The 7 Key Directors Duties

For the burgeoning D&O practitioner these key, statutory directors duties (also called fiducairy duties) are a must-know, and for experienced professionals - it never hurts to refresh some of the basic principles underlying the responsibilities of company directors in England and Wales. The failure to meet the expectations these duties place on directors represent are a key source of claims against a D&O policy.

The Companies Act 2006 was, at the time of its ratification the longest single piece of legislation in English Law. It contains well over 1000 sections, not including the various appendixes and schedules, and is around a staggering 700 pages long. It covers everything from company formation to how to conduct a board meeting and, crucially for this insight piece, it outlines the general duties (or competencies) expected of a director.

The following can be found in s.171 - s.177 Companies Act 2006 (A link to the full text of the Act can be found at the bottom of the page).

Duty to act within powers (s.171)

• A director should always act in accordance with and abide by the company's constitution (found mostly in the articles of association)

Duty to promote the success of the company (s.172)

• A director should always, in good faith, seek to act in a way so as to promote the success of the company and its members (i.e. shareholders).

Duty to exercise independent judgement (s.173)

• It is expected that a director will remain independent in their decision making.

• However, this does not stop them taking advice from professionals (such as solicitors or accountants) or acting in accordance with the company's constitution, for example.

Duty to exercise reasonable care, skill and diligence (s.174)

• A director is expected to exercise reasonable care, skill and diligence for a person carrying out the functions of that director.

• A director who has particuarly skills, such as a qualified accountant, would also be expected to exercise reasonable care, skill and diligence of a person qualified as such.

Duty to avoid conflicts of interest (s.175)

• Generally, a director is expected to avoid or abstain for influencing situations where there could be a conflict of interest. This includes "[...]the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity)."

Duty to not accept third party benefits (s.176)

• A director should not accept any third-party benefit given by virtue of them being a director, or for them doing (or omitting to do) anything in their capacity as a director.

Duty to declare an interest in proposed transaction or arrangement (s.177)

• A director should declare (in a manner usually prescribed by the company's constitution) any interest in a transaction or arrangement the company is proposing to undertake.

Sources/Further Information:

• https://www.burges-salmon.com/news-and-insight/publications/the-responsibilities-and-duties-of-a-company-director

• https://www.stephens-scown.co.uk/corporate-commercial/directors-duties-important/

• https://www.legislation.gov.uk/ukpga/2006/46/contents

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This insight piece is intended and published for information purposes only. It does not represent legal advice of any form, and although every reasonable effort has been taken to ensure the information is correct at the time of publication, the author does not accept liability for reliance on any errors or omissions contained within.