What are the general duties of a director?

The general duties which a director must carry out

A director owes general duties to a company. The duties are set out in the Companies Act 2006 (“CA 2006”) and are:

A duty to act in accordance with the company’s constitution and properly exercise powers (s.171, CA 2006)

A duty to promote the success of the company (s.172, CA 2006)
A director should act in a way which is most likely to promote the success of the company for the benefit of the shareholders. This includes having regard (amongst other matters) to:

• The likely consequences of any decision in the long term
• The interests of the company’s employees
• The need to foster the company’s business relationships with suppliers, customers and others
• The impact of the company’s operations on the community and the environment
• The desirability of the company maintaining a reputation for high standards of business conduct; and
• The need to act fairly as between members of the company
• A duty to exercise independent judgment (s.173, CA 2006)

A duty to exercise reasonable care, skill and diligence (s.174, CA 2006)
which comprises

• An objective test: the director must exercise the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions of the director in relation to the company.
• A subjective test: the general knowledge, skill and experience which the particular director has.

A duty to avoid conflicts of interest (s.175, CA 2006)
A director should avoid a situation in which the director has, or can have, a direct or indirect interest that conflict, or possibly may conflict, with the interests of the company and is subject to various exceptions.

A duty not to accept benefits from third parties (s.176, CA 2006)
A director should not accept a benefit from a third party which is conferred by reason of the director being a director, or them doing (or not doing) anything as a director.

A duty to declare interests in proposed transactions or arrangements (s.177, CA 2006)
A director should declare if they are in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, and explain the nature and extent of that interest to the other directors.

Our Corporate and Commercial Team advise company directors on how to ensure that they carry out their duties properly, as well as companies who wish to bring a claim against a director and directors who face allegations of a breach of their duties made against them by a company.

We also have extensive experience of advising clients on other company-related issues

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