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|Original Message Added : 6 Aug 2012|
As a nominated director, it seems to be a 'chicken and egg' situation. If I don't examine the records and become a director, there may be hidden risks I don't wish to take on. Is it normal for a director to take on a role before examining the records, thereby taking on an unquantified risk, or should he examine the record first, before taking on the role, to ensure that the risks are identified and minimised.
If I am being prevented from examining the records by a) the chairman, and b) other directors who either are not aware of their responsibilities or who choose to ignore them and expect me to join into directorship with them regardless, what is my recourse if I wish to take up the directorship and also assert my right to examine records?
(The directors have actually voted against me examining the accounts until such time as I am registered with Companies House, by which time, should there be a problem internally, I will presumably become liable on a fiduciary basis for any shortcomings?)
|Reply : 8 Aug 2012|
Due diligence exercises are not normally associated with taking up a directorship unless of course you have good reason to suspect that matters are not right.
On appointment as a director you would have the right to access all of the records but in the case of fire certificate for example if a duly appointed sub committee of the Board dealing with property matters advises you, after making enquiries, that the fire certificate is current and that all matters pertaining thereto have been checked then you would be entitled to rely on that unless you had reason to suspect that this was not the case.
Ensuring that the enquiries you have made of the Board and the responses given are properly minuted is essential. Bear in mind you could be acting as a director if you are taking an active part in decision making and that the information held at companies house is just a listing of information provided to Companies House and not a definitive ruling on the issue.
After appointment you always have the option to resign!
|Reply : 4 Sep 2012|
Thank you so much for taking the time to reply to my enquiry re my being appointed a director, and my concerns re the fiduciary liability. Your reply was very useful. The situation is ongoing, and I wondered if I could ask a couple more questions to clarify things?
The current directors are completely ineffective. The chair of the directors, and the chief executive of the company, seem to do whatever they want, disregard the M&As, act without the correct authority of the directors, and whilst I have no reason per se to have suspision about the accounts, attempts by previous directors to inspect them have reportedly been thwarted. The M&As allow for the accounts to be inspected by a director as a right, not by majority vote for example, I am told this has been resisited by the Chief exec and the chair. They have now put forward a motion that the honorary treasurer be removed from the board on the basis that the position is 'historic', and that his removal is supported by the company accountant and solicitor. I asked for supporting letters, they were never provided. Other directors voted it through without asking for evidence. Am I being too onerous and tedious do you think, or are the other directors acting irresponsibly?
There is no working committee reporting on issues which may affect fidiuciary liability. The chair told me my liability was limited to £1, he told me this twice. I don't know if he is deliberately misleading me or if he genuinely believes it and just doesn't understand the nature of a fiduciary liability. I believe he has deliberately mislead me on another occassion, so would not rule that out as an option.
If I were to accept my position as a board member, and the chair were to over-ride my efforts to make proper enquiry, what would be my way of recourse, how would I assert my right to inspect the records?
I believe the office admin to be incompetent, I am aware of at least two occassions where I have been deliberately lied to to cover incompetence by office staff and by actions and decisions by office staff outside the remit of the M&As and the rules of the organistaion.
It's a whole sorry mess which needs sorting out, the chief exec is being protected by the chair, neither are respecting the M&As, the rest of the dircetors are ignorant of their resposibilities and liabilities. I'd love to get stuck in and tackle it, but fear that once I have accepted the directorship I already take on the fiduciary liabilities attached, whether or not I then resign immediately afterwards.
The only reason they have got away with it for so long is that no one is prepared to tackle the hornets nest it will open up, and the directors have their own self interests to protect, and are ignorant of the implications of their lack of actions in respect of their fiduciary liabilities.
For the record, this is a voluntary position for me, not paid, for a non profit organisation. It seems silly to take on personal liability to resolve this situation. That's why I am reluctant to do so, if I then do not have the right to correct what is wrong.
Thanks again for your help, and once again, I am extremely grateful for any advice you can give.
|Reply : 5 Sep 2012|
You are looking at an appointment with a not for profit organisation. If a charity then the directors are Trustees for charitable purposes and each has a "whistle blowing" duty as far as he Charity Commissioners are concerned. If not a charity then such organisations are often members of a national organisation and usually there is a set of membership rules and obligations. There has been an increase in not for profit organisations in recent times not falling into either of the types mentioned above. There is no governing or regularitory body and often confusion on what constitutes not for profit and the from the M&A should take.
It might be less confusing if you could give me more information of what type of organisation this is. If you feel you would like to provide more information then please email direct at firstname.lastname@example.org
Liability of £1 usually reflects membership of a company limited by guarantee and has nothing to do with directorship. Membership is is different to holding a directorship. Often a director is invited to membership, but not necessarily. In a not for profit organisation it can help for the directors to be required to become members, either by virtue of the M&A or simply by determination of the board of directors simply because closed membership avoids conflict at the AGM.
It is not usual for a director to pick up liability for actions taken or decisions made by the board before appointment as a director but it is true to say that responsibility for actions and decisions taken whilst a director go on for for ever similar to the position of Trustees.
A director's defence is to ensure that minutes reflect disagreement with a decision and reasoning for that disagreement but this position cannot remain ongoing and the ultimate defence is resignation preferably in writing.
Once appointed as a director you can and should obtain the information and explanations that you require, directly from third parties if necessary.
I suspect that until the chair retires from the board or is voted off things are unlikely to change. Most actions against board members by fellow board members or the company itself occur after retirement, sale, cessation of activities etc.