A brief note looking at directors duties

A director of a company is any person occupying the position of director, by whatever name called. Taken from section 1 of the Companies Act 2006, whilst the Act provides that you may decide upon your director’s title, there are numerous statutory and common law duties that company directors should be aware of.

Many duties can be found within the Companies Act 2006 this however does not provide a comprehensive list of duties. For example, in the case of Re Smith v Fawcett Ltd (1942), it was held that directors are “under a duty to act bona fida in what they consider to be the interests of the company”. This is a fiduciary duty and gives rise to a relationship of trust and confidence, this duty is owed to the company.

It may not come as a surprise, one of the first expressly stated duties within the Companies Act 2006 is the duty to act within powers. A director should be aware that his or her authority comes from the companies constitution, whilst maintaining that the powers are only to be used for the powers in which they have been conferred.

The duty to promote the success of the company is an obvious one, however it should be noted that a director should be looking to promote the success of the company as a whole. This would involve balancing the long and short-term interests of shareholders. This duty remains the only legislative measure in relation to corporate societal responsibility, typically this would require the company to behave in a ethical manner.

We hope that this one doesn’t need mentioning, but a director is under the duty not to accept bribes. The Companies Act 2006 provides that this includes benefits of any description.

In Attorney General for Hong Kong v Reid (1993), in which a bribe of property was accepted in breach of fiduciary duty, the court held that the fiduciary should not benefit from the breach of duty. Therefore, if the property increased in value, exceeding the value of the bribe, the fiduciary could not be allowed to make a profit from his dishonest action.

Any director should be careful not to accept any benefit from a third party that could give rise to a conflict of interest. A director must avoid a situation in which they have, or can have a direct or indirect interest that conflicts with the interests of the company.

However, this duty concerns itself with the situation, rather than the actual conflict. Best practices would include giving explanations in relation to the exercise of director’s powers in an annual corporate governance statement.

This is not an exhaustive list, as a director of a company there are numerous other duties to be aware of. For further assistance do not hesitate to get in touch with Lawdit.

If you’d like to know more about this article please send an email to Michael Coyle quoting the article title and any questions you might have, alternatively call the office number on 02380 235 979 or send an enquiry through our contact form.

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