Director duties

Directors are responsible for the management of a company and are entrusted with taking care of a company’s business and matters.  Under company law and insolvency law, these responsibilities are formalised as the director’s duties.

If you are a company director and feel you need guidance on a difficult or borderline issue relating to your duties, we can help. If you are concerned as a shareholder or co-director about a potential breach of duty by another director, please do get in contact. We are experienced in advising on director duties.

Good faith

Directors have a duty to act in good faith to promote the success of the company, under Section 172 of the Companies Act 2006, and the a duty to exercise reasonable skill, care and diligence, under Section 174 of the Companies Act 2006.

These two duties impose obligations on the directors to act for the benefit of a company’s members as a whole.  Directors must be aware of the long-term consequences to any decisions that may affect the company’s operations, reputation and general commercial interests.  Furthermore, the law determines the level of a director’s care, skill and diligence is measured by:

• The knowledge, skill and experience that may be expected by a director of a company; and
• The knowledge, skill and experience that the particular director actually has.

When applying these measures, the law will consider the specific circumstances of the company.

Directors duties where company may be insolvent

Unfortunately, where trading and commerce begins to decline, many companies may have to face the challenges of insolvency.  Where a company has reasonable concerns of its ability to trade and pay its debts when they fall due, the directors of that company must act in the best interests of the company’s creditors.  

Directors must not continue to trade in such circumstance where the director knew or ought to have known there were no reasonable prospects of the company avoiding insolvency, under Section 214 of the Insolvency Act 1986.  In such circumstances, directors must aim to minimise losses to the company’s creditors.

Please contact our Corporate and Commercial department for advise on further directors duties and any the available options to a company in the event of insolvency. 

For advice on corporate governance and directors duties, please contact Claudine Lawrence, Partner and head of our Corporate and Commercial Department.