As general director duties are owed to the company and not to individual shareholders. A set of guiding principles for legal director duties is in the Companies Act 2006. The main director duties to be aware of are;
- To act within powers in the company’s articles of association and any shareholder agreement (section 171)
- To act in good faith to promote the success of the company (section 172) which includes considering long term ramifications of decisions, being fair to shareholders, keeping also in mind the interests of employees and maintaining the company’s good reputation with organisations and people it does business with. It should be noted that none of these factors override the interests of creditors in a situation where the company is or may be insolvent.
- To exercise independent judgment (section 173)
- To exercise reasonable care, skill and diligence (section 174)
- To avoid conflicts of interest (section 175)
- Not to accept benefits from third parties (section 176) although shareholders may make a decision to allow a director to accept a benefit if they are fully informed and as long as it is not a bribe or other inducement or action which is otherwise unlawful or illegal.
- To declare interests in proposed transactions or arrangements (sections 177 to 185)
The rationale behind the Companies Act codifying director duties was to bring together various elements which had already been established by case law over many years to provide a set of essential principles. As is apparent, in some situations, it is very clear what a director should or shouldn’t do. In others the position may not be so straightforward, so common sense, external advice and reference to case law precedents of similar situations may all be useful to keep a director on the right side of the law.
The Companies Act provisions also, whilst comprehensive, still also leave intact case made law relating to other potential types of director bad practice which should also be borne in mind, such as director duties not to misapply the company’s property, whether or not this was intentional or unintentional, take for his own benefit or pass to a third party a business opportunity which arises out of the company’s business and the common law duty of confidentiality to the company.
We regularly advise directors on issues which concern them, whether by way of legal guidance on a particular situation or a concern about possible actions of other directors. We also advise shareholders who have concerns that a director or directors may be in breach of their fiduciary duties and the possible options available.
One of our main specialisms is Insolvency law which enables us to assist directors who are particularly concerned about duties relating to whether the company can or should continue to trade. Our extensive, tried and tested relationships with Insolvency Practitioners and accountants mean that we can help with a determination as to whether a company is insolvent or otherwise.