opportunity (and it is immaterial whether the
company could take advantage of the property, information or
opportunity).
(3)
This duty does not apply to a conflict of interest arising in
relation to a transaction or arrangement with the company.
(4)
This duty is not infringed—
(a)
if the situation cannot reasonably be regarded as likely to give
rise to a conflict of interest; or
(b)
if the matter has been authorised by the directors.
(5)
Authorisation may be given by the directors—
(a)
where the company is a private company and nothing in the
company’s constitution invalidates such authorisation, by the
matter being proposed to and authorised by the directors; or
(b)
where the company is a public company and its constitution
includes provision enabling the directors to authorise the
matter, by the matter being proposed to and authorised by them
in accordance with the constitution.
(6)
The authorisation is effective only if—
(a)
any requirement as to the quorum at the meeting at which the
matter is considered is met without counting the director in
question or any other interested director, and
(b)
the matter was agreed to without their voting or would have been
agreed to if their votes had not been counted.
(7)
Any reference in this section to a conflict of interest includes
a conflict of interest and duty and a conflict of duties.
176 Duty
not to accept benefits from third parties
(1)
A director of a company must not accept a benefit from a third
party conferred by reason of—
(a)
his being a director, or
(b)
his doing (or not doing) anything as director.
(2)
A “third party” means a person other than the company, an
associated body corporate or a person acting on behalf of the
company or an associated body corporate.
(3)
Benefits received by a director from a person by whom his
services (as a director or otherwise) are provided to the
company are not regarded as conferred by a third party.
(4)
This duty is not infringed if the acceptance of the benefit
cannot reasonably be regarded as likely to give rise to a
conflict of interest.
(5) Any reference in this section
to a conflict of interest includes a conflict of interest and
duty and a conflict of duties.
177 Duty
to declare interest in proposed transaction or arrangement
(1)
If a director of a company is in any way, directly or
indirectly, interested in a proposed transaction or arrangement
with the company, he must declare the nature and extent of that
interest to the other directors.
(2)
The declaration may (but need not) be made—
(a)
at a meeting of the directors, or
(b)
by notice to the directors in accordance with—
(i)
section 184 (notice in writing), or
(ii)
section 185 (general notice).
(3)
If a declaration of interest under this section proves to be, or
becomes, inaccurate or incomplete, a further declaration must be
made.
(4)
Any declaration required by this section must be made before the
company enters into the transaction or arrangement.
(5)
This section does not require a declaration of an interest of
which the director is not aware or where the director is not
aware of the transaction or arrangement in question.
For
this purpose a director is treated as being aware of matters of
which he ought reasonably to be aware.
(6)
A director need not declare an interest—
(a)
if it cannot reasonably be regarded as likely to give rise to a
conflict of interest;
(b)
if, or to the extent that, the other directors are already aware
of it (and for this purpose the other directors are treated as
aware of anything of which they ought reasonably to be aware);
or
(c)
if, or to the extent that, it concerns terms of his service
contract that have been or are to be considered—
(i)
by a meeting of the directors, or
(ii)
by a committee of the directors appointed for the purpose under
the company’s constitution.
Supplementary provisions
178
Civil consequences of breach of general duties
(1)
The consequences of breach (or threatened breach) of sections
171 to 177 are the same as would apply if the corresponding
common law rule or equitable principle applied.
(2)
The duties in those sections (with the exception of section 174
(duty to exercise reasonable care, skill and diligence)are,
accordingly, enforceable in the same way as any other fiduciary
duty owed to a company by its directors.
179 Cases within
more than one of the general duties
Except as otherwise provided, more than one of the general
duties may apply in any given case.
180
Consent, approval or authorisation by members
(1)
In a case where—
(a)
section 175 (duty to avoid conflicts of interest) is complied
with by authorisation by the directors, or
(b)
section 177 (duty to declare interest in proposed transaction or
arrangement) is complied with, the transaction or arrangement is
not liable to be set aside by virtue of any common law
rule or equitable principle requiring the consent or approval of
the members of the company.
This
is without prejudice to any enactment, or provision of the
company’s constitution, requiring such consent or approval.
(2)
The application of the general duties is not affected by the
fact that the case also falls within Chapter 4 (transactions
requiring approval of members), except that where that Chapter
applies and—
(a)
approval is given under that Chapter, or
(b) the matter is
one as to which it is provided that approval is not needed,
it is not necessary also to comply with section 175 (duty to
avoid conflicts of interest) or section 176 (duty not to
accept benefits from third parties).
(3) Compliance with the
general duties does not remove the need for approval under
any applicable provision of Chapter 4 (transactions requiring
approval of members).
(4) The general duties—
(a) have
effect subject to any rule of law enabling the company to give
authority, specifically or generally, for anything to be done
(or omitted) by the directors, or any of them, that would
otherwise be a breach of duty, and
(b) where the company’s
articles contain provisions for dealing with conflicts of
interest, are not infringed by anything done (or omitted) by
the directors, or any of them, in accordance with those
provisions.
(5) Otherwise, the general duties have effect
(except as otherwise provided or the context otherwise
requires) notwithstanding any enactment or rule of law.
181
Modification of provisions in relation to charitable companies
(1) In their application to a company that is a charity, the
provisions of this Chapter have effect subject to this
section.
(2) Section 175 (duty to avoid conflicts of
interest) has effect as if—
(a) for subsection (3) (which
disapplies the duty to avoid conflicts of interest in the
case of a transaction or arrangement with the company) there
were substituted—
“(3) This duty does not apply to a conflict
of interest arising in relation to a transaction or
arrangement with the company if or to the extent that the
company’s articles allow that duty to be so disapplied, which
they may do only in relation to descriptions of transaction
or arrangement specified in the company’s articles.”;
(b)
for subsection (5) (which specifies how directors of a company
may give authority under that section for a transaction or
arrangement) there were substituted—
“(5) Authorisation
may be given by the directors where the company’s
constitution includes provision enabling them to authorise
the matter, by the matter being proposed to and authorised by
them in accordance with the constitution.”.
(3) Section
180(2)(b) (which disapplies certain duties under this Chapter in
relation to cases excepted from requirement to obtain approval
by members under Chapter 4) applies only if or to the extent
that the company’s articles allow those duties to be so
disapplied, which they may do only in relation to
descriptions of transaction or arrangement specified in the
company’s articles.
(4)
After section 26(5) of the Charities
Act 1993 (c. 10) (power of Charity Commission to authorise
dealings with charity property etc) insert—
“(5A) In the case
of a charity that is a company, an order under this section
may authorise an act notwithstanding that it involves the breach
of a duty imposed on a director of the company under Chapter
2 of Part 10 of the Companies Act 2006 (general duties of
directors).”.
(5) This section does not extend to Scotland.
The
whistleblower protection
provisions
of Sarbanes Oxley and other statutes
U.S. Department of Labor
Occupational Safety and Health Administration (OSHA)
The Occupational Safety and Health Act of 1970 created the
Occupational Safety and Health Administration to help employers
and employees reduce injuries, illnesses and deaths on the job in
America.
Since
then, workplace fatalities have been cut by more than 60 percent
and occupational injury and illness rates have declined 40
percent. At the same time, U.S. employment has more than doubled
and now includes over 115 million workers at 7.2 million
worksites.
Your Rights
as a Whistleblower
You may file a complaint with OSHA if your employer retaliates
against you by taking unfavorable personnel action because you
engaged in protected activity relating to workplace safety and
health, commercial motor carrier safety, pipeline safety, air
carrier safety, nuclear safety, the environment, asbestos in
schools, corporate fraud, SEC rules or regulations, railroad
carrier safety or security, or public transportation agency safety
or security.
Whistleblower Laws Enforced by OSHA
Each law requires that complaints be filed within a certain
number of days after the alleged retaliation.
You may file
complaints by telephone or in writing under the:
•
Occupational Safety and Health Act (30 days)
•
SurfaceTransportation Assistance Act (180 days)
• Asbestos
Hazard Emergency Response Act (90 days)
• International
Safe Container Act (60 days)
• Federal Rail Safety Act (180
days)
• NationalTransit Systems Security Act (180 days)
Under the following laws, complaints must be filed in writing:
• Clean Air Act (30 days)
• Comprehensive Environmental
Response, Compensation and Liability Act (30 days)
• Energy
Reorganization Act (180 days)
• FederalWater Pollution
Control Act (30 days)
• Pipeline Safety Improvement Act
(180 days)
• Safe DrinkingWater Act (30 days)
• Sarbanes-Oxley Act (90 days)
• SolidWaste Disposal Act (30 days)
• Toxic Substances
Control Act (30 days)
• Wendell H. Ford Aviation Investment
and Reform Act for the 21st Century (90 days)
Unfavorable Personnel Actions
Your employer may be found to have retaliated against you if
your protected activity was a contributing or motivating factor in
its decision to take unfavorable personnel action against you.
Such actions may include:
•
Firing or laying off
• Blacklisting
• Demoting
• Denying
overtime or promotion
• Disciplining
• Denying benefits
•
Failing to hire or rehire
• Intimidation
• Reassignment
affecting promotion prospects
• Reducing pay or hours
Filing a Complaint
If
you believe that your employer retaliated against you because you
exercised your legal rights as an employee, contact your local
OSHA office as soon as possible, because you must file your
complaint within the legal time limits.
OSHA conducts an
in-depth interview with each complainant to determine whether to
conduct an investigation. For more information, call your closest
OSHA Regional Office
• Boston (617) 565-9860
• NewYork
(212) 337-2378
• Philadelphia (215) 861-4900
• Atlanta (404)
562-2300
• Chicago (312) 353-2220
• Dallas (972) 850-4145
• Kansas City (816) 283-8745
• Denver (720) 264-6550
• San
Francisco (415) 625-2547
• Seattle (206) 553-5930
How OSHA Determines Whether
Retaliation Took Place
The investigation must reveal that:
• The employee engaged in protected activity;
• The employer knew about the protected activity;
• The
employer took an adverse action; and
• The protected activity
was the motivating factor (or under some laws, a contributing
factor) in the decision to take the adverse action against the
employee.
If the evidence
supports the employee’s allegation and a settlement cannot be
reached, OSHA will issue an order requiring the employer to
reinstate the employee, pay back wages, restore benefits, and
other possible remedies to make the employee whole.
Whistleblower Protections When
Reporting Corporate Fraud
Employees who work for publicly traded companies or companies
required to file certain reports with the Securities and Exchange
Commission are protected from retaliation for reporting alleged
mail, wire, or bank fraud; violations of rules or regulations of
the SEC, or federal laws relating to fraud against shareholders.
Recent Case Study 1
US Labor Department orders
Tennessee Commerce Bank to reinstate whistleblower and pay more
than $1 million in back wages and other relief
Bank found in violation of whistleblower protection provisions
of Sarbanes-Oxley Act
NASHVILLE, Tenn. --
The U.S. Department of Labor's Occupational
Safety and Health Administration has ordered Tennessee Commerce
Bank in Nashville to reinstate a former corporate officer and pay
more than $1 million in back wages,
interest, attorney's fees, compensatory damages and other relief.
The
department found the bank had fired the
individual in violation of the whistleblower protection provisions
of the Sarbanes-Oxley Act of 2002.
"Sarbanes-Oxley provides protection to workers who report
alleged violations of mail, wire, bank or securities fraud;
violations of rules or regulations of the Securities and Exchange
Commission; or federal laws relating to fraud against
shareholders," said Assistant Secretary of Labor for OSHA Dr.
David Michaels.
"This
case clearly shows the department's commitment to ensuring that
individuals are provided the protections and relief afforded by
the law and sends a strong message that retaliatory actions will
not be tolerated."
A complaint filed with OSHA in April
2008 named Tennessee Commerce Bank and Tennessee Commerce Bancorp
Inc. as defendants.
The
complaint alleged that the employee was placed on administrative
leave in March 2008 and fired in May 2008 after raising concerns
about internal controls, employee accounts, insider trading and
other issues.
The
complainant first raised concerns to the bank's audit committee
and later to the Federal Deposit Insurance Corp. and the Tennessee
Department of Financial Institutions.
OSHA investigated the
complaint as part of its responsibilities
to enforce the whistleblower provisions of
Sarbanes-Oxley and 16 other statutes protecting employees
who report violations of various securities
laws; trucking, airline, nuclear power, pipeline, environmental,
rail, and workplace safety and health regulations; and consumer
product safety laws.
Fact
sheets and detailed information on employee whistleblower rights
are available online at
http://www.osha.gov/dep/oia/whistleblower/index.html
Either
party to the case may file objections and/or request a hearing
before the Labor Department's Office of Administrative Law Judges
within 30 days, but such an appeal does not stay the preliminary
reinstatement order.
Under the numerous whistleblower
provisions enacted by Congress,
employers are prohibited from retaliating against employees
who raise various protected concerns or provide protected
information to the employer or to the government. Employees who
believe that they have been retaliated against for engaging in
protected conduct may file a complaint with the secretary of labor
for an investigation by OSHA's Whistleblower Protection Program.
Recent Case Study 2
US Department of Labor's OSHA orders
e-Smart Technologies Inc. to pay whistleblower back wages and
$600,000 in compensatory damages
Agency orders company to reinstate California worker
SAN FRANCISCO -- The U.S. Department of Labor's Occupational
Safety and Health Administration has ordered e-Smart Technologies
Inc. to pay back wages with interest
and approximately $600,000 in
compensatory damages to a California worker who was discharged
after raising concerns about misinformation contained in a draft
public filing.
OSHA
also ordered the company to reinstate
the whistleblower to his former position.
"It is vital that employees be able to raise fraud concerns to
their employers without fear of retaliation," said Assistant
Secretary of Labor for OSHA Dr. David Michaels.
"This
order reaffirms both the right of employees to raise concerns
regarding violations of Securities and Exchange Commission rules
and the Labor Department's commitment to protecting that right."
The action resulted from a whistleblower investigation
conducted by OSHA's regional office in San Francisco
under the whistleblower protection provisions
of the Sarbanes-Oxley Act of 2002.
The
investigation substantiated the employee's complaint that his job
duties were systematically removed and his paychecks were delayed
and ultimately stopped after he questioned the accuracy of several
statements made in the company's Securities and Exchange
Commission filings.
In addition to requiring e-Smart
Technologies to fairly compensate and rehire the whistleblower,
OSHA's order instructs the company to provide a neutral reference,
expunge his personnel file of any reference to his exercise of
rights under the Sarbanes-Oxley Act and post a notice to employees
outlining whistleblower protections.
E-Smart Technologies is a registered Nevada corporation with an
office in New York. The company or complainant may file objections
or request a hearing before the Labor Department's Office of
Administrative Law Judges within 30 days.
Recent Case Study 3
US Department of Labor secures back
wages for fired whistleblower in Corpus Christi, Texas
CORPUS CHRISTI, Texas — A former employee of Corpus
Christi-based Orion Drilling Co., fired after complaining to
management about being exposed to mold in the workplace,
has been paid $10,000 in back wages as a
result of a settlement secured by the U.S. Department of Labor.
The former employee, who served as a crew member on a drilling
rig, complained to management about being exposed to mold in the
crew members' living quarters.
After
being fired, the former employee filed a complaint with the
department's Occupational Safety and Health Administration (OSHA)
alleging a violation of the whistleblower provisions of the
Occupational Safety and Health (OSH) Act of 1970.
OSHA's
investigation found merit to the complaint.
After OSHA
informed the employer of its preliminary finding and referred the
case to the Labor Department's Office of the Solicitor for
enforcement, the employer elected to settle the case.
In
addition to paying the complainant the $10,000 in lost wages, the
settlement agreement requires the employer to post a notice in the
workplace informing employees of their rights under the OSH Act
and to purge all derogatory or negative statements from the fired
employee's personnel file.
"Employees should be free to exercise their rights under the law
without fear of retaliation by their employers," said Dean
McDaniel, OSHA's regional administrator in Dallas, Texas.
"This
settlement underscores the Labor Department's commitment to
vigorously take action to protect worker rights."
NEWS
QUESTION
How can the Obama Administration and Congress restore
investor confidence?
ANSWER OF MICHAEL OXLEY TO FORTUNE (MARCH
2010)
We need to figure out
financial reform. In the wake of AIG and Lehman, it's very
difficult today to make the case that the market will take care of
itself and that we don't need a lot of transparency or even a
minimal regulatory structure.
(Congressmen Paul Sarbanes of
Maryland and Michael Oxley of Ohio crafted Sarbanes-Oxley, which
was enacted in 2002. Michael Oxley is now working at law firm
Baker Hostetler in D.C.)
Dear
Potential, New or Sitting Member of the Board of
Director,
You
have the duty to prudently represent the interests of the
shareholders.
You have to understand the needs and desires
of employees, customers and regulators.
You have to do your
best to understand the risks in your organization, and to exercise
oversight.
Year after year, you have to do more, and you
have more responsibilities.
Our Mission: To help you make
informed business decisions in good faith.
Our International
Association provides networking, training, certification, alerts and
updates you can use.
Best Regards,
George
Lekatis
President of the International Association of Potential,
New and Sitting Members of the Board of Directors (IAMBD)
General
Manager, Compliance LLC
1200 G Street NW Suite 800, Washington DC
20005, USA
Tel: (202) 449-9750
Email: lekatis@members-of-the-board-association.com
Web:
www.members-of-the-board-association.com
HQ: 1220 N. Market Street
Suite 804, Wilmington DE 19801, USA
Tel: (302) 342-8828
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