A director owes general and specific duties to a company. If you are a director, or you intend to become one, you are advised to read this article to ensure you comply with the duties!
What are the general duties of a director?
- a duty to act in accordance with the company’s constitution and properly exercise powers (s.171, Companies Act 2006 [“CA 2006”]);
- a duty to promote the success of the company (s.172, CA 2006): a director should act in a way which is most likely to promote the success of the company for the benefit of the shareholders. This includes having regard (amongst other matters) to:
- the likely consequences of any decision in the long term;
- the interests of the company's employees;
- the need to foster the company's business relationships with suppliers, customers and others;
- the impact of the company's operations on the community and the environment;
- the desirability of the company maintaining a reputation for high standards of business conduct; and
- the need to act fairly as between members of the company
- a duty to exercise independent judgment (s.173, CA 2006);
- a duty to exercise reasonable care, skill and diligence (s.174, CA 2006);
- a duty to avoid conflicts of interest (s.175, CA 2006): a director should avoid a situation in which the director has, or can have, a direct or indirect interest that conflict, or possibly may conflict, with the interests of the company and is subject to various exceptions;
- a duty not to accept benefits from third parties (s.176, CA 2006): a director should not accept a benefit from a third party which is conferred by reason of the director being a director, or them doing (or not doing) anything as a director;
- a duty to declare interests in proposed transactions or arrangements (s.177, CA 2006): a director should declare if they are in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, and explain the nature and extent of that interest to the other directors
What are the specific duties of a director?
- a duty to call meetings required by shareholders (s.304, CA 2006);
- a duty to prepare accounts for the company (s.394, CA 2006);
- potential liabilities in a situation where the company becomes insolvent g. for fraudulent or wrongful trading, or for approving transactions that were carried out at an undervalue or preference (ss. 213, 214, 238, 239 Insolvency Act 1986);
- potential liabilities under environmental legislation g. for offences committed with the consent, connivance or neglect of any director, manager, secretary or other similar officer of the company (s. 157 Environmental Protection Act 1990);
- potential liabilities under common law g. where a fatal accident occurs on the Company’s site, an individual (including a director) can be prosecuted for gross negligence manslaughter;
- duties and potential liabilities under statute g. as the Bribery Act 2010, Modern Slavery Act 2015, Health and Safety at Work etc. Act 1974, Employment Rights Act 1996;
You should also check your company’s Articles of Association to see whether they specify any duties.
This guest blog was written by Brian D'Arcy, of Heald Solicitors, a member of our Milton Keynes Group. If you require the services of a law firm, that specialise in business, private client and family law please click here to view Brian’s profile or click here to go to Heald Solicitors website.