Directors duties: key facts
The Companies Act 2006 sets out a detailed statutory framework relating to directors’ duties (the “General Duties”). It does not exhaustively cover all the duties a director may owe to the company. For example, a director may have enlarged duties and responsibilities due to his position and functions (eg ‘approved person’).
The General Duties apply to all directors of a company, including non-executive directors and shadow directors. Other than in limited circumstances, the General Duties are owed to the company, rather than directly to the shareholders.
The Act codifies seven General Duties – these are the duty to:
> act within powers;
> promote the success of the company;
> exercise independent judgement;
> exercise reasonable care, skill and diligence;
> avoid conflicts of interest;
> not to accept benefits from third parties; and
> to declare interests in proposed transactions or arrangements with the company.
A list of factors directors should consider when exercising their duty to “promote the success of the company” include:
> likely consequences of any decision in the long term;
> interests of the company’s employees;
> need to foster the company’s business relationships with suppliers, customers and others;
> impact of the company’s operations on the community and the environment;
> desirability of the company maintaining a reputation for high standards of business conduct; and
> need to act fairly as between members of the company.
Key considerations for Directors
> insist on having all the relevant information before making decisions at board level;
> make your own commercial judgments;
> keep notes;
> remember that if a company goes into insolvent liquidation, the liquidator may well look deeply into courses of actions which were previously taken by directors;
> review company constitution to clarify how issues such as directors’ conflicts and directors’ indemnities can be dealt with;
> check directors’ and officers’ insurance cover is up to date/adequate; and
> check current board procedures and practices and ensure proper Board Minutes are kept.