Directors of a Company in Pakistan

14 February 2014

1. What do the Board of Directors do?

(1) Under the law, the Board of Directors is the repository of all corporate powers, except those powers which, by law, are to be undertaken by the shareholders or such powers which have been given to the shareholders under the Articles of Association of a company.

Section 196 of the Companies Ordinance, 1984 outlines the powers of the Directors.

(2) Directors have almost all the powers over the operation and management of the Company until they are removed. It has been held that the shareholders cannot undertake functions allowed to the Board under law (Abdul Malik vs. Janana De Malucho Textile Mills Limited, PLD 1973 Note 116 (Lahore)).

2. Can Directors hold Board Meetings through telephone/video conferencing?

Circular Number 20/2005 dated 10 November 2005 issued by the Securities and Exchange Commission of Pakistan allows the Board to conduct board meetings through telephone/video conferencing.

3. What if the matter is urgent and the Directors have no time to hold a regular meeting?

If the matter is urgent then the Directors may exercise certain powers on behalf of the Company without their formal meeting through a circular resolution or a resolution in writing, provided that this permission has been granted in the Articles of Association of the Company.

4. What are the fiduciary (ethical/legal) duties of Directors?

(1) In the Companies Ordinance, 1984, there are strict provisions for disclosure of interest/ conflict of interest of Directors (Sections 215 and 216)

(2) Directors must exercise their powers for (only) the purposes for which they were conferred and if they are for the benefit of the Company as a whole.

(3) Directors should ensure that they do not put themselves in a position in which their duties to the Company and their personal interests may conflict (Section 214).

(4) The Directors have a duty to take care of the Company.

5. What is the benchmark expected of a Director?

In discharging his duties, Directors must act honestly and must exercise such care as might be expected from an ordinary man (see, generally, Govind Narayan Kakade vs. Rangnath Gopal Rajopadhye, 1930 AIR Bombay 572). If a Director so acted, and the decision led to irregularities or losses, he would not be liable in negligence for breach of his duty of care (see, generally, Dovey vs. Cory, (1901) AC 477: (1895-9) All ER Rep 724 (HL)).

______________________

Myra Khan Qureshi is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

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