What are directors’ duties?
20 September 2019 by Andreea Brindas
If you are, or intend to become a director of a company, it is important that you fully understand your duties and responsibilities prior to your appointment. This blog sets out directors’ duties generally under the current legislation. Directors may be subject to additional duties besides the statutory ones and such additional duties may vary depending on the activities of the company and its articles of association.
Directors’ duties and responsibilities are set out within the Companies Act 2006 (the Act) and in summary include, but are not limited to:
- duty to act within their prescribed powers;
- duty to promote the success of the company;
- duty to exercise independent judgement;
- duty to exercise reasonable care, skill and diligence;
- duty to avoid conflicts of interest;
- duty not to accept benefits from third parties; and
- duty to declare an interest in a proposed transaction or arrangement.
These directors’ duties are owed by the directors to the Company.
Directors will have many additional duties which may vary depending on the type of the company and its articles of association; additional duties may include, but are not limited to:
- day to day running of the company;
- duty to deliver accounts;
- employee duties (applicable if they are also employees of the company);
- duty to consider or act in the interest of creditors;
- equitable duty of confidence owed by a director to a company;
- any other duties regarding insolvency and health and safety legislation.
Consequences of breach of duty
The Company, or in limited circumstances the shareholders, may bring action against the director in breach in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust.
The statutory duties, except duty to exercise reasonable care, skill and diligence (section 174) are enforceable in the same way as other fiduciary duties owed by directors to their company and include:
- an injunction-i.e. a court order requiring the director to do a specified act or to refrain from doing a specified act;
- setting aside the transaction, restitution and account of profits;
- restoration of company property held by the director;
- damages (this is the only remedy for breach of duty to exercise reasonable care, skill and diligence).
A breach of duty may also be grounds for the termination of an executive director’s service contract or disqualification.
It is important to note that directors may face civil and/or criminal liability regarding breach of their duties and in certain circumstances, may be personally liable to account for profits or restitution.
It is also important to remember that directors’ liability is joint and several – this means that innocent directors may also be sued and/or liable if one of the directors is in breach.
The Corporate & Commercial Department can offer further guidance on directors duties and compliance, as well as assist with the preparation of any relevant documents. Should you require any further information or assistance please do not hesitate to get in touch – call 01206 700113 or email [email protected].
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