Duty of nominee director to act in the best interest of company prevails

Company Law

A director may be appointed to represent the interests of a person or a particular group such as employees, creditors or debenture holders.

When a shareholder invests in a company, the shareholder and the company may agree that the shareholder has the right to appoint a director to represent the shareholder’s interest in the company.

Such director is known as a nominee director.

Although a nominee director is appointed to represent the interest of his nominator, the nominee director must act in the best interest of the company. In the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, the duty to act in the best interest of the company prevails. This is provided under section 217 of the Companies Act 2016.

A director who contravenes this duty commits an offence under the Companies Act 2016 and on conviction, is liable to imprisonment or a fine or both.

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This post was first posted on Linkedin on 15 April 2021.

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