Once parties to a potential transaction involving the acquisition of a Bermuda company have decided between a merger, an amalgamation, a direct offer or a scheme of arrangement (Business Combination) (which was addressed in part 1 of this series), the duties of the directors of the Bermuda Company need to be considered.
Although there is no single statutory prescription in Bermuda that sets out all of a director’s duties, the broad principles applicable to directors whose companies are involved in Business Combinations are set out in section 97 of the Bermuda Companies Act 1981, as amended (Companies Act). These principles, together with the content of the applicable constitutional documents and common law collectively describe a director’s scope of duties. A person who carefully adheres to these duties when acting in his or her capacity as a director by being fully informed, unbiased, and by acting in good faith with the honest belief that such actions are in the best interests of the company, and with the skill and care, will minimize the risk of personal liability from being found to be in breach of his or her duties.
The Companies Act makes no distinction between executive directors, non-executive directors or alternate directors. The Companies Act also includes in the definition of director “… any person occupying the position of director by whatever named called.” This is intended to cover de facto directors (i.e. persons who act as directors without having been properly appointed as directors). All of these persons are directors for the purposes of the Companies Act.
All directors of a company have a general duty to exercise care, skill and diligence in performing their duties. Coupled with this general duty are a director’s fiduciary duties which must be observed at all times. These fiduciary duties include the duty to: (i) act in honest and good faith in what the director bona fide considers to be in the best interest of the company, (ii) exercise his or her powers for the proper purpose, and (iii) avoid conflicts of interest unless the conflict has been adequately disclosed.