Directors’ Duties

Our service was set up specifically to help with company formations and provide directors with support to meet their ongoing statutory obligations.

Our highly experienced solicitors are well versed on director’s duties and will be able to advise and guide you on all aspects of the statutory and fiduciary duties that directors owe to a company under the CA 2006. Whether this be standalone advice or part of a transaction, we can assist in providing practical and informed advice tailored to your needs.

Directors deal with the day-to-day decision-making of a company. Accordingly, directors have a number of legal obligations, primarily imposed by the Companies Act 2006, and duties to act in the best interests of other parties, such as the shareholders or members of the company.

In addition to obligations imposed by statute, a company’s articles of association and any shareholders’ agreement can also regulate the various powers and prohibitions that a director may have.

What are directors’ statutory duties?

Under the Companies Act 2006 (CA 2006), there are seven statutory duties that are imposed on directors:

Act within powers under s171 CA 2006. A director must act in accordance with a company’s constitution, which includes its articles of association, and only exercise the powers that have been given to them.
Promote the success of the company under s172 CA 2006. A director must act in a way in which they consider, in good faith, would most likely promote the success of the company who the benefit of its shareholders as a whole, also taking into consideration long-term implications, the company’s stakeholders, amongst other matters.
Exercise independent judgment under s173 CA 2006. A director must exercise independent judgment, but this does not prevent a director acting in accordance with an agreement that the company has entered into and is authorised by the company’s articles of association.
Exercise reasonable care, skill and diligence under s174 CA 2006. This is a two-part requirement to use reasonable care, skill and diligence that would be exercised by a ‘reasonably diligent person’ with a general knowledge, skill and experience reasonably expected by a person who is a director, and additionally with the general knowledge, skill and experience that the specific director has. The latter would be applicable for individuals who have specific training or qualifications, e.g. accountants, solicitors etc.
Avoiding conflicts of interest under s175 CA 2006. Directors must avoid situates where they have a direct or indirect interest that would conflict with the interests of the company. A director will be required to disclose any conflict likely to give rise to a conflict (as per s177) but the duty will not be infringed if the conflicted director has authorisation from the other directors (if permitted under the constitution).
Not to accept benefits from third parties under s176 CA 2006. A director cannot accept any benefit from a third party that is given due to their position as director or due to anything that the director has done in their capacity as such. This duty will not be infringed if accepting the benefit would not be regarded as causing a conflict of interest.
Declaring interest in proposed transactions and arrangements under s177 CA 2006. A director must disclose any direct or indirect interest in a proposed transaction or arrangement. There is an additional requirement under s182 to disclose any interest held in an existing transaction or arrangement of the company.

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Meet the team

Charlotte Alexander

Paralegal in Business Law

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Jazzmyn Crathern

Trainee Paralegal in Business Law

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John Connolly

Senior Associate in Business Law

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FAQs

Below are some questions that we are frequently asked by clients who require advice from our Directors Duties team.

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What happens if a director acts outside its powers?

Under s171 CA 2006, a director must act within the powers that is granted to them under the company’s constitution. Should a director act outside of its powers, as long as the third party involved did not know that the director lacked authority, the actions taken by that director will be binding on the company. For example, if a director enters into a contract on the company’s behalf and the third party thinks the director is entitled to enter into such arrangement, the contract will be binding on the company.

Who are the directors’ duties owed to?

Directors owe their statutory duties to the company and therefore by extension its shareholders. The company can bring a claim against the breached director and, in some circumstances, wronged shareholders may also be able to bring a claim in the name of the company or bring a derivative claim.

On insolvency of a company, the directors’ duties are also owed to the company’s creditors, and, on any decision-making, the directors also have a responsibility to act in the best interests of the creditors.

What happens if there is a breach of duties?

If a director has breached any one or more of its duties, the company may be able to bring a claim against the breached director and could seek:

damages for the losses incurred as a result of the director’s breach;
restoration of property that a director acquired as a result of a breach;
restitution of any profits that the director made as a result of the breach;
an injunction to prevent a continuing breach; and
rescission of contracts that the director did not disclose their interest in.

Can a breach of duties be resolved?

If a director has breached their duties, there are some protections available to the director which can be provided by a court or the company itself.

Ratification – in certain instances, the shareholders may pass an ordinary resolution to ratify the breach of the director (although this is not an option if the director was dishonest or the act was unlawful or unauthorised). If the breaching director is also a shareholder, they will not be able to vote in this resolution, nor any connected persons.
Indemnity – the company may be able to give the director an indemnity against liability incurred to a person who is not the company nor an associated company. The indemnity cannot extend to criminal proceedings resulting in fines and a fine by a regulatory body.
Insurance – directors’ and officers’ insurance may be incepted by the company which can insure the directors against any liability arising out of exercising their duties.
Court relief – court can grant relief, full or partial, from liability if the breaching director shows they have acted honestly and reasonably. This is normally a last resort for a director and they can bring this action prior to any proceedings being brought against them.

Why choose us?

Our highly experienced solicitors here at TWM are well versed on director’s duties and will be able to advise and guide you on all aspects of the statutory and fiduciary duties that directors owe to a company under the CA 2006. Whether this be standalone advice or part of a transaction, we can assist in providing practical and informed advice tailored to your needs.

Please contact us if you require assistance.

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Here’s how to get in touch if you have any questions at all or would like to speak to us about your enquiry. Please complete the form below and one of our experts will get in touch to discuss how we can help.

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