October 30, 2020

What are directors’ duties?

In this back to basics article, we take a brief look at directors’ duties.

Whilst directors of companies have always had certain duties placed upon them, the Companies Act 2006 set out seven key duties owed by a director to its company:  

(a)   Duty to act within your powers (s171)

(b)   Duty to promote the success of the company (s172)

(c)   Duty to exercise independent judgment (s173)

(d)   Duty to exercise reasonable care, skill and diligence (s174)

(e)   Duty to avoid conflicts of interest (s175)

(f)    Duty not to accept benefits from third parties (s176)

(g)   Duty to declare an interest in a proposed transaction or arrangement (s177)

These duties are contained at Chapter 2 of the Companies Act 2006.

Breach of directors’ duties

Failure to uphold director’s duties will result in a breach by the director(s) concerned. Often in the first instance, a director who has breached his or her duty may be dismissed as an employee and / or removed by the shareholders by ordinary resolution (a simple majority vote). Tactically however this may not always be the best way forward.

Further, the company could take legal action. Such legal action might include:

  • an injunction (to prevent a director from carrying out or continuing a breach of duty);
  • a claim for damages where the director has breached its duties and caused loss to the company; and
  • depending on the articles of association or any shareholders’ agreement, a compulsory sale of any shares the director may hold in the company.

It is vital that directors understand their duties. For example, many directors do not realise that when they stop being a director, some of their duties may continue. 

Complying with the director’s obligations set out in the Companies Act 2006 can be tricky, and sometimes time consuming. This a complex area of law and it is recommended that you speak to an expert in the field at the earliest opportunity if you are a company wishing to bring a claim, a director who is being pursued, or perhaps you or the other directors simply require training or advice on duties and obligations. The solicitors at Scott Bailey offer down to earth, practical business law advice to companies of all shapes and sizes and directors dealing with some of the most challenging commercial issues.

What can our business solicitors do for you?

As a law firm with experience acting for both companies and directors, we can call upon our commercial litigation solicitors, our company and commercial solicitors (or corporate lawyers), or our employment lawyers to deal with advising companies who wish to bring a claim or directors who are being pursued.  Normally where a director is accused of breaching his or her duties, there can be many inter-tangled issues such as the dismissal of the director, litigation to recover funds or property, and the possible sale of a director’s shares.

In challenging times, businesses and individuals require expert legal advice and an efficient service. At Scott Bailey, our commercial solicitors advise and represent clients dealing with a director’s breach of their statutory duties. We have the legal know-how and proactive approach to get you the best possible outcome with the least possible disruption.

Our company solicitors deliver high-quality legal services without the large legal fees associated with London corporate law firms. We take the time to fully understand your commercial needs, so we can to focus our service and deliver advice and solutions that are both commercially aware and practical.

Contact us for directors’ duties legal advice in Hampshire

Scott Bailey is a respected law firm based in Lymington within the New Forest in Hampshire and serves businesses in New Milton, Christchurch, Bournemouth, Southampton, Romsey, Lyndhurst, Ringwood and further afield. We provide pragmatic advice and an efficient service to businesses and pride ourselves on the strong, long-lasting relationships we forge with our clients. Our expert solicitors provide guidance and representation in relation to company and commercial law, intellectual property, mergers and acquisitions, employment law, commercial litigation and commercial property.

To discuss an issue about directors’ duties or any other company or commercial law matter, please telephone Ben Ironmonger on 01590 676933 to find out how we can help or contact us via the website.