Directors’ Duties

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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).
6. 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.
7. 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.