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Using Company Powers of Attorney can avoid risks
Alternate Directors are a common feature of Company Constitutions and are widely used.
However, in many cases, the alternate directors do not understand that their risks and obligations are the same as the ordinary directors. If this was more widely understood, we suspect that the use of alternate directors would significantly reduce.
The Companies Act does not distinguish between a full director and an alternate director. The Companies Act provides for all directors to be directors irrespective of the title given to them. Alternate Directors must sign the consent to act as a director and their registration in the Companies Office is the same as the registration of an ordinary director.
The balance of the provisions of the Companies Act setting out the duties of the directors will apply equally to all directors. The lessons learnt from the criminal prosecutions involving directors of finance companies should be a salutary lesson to all directors of the level of personal due diligence and care and attention that needs to be taken when acting as a director.
For this reason, it is not possible for an Alternate Director to simply attend and vote “as directed”. That Alternate Director will have the same responsibility for the decision making as the other directors and needs to be fully aware of all the pertinent surrounding circumstances and company details in order to exercise the directors’ duties properly.
Many Alternate Directors will not have the necessary level of exposure to company information to meet their legal obligations.
In some cases, Alternate Directors have been appointed simply as a convenient means of enabling documentation to be executed when the ordinary directors are not available. In our view, this is not a safe practice and it would be more appropriate for trusted persons to be granted appropriate Powers of Attorney by the Company under which documentation could be executed. The Attorney, as agent for the company (not the director) can then execute documents in a legally binding fashion without incurring directors’ obligations.
Another situation where it is common for Alternate Directors to be appointed is where different shareholder interests have appointment rights for directors who can then appoint alternates to ensure that their groups shareholder interests are represented in the Board. In these circumstances it may be necessary for the alternate to be more involved than has often been the case to meet their obligations under the Companies Act. Shareholders and their appointed directors may need to consider more carefully the capacity that directors have to properly meet their obligations without relying on an alternate on an ad hoc basis if the alternate’s position is not to be at risk.
If alternates are used the alternates need to be provided with all of the information necessary to make decisions and this may require decisions to be deferred or for additional questions to be asked in order to ensure that fully informed decisions can take place.
Company Powers of Attorney are not difficult or expensive to put in place. The directors should resolve to appoint the attorney and a very cost effective Company Power of Attorney template is available at HERE . Having trust and oversight of the attorney will be important. But this is the case with any key role with authority to bind a company. Powers of Attorney can be revoked at any time.