Unlocking the Duties of Company Directors in the UK

Navigating the responsibilities of a company director can be akin to steering a ship through uncharted waters. The UK Companies Act 2006 (CA 2006) and common law principles provide the map for this journey, detailing the duties that ensure directors act in the best interests of their companies and stakeholders. This article delves into these responsibilities, demystifying the legal jargon and highlighting the consequences of breaching these duties.

The Compass: Core Duties of UK Company Directors

The CA 2006 codifies seven essential duties that should serve as a director's compass:

1. Duty to Act Within Powers

Directors must stay true to the company’s constitution, exercising their powers for the purposes intended. Think of it as playing by the rulebook to keep the game fair and transparent.

2. Duty to Promote the Success of the Company

This duty is the heart of a director’s role. Directors must act in good faith, considering long-term consequences, employee interests, relationships with suppliers and customers, community and environmental impacts, and maintaining high standards of business conduct. Essentially, it's about looking at the bigger picture and steering the company towards sustainable success.

3. Duty to Exercise Independent Judgment

Directors must trust their instincts and judgment, making decisions independently rather than simply following the crowd. This ensures that each decision is well-considered and beneficial to the company.

4. Duty to Exercise Reasonable Care, Skill, and Diligence

Directors are expected to act with the care, skill, and diligence of a reasonably diligent person with their knowledge and experience. This is about being proactive and meticulous, ensuring that every decision is well-informed and considered.

5. Duty to Avoid Conflicts of Interest

Avoiding conflicts of interest is crucial. Directors must steer clear of situations where their personal interests might clash with those of the company. Transparency and integrity are key here.

6. Duty Not to Accept Benefits from Third Parties

Directors must not accept benefits from third parties that could influence their decisions. This duty is about maintaining independence and avoiding any form of bribery or undue influence.

7. Duty to Declare Interest in Proposed Transactions or Arrangements

If a director has any interest in a proposed transaction or arrangement, they must declare it to the board. This transparency ensures that all decisions are made with full knowledge and consideration of potential conflicts.

Beyond the Statutes: Fiduciary Duties

In addition to statutory duties, directors owe fiduciary duties under common law, including:

• Duty to Act with Fidelity and in the Best Interests of the Company: Loyalty and prioritising the company's best interests are paramount.

• Duty Not to Fetter Discretion: Directors must retain the ability to make decisions freely and independently.

• Equitable Duty of Confidentiality: Confidentiality is crucial, ensuring company information is protected.

• Both executive and non-executive directors are bound by these duties, reinforcing that everyone plays by the same rules.

The Price of Breach: Consequences of Not Following Duties

Directors who breach their duties can face serious consequences, such as:

• Liability for Damages: Compensating the company for any loss incurred;

• Restoration of Company Profits: Returning any profits made from the breach; and

• Rescission of Contracts: Undoing contracts entered into because of the breach;

However, there are mechanisms for directors to seek relief from liability in certain circumstances, emphasising the importance of acting in good faith and within the law.

Charting a Course to Success

Understanding these duties is crucial for both current and aspiring directors. Regular training, seeking legal advice, and having robust internal processes can help directors navigate their roles effectively. By staying informed and compliant, directors can steer their companies towards sustainable success, ensuring they meet their legal and ethical obligations without running the risk of personal liability.

Conclusion: Steering the Ship

The role of a company director in the UK is both challenging and rewarding. By adhering to the statutory and fiduciary duties codified in the Companies Act 2006 and common law principles, directors can ensure they are steering their companies towards success with integrity and transparency. Both executive and non-executive directors are equally bound by these responsibilities, emphasising the universal nature of these duties. With the right knowledge and approach, directors can navigate their roles effectively and drive their companies towards a prosperous future. about the role of a director or want to discuss any important upcoming decisions and how they could impact you as a director

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