Guidance for Directors No 1 : Are you aware of your duties?

Whether you have already been a company director for a long period or are considering taking on such an appointment, it is crucially important that you familiarise yourself with the duties you owe to your company.

Failing to comply with your director’s duties can have serious consequences for both your company and you.

The duties relating to company directors can apply whether or not you have been officially appointed with Companies House: if you act as though you are a company director and are treated as a director by the company’s board, even if you not appointed, it is likely you are a de facto director and therefore bound by the same duties applicable to appointed directors. Similarly, if you are a person who gives directions or instructions to company directors and those directors are instructed to act on the basis of your directions or instructions, it is likely that you are a shadow director and the duties applicable to appointed directors will also apply to you.

The Companies Act 2006 specifies seven general duties which all directors must comply with:

• To act within powers.
• To promote the success of the company.
• To exercise independent judgment.
• To exercise reasonable care, skill and judgment.
• To avoid conflicts of interest.
• Not to accept benefits from third parties.
• To declare an interest in a proposed transaction or arrangement.

There are also equitable and fiduciary duties owed by a director to the company including:

• A duty of confidence.
• A duty of good faith and loyalty.
• A duty to act in the best interests of the company.

As well as a claim for damages, the consequences for breach of the duties listed above can include: the company taking an injunction against a director; setting aside a transaction with a director; requiring a director to account for any profits made as a result of a breach of duty; and restoration of any company property held by a director. A person can also be disqualified from acting as a company director for up to 15 years in the most serious cases.

Most claims against directors are made by the company although, in some cases, the company’s shareholders can also bring a claim against a director who is in breach of their duties.

If you would like to discuss any of the matters highlighted, please contact Alex Wilson-Jones at awj@blasermills.co.uk or on 01494 478681.