articles | 15 November 2019 | Soteris Pittas & Co LLC

Cyprus: Duties and Liabilities of ‘’Nominee Directors’’

The Law Commission in its Consultation Paper on Directors’ Duties 1998 (CP 153), explained the term ‘’nominee director’’ as referring to persons who, independently of the method of their appointment, but in relation to their office, are expected to act in accordance with some understanding or arrangement which creates an obligation or mutual expectation of loyalty to some person or persons other than the company as a whole.

In the English case of Hawkes v Cuddy (2009) EWCA Civ 291 it was held that even though a director may owe duties to his nominator, such duties do not arise out of his nomination, but out of a separate agreement or office and they cannot detract from his duty to the company of which he is a director when he is acting as such.

Additionally, in the English case of Central Bank of Ecuador v Conticorp SA [2015] UKPC 11, it was held that:

‘’…A nominee director is not entitled to forego, or surrender to another, any exercise of his discretion, however paltry the amount he may be paid. Under the International Business Companies Act, section 55, a director must “act honestly and in good faith with a view to the best interests of the company”, and must also “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances”.

This case went on to state that it was the duty of the ’nominee’ director to understand the affairs of the company and to apply his own mind to those interests.

Additionally, in the recent decision of the Supreme Court of Cyprus in the case of Criminal Appeal No. 323/2015 Attorney General of the Republic v Solomonidi, the Cypriot Court adopted a similar approach with that expounded in English case law, and stated that:

‘’There are no formalistic (τυπικοί) directors of a legal person. From the moment a person is appointed as a company director he has all the responsibilities and obligations of a director, as those are determined by the Companies Act (Cap 113), any relevant applicable legislation and case law on the matter.’’

What these decisions further show, is that a nominee director will not avoid liability by claiming that his role was only that of a so-called ‘’rainmaker’’ and that he had no real knowledge of the affairs of the company and/or any contracts entered into by the company.

Furthermore, due to the fact that it has been established that a nominee director does not differ in terms of duties and liabilities from any other company director, it means that like any director he can be found liable to compensate an outsider for harm suffered by the company. This is particularly easy if a claim in deceit has succeeded against the person controlling the company (‘’the director’’), in which case there is no need for the court to consider whether it is appropriate to pierce the corporate veil. (Dadourian Group International Inc v Simms [2006] EWHC 2973 (Ch))

 

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