Company Law

Companies Act

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.


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, we advise Directors on their duties to shareholders, the  Company and the public.