Commercial – Directors’ Duties

With more than 1,300 clauses, the Companies Act 2006, which received royal assent on 8 November 2006, is the biggest reform in company law for 50 years.  This latest legislation will replace the 1985 and 1989 Companies Acts.

The implementation of the Companies Act 2006 has been staggered to give time for proper implementation.   Some measures enforcing European requirements came into force in January 2007 with the entire Act being in force by October 2008 following consultation, guidance and new regulations for many of its provisions.

The Companies Act 2006 has overhauled the law governing how Companies are created, run and dissolved. The Act contains many new responsibilities for directors touching on areas such as how businesses handle environmental matters, employees, and social and community issues.

Directors'duties

For the first time, the Companies Act 2006 details directors' duties.  These duties came into force on 01.10.2008.

Under the Act, directors have a duty to:-

• Act in accordance with the company's constitution (i.e. within the company's own governing powers).
• Promote the success of the company for the benefit of its members.
• Exercise reasonable care, skill and diligence.
• Exercise independent judgement.
• Avoid conflicts of interest.
• Declare interests in proposed company transactions and arrangements.
• Not accept benefits from third parties

In respect of a director's duty to promote the success of the company for the benefit of its members, ie. to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole.

In exercising this duty a director is required to have regard, amongst other things, for;

• The likely long term consequences of his decision.
• The impact of the company's operations on the wider community (which, may, of course, include environmental issues).
• The company's reputation for high standards of business conduct.
• The interest of the company's employees.
• The company's business relationship with suppliers, customers, and others.

Although the Companies Act 2006 sets out in one place directors' duties for the first time, these statutory duties largely simply replace the existing ones found in common law, which have developed through case law over many years.  Directors can have no excuse for not knowing what they can and cannot do when running a company and what the penalties are for failing.

Directors can have no excuse for not knowing what they can and cannot do when running a company and what the penalties are for failing.

At Silver Shemmings LLP we are able to advise Directors on their duties to shareholders, the Company and the pubic.

For more information and initial advice please contact us on:

Sarah Shemmings or Richard Silver

Tel.:     0845 345 1244
Email:  office@shemmingsllp.co.uk

Robert Shawyer – Cardiff

Tel.:     02920 474 570
Email:  cardiff@shemmingsllp.co.uk

Don’t forget that you can also make initial contact through our free helpline 08455 1 92 92 1