Duties of Skill, Care & Diligence

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Duties of Skill, Care & Diligence by Mind Map: Duties of  Skill, Care & Diligence

1. Duty of Diligence As according Companies Act 1965 Section 132 (A) of the CA 1965, A director of a company shall exercise reasonable care, skill, and diligence with: - (a) The knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities and (b) Any additional knowledge, skill and experience which in fact the director has. This provision requires a director to have the minimum skill base or a minimum objective standard. Which in case a director has additional knowledge, skill, and experience, that director will be assessed against a reasonable person who has that additional knowledge, skill and experience. It raises the standard requirement of a director to exercise reasonable skill, care and diligence from subjective standard to a minimum objective standard.

2. S132(1D)

2.1. Section 132 (1D) provides that the director's reliance made under Section 132 (1C) is deemed to made on reasonable grounds if it was : ~made in good faith ~made after making an independent assessment of the information, advice, opinion, report, statement or financial data having consider to the directors' knowledge of the company and the difficulty of its structure and operation.

3. S132(1F)&(1G)

4. Delegation and Responsibility for action of delegatee -Section 132 (1F) provides that the directors are responsible for the exercise of power by the delegatee as if such power had been exercised by the directors themselves. Directors are free to delegate his duties to any official but he is responsible for any decision made by the official. -Section 132 (1G) provides that the directors are not responsible under Section 132 (1F) if they believed that the delegatee would use the power delegated in accordance with the duties of the director. Also, the directors believed in good faith and after making proper investigation that the delegatee was dependable and qualified to exercise the power delegated by the directors.

5. S132(1C)

5.1. Section 132 (1C)- Reliance on information provided by others A director may rely on information, advice, opinions, reports or statement, data made by; - Any officer of the company whom the director believes on reasonable grounds to be reliable and competent in respect of the matters concerned -Any other person retained by the company in connection with matters involving skills or expertise, where the directors believe on reasonable grounds that the matters concerned are within the person’s professional or expert competence -Another director concerning matters within that directors’ authority Any committee of the board concerning matters within that committee’s authority

6. S132(1B)

6.1. Section 132 (B) of the CA 1965- Business Judgement Rule means “any decision on whether or not to take action in respect of a matter relevant to the business of the company”. This was probably enacted to cover both acts and omissions in relation to a business decision. This rule is to protect honest directors and officers fro the risks inherent in hindsight review of their unsuccessful decisions. So long as the directors act honestly and within their power, they are not liable for any error of business judgement. In section 132 (B), A director who makes a business judgement is deemed to meet the requirements of the duty under subsection (1A) and the equivalent duties under the common law and in equity if the director Makes the business judgement in good faith for a proper purpose Does not have a material personal interest in the subject matter of the business judgement Is informed about the subject matter of the business judgement to the extent the director reasonably believes to be appropriate under the circumstances Reasonably believes that the business judgement is the best interest of the company

7. S132(1A)

8. Duty to diligence As according to common law, A director is under duty to exercise diligent in performing his duties. Case: Re City Equitable Fire Insurance Co. Ltd [1925] Held: Romer J said: “ A director is not bound to give continuous attention to the affairs of the company. His duties are of an intermittent nature to be performed at periodic board meeting and the meetings of any committee to which he is appointed. He is not bound to attend all such meeting though he ought to attend whenever he is reasonably able to do so”. Which means the directors are not liable for not attend to the meeting but he must ensure that if those meetings of the company goes wrong, he shall take the necessary steps to correct the situation.

9. Duty of care Under common law, the director owes a duty of care to the company of which he is a director. It shall be examined by reasonable care. The director must exercise his power with reasonable care. He must take care in his affairs of the company as he would reasonably take in his own affairs. Case : Re City Equitable Fire Insurance Co. Ltd (1925) Held : Romer J state again: “a director is bound to take reasonable care and diligence that is to be measured by the care an ordinary man might be expected to take in circumstances on his behalf…” Instances of Standard of Care: A director must take the trouble to discover what his right and obligation under AOA and at law. If he acts against it, the director is in breach of the standard of care required. Director may delegate their power and trust to their delegate so long as no circumstances that would excite the suspicion of a reasonable man. A director generally is not responsible for the act or omission of his co-director even if he did not attend the board meeting. A director must make inquiries when called upon to pay away the company’s money

10. Duty to be skillful The rule is that a person is not required to possess any skill to be appointed as a director. The fact that the director is unskillful is not a breach of his duty, but he is under duty to exercise the power using the level of skill that he has. If he uses less than the level of skill that he has, he is in breach of his duty. Case : Re City Equitable Fire Insurance Co. Ltd (1925) Facts : A case where the liquidators of the failed insurance company sued the directors for negligence on 3 grounds: They allowed the company to lend substantial funds on an unsecured basis to its chairman and GM That they made improvident investments That they paid dividends out of capital Held : A director need not exhibit a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. Romer J has further said: “A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience”. Thus the level of skill required to be exercised by the director depends on his level of skill. The higher the level of skill he has, the higher the standard of skill required to be exercised by him. If possess special qualification such as lawyer of doctor, he is required to use that skill in the company.

11. Common Law

12. Companies Act 1965