Directors’ duties – Companies Act 2006 Flashcards
What happens to a director’s duty to the company in the case of insolvency?
The duty to the company is displaced by the duty to creditors when the company is insolvent or on the brink of insolvency.
What is the duty to act within powers?
Directors must use their powers for proper purposes and act within the powers conferred by the company’s memorandum and articles.
What does the duty to promote the success of the company entail?
Directors must promote the success of the company for the benefit of its members as a whole, considering long-term consequences, community/environmental impact, employee interests, and fairness among members.
What is the test for whether the duty to promote the success of the company has been breached?
The test is subjective; no breach if the director honestly believes their decision would promote the company’s success. Directors must record considerations in the minutes of meetings.
What does the duty to exercise independent judgment require?
Directors must make decisions independently and not contract out their decision-making. It’s not breached if following professional advice or entering into a contract requiring future actions, as long as it’s done in good faith.
How is the duty to exercise reasonable care, skill, and diligence measured?
(i) For directors with no special skills: objective test of a reasonable director. (ii) For directors with special skills: objective test of a reasonable director with the same skill, knowledge, or experience.
What must directors do to avoid conflicts of interest?
Avoid situations where there is a direct or indirect interest that could benefit themselves, a close relative, or another business they have a significant interest in.
What is the duty regarding benefits from third parties?
Directors should comply with the company’s policy on the Bribery Act 2010 and declare any gifts received to other directors.
What is required when declaring an interest in a proposed or existing transaction with the company?
Directors must declare the nature and extent of their interest in writing or at a board meeting before the transaction is entered into. The declaration only needs to be made once, e.g., upon joining.
What are the remedies for a breach of duty by a director?
Remedies include an account of profits, return of company property, payment of compensation, rescission of a contract, and an injunction to prevent further breach.
How can shareholders address a breach of duty by a director?
Shareholders can vote to approve the breach (unless they are the director in breach) or bring a derivative action on behalf of the company.
What is involved in the removal of a director?
Shareholders can remove a director through a majority vote (not by written resolution). If removal violates the director’s service contract, the company may need to pay damages.
What is director disqualification, and when can it occur?
Disqualification prevents a director from being involved in management or being a director of any company for a specified period. It usually follows an investigation after insolvency but can also occur for other misconduct or unfitness.
