Breach Of Directors’ Duties

Nath Solicitors outlines the role of directors within a company, their statutory duties under the Companies Act 2006, and the protection from liability for the breach of duty.

In most companies, there are two primary groups of individuals involved:

1. Shareholders: Typically regarded as the owners of the company
2. Directors: Handle the day-to-day management and operations of the company

Directors owe their duties to the company itself, not to individual shareholders or other stakeholders.

The Seven Statutory Duties of Directors

Under the Companies Act 2006, directors must comply with the following seven key duties:

1. Duty to Act Within Powers (Section 171): Directors must follow the company’s constitution and only use their powers for their intended purposes.
2. Duty to Promote the Success of the Company (Section 172): A director must act in good faith in a way they consider most likely to promote the success of the company for the benefit of its members.
3. Duty to Exercise Independent Judgment (Section 173): Directors must make decisions independently. While they may seek professional advice, they cannot simply follow directives without exercising personal judgment.
4. Duty to Exercise Reasonable Care, Skill and Diligence (Section 174): This duty combines both objective and subjective standards:
   1. The knowledge, skill and experience reasonably expected of someone in the director’s position, and
   2. The actual knowledge, skill and experience the director possesses
5. Duty to Avoid Conflicts of Interest (Section 175): Directors must avoid situations where their interests, directly or indirectly, conflict or potentially conflict with the company’s interests.
6. Duty Not to Accept Benefits from Third Parties (Section 176): Directors are not permitted to accept benefits from third parties if it creates or causes a conflict of interest.
7. Duty to Declare Interest in Proposed Transactions or Arrangements (Section 177): Directors are required to disclose any direct or indirect interests they may have in a proposed transaction or arrangements involving the company.

Protection from Liability for Breach of Duty

If a director breaches one or more of their statutory duties, there are several possible protections or remedies available:

• Insurance
• Indemnity
• Ratification by the company; or
• Court relief for breach of duty

Why Nath Solicitors?

At Nath Solicitors, we can assist companies in breaches of a director’s duties. If you need advice or assistance, please contact us on 0203 983 8278 or get in touch with the firm online.