{"id":457,"date":"2019-03-27T09:04:28","date_gmt":"2019-03-27T09:04:28","guid":{"rendered":""},"modified":"2019-06-07T12:54:36","modified_gmt":"2019-06-07T12:54:36","slug":"duties-directors-company-law-1263","status":"publish","type":"post","link":"https:\/\/www.lawteacher.net\/free-law-essays\/company-law\/duties-directors-company-law-1263.php","title":{"rendered":"Duties of Directors in Company Law"},"content":{"rendered":"

Essay title:<\/strong><\/p>\n

\n

\u201cAt common law, once a person accepts appointment as a director he comes a fiduciary in relation to the company and is obliged to display the utmost good faith towards the company and in his dealings on its behalf\u201d.<\/p>\n

Howard v Herrigel 1991 2 SA 660(A) 678<\/strong> <\/cite><\/p><\/blockquote>\n

Critically discuss with reference to statute and case
\nlaw on how duties of directors are owed to the company as a whole, and whether
\nat any point directors could abuse this power and privilege.<\/strong><\/p>\n

Executive Summary:<\/h2>\n

Directors have the privileged position of running companies without being required to put up any capital. They are generally subject only to limited restrictions in the articles of association, but are otherwise granted all of the power of the company. Throughout the years, common law and equitable duties have been developed through case law<\/a>, meaning that directors were subject to numerous duties governing their actions. However it was not until the introduction of the Companies Act 2006, (\u201cAct\u201d) that these duties were laid out in statute in a clear and succinct way and companies and shareholders were given increased statutory measures to enforce these duties. The main driving force between this codification was to ensure that directors could be held accountable for their actions.<\/p>\n

There has been much debate surrounding the duties laid out in the Act, and whether they go far enough to ensure that directors cannot abuse their power and privilege. S172 of the Act has been instrumental in ensuring that companies move towards a more enlightened shareholder value approach to corporate governance, by making it a requirement that the interests of various stakeholders are taken into account during decision making<\/a>. But it stopped short of obliging companies to act in the best interests of stakeholders other than shareholders. Some commentators argue that the codified duties represent a great step forward in enabling companies to hold directors accountable, whereas others believe that they do not go far enough. Much of the case law on directors\u2019 duties pre-dates the Act, suggesting that companies and\/or shareholders remain reluctant or unable to enforce their rights against directors. The government has recently announced details of a new draft regulation that will increase the obligations on companies regarding the accountability of directors under s172 of the Act, by obliging certain companies to report on how they have taken the interests of stakeholders into account. <\/p>\n

It is
\nclear that the duties in the Act are wide-ranging and clearly laid out, but
\nthere has not been the influx of claims that was anticipated prior to its
\nenactment. One reason for this is that in the main these duties are only
\nenforceable by the company itself. This would mean the board of directors
\nturning against one of their own, which could risk the reputation of the company,
\nand its ability to attract directors in the future and is often a costly
\nprocess. A new enforcement method for shareholders was also introduced in the
\nAct, the statutory derivative claim, but it has been rarely used and appears to
\nbe a costly, ill-effective measure. <\/p>\n

In
\nconclusion analysis shows that the UK now has an effective framework for
\nensuring the accountability of directors, by virtue of the general duties laid
\nout in the act, but that these are rarely enforced. Companies have been given
\nthe tools to ensure that directors do not abuse their powers, but they do not
\nappear to be using these. The reasons for this are complex but, given the vast
\nrange of legislation outside of the Act that places additional obligations and
\nresponsibilities on directors, and the sometimes severe penalties for breaching
\nthis legislation, it is possible that directors are simply abusing their power
\nless than in the past. The government has made it clear that it does not intend
\nto legislate much more in this area, meaning that if companies want to ensure
\naccountability of directors, it is up to them to make this happen.   <\/p>\n

Introduction:<\/h2>\n

Prior
\nto the enactment of the Act, there was concern that companies and shareholders
\nwere unable to hold directors accountable for their actions. The traditional
\nfiduciary duty and duty of care were viewed as not going far enough to ensure
\nthat directors were obliged to act in the best interests of the company, and
\nthere was concern that these duties were only owed to the company itself, and
\nnot other stakeholders. In some cases, directors were abusing the power given
\nto them by shareholders, with few consequences. This essay sets out to establish
\nthat the Act has given companies and shareholders the tools they need to ensure
\naccountability, but that in most instances these tools are not fully utilised,
\nmeaning that directors remain free to abuse their powers, albeit with the risk
\nof serious consequences. <\/p>\n

Background:<\/h2>\n

All
\ncompanies are required to have at least one director[1]<\/a>. The term director is not
\ndefined in the Act but is described as applying to \u201cany person occupying the
\nposition of director, by whatever name called.\u201d[2]<\/a> This definition incorporates
\nnot only those directors who have been validly appointed (de jure directors),
\nbut also de facto[3]<\/a>
\nand shadow directors[4]<\/a> and recent amendments to
\nthe Act clarify that, where and to the extent possible, directors duties also
\napply to shadow directors.[5]<\/a> A director is therefore
\ndefined by the role he performs, rather than his title. <\/p>\n

Powers
\nare conferred upon directors by the articles of association and, in some cases,
\nother contractual arrangements. The model articles (which are generally adopted
\neither in full or in part) include a section on directors\u2019 general authority,
\nwhich provides that \u201csubject to the articles, the directors are responsible for
\nthe management of the company\u2019s business, for which purpose they may exercise
\nall the powers of the company\u201d.[6]<\/a> Prior to the Act, many
\ncompanies adopted \u201cTable A\u201d articles, which included a similar provision. Therefore,
\nunless otherwise restricted by the articles, directors have the exclusive power
\nto manage the company, with responsibility for deciding and implementing
\nstrategy, managing the operations of the company and setting its objectives. To
\nbalance this power, directors are subject to various duties, which, until the
\nintroduction of the Act, were based on common law and fiduciary principles and viewed
\nby many as insufficient. The duties enshrined in sections 171-177 of the Act
\n(\u201cGeneral Duties\u201d) represent significant reform in this area, providing a sole
\nreference point for directors and giving companies the legislative power to hold
\nthem accountable. <\/p>\n

The
\nGeneral Duties are based on and interpreted in the same way as common law rules
\nand equitable principles[7]<\/a> and much of the case law
\nrelating to directors\u2019 duties pre-dates the Act. In Burns v Financial Conduct Authority[8]<\/strong><\/a><\/em>
\nit was noted that \u201c\u2026the substantial body of existing case law in which those
\nrules and principles have been stated, developed and refined continue to apply
\nwith undiminished authority in relation to the interpretation and application
\nof the statutory duties\u201d. The fact that much of the relevant case law pre-dates
\nthe Act suggests that the new enforcement powers have not been used effectively.\n<\/p>\n

The General Duties<\/h2>\n

Section
\n171 of the Act covers the duty of a director to act in accordance with the
\ncompany\u2019s constitution and to only exercise his powers for the purpose for
\nwhich they are conferred. This is known as the \u201cproper purpose\u201d rule and
\nreplaces the common law principle established in Balls v Strutt[9]<\/strong><\/a>.<\/em>
\nThe leading authority on the proper purpose rule is the recent Supreme Court
\ndecision in Eclairs Group Ltd and
\nGlengary Overseas Ltd v JKX,[10]<\/strong><\/a>
\n<\/em>which specified that \u201cthe proper purpose rule is not concerned with excess
\nof power by doing an act which is beyond the scope of the instrument creating
\nit as a matter of construction or implication. It is concerned with abuse of
\npower, by doing acts which are within its scope but done for an improper
\npurpose\u201d. The Supreme Court made it clear that where directors have more than
\none purpose, the duty will be breached if they allow themselves to be
\ninfluenced by an improper purpose. Other acts that have been found to be a
\nbreach of this duty include using powers to create new shares for the sole
\npurpose of diluting a shareholder\u2019s voting power and blocking a takeover bid,[11]<\/a> and transferring assets
\nfrom one company to another in which the individual was a director, for no
\nconsideration.[12]<\/a>\n<\/p>\n

Section
\n172 of the Act replaced the fiduciary duty to act in the best interests of the
\ncompany that was first established in Smith
\n& Fawcett[13]<\/strong><\/a><\/em> and is the most wide-ranging
\nduty. It requires a director to promote the success of the company for the
\nbenefit of its members as a whole, having regard to a list of other
\nstakeholders including the company\u2019s employees, customers and suppliers and the
\nlikely long-term consequences of any decision. The courts confirmed in Re Southern Counties Fresh Foods[14]<\/strong><\/a><\/em>
\nthat the test remains subjective, meaning that the question for courts is
\nwhether the director honestly believed that his actions were in the best
\ninterests of the company. <\/p>\n

It is
\nimportant to note that s172(1) only requires directors to have regard to the
\nmatters listed in sections a-f, and does not go further. This section is viewed
\nby some as promoting the principle of \u201cenlightened shareholder value\u201d and
\nhailed as an important advance in corporate governance, because it requires
\ndirectors to consider other stakeholders, even though priority is still given
\nto the interests of the members. This is an improvement on the situation prior
\nto the Act. It has, however, been described by critics as akin to the emperor\u2019s
\nnew clothes, bringing little or nothing new to the table, with the situation
\nfor stakeholders (other than shareholders) being the same as prior to its
\nenactment.[15]<\/a>
\nIt is clear that the government views this duty as a priority, as is
\ndemonstrated by the recently published draft regulations[16]<\/a> requiring large and
\nmedium sized companies to publish a statement annually (from 1 January 2019)
\nexplaining how their directors have complied with their obligations under
\ns172(1) and the ways in which they have considered the factors listed in that
\nsection when performing their role (\u201cDraft Regulations\u201d). This will increase accountability
\nand discussion in this area, as the information will be publically available for
\nscrutiny by all stakeholders but does suggest that the government believes the current
\nrequirements in this area do not go far enough.    <\/p>\n

This
\nis the only duty that can be owed to a person other than the company, as
\ns172(3) confirms that it is subject to any enactment or rule of law requiring
\ndirectors in certain circumstances to consider or act in the interests of the
\ncreditors of the company.[17]<\/a> Prior to the Act, this
\nwas already the position at common law where a company was insolvent[18]<\/a>, and when the solvency of
\nthe company was doubtful,[19]<\/a> and this goes hand in
\nhand with the provisions of the Insolvency Act 1986 (\u201cIA\u201d) relating to wrongful
\nand fraudulent trading. <\/p>\n

Section
\n173 of the Act covers the duty to exercise independent judgment. The government
\nhas made clear that this duty will not prevent directors from relying on advice
\nfrom professionals as long as they decide for themselves whether to rely on
\nsuch advice. It will also not be infringed by a director acting in accordance
\nwith an agreement entered into by the company that restricts the future
\nexercise of discretion by directors or in a way authorised by the company\u2019s
\nconstitution[20]<\/a>.
\nIn practice this duty obliges a director to think for himself, meaning he is
\naccountable for his decisions.    <\/p>\n

Section
\n174 of the Act concerns the duty to exercise reasonable care, skill and
\ndiligence. The test set out in this section is a two-tier test, covering both
\nthe general knowledge, skill and experience that may reasonably be expected of
\na person carrying out the specific functions being carried out by the director
\n(an objective test) and the general knowledge, skill and experience that the
\ndirector has (a subjective test). The director must always demonstrate that he has
\nacted in a way that is compatible with the objective test, but if he has any
\nspecial knowledge or skills, he would need to demonstrate compliance with the
\nsubjective limb as well. This was in line with developments prior to the Act in
\nRe D\u2019Jan of London<\/em> Limited[21]<\/strong><\/a>,<\/em>
\nwhich confirmed the correct test as the two-stage test set out in the IA. Until
\nthen, the objective test set out in Re
\nCity Equitable Fire Insurance Co Ltd[22]<\/strong><\/a>
\n<\/em>was deemed to be the correct test. <\/p>\n

Section
\n175 of the Act provides a duty to avoid a situation in which a director has, or
\nmay have, a direct or indirect interest that conflicts or may conflict with the
\ninterests of the company. This duty will not be breached if the conflict has
\nbeen authorised by the other directors in advance, or if the situation cannot
\nreasonably be regarded as likely to give rise to a conflict of interest. The concept
\nof a potential conflict was considered and explained in Boardman v Phipps <\/em>where it was established that there must be a
\nreal sensible possibility of conflict for this duty to be infringed:[23]<\/strong><\/a><\/em>
\nThe fact that a conflict can be authorised by the board increases the risk that
\ndirectors will not properly consider this duty.  <\/p>\n

This duty
\ncontinues after a person ceases to be a director (Act s170(2)(a)) with regards
\nto any opportunity or property that they first became aware of when they were a
\ndirector, therefore a director cannot resign from his position and subsequently
\ntake advantage of a business opportunity that he found out about through his
\ndirectorship.[24]<\/a>      <\/p>\n

Section
\n176 of the Act sets out a duty not to accept benefits from third parties by
\nreason of his being a director or doing (or not doing) anything as a director,
\nreplacing the fiduciary duty not to exploit the position of fiduciary for
\npersonal benefit. This duty will not be infringed if the acceptance of the
\nbenefit cannot reasonably be regarded as likely to give rise to a conflict of
\ninterest.[25]<\/a>
\nThis duty also continues to apply after an individual ceases to be a director
\nand it is worth noting that the board cannot authorise this. In addition, the
\nBribery Act 2010, which came into force on 1 July 2011 strengthens this duty by
\nmaking the acceptance or offering of a bribe a criminal offence. <\/p>\n

Section
\n177 of the Act incorporates the duty to declare an interest in a proposed
\ntransaction or arrangement. The declaration must be made before the company
\nenters into the transaction\/arrangement but is not required if it cannot
\nreasonably be regarded as likely to give rise to a conflict of interest[26]<\/a>. Once declared, a
\ndirector with a potential interest in a transaction is still permitted to vote
\n(subject to the company\u2019s articles)[27]<\/a>, meaning that in reality
\nthis requirement may have little effect. <\/p>\n

Of all
\nthe General Duties, the duty in section 172 is the only one that really
\nadvanced the position of stakeholders \u2013 all of the other duties reflect the
\nposition at common law prior to the Act. The main advantage of the Act is that
\nthey are all set out in the same place and easily accessible for directors. <\/p>\n

Other Duties<\/h2>\n

In
\naddition to the General Duties, there are numerous other statutory requirements
\nthat directors must comply with. The IA provides that a director can be accused
\nof wrongful trading[28]<\/a> or fraudulent trading[29]<\/a>. If a director is held
\nliable for wrongful or fraudulent trading he may also be served with a
\ndisqualification order under the Company Directors Disqualification Act 1986 (\u201cCDDA\u201d).
\nA liquidator or administrator is required to submit a report to the Secretary
\nof State if the conditions for disqualification of a director appear to be
\nsatisfied, and the courts can then make a disqualification order, disqualifying
\nthe person from acting as a director or manager of a company for a maximum of
\nfifteen years. A court can also apply for such an order if it believes the
\nperson has demonstrated \u201cunfit conduct\u201d, which includes fraudulent behaviour,
\nconduct that seeks to deprive creditors of assets and failure to comply with
\nregulatory requirements.[30]<\/a>  <\/p>\n

Directors
\ncan also be held personally liable for failure to comply with health and safety
\nand environmental legislation, and directors of listed companies must comply
\nwith additional obligations under the Listing Rules. The Draft Regulations will
\nalso introduce additional obligations for directors. <\/p>\n

Overall
\nit is clear that outside of the General Duties, there are numerous other
\nobligations that must be considered by directors when carrying out their duties.
\n <\/p>\n

How are directors\u2019 duties enforced and what are the remedies for breach?<\/h3>\n

Directors
\nduties are owed to the company therefore in the main enforceable only by the
\ncompany itself[31]<\/a>,
\nalthough if the company\u2019s solvency is in doubt or it is insolvent, the
\ndirectors also owe duties to the company\u2019s creditors by virtue of s172(3) and
\nthis can be enforced by the liquidator or administrator. It is therefore
\ngenerally for the board to decide whether or not to pursue a claim against a
\ndirector, which can raise issues, such as a fear of negative publicity for the
\ncompany, a concern on the part of the other directors that they should have
\npaid more attention to the conduct of the director in question and the costs
\ninvolved with the legal action. In addition if all of the directors were
\ncomplicit in the behaviour of the director, it is unlikely that they will bring
\na claim against themselves. The remedies available for breach or threatened
\nbreach of the General Duties are the same as were previously available under
\ncommon law or equity,[32]<\/a> namely injunction,
\nrestitution, accounting for profits, restoration of company property and
\nsetting aside the transaction, as well as damages. For breaches of s174 duties
\nthe most likely remedy is damages.<\/p>\n

Dissatisfied
\nshareholders of companies whose shares are publicly traded can choose to sell
\ntheir shares and exit the company. For shareholders of private companies this
\ncan be more problematic as there are often restrictions placed on the transfers
\nof shares. Shareholders also have the power to remove a director by ordinary
\nresolution, however this process is not always straight forward. The Act
\nintroduced a new procedure enabling shareholders to bring a derivative action
\nagainst directors in certain circumstances[33]<\/a> and they also have the
\nright to bring a claim for unfair prejudice[34]<\/a>. There are however serious
\nlimitations with both. The derivative claim is brought on behalf of the
\ncompany, so the shareholder would not personally benefit and the claimant has
\nto prove that they have a prima facie case at the initial hearing, otherwise
\nthe court will refuse permission for the claim to be brought. For example in Mission Capital v Sinclair<\/em>[35]<\/strong><\/em><\/a> an application to proceed was refused on the basis
\nthat a director acting in the best interests of the company would not proceed
\nwith the claim.  One additional barrier is cost \u2013 not only the cost
\ninvolved in bringing the application but the potential for the shareholder to
\nbe required to pay the company\u2019s costs if the application fails. Prior to its
\nintroduction, there were concerns that the derivative claim procedure would lead
\nto an influx in claims, but this fear so far appears to be unfounded. In reality,
\nthis remedy has rarely been sought \u2013 from 1 October 2001 to 1 October 2012 only
\n16 cases were heard in which permission was sought to bring a claim.[36]<\/a> This suggests that this
\nprocedure is not seen as an effective mechanism for shareholders to hold directors
\naccountable for their actions and that the courts are adopting a restrictive
\napproach when considering whether or not a claim should be allowed[37]<\/a>. The s994 unfair
\nprejudice claim can be brought by a shareholder however they must prove that
\nthe acts of the director that amounted to the breach of duties also unfairly
\nprejudiced them. This process only benefits the shareholder themselves and is
\nalso costly, but it appears to be used more regularly that the derivative
\nclaim. Shareholders must also consider any negative publicity that these claims
\nmay bring to the company.  <\/p>\n

Abuse of directors\u2019 power and privilege <\/h3>\n

One of
\nthe driving forces behind the codification of the General Duties was to prevent
\ndirectors from abusing their power by providing them with a clear set of rules
\nto follow. As all the duties are now laid out in statute and easily accessible,
\nit is clear that this objective has been achieved. There are, however, some who
\nfeel that these duties do not go far enough and that by not making directors
\naccountable to stakeholders (other than shareholders) an opportunity has been
\nmissed to rein in their power. Nevertheless directors are human beings who
\ndedicate their time and efforts to the management of companies, sometimes with
\nlittle remuneration and it can be argued that \u201cmaking directors potentially
\nliable to an undetermined number of potential claimants may deter good and
\ndiligent people from accepting management or directional positions\u201d.[38]<\/a> A balance must be struck
\nbetween keeping the role of director attractive and ensuring that directors are
\naccountable for their actions.<\/p>\n

The
\nother issue to consider is enforcement. Unless enforced effectively, the
\nGeneral Duties will not have a great impact on governance. \u201cThe prescription of
\nduties can educate and set out norms of conduct, but unless there is some form
\nof effective enforcement there is, arguably, no deterrence.\u201d[39]<\/a> It can be argued that
\ndirectors are more likely to behave badly if they know they are unlikely to
\nface consequences and that, to remedy this, more companies should be using the
\npowers given to them under the Act. However it must also be remembered that
\ncompanies have to balance the commercial risk of pursuing a claim against a
\ndirector (reputational risk, cost, disruption) against the potential rewards.
\nIn many cases it seems that the risks outweigh the rewards. So do directors
\nabuse their powers and privileges? In some instances, yes. A quick analysis of
\nrecent cases brought before the courts shows that this does still happen. In
\nMarch 2018 a case was brought by a liquidator against two directors who are
\nalleged to have signed a solvency statement knowing that the company would not
\nbe able to meet its liabilities over the next three months[40]<\/a> and Eclairs Group Ltd v JKX Oil and Gas plc[41]<\/strong><\/a><\/em>
\nis another recent example of directors being held to have breached their
\ngeneral duties. More difficult to quantify, however, is the number of breaches
\nthat do not result in cases being brought to trial.    <\/p>\n

In the
\nUK, governance is done on a voluntary basis, by way of a code to be adhered to,
\non a \u201ccomply or explain\u201d basis. If listed companies do not comply with the
\nprovisions of the UK Corporate Governance Code, they have to explain the
\nreasons for this non-compliance. There is a clear preference for leaving
\ncompanies to regulate themselves, rather than imposing statutory obligations
\nlike those found in other jurisdictions. One reason for this is because
\ncompanies are run for the benefit of the shareholders who often reap great
\nrewards through the actions of directors, therefore the government and the
\ncourts are reluctant to involve themselves too much in their running. In
\naddition, neither the government nor the courts are experts in the area of
\nrunning a company \u2013 this is the role of directors and it is arguable that they
\nshould be left to carry out this role, within the confines of the restrictions
\nplaced upon them in the articles. <\/p>\n

In
\nconclusion, it is clear that the scope of the General Duties themselves is not
\nan issue \u2013 it is the effectiveness of the remedies available to companies
\nand\/or shareholders to act in the event of a breach of these duties, and a
\nseeming unwillingness to enforce these remedies. More analysis is needed to
\nunderstand the reasons for this. This leaves directors free to abuse their
\nposition, but if they choose to do so they could be faced with heavy penalties
\nin other areas of law, and be disqualified from acting as a director. It is
\ntherefore not something that would be without sanction. Overall it is for
\ncompanies and shareholders themselves to decide whether or not they want to
\nhold directors to account \u2013 the government has made it clear that it does not
\nintend to interfere in this area, therefore unless companies take the
\ninitiative, things will not change. The General Duties have given them the
\ntools to ensure accountability \u2013 it is up to them how they use them. <\/p>\n

Bibliography<\/h2>\n

Books<\/h3>\n

M Bruce (2018) Rights and duties of directors 2017\/18 <\/em>(London, Bloomsbury
\nProfessional) Available from https:\/\/www.bloomsburyprofessionalonline.com\/view\/rights_duties_directors\/b-9781784514433-0000040.xml<\/a> accessed on 8 July 2018. <\/p>\n

Research Handbook on Directors\u2019 Duties edited
\nby Adolfo Paolini, 2015 https:\/\/ebookcentral.proquest.com\/lib\/bpp\/reader.action?docID=1876069&query<\/a>=
\naccessed on 7 July 2018.<\/p>\n

Journals\/insight<\/h3>\n

A Keay, \u2018An assessment of private
\nenforcement actions for directors\u2019 breaches of duty\u2019: Civil Justice Quarterly  2014  available
\nfrom https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true<\/a> accessed on 8 July 2018<\/p>\n

A Keay, \u2018The Public Enforcement of
\nDirectors\u2019 Duties: A Normative Enquiry\u2019: Common Law World Review 1 June 2014 available
\nfrom https:\/\/www.lexisnexis.com\/uk\/legal\/results\/enhdocview.do?docLinkInd=true&ersKey=23_T27700296425&format=GNBFULL&startDocNo=1&resultsUrlKey=0_T27700303395&backKey=20_T27700303396&csi=302152&docNo=2&scrollToPosition=0<\/a> accessed on 7 July 2018<\/p>\n

Company Directors Disqualification Act 1986 and
\nFailed Companies: A guide to Director Disqualification published by the
\nInsolvency Service – https:\/\/assets.publishing.service.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/657922\/CDDA-and-failed-companies-november-2017.pdf<\/a><\/p>\n

Company Law Newsletter 2016 \u2013 Co. L.N. 2016, 380, 1-5 \u2013 \u2018Holding
\nDirectors to account in order to promote good corporate governance and protect
\nthe public from abuse of limited liability\u2019 available from https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=ID74322C0CC1C11E5A863FEB6F2987947&hitguid=ID74322C0CC1C11E5A863FEB6F2987947&rank=12&spos=12&epos=12&td=4000&crumb-action=append&context=23&resolvein=true<\/a> accessed on 8 July 2018. <\/p>\n

E Lynch, \u2018section 172: a
\nground-breaking reform of directors\u2019 duties, or the emperor\u2019s new clothes?\u2019:
\nCompany Lawyer 2012 \u2013 Legislative comment. Available from  https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&hitguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&rank=15&spos=15&epos=15&td=4000&crumb-action=append&context=23&resolvein=true<\/a> accessed on 8 July 2018.  <\/p>\n

Practical Law Corporate,
\n\u2018Directors\u2019 duties: corporate governance influences\u2019. Available from https:\/\/uk.practicallaw.thomsonreuters.com\/Document\/Ib555475ce83211e398db8b09b4f043e0\/View\/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a5608677d83549e%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DIb555475ce83211e398db8b09b4f043e0%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=2acc972334a4fa489795ad0064c6a127&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=81E54770939FE169A0EC85D8018E6949&comp=pluk<\/a> accessed on 8 July 2018. <\/p>\n

Practical Law Corporate,
\n\u2018Directors\u2019 general duties under the Companies act 2006\u2019. Available from https:\/\/uk.practicallaw.thomsonreuters.com\/Document\/I8abc8a251c9a11e38578f7ccc38dcbee\/View\/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a519a927d8353f2%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DI8abc8a251c9a11e38578f7ccc38dcbee%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=4eb30202395e5de67b09b3f59d9635f5&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=BE64F835341B2CD4BF82D8F285B2BBE7&comp=pluk<\/a> accessed on 3 July 2018. <\/p>\n

Practical Law Restructuring and
\nInsolvency, \u2018Insolvency and considerations for directors\u2019. Available from https:\/\/uk.practicallaw.thomsonreuters.com\/Document\/I8abc8a2b1c9a11e38578f7ccc38dcbee\/View\/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a54f7c57d83545f%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DI8abc8a2b1c9a11e38578f7ccc38dcbee%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=ef7e2247b9795d7e5bc4d9706eb77783&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=63C914BE00A98D2B13498BBAB14DCA2B&comp=pluk<\/a> accessed on 3 July 2018. <\/p>\n

W Steel, University of Chester,
\n\u2018Directors\u2019 statutory general duties\u2019, Westlaw UK. Available from https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I1AC5730042AA11E6BBCFD56F4511DC47&hitguid=I1AC5730042AA11E6BBCFD56F4511DC47&rank=2&spos=2&epos=2&td=4000&crumb-action=append&context=21&resolvein=true<\/a> accessed on 3 July 2018. <\/p>\n

Westlaw UK, \u2018Directors\u2019 Powers and
\nDuties\u2019, Westlaw UK. Available from https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I9BDCFF00238E11E8AF109485D6FFCB62&hitguid=I9BDCFF00238E11E8AF109485D6FFCB62&rank=3&spos=3&epos=3&td=4000&crumb-action=append&context=21&resolvein=true<\/a> accessed on 3 July 2018. <\/p>\n

Z Azeez, Nabarro LLP, \u2018Directors\u2019
\nbreach of duty\u2019, Westlaw UK. Available from https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I0882E7E141E111E2B04DB1A5559F7264&hitguid=I0882E7E141E111E2B04DB1A5559F7264&rank=1&spos=1&epos=1&td=4000&crumb-action=append&context=21&resolvein=true<\/a> accessed on 3 July 2018.<\/p>\n

Cases<\/h3>\n

Balls v Strutt [1841] 66 E.R.984 1 Hare 146<\/p>\n

Bishopsgate Investment Management Ltd (In liquidation) v
\nMaxwell (No. 1) [1994] All E.R. 261<\/p>\n

Boardman v Phipps [1967] 2 A.C. 46 <\/p>\n

Burns v Financial Conduct Authority [2017] EWCA Civ 2140
\n[65]<\/p>\n

Colin Gwyer and Associates Ltd and another v London Wharf (Limehouse)
\nLtd and others [2003] BCC 885<\/p>\n

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and
\nGas plc [2015] UKSC 71<\/p>\n

Foss v Harbottle [1843], 67 E.R. 189<\/p>\n

Howard Smith Ltd v Ampol Petroleum Ltd [1974] A.C.821<\/p>\n

Industrial Development Consultants Ltd v Cooley [1972] 1
\nW.L.R. 443<\/p>\n

LHR Services Limited (In liquidation) v Trew [2018] EWHC
\n600 (Ch)<\/p>\n

Liquidator of West Mercia Safetywear Ltd v Dodd and another
\n[1988] 4 BCC 30<\/p>\n

Mission
\nCapital plc v Sinclair<\/em> [2010] 1 BCLC 304 (Ch)<\/p>\n

Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 <\/p>\n

Re D\u2019Jan of London Limited [1993] BCC 646<\/p>\n

Re Southern Counties Fresh Foods Ltd [2008] EWHC 2810<\/p>\n

Smith v Fawcett, re [1942] Ch. 304<\/p>\n

Statutes<\/h3>\n

Bribery Act 2010<\/p>\n

Companies Act 2006<\/p>\n

Company Directors Disqualification Act 1986<\/p>\n

Insolvency Act 1986<\/p>\n

The Companies (Miscellaneous Reporting) Regulations
\n2018, due to come into force on 1 January 2019, subject to Parliamentary
\napproval<\/p>\n

UK Corporate Governance Code <\/p>\n

\n

[1]<\/a> Companies Act s154(2) \u2013 a public company must have at least two
\ndirectors<\/p>\n

[2]<\/a> Companies Act 2006, s250<\/p>\n

[3]<\/a> A person who has not been validly appointed as a director but who acts
\nas if they are a director and is treated as such by the board <\/p>\n

[4]<\/a> Any person in accordance with whose directions or instructions the
\ndirectors of the company are accustomed to act (Companies Act 2006, s251(1)). <\/p>\n

[5]<\/a> Companies Act 2006, s170(5) as substituted by the Small Business,
\nEnterprise and Employment Act 2015<\/p>\n

[6]<\/a> Model articles for private or public companies limited by shares,
\ns3<\/p>\n

[7]<\/a> Companies Act 2006, s170(3) and s170(4) <\/p>\n

[8]<\/a> Burns v Financial Conduct Authority [2017] EWCA Civ 2140 [65]<\/p>\n

[9]<\/a> Balls v Strutt [1841] 66 E.R.984 1 Hare 146<\/p>\n

[10]<\/a> Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc
\n[2015] UKSC 71<\/p>\n

[11]<\/a> Howard Smith Ltd v Ampol Petroleum Ltd [1974] A.C.821<\/p>\n

[12]<\/a> Bishopsgate Investment Management Ltd (In liquidation) v Maxwell
\n(No. 1) [1994] All E.R. 261<\/p>\n

[13]<\/a> Smith v Fawcett, re [1942] Ch. 304<\/p>\n

[14]<\/a> Re Southern Counties Fresh Foods Ltd [2008] EWHC 2810<\/p>\n

[15]<\/a> Company Lawyer 2012 \u2013 Legislative comment \u2013 section 172: a
\nground-breaking reform of directors\u2019 duties, or the emperor\u2019s new clothes? \u2013
\nElaine Lynch – https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&hitguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&rank=15&spos=15&epos=15&td=4000&crumb-action=append&context=23&resolvein=true<\/a> accessed on 8 July
\n2018<\/p>\n

[16]<\/a> The Companies (Miscellaneous Reporting) Regulations 2018, due to
\ncome into force on 1 January 2019, subject to Parliamentary approval<\/p>\n

[17]<\/a> Companies Act 2006, s172(3)<\/p>\n

[18]<\/a> Liquidator of West Mercia Safetywear Ltd v Dodd and another [1988]
\n4 BCC 30<\/p>\n

[19]<\/a> Colin Gwyer and Associates Ltd and another v London Wharf
\n{Limehouse) Ltd and others [2003] BCC 885<\/p>\n

[20]<\/a> Companies Act 2006, s173(2)<\/p>\n

[21]<\/a> Re D\u2019Jan of London Limited [1993] BCC 646<\/p>\n

[22]<\/a> Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 [para 428]<\/p>\n

[23]<\/a> Boardman v Phipps [1967] 2 A.C. 46 [para 124]<\/p>\n

[24]<\/a> Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443<\/p>\n

[25]<\/a> Companies Act 2006 s176(4)<\/p>\n

[26]<\/a> Companies Act 2006 s177(6)(a)<\/p>\n

[27]<\/a> Companies Act 2006 explanatory note 354<\/p>\n

[28]<\/a> if it he knew or ought to have known at some point prior to an insolvent
\nwinding up or administration that there was no reasonable prospect of the
\ncompany avoiding liquidation but did not minimise the potential impact for
\ncreditors<\/p>\n

[29]<\/a> Fraudulent trading requires the business to be carried on with the
\nintention of defrauding creditors (or for another fraudulent purpose) in the
\nperiod leading up to the insolvent winding up or administration.<\/p>\n

[30]<\/a> Company Directors Disqualification Act 1986 and Failed Companies: A
\nguide to Director Disqualification published by the Insolvency Service – https:\/\/assets.publishing.service.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/657922\/CDDA-and-failed-companies-november-2017.pdf<\/a><\/p>\n

[31]<\/a> Established in Foss v Harbottle [1843], 67 E.R. 189<\/p>\n

[32]<\/a> Companies Act 2006, s178<\/p>\n

[33]<\/a> A statutory derivative  claim
\ncan be brought by members under Companies Act 2006 s11<\/p>\n

[34]<\/a> Companies Act 2006,
\ns994<\/p>\n

[35]<\/a> Mission Capital plc v Sinclair<\/em> [2010] 1 BCLC
\n304 (Ch)<\/p>\n

[36]<\/a> Civil Justice Quarterly  2014 C.J.Q. 2014, 33(1), 76-92 – An
\nassessment of private enforcement actions for directors\u2019 breaches of duty \u2013
\nAndrew Keay https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true<\/a> accessed 8 July 2018<\/p>\n

[37]<\/a> M Bruce (2018) Rights and duties
\nof directors 2017\/18 <\/em>(London, Bloomsbury Professional) Available from: https:\/\/www.bloomsburyprofessionalonline.com\/view\/rights_duties_directors\/b-9781784514433-0000040.xml<\/a> accessed on 8 July
\n2018.<\/p>\n

[38]<\/a> Research Handbook on Directors\u2019 Duties edited by Adolfo Paolini,
\n2015 https:\/\/ebookcentral.proquest.com\/lib\/bpp\/reader.action?docID=1876069&query<\/a>=
\naccessed on 7 July 2018.<\/p>\n

[39]<\/a> Civil Justice Quarterly  2014 C.J.Q. 2014, 33(1), 76-92 – An assessment of
\nprivate enforcement actions for directors\u2019 breaches of duty \u2013 Andrew Keay https:\/\/login.westlaw.co.uk\/maf\/wluk\/app\/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true<\/a> accessed 8 July 2018<\/p>\n

[40]<\/a> LHR Services Limited (In liquidation) v Trew [2018] EWHC 600 (Ch)<\/p>\n

[41]<\/a> Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc
\n[2015] UKSC 71<\/p>\n","protected":false},"excerpt":{"rendered":"

There has been much debate surrounding the duties laid out in the Act, and whether they go far enough to ensure that directors cannot abuse their power and privilege. <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40],"tags":[85],"class_list":["post-457","post","type-post","status-publish","format-standard","hentry","category-free-law-essayscompany-law","tag-uk-law"],"yoast_head":"\nDuties of Directors in Company Law | LawTeacher.net<\/title>\n<meta name=\"description\" content=\"There has been much debate surrounding the duties laid out in the Act, and whether they go far enough to ensure that directors cannot abuse their power and privilege.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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