The Essential Duties Every Company Director Should Be Aware Of

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By Jerome Soucek, Associate in the Dispute Resolution Department at Bennett Griffin LLP.

As a director of a company, you are governed by the General Duties of Directors as set out in Chapter 2 Part 10 of the Companies Act 2006. These duties are wide ranging and put a considerable onus on a director to act and behave in a particular way, failure of which can result in serious consequences for the director and the company.

It is often the case that fellow directors’, or the shareholders of the company, will be the first to bring any breach of these duties to the attention of the offending director, which can bring about a legal dispute and the need for a director to seek urgent legal advice.

Here we set out seven duties that all company director’s need to comply with:

  1. Duty to act within powers. A director must comply with the powers conferred upon him/her in accordance with the constitution of the company. These are set out in the company’s Articles of Association and you will be in breach of this duty should you abuse these powers, or act in a way which is within its scope but done for an improper reason.
  2. Duty to promote the success of the company. A director will use his/her good faith judgment to benefit the company and generate a ‘long-term increase in value’.
  3. Duty to exercise independent judgment. In general a director must exercise their powers independently, without subordinating their discretion or powers to others.
  4. Duty to exercise reasonable care skill and diligence. This duty’s benchmark is that of a reasonably diligent person with the general knowledge, skill and experience that could reasonably be expected from a person carrying out the director’s functions. Also, directors with specific professional training or skills (such as a lawyer or accountant) are held to a higher standard in related issues than less qualified colleagues.
  5. Duty to avoid conflicts of interest. A director must not place themselves in a position where there is a conflict between the duties to the company and their personal interests or duties they owe to 3rd parties.
  6. Duty not to accept benefits from third parties. Directors must not accept any benefit from 3rd Parties specifically due to their status as a director.
  7. Duty to declare an interest in a proposed transaction or arrangement. Directors must declare the nature and extent, direct or indirect, in a proposed transaction or arrangement with the company.

If you would like any advice relating to the above issue then please contact our Dispute Resolution Department by phone, or by the contact form below.

 

Disclaimer – Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.