A director of a company owes various duties to that company. One of the most significant changes introduced by the Companies Act 2006 was the codification of the general duties owed by directors and these are now set out in the act. There are, however, other duties contained in other parts of the act and also some that remain uncodified.
This note provides a summary of the main duties owed by directors, however, it is not exhaustive and specific advice should be taken in relation to specific issues.
- Duties to act within powers – this means that directors must act within the company’s constitution and that decisions must be taken in accordance with the company’s constitution.
- Duty to promote the success of the company – a director must always act in the way she or he considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole.
- Duty to exercise independent judgment – although a director must exercise independent judgment when making decisions, this duty will not prevent a director acting in accordance with the company’s constitution or any agreement made by the company which limits the future exercise of a director’s discretion.
- Duty to exercise reasonable care, skill and diligence – a director must exercise the care skill and diligence which would be exercised by a reasonably diligent person with (1) the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions executed by the director in relation to the company; and (2) the general knowledge, skill and experience that the director actually has.
- Duty to avoid conflicts of interest – a director must avoid situations in which his direct or indirect (e.g. through his family) interests conflict or may conflict with those of the company. This duty is particularly relevant in relation to the exploitation of property, information or opportunities.
- Duty not to accept benefits from third parties – a director must not accept any benefit (including a bribe) from a third party which is given because he is a director or because of what he does or does not do as a director.
- Duty to declare interest in proposed transaction or arrangement – a director must declare to the other directors the nature and extent of any direct or indirect (e.g. through his family) interest he may have in a proposed transaction or arrangement with the company.
- Duty to declare an interest in an existing transaction or arrangement – a director must declare to the other directors the nature and extent of any interest, direct or indirect (e.g. through his family) in any existing transaction or arrangement.
It should be noted that the duties are cumulative and where more than one duty applies the directors must comply with each applicable duty.
For more in depth information regarding directors’ duties please contact Agata Rumbelow.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.