A director of a company automatically owes certain duties to the company and these arise under various legal authorities, but the principles are now largely set out within the Companies Act 2006 and Insolvency Act 1986. Some of these duties are administrative (such as filing and maintaining records, circulating documents to members and auditors, ensuring compliance with legal requirements), and others are required to approve and authorise certain matters on behalf of the Company.
The seven general duties under the Companies Act 2006 are as follows:
- to act within the director’s powers;
- to promote the success of the company;
- to exercise independent judgement;
- to exercise reasonable care, skill and diligence;
- to avoid conflicts of interest;
- not to accept benefits from third parties; and
- to declare an interest in a proposed transaction or arrangement.
These statutory duties are all in addition to any day-to-day operational duties set out in the director’s service or employment contract for the running and management of the business.
A director’s duties can also vary depending on the relevant circumstances. While a company is trading solvently, the duties are owed to the company for the benefit of its shareholders. The general aim is to maximise the profits for the benefit of its shareholders. However, once the company becomes insolvent, or there is doubt as to its solvency, the directors must also consider the interests of the company’s creditors with a view to minimising the potential loss.
In comparison with members (or shareholders) of a company, who generally do not owe any duties and have the protection of limited liability, a director is personally liable for any breaches of their duties. In certain circumstances, depending on the severity of the breach, this can include being fined, assuming the debts of the company, being imprisoned, and/or preventing/disqualifying the person concerned from being involved in the promotion, formation or management of any other company for a period of time. Insurance is often taken out by a company to offer some protection for its directors, something that should be a pre-condition to a director accepting office.
Talk to Tollers
Tollers advise on company law matters and general corporate governance. We provide tailored advice to company directors so that they are aware generally of their duties, and to identify and advise on specific issues and risks. Working alongside our dispute and insolvency colleagues, we also advise shareholders and creditors in connection with possible claims against directors for breaches of their duties and misfeasance. If you would like to discuss directors’ duties in further detail, please contact our specialist corporate law solicitors on 01908 306948 or fill out the form below.