Directors’ Duties Under The Companies Act 2006

This is the first time directors’ duties have been comprehensively set out. Previously there was no single source of directors' general duties; instead duties were based on common law i.e. they were developed by the Courts through case law. Whilst this approach afforded the Courts some discretion and flexibility to deal with the more complex aspects of duties on a case by case basis, there has always been concern at the lack of a comprehensive single source written statement of these duties.

The codification will now make it easier for new directors to immediately ascertain what their obligations are. There are seven new statutory duties requiring a director:-

1. To promote the success of the company for the benefit of its members as a whole.
2. To act in accordance with the company’s constitution and exercise powers only for the purposes for which they are conferred.
3. To exercise independent judgement.
4. To exercise reasonable care, skill and diligence.
5. To avoid conflicts of interest.
6. Not to accept benefits from third parties.
7. To declare an interest in a proposed transaction or arrangement with the company.

If there is a breach of these duties, the 2006 Act states that the existing remedies for the breach of the corresponding common law rules will be preserved. That could include compensation, damages, an account of profits or a termination of contract etc.

For more information please email Corra Irwin or telephone 01463 239393.

Disclaimer: The information in this publication is based on our current understanding of the law. It has been produced for information purposes only. Professional advice should always be sought before taking any action.

Macleod & MacCallum cannot take any responsibility for loss incurred through acting or failing to act on the basis of anything contained in this publication.