0161 3002930
Select Page

The Companies Act 2006 places statutory duties on the director of any limited company in the United Kingdom, these duties are intended to clarify the position regarding the responsibilities of a director rather than to extend them but what are the general duties of a director under the Companies Act 2006?

The general duties of a director are specified in Chapter 2 of the Companies Act 2006;

Duty to act within powers.

A director of a company must act in accordance within the company’s constitution and only exercise their power as a director for the purposes for which they are given.

Duty to promote the success of the company.

A director must in good faith act in a way that would be most likely to promote the success of the company taking account of;

  1. the likely consequences of any decision in the long term,
  2. the interests of the company’s employees,
  3. the need to foster the company’s business relationships with suppliers, customers and others,
  4. the impact of the company’s operations on the community and the environment,
  5. the desirability of the company maintaining a reputation for high standards of business conduct, and
  6. the need to act fairly as between members of the company.

Duty to exercise independent judgement.

A director must exercise independent judgement irrespective of any agreements or instructions from the company to do otherwise.

Duty to exercise reasonable care, skill and diligence.

defined within the act as the level of care skill and diligence that would be exercised by a reasonably diligent person with the skill and knowledge of the director concerned or that skill and knowledge that you might reasonably expect from a director in that position.

Duty to avoid conflicts of interest.

A director of a company must avoid any situation or circumstances that may give rise to a conflict of interests between their own self interests of those and the interests of the company.
This duty does not apply to transactions between the company and the director or any circumstances where the company has agreed to the situation albeit in an expressed fashion.

Duty to avoid benefits from third parties.

A director must not accept a benefit from a third party that is given because he is a director of the company or he has acted not acted as a director of the company irrespective of whether the action, or lack of it, is likely to give rise to a conflict of interest.
This does not include any benefit given to the director as a result of acting in his capacity as a director of the company on company business.

Duty to declare interest in proposed transaction or arrangement.

The director must disclose any interest they may have in any arrangement that the company may be entering into unless they can show that there was no reasonable prospect that it might lead to a conflict of interest or that fellow directors should have reasonable been aware of it.

These general duties are avaiable in detail on-line and all directors should be made aware of their responsibilities.

Can a director insure against the financial cost of a breach of general duties?

The responsibilities upon a director are considerably wider than those specified in the general duties and directors are increasingly concerned about the prospect of actions being taken against them. Whilst this type of action was almost always limited to shareholders of companies the director now faces the threat of action from a much broader body of people including but not limited to employees.

The directors and officers liability insurance policy protects the director, personally, against the cost of legal defence and awards arising from a breach of their professional duties as a director. The policy is generally purchased by the company but for the benefit of directors and officers.