Directors Duties and Liabilities

Here you can download our Directors Duties And Liabilities A Handy Guide booklet. An example of the useful information you can find in the booklet is featured below.

Introduction

Directors’ duties were codified by Part 10 of the Companies Act 2006:

1. Chapter 1 of Part 10 (sections 154-169) sets out the laws relating to company Directors (appointment, register and removal).

2. Chapter 2 of Part 10 (sections 170-180) sets out the statutory duties on Directors.

The provisions of the Act extend to shadow Directors (those who are not appointed Directors but whose decisions the company follows) and de facto Directors (those who act as Directors although they have not been formally registered as a Director at Companies House). They also apply to a person who ceases to be a Director.

The main statutory duties on a Director are as follows:

1. Section 171 – Duty To Act Within Powers

Directors should not exceed the powers conferred on them by the company’s Articles of Association nor should the Company exceed (at the Director’s direction) what it is allowed to do in its Memorandum of Association.

2. Section 172 – Duty To Promote The Success Of The Company

A Director must act in good faith for the success of the company and the benefit of the Shareholders having regard to the likely consequences of any decision.

This will include considering the interests of employees, business relationships with suppliers, customers and others, the impact on the community and environment, maintaining the reputation of the company for having high standards of business conduct, acting fairly between members of the company and, subject to the legal requirements, to consider and act in the interests of creditors.

3. Section 173 – Duty To Exercise Independent Judgment

As the company is a completely separate entity, its Directors must consider whether a deal is the best deal for the company as opposed to the Directors personally

When making a decision, the Directors must consider the matters raised in the rest of Chapter 2 of the Act to ensure they are acting in good faith and solely for the benefit of the company (taking all the circumstances into account and not for example, creating a conflict as set out in Section 175 below).

4. Section 174 – Duty To Exercise Reasonable Skill, Care And Diligence

Directors should act in a manner that any reasonably skilled Director would generally act in their particular area of management. Directors should attend board meetings (or as many as reasonably possible) to ensure they know at all times what is happening. ignorance is no defence as Directors remain jointly liable for any mistakes made.

This ignorance and lack of participation is often the catalyst for Director disqualification proceedings where Directors fail to act on information they ought reasonably to have been aware.

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5. Section 175 – Duty To Avoid Conflicts Of Interest

6. Section 176 – Duty Not To Accept Benefits From Third Parties

7. Section 177 – Duty To Declare The Nature And Extent Of Any Interest In A Proposed Transaction Or Arrangement

Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.