Directors are in a position of responsibility and trust and must carry out the company’s business having regard to the best interests of the company and the shareholders. They must put the interests of the company over their own personal interests.

The duties

A director owes certain duties under both common law and the Companies Act 2006. The Companies Act codified many of the common law duties, however they are still relevant when interpreting and applying the statutory duties.

The seven general duties under the Companies Act are:

  • Duty to act within powers.
    • Duty to promote the success of the company.
    • Duty to exercise independent judgment.
    • Duty to exercise reasonable care, skill and diligence.
    • Duty to avoid conflicts of interest.
    • Duty not to accept benefits from third parties.
    • Duty to declare interest in proposed transaction or arrangement.

In certain circumstances, the above duties can be set aside by authorisation of the members. For example, the duty to avoid conflicts of interest can be complied with by disclosing such an interest to the directors who may then authorise and proceed with the transaction or arrangement.

A director must also act in accordance with the fiduciary duties to act in good faith in the best interests of the company and to use their powers solely for the purpose for which they were granted. Directors must also comply with the duties to keep accounts up to date and maintain records.

Consequences of the breach

The duties are owed to the company and so only the company can enforce them. However, shareholders may be able to bring a derivative action against a director in certain circumstances.

Remedies and penalties for a breach of duties include:

  • An injunction;
    • Setting aside the transaction;
    • Disqualification of the director; and
    • Damages.

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