Breach of Directors' Duties: Defenses in the Case of a Lawsuit
The shareholders place their confidence in the directors and their ability to manage the organization. Therefore, it is expected that the directors should have the right experience and skills to perform their duties. The directors are expected to be diligent and take care when making decisions on behalf of the organization. However, the standard of care that is expected of the directors differs from one organization to the other. It also depends on the kind of decisions that the directors make on behalf of the organization. If you are sued for breach of director duty, there are a number of defences you can put forward to avoid liabilities:
Reliance on Expert Advice
All decisions are supposed to be made on tangible information. If the directors do not have the information to make decisions, they can seek the assistance of an expert in the matters beforehand. This can be a defence if the directors relied on the expert opinion in good faith. It must be appropriate too for use by the directors in question. It is expected that the directors performed due diligence before putting the advice into action. You can use this defence if you sought advice from another officer or director, an employee you think is reliable or from a committee of directors.
Acted with the Right Judgement
Not all actions performed by the directors that lead to adverse effects are thought to have given rise to a breach of the directors’ duties. You can use the defence if you fulfil the facts below:
There was no personal interest in the matter
The directors informed themselves of the subject before taking the decision
Everyone believed that the decision was made in the best interests of the company at hand
Acted in good faith with the right purpose in mind
Delegation of Responsibility to Others
The directors may claim that they delegated the power to make some decisions to a delegate. The decision to get into business dealings with another party is left to the directors. However, the directors can delegate some powers to other officers in the organization. For the defence to take root, the directors should show that the person to whom the powers of decision-making are made had the capacity to handle the tasks, which were bestowed on him or her. These defences help the directors to act without fear of failure or being sued due to business dealings going wrong.
WHAT DO I DO NOW?
Contact us if you would like to have more information on managing the legal risks involved with directors' duties. Our lawyers at You Legal will be happy to assist you in whatever way we can.
* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.