What are the duties of a company secretary? Are they the same as a director of a company? How are company secretary’s expected to act? We explore these questions.
What is a company secretary and what are the duties of a company secretary?
A company secretary is an officer of the company (s.1121 of the Companies Act 2006) (“CA 2006”). However, whilst the duties of a director are set out in (ss.170-181 CA 2006), these sections only refer to directors and the term ‘officer’ is not used.
It is submitted that this distinction reflects that in performing the duties appropriate to the office of secretary, [he/she] is not concerned in carrying on the business of the company – (Re Maidstone Buildings Provisions Ltd [1971] 3 All ER 363).
In other words, it is still the company directors who will ultimately make decisions for the company. Therefore, a person dealing with a company secretary should not assume that they have power to bind the company unless the directors have confirmed that he/she does.
Not all company secretaries fulfil the same role
A company secretary’s obligations are usually administrative rather than managerial (which tasks would fall to the responsibility of the directors), and the extent of authority and functions carried out by a company secretary will vary significantly from company to company. For example, in a listed company, the role of company secretary can be much larger than simple administration of the company.
If the company secretary has no part in the running of the company’s business, do they owe any duties to the company?
Where A (secretary) and B (company) agree that A will:
- act on behalf of or for the benefit of B in circumstances which give rise to a relationship of trust and confidence being placed in A by B;
- A has some discretion or power the exercise of which will affect B’s interests; and
- B relies on A for information or advice; then
the company secretary will owe fiduciary duties to the company. Some examples of what these duties mean are as follows:
- A duty of loyalty to the company;
- A duty not to make secret profits from holding office as company secretary;
- A duty to act with care and skill;
- A duty to avoid conflicts of interest between their own interests and those of the company;
See (Re Morvah Consols Tin Mining Co, McKay’s Case (1875) 2 Ch D 1)
In addition, a company secretary is under a duty to act lawfully (see Raine v HMRC [2016] UKFTT 0448 (TC) at 152).
Taking these together, it could be said that a company secretary is under a general duty to act in the best interest of the company when carrying out their role. However, whilst appearing similar to those duties owed by directors, there is one fundamental difference.
A company secretary (unless they are found to have been acting as a director) cannot be liable to compensate the company for wrongful trading (see s.214 Insolvency Act 1986). Therefore, (because s.172 CA 2006 only relates to directors, not officers), it is questionable whether the dutys.172(3) CA 2006, to consider or act in the interests of creditors of the company, can apply to a company secretary who is acting purely as a company secretary.
What if the company secretary fails to act in a way that they ought to?
If the failure has caused the company to suffer a loss, the company secretary may be liable to the company for damages. In the event of the company entering into liquidation, certain sections of the Insolvency Act 1986 enable a liquidator to bring a claim against an ‘officer’ of the company which includes a company secretary.
It is important to always bear in mind that the duties outlined above are only enforceable by the company (or a liquidator in the event of the company’s liquidation) and as such the remedies available are for the benefit of the company (or its creditors in the event of its insolvency). Common remedies for breach of duty are:
- Account of profits. The secretary may have to account for profits they have made by virtue of their position or use of the company’s property in circumstances where it would be unjust for the secretary to retain the benefit. For example, if a company secretary was given a company car to better perform their duties, but sold the car and kept the proceeds, the company secretary would have to account to the company for the money from the sale.
- Damages. If it is established that the company secretary is in breach of a fiduciary duty and the breach of that duty has caused the company a loss, damages may be awarded in favour of the company to account for that loss. For example, if a company secretary deliberately diverts company customer funds by altering the payment details on invoices to that of another company bank account, the company secretary would be liable to the company for the loss of those monies.
- Injunction. This is a discretionary remedy which may be granted against a company secretary to either stop them from carrying out certain actions or delivering up information, usually for breach of loyalty or conflict. For example, if a company secretary obtains confidential information, as a result of their position, and in turn attempts to issue the information to make a personal gain, they could be required to deliver up the confidential information.
As a result, whilst the duties of a company secretary may, in certain circumstances, be similar duties to the company as a director would, they are not the same.