Directors Duties:

The directors manage the company on behalf of its shareholders on a day-to-day basis. As directors, they run the company by making decisions as a board, or by delegating specific functions to individual directors (see below).

Directors owe general duties to their company. These duties have been codified by the CA 2006.  If a director exceeds his powers or breaches his duties, he can be liable to the company for the loss he has caused.  Any liability for breach can be avoided if the director’s conduct is capable of subsequent approval, or ratification, by the shareholders.

In addition the CA 2006 requires the directors to obtain prior shareholder approval for certain decisions and directors’ powers can be further regulated, and limited, by the Articles.

 

As already mentioned, ultimately, if shareholders do not approve of the way the directors are managing the company, they can change the composition of the board by removing directors and/or appointing new directors.

When exercising powers and functions, the directors act as a board and make decisions by passing board resolutions. The Articles will regulate the procedure for passing board resolutions. In most cases this means that the directors make decisions by passing board resolutions at a board meeting and board resolutions are usually passed by a simple majority of those who are present at the meeting, and voting. As an alternative the Articles usually allow directors to take decisions unanimously by some other means that allows all the directors to indicate common consent (as an example see Model Article 8).

As mentioned above, the directors can also delegate their powers and functions. They often delegate their powers and functions to:

• committees;
• individual directors (such as a managing director); and/or
• officers of the company who are not directors.

Any such delegation is done by means of a board resolution so that, in essence, the delegatee acts with full board authority.

Directors’ Duties

Directors are usually empowered to exercise all the powers of a company in order to manage the company’s business on a day-to-day basis (see Model Article 3).  Directors must exercise these powers in accordance with their statutory duties.

Whenever a director is making a decision, he must always consider the duties to which he is subject. Before the enactment of the CA 2006, directors’ duties derived for the most part from common law and equity.  The former regime still operates to the extent not expressly provided for in the CA 2006, and the CA 2006 provides that the new duties shall be interpreted and applied in the same way as the common law rules and equitable principles.

2.2.5      Statutory duties under CA 2006 

The statutory duties under CA 2006 are as follows:

• duty to act within powers (s.171);
• duty to promote the success of the company for the benefit of the members as a whole (s.172);
• duty to exercise independent judgment (s.173);
• duty to exercise reasonable care, skill and diligence (s.174);
• duty to avoid conflicts of interest (s.175);
• duty not to accept benefits from third parties (s.176); and
• duty to declare any interest in a proposed transaction (s.177).