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Right to manage

Act duties are not exhaustive; there are other statutes and regulations which create further duties on directors, such as the common law duty of confidentiality, a duty to deliver accounts and other regulatory areas such as insolvency, health and safety and competition legislation. It is, therefore, in a director’s own interests

and protection to understand his or her obligations and potential liabilities.


Remedies available to a company for breach of duty of care by a director include taking out an injunction, voiding/setting aside the transaction, restitution of company property, accounting of profits and damages. These remedies are awarded by the courts. The main issue for any claim is that the

arrangement with the company (the director need not be a party to the transaction for this duty to apply).

• To exercise reasonable care, skill and diligence – a director must exercise the care, skill and diligence which would be exercised by a reasonably diligent person both with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions undertaken by the director in relation to the company.

Directors should also be aware that as well as the duties outlined above, they are also required to take the following considerations into account: • The likely consequences of any decision in the long term;

• The interest of the company’s employees; • The need to foster the company’s

business relationships with suppliers, customers and others;

• The impact of the company’s operations on the community and the environment;

• The desirability of the company maintaining a reputation for high standards of business conduct; and

• The need to act fairly as between members of the company.

The combination of the duties under the 2006 Act and this expanded set of considerations mean greater accountability for directors to the company and its shareholders. Directors should be aware that certain

aspects of the duty to avoid conflicts of interest and the duty to not accept benefits from third parties will continue after they cease to be a director. Just because a director has resigned doesn’t mean that he will be relieved of liability. It should also be recognised that the 2006

damaged party is the company itself - but the company’s actions are determined and effected by the board of directors.

If the

directors do not take action against a director on behalf of the company - then who will? The 2006 Act’s solution to this allows a

shareholder to bring a claim in the name of the company (the shareholder acting on behalf of the company) against a director or third party – this is called a “Derivative Action”. A claim can be brought against a director for negligence, default, breach of duty or breach of trust and can relate to an act or omission that has already taken place or which is proposed to take place. Any damages awarded on a successful claim would be awarded to the company itself (as a separate legal entity). The biggest obstacle to a Derivative Claim is that the court must make an initial assessment on the nature of the claim and whether the claim can proceed and it is generally

Continued page 48 What directors need to know

• All current directors should make it their business to ensure that they are aware of their duties under the Companies Act 2006.

• On appointment, new directors should receive guidance on these duties.

• A director should have a service agreement which should specifically refer to compliance with the duties.

• Companies should review their internal policies in the light of the new duties e.g. HR, business sector compliance and corporate responsibility.

• Decisions made at board level or at committee level should be supported by background information and thoroughly considered.

• There should be written evidence of the reasons for decisions made.

• Any minutes for meetings should be detailed and should clearly set out the evidence considered and produced.

• For a company with sole member who is also the sole director, written resolutions and evidence should still be produced. Any contract between the company and a sole director must be recorded in writing.

• Management and project teams reporting to directors should prepare briefing notes and reports taking into consideration the duties which the directors are required to consider.


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