Navigating Directors' Duties: Essential Tips for Compliance

As a director, you hold the reins of a company, steering its daily operations, shaping its strategies, and representing it publicly. But with great power comes great responsibility. Directors are bound by a set of duties designed to prevent the abuse of power and ensure actions align with the company's best interests. Here’s a guide to understanding and ensuring compliance with these crucial responsibilities.

Here’s a quick recap on the foundations of directors' duties:

Directors are entrusted by shareholders to manage the company effectively. They wield significant authority but are held to account by numerous duties and responsibilities, many of which are enshrined in the Companies Act 2006.

These duties include:

- Exercising care, skill, and diligence.

- Maintaining independent judgment.

- Promoting the company's success for the benefit of its members.

Additional duties come into play if the company faces insolvency. For a comprehensive understanding of these obligations, please get in touch with our fantastic insolvency team who are always ready to assist with any queries.

Practical Tips for Compliance

Awareness and adherence to these duties are paramount. Here are practical steps directors can take to ensure they meet their obligations:

1. Understand the Company’s Governance Framework:

• Ensure all directors are well-versed in the company’s articles of association and any shareholders’ agreements.

• Directors must act in compliance with these documents at all times.

2. Stay on Top of Filing Obligations:

• Directors should be aware of the company’s filing requirements with Companies House, HMRC, and other regulatory bodies.

• While these tasks can be delegated to external advisors like solicitors or accountants, the ultimate responsibility lies with the directors.

3. Maintain Detailed Records:

• Keep thorough records of all board decisions and the rationale behind them.

• Board minutes should be comprehensive enough to serve as a reference in future disputes and must be retained for at least 10 years, as mandated by company law.

4. Consider Directors’ and Officers’ (D&O) Insurance:

• D&O insurance can shield directors from liabilities arising from negligence or breaches of duty.

• Even after stepping down, directors may still be liable for certain duties, such as avoiding conflicts of interest. Run-off D&O insurance can offer ongoing protection.

(It is best to speak to a specialist insurance brokers for more information on insurance cover)

5. Seek Independent Advice:

• Directors should consult independent professionals (accountants, tax advisors and solicitors) when in doubt.

• Independent judgment is crucial, and just because one director opts for a particular course of action doesn’t mean others should follow suit without proper consideration.

Final Thoughts

Directors play a critical role in a company’s success, but this comes with a web of responsibilities that must be navigated with care. Understanding and adhering to these duties not only ensures legal compliance but also promotes the long-term health of the company. Additional duties come into play if the company faces insolvency. For a comprehensive understanding of these obligations, please get in touch with our experienced Insolvency Team who are always ready to assist with any queries.

If you have any queries about the role of a director or want to discuss any important upcoming deicisions and how they could impact you as a director, please do not hesitate to get in touch with our Corporate and Commercial team by telephone on 0207 052 3545 or by email info@kaurmaxwell.com

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice.

Please contact KaurMaxwell for advice before taking any action in reliance on it. 

By: Hiten Patel