Skip to content

IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Ananya is a non-executive director of Kaveri Finserv Ltd. The company's executive team misreports loan quality over two years. Ananya attended every board meeting but never read the papers or asked questions. A regulator later examines her conduct. Which statement best reflects the legal position on her duty of care and diligence?

Ananya may be liable because every director, including a non-executive, must exercise reasonable care, skill and diligence. Simply attending meetings without reading papers or questioning management does not meet that standard. Personal financial gain is not required for a breach of the duty of care.

  1. AShe is protected because non-executive directors owe no duty of care
  2. BShe is protected because only executive directors can be liable for misreporting
  3. CShe may be liable because a director must exercise reasonable care, skill and diligence, and attendance alone does not satisfy thisCorrect
  4. DShe is liable only if she personally gained money from the misreporting
  5. She is liable only if shareholders passed a resolution requiring her to review papers

Explanation

All directors, executive or not, must exercise reasonable care, skill and diligence. Merely attending meetings without engaging with the information falls short of this. Personal gain is not needed for a breach of the duty of care.

Did you get it right without looking?

One question tells you little. A timed set on Separate legal personality, directors' duties, shareholders and partnerships shows your real accuracy, how long you take and where you lose marks.

Practise Separate legal personality, directors' duties, shareholders and partnershipsFree diagnostic mock

More Separate legal personality, directors' duties, shareholders and partnerships questions