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.
