Our Orange County business litigation lawyer is sometimes asked what will happen if a director fails to fulfill his or her duties. The following information provides insight into a director’s duties, responsibilities and possible breaches.
Duties of a Director
The director’s duties include:
- Acting within his or her powers;
- Promoting the company’s success;
- Exercising independent judgement;
- Exercising diligence, care and skill within the best of their ability;
- Avoiding conflicts of interest;
- Refusing to take benefits from outside parties;
- Declaring interest the company transactions or arrangements.
The company can decide to take action against a director who breaches said duties. In some cases, the shareholders can take action in place of or in addition to the company. The action might include an act of commission or omission that involves:
- Breach of trust,
- Breach of duty or
The director may or may not have profited personally as a result of the breach.
Procedural Hurdles that a Shareholder Might Face
Bringing a claim against a director from a shareholder is not a simple process. The person will face a number of difficulties, and the court could refuse to hear a claim in the following circumstances:
- What are the best interests of the company? If the claim does not further the company’s success, the court will dismiss it.
- Was the omission authorized by the company? If so, the court will not hear the claim. In addition, the shareholder will face financial penalties for attempting to bring an unjustified claim.
Even if the claim is successful, the company will receive the relief, not the shareholder. The court will also look at the director’s intentions and ask if they were reasonable and honest and review the totality of the case when determining if they should hear the case.
Addressing a Breach of Duties
The courts can address a breach of duties in the following ways:
- An injunction,
- Assessing damages,
- Restoring any company property to the director or
- Setting aside the claims, including the profits, restitution or the transaction.
Finally, the director can be terminated for breach of duty or disqualified according to the Company Directors Disqualification Act of 1986.
Contact Our Orange County Business Litigation Attorney
Contact Daily Aljian LLP, our business lawyer Orange County, with your questions about possible breaches related to business law.