News and Insights

Espresso Series – Jersey Company Law

Introduction

Company directors play a crucial role in managing and overseeing corporate affairs.

However, to paraphrase Uncle Ben from Spiderman, these powers come with significant responsibility and liability. Directors are bound by legal duties designed to ensure they act in the best interests of the company and its stakeholders.

In Jersey, directors’ duties are governed by a mix of common law principles, statutory provisions, and fiduciary obligations, with influences from English company law and English common law.

This guide outlines the key duties directors must comply with, the consequences of breaches, and the available remedies, comparing Jersey and English case law.

Why do Directors’ duties exist?

Directors' duties are primarily designed to prevent mismanagement, conflicts of interest, and self-dealing.

They help to align the interests of directors with those of the company, ensuring directors do not act for personal gain at the expense of shareholders and creditors.

These duties stem from three key sources:

• Fiduciary principles (equity law) – requiring loyalty, honesty, and avoidance of conflicts.
• Customary law (duty of care and skill) – requiring directors to act diligently and with competence.
• Statutory obligations (mainly from the Companies (Jersey) Law 1991) – imposing specific legal requirements.

To whom are Directors’ duties owed

• Primary Duty to the Company – Directors owe their duties to the company and its shareholders as a whole (Percival v Wright principle).
• Potential Duties to Creditors – When a company approaches insolvency, directors will have a duty to consider its creditors' interests, though Jersey law is less developed in this area compared to English law (West Mercia and BTI v Sequana).
  No Duty to Individual Shareholders – Directors generally do not owe direct duties to individual shareholders, unless special circumstances apply.

Key Directors' duties under Jersey law

Duty to act honestly and in good faith

Under Article 74 of the Companies (Jersey) Law 1991, directors must:

• Act honestly and in the best interests of the company
• Exercise the care, diligence, and skill of a reasonably prudent person in comparable circumstances.

This aligns with Section 172 (duty to promote the success of the company) of the Companies Act 2006 but is arguably broader due to the emphasis on honesty.

Duty to act for a proper purpose

Directors must use their powers for legitimate company purposes and not for personal gain or to entrench control.

• Howard Smith v Ampol Petroleum – Issuing shares for the primary purpose of blocking a takeover was held to be unlawful.
• Eclairs Group Ltd v JKX Oil & Gas plc – Directors cannot suspend voting rights to manipulate shareholder decisions.

Jersey courts have upheld similar principles (as seen in Viscount v Shelton).

Duty to avoid conflicts of interest

Directors must not place themselves in a position where their personal interests conflict with the company's interests (Aberdeen Railway Co v Blaikie Brothers).

Jersey law adopts the "no conflict, no profit" rule, meaning directors:

• Cannot personally exploit company opportunities (Regal Hastings v Gulliver).
• Must disclose any conflicts of interest under Article 75 of the Companies Law.

Failure to disclose conflicts may result in:

• Contracts being set aside.
• Directors being required to repay profits to the company.

Duty of care, skill, and diligence

Directors must act with the care, skill, and diligence of a reasonably prudent person (Article 74 of the Companies (Jersey) Law 1991).

English case law suggests directors with specialist skills (e.g., finance directors) will be held to a higher standard. Jersey courts have adopted a similar approach (Dorchester Finance Co Ltd v Stebbing – where a director was held responsible for signing blank cheques).

Key cases in English and Jersey law:

• Re Barings Plc – Directors must ensure proper oversight and risk management. The failure to have adequate controls in place resulted in an £800 million loss for the bank.
• Midland Bank v Federated Pension Scheme – The court adopted the "prudent father" test in relation to the standard expected of trustees' care and skill.

No secret profits or undisclosed commissions

• Directors cannot make personal gains from their position without disclosure.
• In the English case of Boston Deep Sea Fishing v Ansell, a director was forced to return undisclosed commissions earned from company transactions. Jersey law applies a similar rule (Matter of Manor House Trust).

Restrictions on competing with the company

• Directors cannot compete with their company while in office (Coleman Tamar v Oakes).
• However, if a director first resigns and then exploits a company opportunity, Jersey law is less strict than English law (Hi-Speed Freight v Gaudion)

Consequences of breaching Directors’ duties

(a) Civil Consequences

• Breach of duty of care: Damages (must prove loss and causation).
• Breach of fiduciary duty: Disgorgement of profits (directors must return any benefits gained).
• Rescission of contracts:  Transactions may be set aside if entered into without proper disclosure.
• Constructive trust:  Directors may be required to hold improperly gained assets on trust for the company.

(b) Criminal and regulatory consequences

• Directors may face criminal penalties for wrongful or fraudulent trading or serious breaches of duty.
• The Jersey Financial Services Commission has the power to disqualify directors for misconduct.

Protection for Directors: When can they be relieved from liability?

(a) Prior approval and ratification

• Shareholder approval (via special resolution) can authorise in advance conduct that would otherwise fall short of the duties directors must perform.  This remedy should be used sparingly as pre-authorisation may create unwanted tax consequences.
• After a breach, shareholders can ratify the act, provided it does not harm the company’s solvency.

(b) Court-granted relief

Under Article 212 of the Companies (Jersey) Law 1991, the Jersey courts have discretion to excuse directors from liability if:

• They acted honestly and believed their actions were in the company's best interests.
• This standard is slightly less strict than English law, which requires both honesty and reasonableness.

(c) Indemnity and insurance

• Companies can provide indemnity insurance for directors.
• Personal liability cannot be contractually excluded.

Key takeaways for Directors in Jersey

Act honestly and in the best interests of the company – dishonesty can never be justified.

Avoid conflicts of interest – disclose any personal interest in company transactions.

Exercise care and diligence – directors must make informed and responsible decisions.

Keep proper oversight of financial matters – delegation does not absolve liability.

Seek authorisation or ratification if in doubt – ensure shareholder approval where appropriate.

Consider director indemnity insurance – to protect against legal liability (within permitted limits).

Final thoughts

Directors in Jersey must navigate customary, statutory and fiduciary obligations, ensuring they act in the best interests of the company while avoiding falling foul of the proper purpose rule.

Courts have broad discretion in enforcing these duties, often taking guidance from English case law.

Understanding and adhering to these duties can help directors avoid liability and uphold good corporate governance.

If in doubt, seeking legal or professional advice is always recommended.