Directors duties under the Companies Act 2006

 

What are they?

General statutory duties owed by directors, in their capacity as director under Chapter 2, Part 10 of the Companies Act 2006 (“CA 2006”). These are:

1. To act within their powers conferred on them by a company’s memorandum and articles of association and exercise their powers for proper purposes (s171 CA 2006);
2. To promote the success of the company for the benefit of its members as a whole (s172 CA 2006);
3. To exercise independent judgment, that is, not to subordinate their power to the will of others. Directors can still rely on advice, so long as they exercise their own judgment on whether or not to follow it (s173 CA 2006);
4. To exercise reasonable care, skill and diligence with regard to the functions of the particular director and the circumstances of the company (s174 CA 2006);
5. To avoid conflicts of interest between the duties the director owes the company and either their personal interests or other duties they owe a third party (s175 CA 2006);
6. Not to accept benefits from third parties i.e. not to exploit the position of director for personal benefit (s176 CA 2006); and
7. To declare interest in proposed transaction or arrangement before the transaction is entered into,including the nature and extent of any interest direct or indirect (s177 CA 2006).

Who is a director?

There are three main types of company director recognised by law. These are:

• De jure directors
  • A person who has been validly appointed as a director.
• De facto directors
  • A person who assumes to act as a director, although never actually or validly appointed.
• Shadow directors
  • A person in accordance with whose directions or instructions the directors of a company are accustomed to act.

Nominee directors, executive directors and non-executive directors are also recognised as a matter of practice.

Do all directors owe these general duties?

The CA 2006 provides that a director “includes any person occupying the position of director, by whatever name called”. That is, if you exercise sufficient influence over a company or act as if you are a director then you might be treated as a director for certain purposes even though you have not been formally appointed.

To whom are the duties owed?

The duties are owed to the company and only the company can enforce them.

Key points to consider:

DURATION – generally, a director’s duties to the company will cease after resignation. However, the CA 2006 provides that certain aspects continue after a person ceases to be a director for example, the duty to avoid conflicts of interest will continue to apply as regards to the exploitation of property, information or opportunity which the person became aware of during their appointment. In addition, the duty not to accept benefits from third parties will continue to apply in relation to things done or omitted by the person before they ceased to be a director.

COLLECTIVE DUTIES – where more than one duty applies, the directors must comply with each applicable duty.

FURTHER LEGAL DUTIES – the company itself has legal duties including the duty to update and make relevant filings at Companies House and generally to comply with all applicable laws and regulations. It is the responsibility of the directors to ensure compliance by the company.

NON-STATUTORY DUTIES – the duties don’t stop here. In addition to statutory duties, the company’s articles of association usually place more onerous requirements on their directors so it is important to check these.

If you need any further information please contact the team at Consilia Legal.