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Directors have legal responsibility for company management, facing potential civil claims and regulatory action for breaches of duty.
The statutory duties under the Companies Act 2006 form the core director obligations, but directors must also comply with additional duties from various other sources.
Directors may also have specific responsibilities under other legislation like health and safety or environmental laws.
Service agreements or employment contracts often contain specific obligations around legal duties and company articles may impose additional requirements about decision-making processes or conflicts.
There are 7 key duties set out in company law legislation :-
Promote company success - directors must balance competing interests like employee welfare against shareholder returns, documenting how decisions serve long-term company interests
Act within powers - requires careful review of articles and purpose behind decisions, particularly for group company transactions
Exercise independent judgment - directors can take advice but must make own decisions, creating tension when representing specific shareholders
Exercise reasonable care and skill - standard varies by director role and expertise - executive directors held to higher standard than non-executives
Avoid conflicts of interest - particularly challenging with multiple directorships or when opportunities arise through director role
Not accept benefits from third parties - creates practical issues around corporate hospitality and relationship building
Declare interests in transactions - requires robust systems to identify and manage potential conflicts
Director duties apply equally to all directors under the Companies Act 2006, but the courts recognise practical differences in how these duties operate based on role and involvement :-
Managing Directors - typically have wider authority through delegated powers and greater day-to-day involvement, leading to higher expectations around knowledge of operations and financial position. This creates enhanced practical obligations for monitoring and oversight.
Executive Directors - expected to have detailed operational knowledge of their areas of responsibility. Courts generally apply a higher standard of skill and care, reflecting their full-time role and specific expertise. They cannot claim lack of knowledge about matters within their remit.
Non-Executive Directors - while subject to the same basic duties, are judged against their more limited role. Courts recognize they rely more on executive information and cannot know operational detail. However, they must still actively oversee and challenge executives, particularly around strategy and risk. Recent cases show increasing expectations of non-exec oversight, especially in regulated sectors.
Red flags for directors can arise in many scenarios but the following are common issues underlying instructions we receive from worried directors who may be considering legal risks to them or resigning :-
Group company conflicts - directors serving multiple group companies face competing duties when interests don't align
Financial distress - shifting from shareholder to creditor interests when nearing insolvency
Relationships and opportunities - the sometimes difficult area where a business opportunity may belong to the company or director personally
Related party transactions - managing family or business relationships affecting company dealings
To manage personal liability risks effectively, directors should strongly consider :-
Document decision making - keep clear records of considerations behind major decisions, particularly for contentious issues
Board minutes - maintain detailed minutes showing proper discussion and challenge
Financial monitoring - regular review of management accounts and cash flow
Written policies - clear framework for decision-making in key areas
Insurance cover - ensure D&O insurance is adequate and terms are understood
Declaration procedures - systematic approach to recording interests and conflicts
Compliance systems - framework for managing regulatory obligations
Contact our corporate team for expert assistance in managing your director duties and risks.
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