Top tips on directors’ duties

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Directors need to be aware that they are personally subject to statutory duties in their capacity as directors of a company. So now is a good time for directors to brush up on their statutory duties with these 10 top tips. Directors duties are now simply set out in sections 170 to 181 of the Companies Act 2006 to make it easier for you to understand and follow them. These are available to read online at the Office of Public Sector Information’s website. Check your company’s constitution to ensure that you are always acting within your powers – any limitations on what a director may do will be set out in the articles or the memorandum. Remember that when fulfilling the duty to promote the success of the company there are lots of things to take into account when taking decisions. These include the long term consequences and their impact on the community, the environment and the interests of your company’s employees. For really important decisions consider documenting in the board papers proposing the matter, what has been taken into account when putting the proposal together. This provides proof that careful consideration has been given. You must not put yourself into a situation where your interests conflict with those of the company. If an existing private company wants the board of directors (as opposed to the shareholders) to consider and approve any conflict situation, it will need to either amend its articles or, if it is a private company, pass a members’ resolution to give the board this power. If you are currently in a conflict situation which has not been disclosed to and approved by the members, you will need to make full disclosure to the members and get any actions ratified before asking for the existing conflict situation to be approved. Directors involved in proposed transactions or arrangements with the company must declare both the nature and extent of their interest to the other directors. This can be done in writing or orally at a board meeting (where it should be recorded in the minutes) before the transaction is entered into. Directors must not accept benefits from third parties, so you should carefully consider any offers of corporate hospitality. Most will still be allowed if the gift cannot reasonably be regarded as creating a conflict, but this will depend on the gift and your personal circumstance. A gift of a fortnight in St Lucia may not sway a millionaire director such as Richard Branson, but may influence a director with fewer personal assets. Directors must exercise independent judgement and reasonable skill, care and diligence, so make sure that you carefully and properly consider the business decisions that you take. Don’t try to avoid these duties by resigning. You will still be in breach of the duty to avoid conflicts if you resign to exploit an opportunity which came to you when you were a director, and the duty not to accept benefits from third parties still applies in relation to things done or not done while you were a director. About the author Janis Law is Group Chief Solicitor for Jordans Limited, the UK’s leading corporate service provider. She is a qualified solicitor with 17 years corporate and commercial law experience and has responsibility for all compliance issues in the Jordans Group including legal audits, compliance and risk management.
This month’s common commencement date has brought with it the enforcement of the last three directors’ duties as set out in the Companies Act 2006. So now is a good time for directors to brush up on their statutory duties with these 10 top tips