I met up with an old friend of mine a couple of weeks ago for lunch. During our ‘catch up’ conversation on life, he mentioned that he had recently been offered a Directorship in a company. I congratulated him, as a good friend would when hearing of the news. The corporate lawyer in me however, felt compelled to educate him a little more on his legal position in this next phase of his career. And hence I began:

“When talking about a Director’s’ position in a company, most people tend to think of it as a highly respected position of a decision maker & a leader, a prestigious role indeed. A director’s working conditions are usually different from the general working conditions for other staff with more flexible working hours and/or superior packages. But what people don’t usually recognise is that Directors also have more duties, responsibilities and potential liabilities than normal employees.”

Though my friend was nodding in agreement as I spoke, I noticed he was visibly interested in what I had to say and that his earlier exuberant facial expression had changed to a more ‘where are you headed with this conversation’ kind of expression and so I continued, telling him what I felt he really needed to know.

“Firstly, the liability of a Director starts if the Director undertakes any act which causes damage to the company, whether by breaching the company’s Articles of Association, breaching resolutions from the general meeting, breaching the law, neglecting his duty or performing any act with seemingly malicious intent. If any of his actions whether with malicious intent or not cause damage or injury to the company, the Director is personally responsible for such damage. The company (through other directors, or shareholders, or in some cases, the creditors of the company) can bring a claim against the Director for compensation.

Secondly, a Director has an obligation, by virtue of the law, to operate the company’s business in good faith for the benefit of the shareholders who have appointed him. In the event that the Director fails to comply with this duty, or performs his duty in a manner which can be construed as malicious, causing damage or injury to the company, he is at risk of being sued by the company (through other Directors), or by shareholders for compensation. Moreover, failure to comply with certain duties could lead to criminal liability as well.

However since a Director is presumed to be acting as an agent of the company, if the Director does anything within the scope of his duty, or within the objectives of the company, such a Director would not be personally responsible for these actions even if they end up being damaging to a third party. On the other hand, if the Director acts outside the objectives of the company, the Director would be personally liable for such an act.”
At this point I began to feel bad for ruining my friend’s day so I decided to change gears and show him the silver lining up my sleeve..

“But…as we all know, every rule has an exception. The exception in this case is that, if the Director’s performance (which causes damage to the company or is done outside of the company’s objectives) was in fact authorized by a general meeting approved by the shareholders, then the Director would not be responsible for any damage caused thereof. And even though shareholders who may not have approved of the Director’s action in the general meeting reserve the right to pursue legal claim against the director, this needs to be done within a stipulated period of 2 years”.

By this time we had finished our meal and our conversation or rather lecture from me, but we stayed on and brainstormed for a bit on whether he should take the Director’s position or not. As we split the bill I couldn’t resist a parting shot, advising him that he could be protected from many of these problems by being intimately aware of his legal position, and also by investing in a Director’s Liability Insurance saying with a smile, after all, every company does have at least one Director, so many do accept these risks; after all, if they didn’t, wouldn’t our economic system possibly collapse.

The reason I’m sharing this story with you is to make ensure that you too make good decisions in your career and do not get yourself into a difficult situation without being aware of the possibilities to safeguard yourself in advance. Hopefully, having read this now, you might consider seeking advice from your legal advisor before saying yes to a Directors’ position!

By Kasidit Luechai, Nattaphorn Keetrakul and Nippita Pukdeetanakul

Kasidit, Nattaphorn and Nippita are Thai attorneys currently working as a legal consultant at JNP Legal.  They can be contacted at info@jnplegalthailand.com