Our commercial solicitors advise directors who are unclear or concerned about their duties and possible liabilities in specific situations and also shareholders and companies who suspect that a director may be acting in breach of duty.
Whilst statutory Company law does set out a list of directors duties, companies and directors are well advised to clarify expectations via a director service contract and, where a director is also a shareholder via a shareholder agreement.
Restrictions on what directors are legally entitled to do can also be included in the company’s articles of association. Notwithstanding all these protections, practical protections and communication and information are also important to avoid problems or breaches of director duties.
Alongside the statutory duties there is what is known as the ‘code of conduct’ for directors. The code sets out further principles which need to be at the forefront of directors thinking.
We have considerable experience both in terms of the practical applications of the principles below and our litigation lawyers can also advise on potential breaches of duties and as regards the various remedies available, so please get in touch.
There are various statutory duties which directors must be made aware of. In addition to this, the Company, which is a separate legal entity, has additional responsibilities which the directors are responsible for ensuring that the company complies with them. The Companies Act 2006 (Act) sets out the main duties of a director.
It is important to note that the directors statutory duties set out in the Act do not cover all the duties that a director may owe to the company, they provide a framework consistent with the position that directors are in an important, trusted position to run a company in a professional and ethical way.
As can be seen below, there are a number of principles, and many of these are common sense and there will be situations where, whether as a director making a decision, a co-director concerned about another director’s actions or as shareholder concerned for the same reasons, it will be clear whether a particular action is acceptable or not. In other situations, the position is not so clear cut, and legal advice about potential breaches by directors should be taken. It may also help to take a look at our pages from the menu on the right of this page about removing or dismissing a director.
In the event that concerns have reached a point where legal action needs to be taken, litigation advice may be required.
The directors’ statutory duties fall under 7 headings :-
Acting within powers
This codifies the directors’ duty to comply with the company’s constitution which includes the articles of association, which are in effect the internal rules for the company
Promoting the successful operation of the company
This requires a director, in good faith, to act in a way which is most likely to help the company achieve success of for the advantage of its shareholders. The main aim here is to deter directors from acting in a way which only benefits a few or certain group of the shareholders.
For directors to exercise judgment and powers independently.
Demonstrating a reasonable standard of care, skill and diligence – this is an objective standard. The standard of competence now expected of all directors will be that currently expected of a director with the expertise and experience of the director in question. In other words, if a director is highly experienced, and for example, sits on many company boards, he or she will be expected to act to a higher standard than a director of a small family owned company.
Avoiding situations which constitute a conflict of interest – directors will have to avoid situations where either there is or may be a conflict between the interest of the company and that of the director.
To not accept benefits from 3rd parties – prohibits the directors from exploiting their position for any personal benefits. It also prohibits the acceptance of benefits (including bribes).
Legal obligation to declare any interest in a proposed transaction or arrangement involving the company.
If you need advice on director legal duties please get in touch with me – this is an area where I regularly advise clients.