In recent times, directors from a very high profile company in the news were arrested by the police and charged for, among other things, fraud. This situation may be confusing as the company has a separate legal personality from that of its directors. Thus, the rights, powers, assets, and transactions of a company are different from those of its shareholders or directors. Therefore, it is only in the most exceptional circumstances that what is called the corporate veil should be lifted and thus the general rule is that a company is a legal entity distinct from its shareholders. This was the ruling in a famous case from 1897 called Solomon v. Solomon & Co.

It is worthy of note that the distinction between a company and its shareholders is equally applicable to parent and subsidiary companies and to related companies by a common shareholder. Of course, if there is fraud or lack of legitimate corporate purpose, the veil might be lifted by the Court to imply that both companies are acting as one enterprise.

With the above said and out of the way, it might be prudent to invoke section 174 of the Companies Act, which provides that directors and officers of the company in exercising their powers and discharging their duties must act honestly and in good faith with a view to the best interest of the company. At common law, directors were bound to use fair and reasonable diligence in the management of the company's affairs. In fact, it is always believed that if directors act with the care that is expected of them, having regard to their knowledge and experience and their acts are for the best interest of the company, they would have discharged their duties as directors.

Particular acts of the directors may constitute breach of trust, for instance where the misconduct involves misapplication of funds or property of the company. It should also be noted that a director is not liable for a fraud committed by a co-director or any agent of the company unless such fraud has been expressly authorised or tacitly permitted by him. This might be the reason why in some cases not all the directors are arrested or sued.

In discharging their duties they assume, directors are bound to take reasonable care and, sometimes, failure to take reasonable care may constitute negligence.

As to criminal liability, since the standard of proof would be different from what obtains in a civil court, those prosecuting any criminal offence must show that the director's level of participation or conduct facilitated the criminal acts or that the director was an active participant in such wrong doing.

So with hundreds of companies being formed every year in Jamaica and many by the ordinary Jamaican, it might be necessary for directors to have a working knowledge of some of the duties and responsibilities of a director, just to ensure that they are on the right side of the law at all times, as ignorance of the law might be a factor in mitigation but not a defence to the claim or crime.

Keith N. Bishop is an attorney-at-law and partner in the firm of Bishop & Fullerton. He may be contacted by email at knbishop@gmail.com.