A director owes statutory duties to their company under sections 171 to 177 of the UK Companies Act. These duties include the following:

  • acting within their powers, including acting in accordance with the company’s constitution;
  • exercising independent judgment, reasonable care, skill and diligence;
  • avoiding conflicts of interest;
  • promoting the success of the company for the benefit of its members;
  • not accepting benefits from third parties; and
  • declaring any interest in a proposed transaction or arrangement with the company.

In addition to these fiduciary duties, directors also owe certain other duties to a company in law, including a duty to maintain confidentiality.

Directors’ duties are owed to the company, not to its shareholders, and thus it is the company which is required to instigate any legal action against a director who is in breach of their duties. The actions available to the company depend on the nature of any breach; these actions will usually include a right to claim damages or compensation, to recover any profit a director has made, and to recover any property that has been misappropriated.

A shareholder is generally not able to bring direct action against a director. However, in certain situations, a shareholder may be able to instigate legal action against a director in the company’s name.

When a company is insolvent or nearing insolvency, the primary focus of the directors’ duties moves from the company’s shareholders to its creditors.

John leads a global team at Integrity Governance that is focused on making boards more effective. A boardroom expert working with multinationals, SMEs, trade associations and not-for-profits, he provides practical, impartial advice to directors, business owners, executives and CEOs, to help improve board performance. He has 30 years of experience at director level in the corporate world, having worked at blue chip businesses including: Mars, Schroders and Goldman Sachs.

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