A director owes certain duties to the company under the Companies Act 2006. The seven general duties owed by directors under the Companies Act 2006 are:
• To act within his or her powers;
• To promote the success of the company;
• To exercise independent judgment;
• To exercise reasonable care, skill and diligence;
• To avoid conflicts of interest;
• Not to accept benefits from third parties; and
• To declare all interests in a proposed transaction or arrangement.
Directors have other duties under the Companies Act 2006 including obligations to maintain proper records with Companies House and to appropriately deal with and file the company’s accounts. There are also duties on directors under other laws and regulations. Some of the most important relate to managing the company’s financial affairs and keeping the company solvent. More information on this can be found by clicking here [link to “Directors’ Duties and Obligations” on the website under the “Corporate Recovery” section].
Failure to Comply with Directors’ Duties
It is vital that all company directors understand their statutory duties as failure to comply with them can be a criminal offence with serious consequences. Not only might you commit a criminal offence by failing to comply, you might also open yourself up to being sued for damages by the company. As the duties of a director are owed to the company, it is only the company that will be able to enforce those duties, apart from in a few circumstances where the shareholders may be able to bring a derivative action on the company’s behalf or, in the effect on an insolvency event occurring, an insolvency practitioner on the creditors behalf.
Procedure & Penalties for Breach
Breach of directors’ duties can result in:
• An injunction
• Setting aside relevant transactions
• A director being ordered to pay over any profits gained in breach of duty or transfer any property that should rightly belong to the company
• The director incurring personal liability in the way of damages to compensate the company
• The director being disqualified from acting as a director
• The director facing criminal sanctions including a fine and, for the most serious breaches, imprisonment
If you are a company director and would like any advice or assistance in relation to your directors’ duties, the team at Farleys can provide you with a detailed explanation of the legal obligations you have as a result of your directorship. If you think you have already breached any of your duties, it is important to obtain expert advice as early as possible to avoid personal liability and our experts will be on hand to assist.