Business Law

The Companies Act 2006 places a number of duties on directors to behave in a certain way when acting on behalf of a company. As these duties have certain penalties for breach, it is worth reminding ourselves of what those duties are and what they entail. There are seven of them:

The general duties are specified in sections 171 to 177 and are owed by a director of a company to the company. The act makes it clear that a person who ceases to be a director continues to be subject

(a) to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director, and

(b) to the duty in section 176 (duty not to accept benefits from third parties) regarding things done or omitted by him before he ceased to be a director.  To that extent those duties apply to a former director as to a director, subject to any necessary adaptations.

The general duties apply to shadow directors (i.e. persons who behave as a director even though they are not registered as one at Companies House).

The 7 duties

• Duty to act within powers
• Duty to promote the success of the company
• Duty to exercise independent judgement
• Duty to exercise reasonable care, skill and diligence
• Duty to avoid conflicts of interest
• Duty not to accept benefits from third parties
• Duty to declare interest in proposed transaction or arrangement

For further information please click here General duties of directors

The Companies Act 2006 divides the duty of directors to declare their interests in transactions and arrangements into two provisions:

• Section 177 relates specifically to directors declaring their interests in transactions or arrangements which are proposed but have not yet been entered into by the company.
• Section 182 deals with declaration of interests in relation to existing transactions or arrangements that the company has already entered into.
• There are one or two caveats. No declaration needs to be made unless there is a conflict of interest, or the situation may lead to one. There is also no need to disclose anything the other directors already know about or ought reasonably to have known. No declaration is required where the director is not aware of his interest or where the director is not aware (or could not reasonably be aware) of the transaction or arrangement in question.

The declaration must be made as soon as is reasonably practicable and relate to both the nature and extent of the director’s direct or indirect interest. In other words, what the interest might be (a shareholding in the company or a supplier) and what the interest is (a controlling interest or say only 5% of the company or supplier). Further declarations have to be made if an earlier declaration proves to be or becomes inaccurate or incomplete.

For further information click this link Declaring directors’ interests