Understanding a director’s duties

News Article

The position of company director holds a certain amount of prestige and kudos. But with the title comes significant responsibility, including numerous legal duties which may trip up the unwary businessperson.

Here, Matthew Johnson, an Associate Solicitor with Palmers, explains what every company director needs to know:

Directors owe numerous duties to a company.  These duties were developed by the courts over a long period of time before some were enshrined in the Companies Act 2006 (CA 2006). The duties of a director set out in the CA 2006 sections 171-177 are often known as the general duties.

The general duties include the duty to promote the success of the company, the duty to exercise independent judgment, the duty to exercise reasonable care, skill and diligence, the duty to avoid conflicts of interest, the duty not to accept benefits from third parties and the duty to declare interests in proposed transactions or arrangements. It is a criminal offence to fail to declare an interest in existing transactions or arrangements.

The general duties are not exhaustive and directors should be aware of other legislation that may apply, such as in an insolvency situation where liability can arise for wrongful trading, fraudulent trading and transactions carried out at an undervalue or where a preference is given.

Potential liability arises for a director under sector-specific legislation, e.g. unsolicited marketing communications where the Information Commissioner’s Office has the power to fine directors in addition to companies for nuisance calls and messages.

If a director breaches one or more of the general duties he may leave himself open to a civil action from the company with the possible consequences of damages or compensation, restoration of the company’s profits and an account of profits made by the director.

For advice on Directors’ Duties and all aspects of business law, please contact us.