In our experience many directors can often be haplessly unaware of the obligations they owe to their companies and although the new Companies Act 2006 goes some way in providing a comprehensive list of the duties of a director, it is still incomplete. We have compiled the below a guide of the main duties any new or experienced director ought to consider when taking up an appointment.
a) Duty to act within the Company's Powers: This is a duty to act in a manner allowed by the company's article of association. Specific advise on this may sometimes be necessary and sought in light of specific obligations set out in the company's articles.
b) Duty to promote the success of the Company: A director must act, in good faith, a way that he considers will most promote the success of the company. When doing this, he must consider the long term impact of any decisions on the employees, the company's business relationships with customers and suppliers etc; the community and environment; and the need to act fairly between members of the company.
c) Duty to exercise independent judgement: This is a duty to exercise independent judgement. However it is possible to modify this by agreement or modifying the articles of association.
d) Duty to exercise reasonable care, skill and diligence: To some extent the test of reasonable care is subjective and dependent on the skill and knowledge of the individual director. However there is still a minimum standard expected of a company director, from which he can excuse himself.
e) Duty to avoid conflict of interest: A director must avoid situations of possible conflict of interest. He can not exploit company information or property or opportunities that arise because out of the companies activities. It should be noted that in some cases an activity can be approved by the board of directors even if there is a conflict.
f) Duty not to accept benefits from third parties: This covers a duty not to accept bribes from third parties but also covers the taking of benefits from a competing company.
g) Duty to declare interests in a proposed transaction or arrangement with the company: A director must declare the nature and extent of any interest, whether direct or indirect, he has in a proposed transaction to the board of directors. The test here is whether a director ought reasonably to be aware of an interest and not whether or not he was aware of interest. Declarations must be made in writing before the company enters into the transaction.
h) Duty to declare interests in existing transactions or arrangements: This is primarily aimed at new directors who should declare their interests when they are appointed, similar to the duty described in g) above.
I) Common Law Fiduciary Duties: This remains unaffected by the new companies act. However there are some overlaps such as the duty to act in the best interest in the company, to use the company's property for legitimate company purposes only; to act in accordance with the company's constitution, to avoid conflicts of interest and to avoid making secret profit.
j) Insolvency Duties: This also remains unaffected and the director continues to have the duty to creditors when the company becomes technically insolvent and the duty to put a company into liquidation if insolvent liquidation can not reasonably be avoided.
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If a director breaches these duties, they can be held personally liable by the courts to pay back to the company any losses that it suffered or any profits that they may have made. Conclusion It can be seen that a director may unwittingly find him or herself in a situation where the veil of incorporation is rolled back and is therefore left with personal responsibilities which can be costly, time consuming and stressful to say the least. This brief aimed at providing general guidance to directors and their companies of director's duties and responsibilities.
At Hallmark, we work on the concept that prevention is better than cure. Sound legal advise acted upon in good time can save you and your business from problems and undue costs in the long run. It can help you gain a competitive advantage over your rivals. This is why we offer all new clients a free initial consultation. We are available to meet with you on a no-obligation basis to discuss your requirements. Call us on 01482 616 616 email at email@example.com visit us at: www.hallmarksolicitors.co.uk We look forward to being of assistance to you